Building New Houses Isn’t the Solution

This is what it usually looks like when Americans just “build houses.”

Supposedly, many Americans voted Donald Trump back into the presidency, in part, to protest the continuing rise in housing costs. Despite promises from both parties, housing prices continue outpacing household incomes, and the ratio of price to income is now worse than it was before the 2008 market collapse. Several pundits, including many I respect, have emerged to repeat the same mantra: let’s build more housing units.

The logic seems facially robust. Presumably, most readers learned the “supply and demand” principle in high school, that price emerges from an equilibrium of how much buyers want something, and how many units sellers have available. Therefore, if prices rise, it follows that supply is scarce—and it is. But this overlooks what forces rendered housing scarce, and what measures markets can take to counteract this scarcity.

Consider, for instance: hedge funds and other financial instruments have purchased private housing as investments. These homes nominally exist, and nominally have value. However, to work as investments, their value must constantly increase faster than the overall market, which, as we’ve seen, they do. If these funds sold their holdings, they’d flood the market, driving prices down. Therefore they must continue hoarding housing off the market.

This interpretation, however, is stacked. Many cities which create significant employment exist with ready-made limits to physical growth. New York is built mostly on a series of islands; Chicago is built on reclaimed swampland; San Francisco is built on a rocky peninsula. Even if BlackRock and other funds divested their holdings, these cities can only grow so big before hitting physical boundaries that choke their growth.

Other cities have policy-based growth limits. Many cities built on abundant flat land, like Omaha, near where I live, have urban design based on R1 zoning, the principle of favoring freestanding, detached houses on separate lots. Fully eighty percent of Omaha’s land area—and comparable amounts in similar cities like Minneapolis, St. Louis, and Tulsa—are legally restricted from building mixed-use developments or multifamily housing.

Therefore, building more houses in America’s heartland will require either changing the law, or building more urban sprawl. Despite cities having a reputation for car dependence, as Jeff Speck writes, most cars driven in the cities commute in from suburbs and R1 neighborhoods. And that’s saying nothing about the virgin prairie, swamp, or other ecologically valuable land that developers must destroy to accommodate R1 construction.

And where geography or policy don’t limit development, there’s economics. Eastern Rust Belt cities like Detroit, Gary, and Cleveland grew rapidly, infused with Marshall Plan money, following World War II. But when government money retreated, and precious supply lines moved to Asia, the cities dwindled again. These cities actually have plentiful housing, most of it rotting, because there’s no employment or other development to generate demand.

Different conditions in different cities reflect the diverss influences that cause cities to develop, or shrink. I’m reminded of James C. Scott, who analyzed means by which centralized development plans have created inequality, environmental devastation, and social collapse. These redevelopment schemes have shared an imposed quality: scholars, bureaucrats, or well-meaning but purblind revolutionaries thought they knew better than local communities, and simply issued demands.

Scott contrasts centralized planning with “local knowledge.” Old, unplanned cities, like central Bruges, Belgium, or Manhattan south of Houston Street, are so intricate and winding that only lifelong locals understand their street layouts. Yet these unplanned developments reflect regional geography, community, and economics. What seems sloppy and chaotic to the government planner, actually serves local needs to a T.

America’s federal government has a history of funding dystopian development projects. Rapid expansion in the Rust Belt, for instance, led directly to the same cities’ abandonment. Levittown-style suburban sprawl has always required transfusions of government money, only to create joyless “communities” that young residents aspire to leave. Now advocates call for “building more houses,” heedless of local need, planning regulations, or regional economy.

Well-meaning advocates, and their government allies, want to offset harsh economic conditions. But they impose one-size-fits-all policy recommendations that don’t reflect local needs. In some cities, there’s no more land for construction, while in others, new construction will create sprawl that leaves residents isolated and strands the aged or disabled. And aggressive construction, fueled by diesel, will inevitably create environmental devastation.

Creating decentralized, regionally specific solutions is time-consuming, expensive, and difficult. But cleaning up the devastation created by mass-produced central policies has already created messes we aren’t prepared to repair. We won’t fix the consequences by doubling down on the underlying problem.