Bravo to a group of U.S. Senate Republicans who awkwardly admitted an often unspoken truth about creating “affordable housing” — any significantly successful plan will lower overall home values.
The admission was buried within a report by the Joint Economic Committee Republicans. The research supports a bill by Sen. Mike Lee (R-Utah) “Helping Open Underutilized Space to Ensure Shelter Act of 2022” (deftly dubbed the “HOUSES Act”).
The legislation calls for the federal government to sell for residential construction surplus land owned and managed by the U.S. Bureau of Land Management. The property would be near major cities, primarily in Western states where the U.S. owns roughly half of all land.
The buyers could only be state and local governments for this land to be sold at a discount. But there’s a huge catch: There could be none of the usual restrictions municipalities throw at developers. The law logic is that you can eliminate the time and costs of local interference, a flood of new homes built on cheap land could rapidly and dramatically boost a house hunter’s chances of finding an affordable home.
The data-filled report touts the bill’s potential — “construction of 2.7 million more homes in the United States, alleviating 14% of the nation’s housing shortage.” It’s a big push: U.S. builders are making plans to build 980,000 single-family homes at their current pace in June.
But let’s ignore calculating the legislative odds for this bill that’s only had its first subcommittee hearing. The housing policy is fascinating because its bottom line is slashing house prices.
You see, tucked into the report’s appendix was a list of average home prices for 2021 and the “after bill passage” price.
In California’s case, it was $1,004,408 to $877,367, a 13% drop. My trusty spreadsheet says that’s the seventh-largest dip among all states and triple the 4% national dip.
And where are the largest projected price drops, assuming HOUSES Act became law and the promised homes get built?
Values are projected to fall 27% in Idaho, 24% in Arizona, 22% in Oregon, 18% in Nevada and 16% in Montana.
The committee’s affordability study says the nation is 20 million homes short of the supply required. The affordability goal is a typical house payment that’s no more than 30% of the house hunter’s income with a 5% downpayment.
Why does the bill cite such a big shortage number — as much as five times greater than other housing shortfall estimates?
Basically, the study eyeballed a level of new housing required to push the market back to price sanity. The report claims its calculations differ from other shortfall estimates that “often rely on extrapolating previous market trends, rather than capturing the entire shortfall in the housing stock due to excessive regulations.”
By the HOUSES Act math, California is 4.6 million units short, the No. 1 gap among the states and equal to 23% of the total U.S. shortfall. The state government’s own estimates say California needs to build 2.5 million homes by the end of the decade to address the housing shortage,
Next on the Senate committee’s list of home shortages was Florida at 1.9 million, New York at 1.5 million, Texas at 1.2 million and Massachusetts at 887,000.
If this plan works, California could get 1.23 million homes — the most of any state and 45% of the U.S. estimate of 2.73 million.
After California comes Arizona at 524,854 homes, Oregon at 274,862, Nevada at 159,037 and Idaho at 140,479.
And the resulting cut in housing shortages could be dramatic. California’s shortfall drops by 27% (No. 11 among the states) vs. 14% nationally. The bill claims it would eliminate shortages in Arizona, Nevada, and Wyoming and cut 95% of Idaho’s shortfall, and 85% of Alaska and New Mexico.
Yet the improvement in “affordability” is varied under the plan. The study claims the bill could boost the number of affordable California homes statewide by 4 percentage points to 18% of the state’s supply. That was the ninth-largest improvement but still left the state with the third-lowest affordability level.
The biggest beneficiary would be Idaho. Its nation-leading 17-point jump would up its affordability to 51%. And Arizona’s 13-point increases bring affordability to 50%.
The bottom line
This is just one of a slew of ideas to build our way out of the cost problem.
I’m not sure handing out supposedly surplus government land is the best idea. But at least HOUSES Act has some appreciation for the fact that any real “affordable housing” efforts must significantly lower today’s ridiculously lofty house pricing.
I’ll admit that the big strings attached to the HOUSES Act’s land discounts are a cunning way for the federal government to dull local and state homebuilding impediments. If the bill became law, that offer could appeal to certain municipalities in some states — even California.
But massive homebuilding is often a value-slashing proposition — not usually a vote-winning platform.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at [email protected]