Businesses have made fortunes producing products for people with modest incomes.
Amazon, Walmart, Target, Dollar General, Home Depot, Lowe’s and Best Buy come to mind, along with fast food joints and grocery stores.
Of course, that quick list barely scratches the surface. Amazon and all the big box stores and grocery stores are retailers. All the items they sell are produced by other businesses.
Further, for a vast array of products, from mustard to light bulbs to car batteries to sofas, low-price options are readily available.
It’s no mystery why. Lots of people have modest incomes. That means lots of customers for businesses that figure out how to make a decent, low-priced product.
So what gives with housing?
Home prices and monthly rents currently range from exorbitant to absurd. For instance, ApartmentList reports that the average monthly rent for a studio apartment in the U.S. now exceeds $1,100.
Long-standing financial wisdom maintains that a household should spend no more than 30% of its income on housing. Good luck with that if your income is modest and studio apartments are going for $1,100 a month.
Indeed, the U.S. Census Bureau reports that 46% of U.S. renters spend at least 30% of their income on housing, and half of those renters spend more than half of their income on housing.
Until the 1990s, the housing market performed like most any other market. Prices pushed higher by growing demand signaled “bigger profits can be made here.” Builders responded by building more; others saw the signal and became builders themselves. Prices, which rose from “affordable” to “not as affordable,” returned to “affordable.”
What prevents the housing market from performing that way now?
According to droves of housing market economists, it’s local zoning laws. Two in particular: minimum lot size restrictions and single-family-only zoning.
Minimum lot size restrictions are self-explanatory. Single-family-only zoning means no buildings other than single-family homes are permitted in the zone.
Used sporadically before World War II, they began to proliferate rapidly in the 1970s. By the 1990s, they’re zoning staples.
The stated purpose of minimum lot size restrictions and single-family-only zoning is to preserve a lower population density. Many claim the rationale is thick smoke to hide the actual purpose, which amounts to “not in my backyard, and that includes riff-raff.”
Whatever the case, the clear consequence of minimum lot size restrictions and single-family-only zoning is a restricted supply of housing, especially housing for people with modest incomes.
Consider these figures, courtesy of economist Jeffrey Zabel. Between 1960 and 1990, the number of housing starts per 1,000 households averaged 22.2 per year. Since 1990, the number of housing starts per 1,000 households has averaged 12.2 per year.
Small home construction has plunged. The plunge began in the 1980s. In the 1970s, economist Sam Khater reports, one-third of new homes constructed were homes less than 1,400 square feet, an average of 420,000 small homes per year. In 1990, one-fifth were homes less than 1,400 square feet, a total of 230,000 small homes. In 2019, 7% were homes less than 1,400 square feet — a mere 65,000 small homes.
Growing demand, sharply restricted supply. That’s how affordable housing became unaffordable.
Fortunately, local zoning laws can be changed locally. No need to wait for Congress or a state legislature to act. And many communities are changing their zoning laws to mitigate the housing problem.
I know nothing about Glynn County’s zoning laws. But I do know Glynn needs workers and young families. More affordable housing would help attract them.
Unfortunately, we’ve been digging the housing hole we’re in for decades. It’s deep.
Don Mathews is a professor in the School of Business and Public Management at College of Coastal Georgia and works with the Reg Murphy Center for Economic and Policy Studies.