Housing prices hit a record high this June, despite the fact that overall sales are down thanks to sky-high mortgage rates. But this isn’t true for all communities. Some cities have seen prices fall, even while the local job market stayed hot. The secret of these communities isn’t surprising. They made it easier for people to build, more houses were built, supply went up, and prices went down. It is a playbook that should be copied nationwide.
While constantly rising housing prices may be good for those who already own a home, they are a drag on the economy overall. High housing costs make it difficult for people to follow professional opportunities, delaying or derailing careers, which decreases economic productivity. Then there are the hours lost by commuters in their cars, which could be spent working or enjoying their family. When families spend an outsized share of their income on housing, they have less to spend on retail purchases, dining, travel, and other economic activity.
Most importantly, however, high housing prices delay family formation. Based on historic demographic data, Freddie Mac estimates that there are 3.8 million fewer homes in the United States than there should be and that 1 million households have been delayed in formation because young people can’t afford to move out of their parents’ homes.
As bad as the problem is nationally, however, there are some communities that are bucking the trend. Raleigh, North Carolina, where a red-hot job market has created over 100,000 jobs in just the past four years and the unemployment rate is a full point lower than the national average, average home values are actually down in the past year. That is because Raleigh leads the nation in home building, creating more new ones per existing home than any other community in the nation. The city did it by deregulating the housing market. It reduced minimum lot sizes, allowed duplexes citywide, and enabled the construction of small apartment buildings in residential neighborhoods.
Just behind Raleigh in home building is Austin, Texas where the economy is just as hot adding over 250,000 jobs in the past four years with an unemployment rate slightly higher than Raleigh’s but still well below the national average. Despite this blistering job growth, Austin home prices have fallen slightly, again thanks to housing deregulation, including a reduction in minimum lot size, permits for multi-family units to be built on previously zoned single-family lots, and the removal of mandatory parking minimums.
Even some cities in blue states such as Minneapolis, Minnesota and Providence, Rhode Island have also benefited from similar reforms, although nothing like in red states such as Texas, Idaho, and Florida. In addition to zoning changes, red states have the benefit of not being burdened with cumbersome environmental regulations of the sort contained in the Minnesota Environmental Policy Act or the California Environmental Quality Act. These planning regulations, all modeled on the federal National Environmental Policy Act, not only require expensive environmental analyses for every construction project, but also allow activist groups such as unions and environmentalists to sue in state court (federal court for NEPA), causing delays and expensive litigation that can often kill a development.
CALIFORNIA SHOULD FOCUS ON GOVERNING NOT REDISTRICTING
Unfortunately, the Senate parliamentarian stripped a major federal reform to NEPA out of President Donald Trump’s One Big Beautiful Bill Act, but stand-alone legislation has been introduced in the House to make it easier for every community to build homes. In the meantime, more communities should follow the lead of Austin and Raleigh and make it as easy as possible to build the homes young people need to start new families.
