Housing on the Ballot

September 18, 2023

Summary:

  • Housing is one of the biggest issues in this year’s local elections
  • Our housing crisis is a supply problem
  • Voters should demand real proposals, not just rhetoric

 

Across North Carolina, municipal elections are quickly approaching. From metro areas like Charlotte, Durham, Fayetteville and Wilmington to smaller towns like Burlington, High Point, Chapel Hill/Carrboro, Greenville, Hickory and many more, people will soon be voting for positions like city council and mayorships. (Note: find out here if your area has an upcoming local election.) As the state legislature goes yet another year without offering any real answers for the state’s growing housing crisis, the burden continues to fall on our local elected officials to lead on this issue.

Across the state, local communities are grappling with far-reaching decisions on housing policy – all in different ways, but with similar themes. From “SCAD” in Durham, the UDO in Charlotte, “missing middle” reforms in Chapel Hill and many more, questions of how our local communities should evolve and adapt are dominating our politics.

At Carolina Forward, we fundamentally believe that diverse, growing communities are a very good thing. But growth is change, and change is always hard, particularly where political choices are involved that require making provisions for the future. Our position on North Carolina’s housing crisis has been very clear: we need more housing, and we need it yesterday. While Carolina Forward is making no formal endorsements in municipal races this year, we offer instead some baseline informational realities that we hope voters will consider when making their choices.

It’s a supply problem

The reason North Carolina, like many other places in America, faces a housing crisis today is mostly because of a lack of available housing supply.

During the “Great Recession” of 2008-2009, new residential construction cratered, and only truly recovered to something like pre-recession levels in 2021.

Not only has North Carolina been building less housing inventory for over a decade, but there has also been a shift in the type of housing that is getting built: there are fewer single-family homes being built as a total share of construction, and more large apartment complexes. (More on this in a moment.)

During all this time, people did not stop moving to North Carolina. Indeed, even more people did. People have flocked to our state as a place they want to live, driven in large part by the availability of housing. To state the obvious, this is very unlikely to abate anytime soon (and we hope it does not).

Since the Great Recession, North Carolina’s total average home vacancy rate – in other words, the number of finished homes available for buyers – has steadily dropped as home prices have increased. As vacancy has dropped to historic levels, the market-clearing price has skyrocketed proportionally:

No economic story is perfectly neat and tidy, but this one is really as straightforward as they come: North Carolina grew, but the housing supply did not. So the price went up, creating hardship for many people. You can observe the real-world contours of this basic problem almost anywhere in North Carolina today, from Asheville to Wilmington. As always, local dynamics are at play, but the basic conflict is more or less the same.

The evidence – nationally, internationally, and right here in North Carolina – on this dynamic is completely unambiguous: where a lot more housing gets built, prices have slowed (and come down). Many people, it turns out, simply do not believe that normal market forces apply to housing. Yet as they say, observable facts do not require belief to still be facts.

The economics of building housing

Developing new housing is expensive, and the reasons are not surprising, but still complicated. Suffice to say, nearly all housing in America is built by private developers (eg. not the government), and this is quite likely to remain the case. We applaud and support those campaigning for large-scale social (eg. public) housing. Yet as a purely practical matter, it’s hard to pin one’s hopes on that approach alone.

Local governments have clear options at their disposal: they can make it easier and less complicated and expensive to build denser, “infill” development. Currently, the patchwork of local regulatory regimes around housing development are so byzantine and unpredictable that, even where building is possible at all, costs are so high that developers can only realistically build for top-of-market buyers. Property developers take on significant risk and expense when they build new projects, and understandably optimize for the highest return on investment. The costs of building have steadily risen too, primarily due to materials, the cost of labor, and compliance (primarily, satisfying local regs). This naturally induces developers to build housing formats that can command higher market prices, leading to the common complaint about developers only building “luxury housing.”

Remember that chart above showing building permits? The reason why many more large apartment complexes are being built today, versus fifteen or twenty years ago, is directly because of the higher costs to build. With higher costs, developers must find a way to increase revenue on projects to justify investment. That means both more “McMansion-style” large single-family homes (with very high prices) and more large apartment buildings, and many fewer smaller multi-family developments (with only 2-5 units each).

What localities can do

Local governments are not powerless. Many do make significant investments in affordable housing. Take Charlotte: the city’s flagship Housing Trust Fund has spent over $200 million supporting the creation of over 11,000 housing units over the last two decades. That is undoubtedly great work – but it is very far from sufficient. With about 120 people moving to Charlotte every day, the city needs 3-4 times that much new housing every single year. It is developers – not the city of Charlotte – who will realistically build that inventory (as they are). The same goes for virtually every other area.

Much of the housing debate is taken up with pro/anti-developer discourse, little of which is productive. Carolina Forward’s policy paper The Road to Home: Fair and Affordable Housing for North Carolina┬ácontains an idea to disrupt this conversation: broaden the definition of “developer.” Imagine millions of North Carolina residents being empowered to be “citizen builders”:

A “citizen builder” could just be the homeowner who decides to add a cottage in their backyard, or
a duplex on their lot. It could be an enterprising local entrepreneur who, instead of shipping their
retirement savings off to Wall Street, invests instead in developing a few new condo units a
couple blocks away, or a townhouse down the street. Today, small-scale projects like these are
cost-prohibitive and too blindingly complex for most lay individuals to take on, where they are
even legal in the first place. This should change. (From: The Road to Home)

Property owners with clear title to their own land could essentially be allowed to build whatever they want – “by right,” in real estate lingo – provided the structures were for an appropriate purpose (eg. residential, in a residential area) and safe (eg. up to code). This change would cost local governments essentially nothing, is entirely within their power, and would unleash a great deal more new housing development than tinkering with setback requirements.

In this year’s municipal elections, voters should demand realistic proposals for our housing crisis. It is completely obvious that the status quo is not working. Nibbling at the corners will not lead to meaningful change. It is time for North Carolina to build again – who will lead the way?

Help build progress for North Carolina.

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