RALEIGH – Nationwide, there’s a significant housing shortage. With historically low supply in some areas, including the Triangle, the price of buying or renting real estate has skyrocketed in the last two years. That’s disproportionately impacting low income households, which are disproportionately Black or Latino, a researcher and author of a book about the nation’s housing policy told WRAL TechWire today.
And though the disproportionate impact of the global coronavirus pandemic on Black households has stalled efforts to close gaps in credit access and homeownership, as WRAL TechWire reported earlier this year, the current shortage in the housing market didn’t start due to the pandemic. Freddie Mac estimated in 2021 that the total shortage of housing units nationwide was 3.8 million by the end of 2020.
“We’ve been underbuilding housing,” said Dr. Jenny Schuetz, the author of a new book, Fixer-Upper: How to Repair America’s Broken Housing System, in an interview with WRAL TechWire on Thursday. That factor is due to a slowdown in new construction that occurred as the housing bubble formed in the early 2000s burst, bringing on the Great Recession, said Schuetz.
Only recently did new construction starts reach levels not seen since 1973, according to a January 2022 Fannie Mae report. The summary in that report? “More supply is coming… eventually.” That’s because it takes time to build homes, whether they’re single family residences or multifamily properties, and there are ongoing supply chain disruptions and labor concerns in the homebuilding and construction industries.
Triangle facing affordability challenge
But what we’re seeing in today’s real estate market, both nationally and in the markets across the Triangle, isn’t just due to an undersupply of homes due to lagging new home construction, said Schuetz, who is also a senior fellow at The Brookings Institution.
Housing markets are complex. And houses aren’t like other consumer economic goods traded in an open marketplace, because houses have a fixed, permanent location, and are subject to local, state, and federal laws and regulations.
There are structural reasons why people across the Triangle are facing a coming affordability crisis—or are already experiencing being cost-burdened, said Schuetz.
“Regulations that restrict building moderately-priced rental housing reinforce patterns of modern economic and racial segregation,” said Schuetz. “Because low-income families, who are disproportionately Black and Latino, can’t afford to live in affluent neighborhoods when the only available homes are single-family residences in detached neighborhoods that sell for high prices.”
Triangle housing market: Demand at ‘all-time high’ but affordability at ‘all-time low’
Dual challenges, no one solution
There are two problems, said Schuetz. First, there isn’t enough supply, as not enough places to live have been constructed. Second, what is being built isn’t meeting the market in an efficient fashion. Put another way, there aren’t enough residential units being built where people actually want to live, and what residential units are being built in the most desirable locations aren’t affordable for those earning below median area income.
“The United States doesn’t have one comprehensive housing policy,” Schuetz writes in her forthcoming book. “Rather, we have a complex network of rules and regulations, taxes and subsidies, formal procedures and informal social practices, all of which influence housing outcomes.”
Take Chapel Hill, for example, Schuetz told WRAL TechWire. There’s incredibly strong demand for housing, in the urban core close to downtown and close to the campus of the University of North Carolina at Chapel Hill. But there’s not much building that’s allowed in the established neighborhoods that are close to campus, said Schuetz.
As long as it is difficult to build new housing units, due to local municipal or county zoning regulations, as well as policies set in place through homeowner associations, said Schuetz, “you’re protecting the assets of those who already hold assets.”
The role investors play, right now
That holds true whether the owners of those real property assets are living in their property or are investors choosing to rent to tenants, said Schuetz. The reason that real estate is such an attractive asset class, especially right now, especially in places like the Triangle, is that investors and more affluent individuals are seeing high prices continue to rise, an ongoing shortage of available housing, and existing policies in place that would prevent new development in established, highly-desirable neighborhoods.
Plus, said Schuetz, “there’s an enormous amount of global wealth looking to find a home.”
And capital is pouring into places like the Triangle in addition to and in some cases instead of so called “gateway markets,” Brian Leary, the COO of Highwoods Properties, told WRAL TechWire earlier this year.
“When you start thinking about an investor, in what’s called a balanced portfolio, an investor wants to spread their money around,” said Leary in January. During the prior two years, investors from across the globe began to understand that other areas of the United States provided opportunities to deploy capital with less risk, which thus could yield potentially better investment returns.
“Investors want growth,” said Leary. “And investors don’t want risk,” he added. “These secondary and tertiary markets actually have less risk.”
Investors are scooping up houses in Triangle, battling consumers in a tight market
The role homeowners play, right now
More homeowners with mortgages, from all across North Carolina, are now considered “equity-rich,” according to a recent ATTOM Data Solutions report. And homeowners across the state now own property worth $1.1 trillion, according to Zillow, with Raleigh’s residential property worth some $201 billion, up by about $50 billion just in 2021 alone.
The Triangle is growing in population, and people want to live close to the region’s urban cores, and they’re willing to pay more to do so. Leary estimated that there needs to be at least 10,000 additional residential units in each of the region’s urban cores, just to stabilize market rents in these in-demand locations.
But there are still zoning restrictions on the books that are preventing new construction of units beyond single-family residential property, said Schuetz.
That’s creating continued conditions of scarcity, said Schuetz, because builders can’t build housing, especially moderately-priced or affordable housing, in the most desirable neighborhoods.
“It’s really hard to imagine price levels of either houses or rents coming down in the next 5-7 years, without some national or global shock,” said Schuetz.
Redfin: People moving to NC are looking to spend more on housing
Are there solutions?
“We need to better integrate and coordinate a range of related policies—transportation, infrastructure funding, wealth-building—with direct housing policies like mortgage markets and rental subsidies,” Schuetz writes in her forthcoming book.
But it’s not just about changing one policy, she noted. Changing zoning ordinances to allow the construction of additional dwelling units, or ADUs, in one municipality, won’t by itself change the existing structure of the Triangle’s housing market.
There’s not just one or two policies that could be changed or enacted that would resolve the region’s housing shortage and mitigate concerns about housing affordability.
Instead, suggested Schuetz, those local governmental entities would benefit by thinking about the entire package of policies available to them to address housing policy and economic policy. That includes policies around transportation, as transit lines that provide access to employment centers from residential neighborhoods where people wish to live can open housing options to those across the economic distribution.
And individuals can take action, as well, noted Schuetz. “People can get involved in their local community and give locally-elected leaders support to build moderately-priced housing,” she said.
Not just a housing issue
Allowing more diversity of housing types in more neighborhoods, both new neighborhoods and existing neighborhoods, could change how people live, but it could also change how people work.
Enabling the completion of taller buildings and apartment buildings near transit corridors or near employment centers, or permitting the construction of mixed-use developments that offer in-demand amenities like a grocery store to local residents, potentially removing the reliance on owning an automobile, could be factors in addressing the challenges that currently exist in the Triangle’s housing markets, said Schuetz.
And businesses may wish to advocate for changing housing policies, as well, said Leary. “It’s not just a housing issue, it’s an access to talent issue,” Leary said during a panel discussion at a January 2022 Economic Forecast Forum. “What we’re hearing from so many of our customers who are competing for talent locally, and nationally,” said Leary. “Talent needs to be able to live near where they work.”
Without changing the structure of our housing markets, said Schuetz, communities would be accepting that we may be underserving the state’s future competitiveness.
That’s because the impact of our existing housing policies is felt most by low income households, many of whom are households with children, who are the state’s and the nation’s future workforce.
“We’re underinvesting in our future workforce because they don’t have affordable places to live,” said Schuetz.
Home prices in Triangle ‘Opportunity Zones’ keep rising, too
