The law of supply and demand is pretty simple. A product in great supply with weak demand can yield low prices. But couple strong demand with low supply, and the reverse happens.
In the case of housing during a time of scarcity, prices can hit stratospheric levels.
That focus on housing supply is a key argument made in a national report on housing and homelessness released Wednesday by a coalition of Democrats in the U.S. House.
“We simply cannot build enough units in this country,” U.S. Rep. Denny Heck, D-Olympia, told The Olympian Editorial Board last week as he previewed the report's preliminary findings.
Heck is a co-author and says he got the ball rolling on this timely topic. But hard work lies ahead: finding recommendations by year's end that might help ease the home affordability crisis and persuade Congress to act.
The "Missing Millions of Homes" suggests 5 million housing units are needed across the country, and to get them we need more cohesive strategies at the various levels of government.
"Power is fragmented across federal, state, and local governments, and housing programs are very siloed," the report concludes.
Even before the final report is written, it’s pretty clear the federal government ought to finance more federal housing-assistance vouchers. It should also encourage construction of low-income units, which the report says are actually shrinking in supply.
We also need incentives for the construction of mid-range housing. For that, a lot depends on states and local governments, which provide housing investment dollars and set policies that affect local land-use decisions.
In our state, the Growth Management Act limits development in rural areas, seeking to cluster people in more densely developed communities, which is a laudable and necessary goal that must not be discarded. But housing supply is extremely tight in West Coast communities. Just as economic theory predicts, prices are soaring.
South Sound prices are feeling the rippling heat of this boiling-over market that is centered in the Everett-Seattle-Tacoma metropolis. In Seattle, median home prices are already above $750,000.
No wonder we see higher home prices, extremely low apartment-rental vacancy rates, and higher rent in Thurston County as buyers and renters look south for deals.
Heck’s report is a byproduct of a 68-member New Democrat Coalition in the House (five members are from Washington), which favors growth-friendly policies. One important point they make is that the housing market is an "ecosystem," which seems obvious until one looks around at how homelessness and housing affordability are being addressed by our splintered communities.
Another problem today is that “new market-rate construction is much more focused on the high end” of the range, the report notes. It also says prices for new and used homes were somewhat similar before the global financial crash of 2007-08, which was triggered by poor bank lending practices and dishonest repackaging of mortgages into bonds for resale. Today the price gap between new and existing homes has quadrupled, on average, to about $80,000.
Despite run-ups in prices, Heck argues that housing markets are not in a bubble. The report estimates that the country’s “construction deficit has been several hundred thousand units per year,” and it cites a 2016 study by the Urban Institute that pegged the shortfall in 2015 at 430,000 units.
In Olympia, we are seeing a surge in market-rate housing in the city core. But a political fight also is brewing over what planners call the “missing middle” of housing. The term refers to such options as duplexes, triplexes, fourplexes, apartment units built over garages, and small accessory dwelling units erected on the back lots of single-family homes.
“ADUs,” already legal under local zoning codes, offer a low-cost option for older or low-income relatives and friends. They also can help homeowners to defray their own high mortgage costs, but city codes can make them hard to build.
Some neighborhoods are pushing against also allowing duplexes, triplexes and four-plex structures on lots near bus routes that are in longtime single-family residential neighborhoods. Though the proposed policy change is a small step toward solving the larger problem, critics have concerns that the character of some neighborhoods would change and — at odds with some studies — that home values could suffer from down-zoning.
However the city tailors a policy to deal with unwanted outcomes, everyone needs to understand that scarcity is a real factor in high housing costs.
Our South Sound communities face a humanitarian crisis that grows daily. Let's move wisely — and expeditiously — to reshape our housing policies and make sure they are based on sound evidence.