Regulatory Policy

The Pandemic Isn’t Killing Cities. Housing Regulations Are

Tourists take in the view of the skyline including Victorian homes known as the “Painted Ladies” in San Francisco, 2008. (Robert Galbraith/Reuters)
Cities that don't welcome new residents won't thrive.

In the wake of COVID-19, preliminary data suggest few Americans are actually fleeing cities. This means that housing shortages are not going away in America’s most in-demand metros, pushing up prices in places like Austin and preventing cities such as New York from becoming more affordable. And it means that our communities need to make it easier for Americans to find or build homes lest a deadly health crisis worsen our already dire housing crisis.

Today’s urban crisis is really a tale of two cities: New York and San Francisco. Moving requests from New Yorkers using United Van Lines were 52 percent higher than the national average in September and 128 percent above the national rate in San Francisco, more than in any other major metro area across the United States. Both cities this summer saw an 80 percent jump in moving activity on Hire A Helper from March to June. Unsurprisingly, the number of for-sale signs jumped this September by 51 percent in San Francisco and 20 percent in New York City year-on-year. Zillow Research found that aside from those two cities, “suburban housing markets have not strengthened at a disproportionately rapid pace compared to urban markets.”

Rather than fleeing to the country, the people leaving these big cities went to other big cities: places like Los Angeles, Atlanta, and Tampa for those moving out of New York City, and Seattle, Austin, and Chicago for those leaving San Francisco. Nationwide, the most popular destinations for homebuyers on RedFin are Sacramento, Austin, and Las Vegas, with Nashville experiencing the biggest jump in demand since last year among major metros. LinkedIn’s analysis of job-movers pointed to Jacksonville, Salt Lake City, and, again, Sacramento as the big winners, while the steepest declines were in New York City and San Francisco. Statewide, California and New York’s loss is Florida, Texas, and Tennessee’s gain.

Meanwhile, home prices nationwide saw the largest annual increase on record as a surge of homebuyers competed over scarce housing supply. By October, median home prices had risen 15 percent compared to last year, driven in part by a 29 percent year-on-year decline in available homes for sale — an all-time low. While new single-family housing construction surged in September, it also lagged for much of the year, and multi-family housing starts and permits continue to decline year-on-year. While groundbreaking for new construction in September was up significantly in the Northeast, it rose by single digits in the South and West, and is down by nearly 33 percent compared to last year in the Midwest.

The shortage of housing in America’s major metros is expected to worsen in the next year. “The supply of homes is tighter than ever, and home prices are growing at the fastest rate in years,” said Taylor Marr, the lead economist at Redfin. Upwards of 23 million Americans are planning to move thanks to the flexibility of work from home, according to Upwork, with major cities like New York and San Francisco expected to take the biggest hit in large part due to high housing costs. There are also more people crowding into existing living spaces, turning them into dry tinder for deadly contagions. More young Americans live at home now than during the Great Depression, with more crowding occurring in major metros. And New York City’s high rates of unemployment have likely done little to alleviate the city’s 45 percent rise in severe overcrowding, defined as more than one-and-a-half people per bedroom, since 2005.

Two classes of American city should concern us: those like New York and San Francisco with severe, decades-long housing shortages resulting in a lack of affordability (worsened by today’s economic woes), and those like Austin or Sacramento where heightened demand outpaces the capacity to build. New York City built fewer housing units over the past decade than during the Great Depression, and rents are still historically high even after pandemic-fueled flight. Meanwhile, only 128 people on net were moving to the Austin metro area prior to this year, even as the city become the priciest housing market in Texas.

In both cases, unnecessary and burdensome regulatory barriers are stifling housing supplies as demand increases, pushing up the cost of housing. Local zoning rules and permitting regulations dictate what you can build, where you can build it, and who can live where. As a result, rents and home prices have been rising faster than incomes for the past two decades, particularly for cities with good job markets — a trend the pandemic has only worsened.

The answer to more residents should be more homes. In many parts of Nashville, two homes can be built on a lot that previously had just one, a sensible policy which has facilitated half of all new housing construction countywide. Oregon recently legalized all such duplexes statewide as well as triplexes in its cities, while Portland voluntarily went a step further by allowing a wide range of “missing-middle housing” types across the city. Unsurprisingly, when Americans were asked about making denser housing possible where they live, 73 percent told Redfin’s pollsters “not in my backyard.” Yet, there was broad agreement that more housing is needed in America. Allowing new construction can still be popular: Half of all Minnesotans, both Democrats and Republicans, oppose zoning laws banning “duplexes, triplexes, and apartments in neighborhoods with single-family homes,” according to a New York Times poll. In New York City, the Manhattan Institute found that nearly 60 percent supported loosening land-use regulations to allow for more housing.

State and federal policy can help in-demand cities welcome new residents. Setting a 60-day “shot clock” on the permitting process, as Minnesota does, or a New Hampshire–style appeals process for denied zoning applications would likely lead to housing that’s built faster and more affordably. At the federal level, the bipartisan Yes in My Backyard Act, which passed the House in March and needs the Senate to pick it back up, would give cities a forum to share how they are uniquely responding to America’s housing crisis by reducing regulations and streamlining approvals. Importantly, these bottom-up, deregulatory reforms leave decision-making to localities while ensuring the freedom and property rights of individual Americans.

America’s city-dwellers have been saying “goodbye to all that” for generations, and in turn new waves of urbanites have always taken their place. Yet in recent decades we’ve dammed these migratory tides and blocked the flow of all but the wealthy into the communities with the greatest opportunity. The COVID-19 pandemic should be an occasion for cities in crisis — such as New York and San Francisco — and all those other cities booming with new migrants to be more welcoming by allowing more housing. Cities will not die with COVID-19, but we can give them new life.

Michael Hendrix is the director of state and local policy at the Manhattan Institute, which recently launched its “New York City: Reborn” initiative.

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