By Andy Serwer
Single-issue politicians tend to get little traction for the obvious reason that there are few concerns important enough to obviate the need for positions on all issues. One exception is James McMillan III, better known as the founder of The Rent is Too Damn High Party, with his identical catchphrase.
Since 1993, the outspoken and mutton-chopped McMillan has run variously as a Democrat and Republican for mayor, Senate, and governor of New York, as well as for president of the U.S. Now 77, Jimmy McMillan has never come close to winning any of these races, though in the 2010 gubernatorial election he did trounce Kristin Davis, the so-called Manhattan Madam. As head of the Anti-Prohibition Party, she ran her own single-issue campaign, which basically opposed prohibiting anything.
So why do I say McMillan was a success? First, because his slogan has become ingrained in popular culture. Not surprisingly, he was parodied on Saturday Night Live. But more important, he is correct -- rents are too high.
In fact, McMillan is more right than ever. What he saw as too damn high 30 years ago, is way too damn high today. Simply put, if the problem of housing in America hasn't reached crisis proportions, it is close to it.
It's a trend that is staring us right in the face, but somehow under the radar as well. On the one hand, not a week goes by that the New York Times doesn't do a story on, say, rents being unaffordable in upstate New York. or national homelessness. On the other, none of this has garnered much attention from politicians including President Joe Biden or Donald Trump, perhaps because those most affected are on the low end of the nation's economy.
Numbers don't lie. According to data from the St. Louis Federal Reserve, rents in U.S. urban areas have climbed more than 100 percentage points over inflation since 1984. They have risen more than 200 percentage points faster than household incomes, while the cost of homes has soared faster still, according to the bank.
For most of the past two decades, the number of new homes hasn't kept up with population growth -- a gap that was greatly exacerbated by the 2008-2009 financial crisis. This is how USA Facts described what happened.
"Prior to the Great Recession, the ratio of new population to home construction was about 2:1, meaning two people were added to the population for every new home built. That ratio increased to 5:1 after home construction dropped more than 50% after 2007. The US hit the lowest point for home construction in the past two decades in 2011, with 483,000 homes built that year."
It's really a perfect storm, or a perfect you-know-what storm, for housing in America. Rents are too high and there are too few houses that cost too much. The average cost of a home rose 5% from a year earlier to $402,343 in January, according to Redfin. And people have less money on a relative basis to pay for housing, be it renting or buying.
Jenny Schuetz, senior fellow at the Brookings Institution and author of Fixer-Upper: How to Repair America's Broken Housing Systems, points to four main challenges. First is the housing shortage, which experts say is worsening and now amounts to a deficit of nearly four million homes. The causes of that, Schuetz says, are onerous zoning laws and a lack of construction workers.
Second is aging housing stock, with the average U.S. home now 40 years old. Third is affordability for lower-income Americans, a problem illustrated by two eye-catching stats: The poorest 20% of households spend more than half their income on housing, and a record 653,000 Americans are now homeless.
Finally, an unusual combination of high home prices and high mortgage rates is putting homeownership beyond reach for young, first-time buyers. Higher rates also make things worse because they mean people who might have moved up into more expensive homes now won't because they're locked into a 3%, 30-year mortgage.
And economists wonder why Americans aren't feeling so ducky about the economy. It's worth noting that housing shortages are also rife in the United Kingdom, the Netherlands, and indeed across Europe -- for many of the same reasons.
Last month, Scheutz testified before a Joint Economic Committee hearing titled "Rebuilding the American Dream: Policy Approaches to Increasing the Supply of Affordable Housing." She laid much of the blame on bad zoning laws.
"America's housing shortage is not simply the result of market forces. Local governments across the U.S. have adopted policies that make it difficult to build more homes where people want to live," she said. "Policies such as zoning laws and building codes have been used for over 100 years to regulate what kinds of structures can be built in which locations...these laws have become more complex and restrictive over time...
Single-family-exclusive zoning is one of the most problematic zoning practices, Scheutz says, noting that more than three-quarters of land in U.S. cities and suburbs is reserved exclusively for single-family detached homes -- meaning that row houses, duplexes, and apartment buildings of all sizes are simply illegal to build.
Scheutz says that while restrictive zoning didn't inhibit housing growth in previous decades because there was still space available in municipal areas, that land has now been built out.
"The other problem is that the development process has become much more discretionary," Scheutz tells me. "In order to get permission to build a new subdivision or new apartment building, the developer has to go in front of the community, present plans, take feedback and get lengthy environmental reviews."
And then there's the problem that existing neighbors often don't want additional housing or change in their neighborhoods. "The combination of these rules that are too tight for our current situation, and the process that gives a lot of power to people who already live in the community makes it very hard to add housing," she says.
Homeowners and renters' pain has been an investors' gain.
Heady demand and tight supply have created a protracted boom for home builders. Almost all major home builder stocks, including NVR, DR Horton, Toll Brothers, LGI Homes, Lennar Corporation, and PulteGroup have outperformed the market over the past decade. Two home builder ETFs, the iShares U.S. Home Construction ETF $(ITB)$ and the SPDR S&P Homebuilders ETF $(XHB)$ have also outpaced the market.
Given all those entrenched macro factors, it wouldn't be surprising to see continued strong performance over the long run.
Schuetz points to zoning reform in both blue cities like Minneapolis and Portland, Ore., as well as red states like Montana and Florida as signs of progress, but notes that it is slow.
"Our housing shortage has been 40 years in the making," Schuetz says. "Our zoning laws have been around much longer. It's going to take some time to reverse that. Zoning reform will yield more housing in the five- to 10-year range. But this is not going to be a quick and easy fix."
At some point, that could make home builder stocks too damn high, as Jimmy McMillan might say, but maybe not quite yet.
Write to Andy Serwer at andy.serwer@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 23, 2024 01:00 ET (06:00 GMT)
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