Housing Construction Lags Population Growth

July 24, 2002

Fannie Mae Analyst Blames Bias, Misperception, Housing Tax Policies

Inman News Features

The shortage of housing in many parts of the country is attributable to preventing the development of greenfields without compensating by building-up established communities, viewing housing as a financial drain and shifting the finance of multifamily housing from a tax shelter to a tax credit, according to a new housing report.

The report, Is the United States Undersupplying Housing?, recaps housing and population trends over the last three decades. The report found the impact of scaled back housing development coupled with an increasing population, particularly in the last decade, was especially dramatic in the multifamily housing sector and the most acute on the east and west coasts. The report was published in Fannie Mae's "Housing Facts & Findings," Vol. 4 No. 2, dated 2002.

"Even during this recent recession (housing) prices stayed high, indicating an imbalance in the supply and demand for housing during the boom that has yet to reach equilibrium in many regions," said report author Robert E. Lang, who is director of the Metropolitan Institute at Virginia Tech in Alexandria, Va., consultant to the Fannie Mae Foundation and editor of Fannie Mae's housing policy journal.

Why the slowdown in new housing construction? Lang said the answer is complex.

"(A) Brookings (Institute) study finds that anti-sprawl measures may or may not slow (housing) production, depending on what provisions they include," he said. "Many state and local referenda that were adopted during the 1990s restricted new land supply without requiring that already built-up places receive denser development to compensate for the loss of buildable lots."

Suburban voters typically have been quick to support preservation of greenfields while at the same time opposing denser infill growth, he said.

Another factor limiting growth is the perception that new homes drain municipal budgets, said Lang. Affordable homes with many bedrooms are perceived as magnets for families with children who will populate schools, which are difficult to fund through land taxes alone.

But Lang said this perception isn't entirely accurate.

"Tastes are changing. Many households without children now purchase large multi-bedroom homes. People these days demand more living space in general?they will use the extra bedrooms as home offices, guest bedrooms, hobby rooms, etc?. Bias against affordable multi-bedroom homes persists," he said.

The Tax Reform Act of 1986 and elimination of passive loss on real estate resulted in a sharp decline in multifamily housing production, said Lang. The Low-Income Housing Tax Credit enacted in 1986 doesn't provide the same incentive.

The fallout has been a reduction in building affordable housing, said Lang.

"Before housing affordability reaches crisis dimensions in many places, it is possible that the market will undergo a major correction," he said. "But it is unlikely that market forces alone will solve the undersupply problem."

Lang said policy initiatives should pair land preservation efforts with increased infill housing plans, expand low-income housing tax credits, recalculate the impact of housing on municipal funds and expand the source of school funding beyond land taxes.

"Just recognizing that there is a housing undersupply problem and beginning to address ways to correct it is the first step toward achieving a better-balanced and more affordable housing market," he said.

Copyright: Inman News Service

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