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The Roots of the Housing Crisis

The US is short between 1 million and 5 million homes - depending on which economist you ask. It is a hard number to pin down because when people cannot find housing they tend to form households of unrelated adults (adults with roommates) or they form households with adult family members. Think millennials moving back in with their baby boomer parents; or aging parents moving in with their generation X adult children.



Seventy years ago, the majority of US households were traditional families and US housing developments were being created to reflect the taste of 1950s families that were raising their baby boomer children - they wanted a detached single-family home with a yard in a neighborhood of similar families. They didn’t mind commuting to work because there were about 100 million LESS automobiles on the road, sitting in traffic was less of a daily frustration.


In the 1970s, the average single family home was 1500 square feet and located in subdivisions dependent on, or dominated by, the automobile and the new ease in which families could drive to work, to retail, to get groceries, or to find entertainment. As the baby boomers grew up and formed their own families they preferred a similar type of housing as their parents did, that is to say they wanted to live in the suburbs. The one twist was the adult baby boomers went bigger. As noted, the average home in the 1970s was smaller and about 6% of the housing stock being built at the time were 'big homes' of 3,000 square feet or more. But as the boomers dominated housing in the later decades of the twentieth century, homes became bigger and bigger. By the 2000s the average home size topped 2,500 square feet with 27% of new housing being built consisting of large homes over 3,000 square feet. This is what boomers wanted - big homes in big subdivisions, and this is what developers built.


Not only did baby boomer households prefer these larger houses in the suburbs, but they codified this preference into building codes and zoning restrictions. This actively prevented a type of housing now referred to as the “Middle Housing” and pushed developers into building big homes in suburbs dominated by the need for automobiles. Over these decades the entire financial system of construction lending and traditional lending evolved to support this as the primary type of housing. Now today, the US sits with a massive amount of its total housing as large homes in the suburbs and a regulatory and finance infrastructure that encourages more of this type of housing - even if this type of housing is no longer the primary preference of the majority of US households.


Today the US housing crisis - in part defined by the un-attainability of housing for households making 80%-120% Area Median Income (AMI) is in part structural. The US is not only short millions of homes, but millions of the homes that exist in the US are the wrong kind of homes - they are large SFR homes in the suburbs that are not the preference of the changing demographic of US households. These large suburban homes are, by their nature, unattainable financially, and impractical practically, for today's US households which tend to be smaller and with a preference toward walkability and short commutes.


Today only 20% of US households are traditional families, 80% area a combination of individuals living alone, couples with no children, single-parents with children part-time or full-time, or households of unrelated adults. When surveyed about 73% of the people in these groups express a strong preference for walkability as a top value. But so little of the US housing stock is walkable, and land use, zoning, and building codes actively prevent walkable real estate development in many cases. So builders keep building large homes that are unattainable financially for many small households and even if they were attainable, they are the wrong fit for the preferences of households.


How does this change?


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