John Hood: We Need More Housing Options

RALEIGH — As post-COVID shifts in work arrangements and living preferences continue to motivate many Americans to relocate, North Carolina will continue to be a popular destination. Indeed, we can attract even more professionals, families, retirees, and other folks to our state if we lean into one of our competitive advantages: housing options.

If you’ve been following local housing markets lately, my talk of our housing-option “advantage” may sound hollow to you. What options? 

Yes, Inventory is tight. Consequently, prices have skyrocketed in many North Carolina communities. This is a national trend, however, and housing prices have shot up even faster in other destination states. Comparatively, living in North Carolina is still a bargain. Of the 10 states that experienced the largest numerical gains in population last year, including North Carolina (#4), our state has the lowest ratio of housing costs to the national average.

That’s only for now, though. Unless we make it easier for homebuilders to keep up with demand — and, in particular, with demand for the kind of homes that consumers want to buy — North Carolina’s edge will disappear. Does that mean building more single-family homes in the outer suburbs of fast-growing metropolitan areas? Or preparing our smaller cities and towns to attract the growing ranks of work-from-home households? Or loosening restrictions that keep high-density condos, apartments, and accessory dwelling units from alleviating the housing crunch in urban cores?

Yes! It means all of the above. While most buyers, both relocators and new homeowners alike, seem to prefer the suburbs — despite decades of hectoring from “Smart Growth” scolds — policymakers ought to accommodate a range of options.

Consider the case of accessory dwelling units (ADUs), sometimes called “granny flats.” Whether added to already occupied lots as freestanding homes or by converting attics, basements, and garages into rentable apartments, ADUs represent a challenge to traditional zoning codes. Some North Carolina cities have tried to accommodate them. Others haven’t. The latter really ought to reconsider. ADUs obviously aren’t for everyone, of course, but they can fill a gap in the market for young people, seniors, and others who prioritize affordability and location over square footage.

In a recent article for The Independent Review, Duke University professor Michael Munger spelled out the underlying math of the problem. In places with burdensome regulation and high land prices, the cost of building new housing units can exceed $250 per square foot. 

“For a 1,000-square-foot apartment,” Munger wrote, “a developer would need to charge at least $2,750 per month just to break even. Now, the usual definition of ‘affordable’ is housing that costs 30 percent or less of the renter’s income. But let’s expand that, and call 40 percent of income affordable. A worker would still need a pretax annual salary of $75,000 to be able to afford our hypothetical minimally legal new apartment.”

Even in a less-regulated market, developers may well have a financial incentive to target new construction to households with higher-than-average incomes. That can still ease the housing crunch for everyone else, though, because many customers buying the new housing stock will be vacating existing homes in the market, thus freeing up supply for other buyers.

My colleagues at the John Locke Foundation have long advocated regulatory reform as a means of promote housing affordability across the Tar Heel State. “Planners, policymakers, and other concerned citizens want more affordable housing options and less traffic congestion,” senior fellow Jon Sanders wrote in a 2019 paper. “But instead of more regulation, the way to bring those things about more effectively may be less restrictive land-use and other regulations. With fewer government obstacles and more freedom to operate, people can respond to market needs more quickly and in a greater variety of ways.”

North Carolina leaders have enacted many pro-growth policies over the years. That’s one reason people keeping moving here in droves. To keep our good thing going, we need to make it easier for private industry to deliver the housing options their customers want.