What’s driving the American housing shortage

Part 3

PORTAGE MIDTOWN, SOUTH BEND, IN

Comparatively low-cost housing is part of what makes rustbelt cities such as Gary and South Bend, Indiana – – cities discussed in the previous two editions of this series – – attractive to housing investors. Housing costs in such cities remain relatively low as housing prices are expected to continue to soar across America, especially in metro areas where the housing demand is high and the shortage may seem insurmountable.

In The U.S. Housing Shortage From a Local Perspective, The Federal National Mortgage Association, commonly known as Fannie Mae, reports on the housing situation. In the report, Fannie Mae divided the country into eight noncontiguous groups.

Cities in the Mature Economy Metros group (which includes Chicago/Gary and Washington, DC) have an adequate level of affordable inventory and account for only 1.2 percent of the nation’s housing shortage. However, the areas are still short of about 115,600 housing units to adequately meet the demand for affordable housing.

In stark contrast, the report shows that the housing shortage in a group of cities called Bifurcated Metros (which includes Miami and San Diego) with 28.8 percent of the nation’s housing shortage, or a staggering 1,070,000 units.

While the housing shortage is often measured by the cost of buying a home, the housing shortage affects renters as well. The median asking rent in the United States rose above $2,000 for the first time in June 2022. Given that the U.S. Department of Housing and Urban Development (HUD) sets the standard of affordability at 30% of household income, $2,000 per month would only be affordable for households earning at least $80,000 per year – – well above the median U.S. household income of $67,521.

“Every American city has a housing supply problem, but each city’s housing supply problem is unique,” affirms Jeffery Hayward, Executive Vice President and Chief Administrative Officer at Fannie Mae. Making sure mortgage funds are available to create and preserve an affordable housing supply for low- and moderate-income families is central to what Fannie Mae does. However, having the funds is not Hayward’s concern. “We can do more such financing, but only if the housing supply is there to be financed. And it isn’t.”

Experts believe the housing supply shortage began after the Great Recession (2007-2009) when new home construction dropped like a stone. “Fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s,” continued Hayward. The pandemic-induced materials and labor shortage exacerbated the trend, as evidenced by the surge in rents and home prices in 2021. (The same year we noted new interest in Gary’s real estate as noted in the opening article of this series.)

My Gary contractor often laments that the problem is exacerbated by the labor shortage and even more so by the lack of skilled workers for him to hire and to follow his path when he retires. My DC contractor says the same. Both of their crews are mainly Spanish-speaking recent arrivals. Yet, immigration of such workers also very oddly remains an issue in the United States.

Housing scholars also point to zoning laws and other regulations as contributors to the housing shortage, as Mike Keen, of Portage Midtown in South Bend, Indiana, pointed out in the second article in this series. He explained how they can also foster higher housing cost.

Generally, zoning laws include minimum lot and square footage requirements, limits on the height of buildings, and restrictions on building multi-family homes and are often considered exclusionary. The zoning laws make housing units more expensive while excluding lower-income residents, often purposely.

Interestingly, the Fair Housing Act which prohibits discrimination based on race, color, national origin, religion, sex, and other identities, does not prohibit class-based discrimination. Without having to hang “Whites Only Signs,” communities are able to use exclusionary zoning laws to legally limit Black and Latinx families who generally have far less wealth and income than White households.

In much gentrified Washington, DC, The Coalition for Smarter Growth (The Coalition) has a different focus than South Bend’s Portage Midtown, but the two often help create similar results. The Coalition focuses on the creation of walkable, inclusive, and transit-oriented communities. It addresses the housing shortage and its related issues by encouraging higher density and multi-family housing near transportation and job hubs.

The changes The Coalition advocates cut across economic and racial lines. In the city’s tony Chevy Chase neighborhood, the group is lobbying neighborhood and city officials “to include affordable housing with a new library and a community center,“ says Cheryl Cort, policy director for The Coalition.

She added, “In this high priced, high amenity neighborhood, the limited new housing opportunities means exclusion for moderate and lower income people. Given that the average income of Black DC families is barely one-third of White family income, the lack of new housing and any affordable housing in this area perpetuates racial segregation as well as economic segregation.” The effects of such segregation include lower income residents losing opportunities to attend high-performing schools, gain employment, and have access to other amenities.

In more modest Capital Heights, MD, which borders DC, The Coalition advocates altering the zoning and streetscape around a Metro (subway and bus) station that is along a very well-traveled road. Cort says the current zoning regulations do not encourage “mixed use redevelopment.”

Mixed-use development includes housing and businesses and is increasingly found around other Metro stations.  With mixed-use properties, the areas become walkable mini-downtowns. With financing of such projects hinging on its potential profitability, she adds, the current rules also undermine efforts to achieve an “increased tax base.”

As metro areas such as DC squabble over the myriad of issues that affect soaring housing prices, comparatively low-cost housing in cities such as Gary, South Bend, and Omaha become more attractive to investors such as Ethel Rock, who has invested in Omaha. We will meet her in the next article in this 10-part series.

Gary native Wayne Young is the publisher of Port of Harlem magazine. Founded by Young in 1995, the magazine is inclusive, diverse, and Pan-African. He is also president of the Port of Harlem Gambian Education Partnership, which funds and manages small projects centering around culture, education, and community in the West African nation. He recently repurposed his parents’ home in Gary into a short-term rental.