Commentary & Analysis

Why Now is Arguably the Most Interesting Time in Decades to Follow Housing

By Issi Romem | January 15, 2019
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With the possible exception of the mid-2000s, our current moment could be the most interesting time in decades to follow housing in America, as longstanding approaches toward housing development and land use face new challenges.

Over the last five decades, residents of America’s expensive coastal cities – and of affluent enclaves nationwide – have come to expect that if they wait long enough, real home values will always rise. But this is not a fact of nature, and the seeds of change challenging this hardwired belief are being planted today as the interests of established homeowners and would-be homeowners come into conflict.

Half a Century of Housing Market Divergence

Two factors drove the five-decade divergence in the pace of home price appreciation between the nation’s most- and least-affordable cities: Economic strength in the priciest places (which attracts people), and their increasingly restricted supply of new housing. Both are critical, because neither factor on its own is sufficient to drive up home prices in these places to the degree we’ve observed. Remove these cities’ restrictions on housing supply, and you get the booming but still largely affordable cities of the South. Remove their economic strength, and you get the affordable but stagnant (at best) cities of the Rust Belt.

How did we get here? In contrast to their affordable counterparts, expensive cities gradually reduced their rate of outward sprawl, which drastically lowered their pace of residential construction and population growth. At the same time (and just as gradually) cities nationwide imposed multiple layers of local land use policy, resulting in a current near-moratorium on building more homes in “built-out” areas. This type of blanket prohibition on density prevented today’s expensive cities from compensating for curbed sprawl by building more intensively within their existing footprints.

A Historic Moment?

It is this resistance to growth-through-density that is coming under attack today. The perennial scarcity of new residential construction in today’s expensive cities has helped push existing home price appreciation higher – to the primary benefit of long-time homeowners. But it only leads to worsening affordability challenges for those currently trying to become homeowners themselves.

Growing awareness of the role of local land use policy in suppressing the kind of growth that might make it easier for new homeowners to get on the ladder has begun eliciting ever-louder calls for land use reform. And those calls are leading to action. In December, Minneapolis approved a plan eliminating single-family zoning citywide, allowing triplexes instead, thereby relaxing a key constraint on the city’s growth. No two cities are exactly alike when it comes to land use policy, but they tend to copy plays from each other, and a few bold precedents could be enough to drive broad adoption of land use reform promoting growth through density.

The next few years will tell if enough precedents emerge for land use reform to attain critical mass. As we traverse what may be the peak of the current housing cycle, housing affordability is the topic du jour, every day. But when the next correction inevitably arrives, no matter how mild, the topic of housing affordability will temporarily lose its appeal and the movement for land use reform may flounder. Housing affordability will undoubtedly re-surface when the correction is over and housing prices rebound, but whether the civic organizations pushing for land use reform can survive the downturn will need to be seen.

And the stakes are high: The cost of housing crucially affects where we choose to live and who lives around us, which can determine our proximity to family, our career prospects and financial well-being, and even the opportunities available to our children. The nation is only getting more divided, with the most prosperous among us already clustered in expensive coastal cities while others are relegated to a more affordable, but less opportunity-rich, subset of communities.

Looking to the Future

If there’s a silver lining, it may be that land use reform itself is unlikely to become a gridlocked partisan issue, raising the odds it can be enacted successfully (especially at the state level). Land use reform supporting growth can be interpreted as defending developers and other business interests, which suggests it should align with the Right. At the same time, it can also be viewed as a means of promoting inclusion and preventing displacement of existing residents, outcomes valued by the Left. Neither of these alignments clearly dominates the other, and together they might just be sufficient to keep land use reform from becoming divisively partisan.

Still, even a successful struggle for land use reform will not yield results for many years. If the present-day battle succeeds, it will take decades for the potential growth within American cities’ developed footprints to be realized. But if the battle for land use reform fails and the movement fizzles, the next cyclical episodes of affordability crisis will be upon us much sooner.

It’s exciting to be able to observe and analyze how this crucial moment in urban history will play out. I’m thrilled to be given the opportunity to play commentator, and to work with the amazing data and analytical resources at Trulia – and to tap into the unabashed passion of the people working here – to share the play-by-play with you in rich detail as this moment unfolds.