The US Can Solve Its Housing Crisis.
It Just Needs to Start Building
The problem is enormous: To close an accumulated shortfall estimated at 3.8 million units, the pace of housing construction would need to be about 50% higher over the next decade. Liberalized zoning and other regulatory reforms can certainly help improve this picture, especially if they spread to more places and types of housing, simplify building codes and speed up approvals. But they’re not sufficient to ensure adequate supply. Even in Los Angeles, where a new state law has engendered a boom in “granny flats” and other so-called accessory dwelling units, the effect on overall housing supply has been minimal.
Policymakers need to think more creatively.
One promising option is manufactured housing, which can be produced much more quickly and at much lower cost than traditional homes constructed stick by stick onsite. It comes in two main forms: “mobile” homes, built to a federal code and delivered complete with metal chassis, and modular or panelized homes, assembled onsite from factory-made components. As recently as the late 1960s, it accounted for more than half of new single-family housing. Whole neighborhoods of Sears kit homes from the 1910s survive to this day.
Yet even as manufactured homes have improved immensely in design and quality, they’ve fallen out of favor. Many residential districts have banned mobile homes, which must typically be financed like automobiles with relatively expensive “chattel” loans. As of 2021, they accounted for just 10% of single-family production. To at least partially reverse this decline, government-controlled mortgage giants Fannie Mae and Freddie Mac should improve financing options by purchasing and securitizing chattel loans, and legislators should consider reducing cost and complication by eliminating the unnecessary chassis requirement (the homes tend to stay where they’re installed).
Modular homes have even greater potential. They offer consumers plenty of options, and once installed they look no different — and sometimes a lot better — than the typical stick-built home. By moving much of the construction process into factories, they can cut costs and project timelines by more than 20% — revolutionizing an industry than has seen no significant productivity gains in decades. Yet they must contend with a tangle of local building codes, which prevent producers from reaching profitable scale: As of 2021, they accounted for just 2% of new single-family homes.
California’s housing reforms point the way to a possible solution. Recognizing the suitability of modular homes for accessory dwelling units, as well as ample interest among potential homeowners, Los Angeles has pre-approved a list of standardized building plans. The more localities adopt such standards, the more manufacturers will be able to scale up, further reducing the cost of quality housing.
Taxation is another area that deserves attention. Most local governments tax buildings at the same rate as land, an approach that unduly favors landowners and inhibits development. If, by contrast, they taxed land at a higher rate, they could encourage developers to put it to its best use — for example, by building apartments on expensive plots near job centers. Ample research suggests that nudging municipalities to adopt such a split-rate tax would boost local economies and reduce urban sprawl. The experience of Pittsburgh, which increased its tax rate on land to more than five times the rate on buildings, demonstrates the possibilities: Building permits boomed, even amid declines elsewhere in the state, and helped kick off the city’s decades-long revival.
No doubt, such initiatives will face plenty of opposition. One must hope that the urgent need for more housing will prevail. Few challenges will be harder for the US to confront in the 21st century — or more rewarding to solve.
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