Affordability of Housing Stems from Policy Decisions Rather Than Being a Technology-Related Issue
Politicians seeking to shift blame for skyrocketing housing affordability issues across the nation are pointing fingers at property landlords utilizing sophisticated algorithmic software. However, this programming isn't the root cause of rising home prices.
The National Association of Realtors (NAR) has highlighted a significant decline in housing affordability over the last four years. In 2021, the NAR estimated the qualifying income required to purchase the median-priced home at $57,888, which actually surpassed the median family income at $85,806. It's essential to remember that not every area is affected equally; cities like Los Angeles and New York have long grappled with housing unaffordability, despite other regions still experiencing affordability.
The primary culprit for these issues is misguided policies. For instance, California has experienced a crippling housing shortage of approximately 3.5 million units due to strict zoning regulations, costly environmental regulations, and solar mandates that greatly delay construction. This shortage propels housing costs as demand exceeds supply, a simple market dynamic that housing is no exception to.
Moreover, overly restrictive zoning regulations can be found in several other regions, such as Washington D.C., New York City, Providence, Rhode Island, and Seattle, Washington. Unsurprisingly, these areas also deal with substantial housing affordability issues.
Adding fuel to the fire, the inflationary surge of 2021 sparked steep increases in interest rates, further nationalizing the housing affordability problem. The combination of higher interest rates and limited housing supply resulted in a qualifying income for the median-priced home that now surpasses the median family income nationally. This alarming trend has persisted for the past two years.
Politicians are notorious for blaming private companies for their own shortcomings. For example, during the inflation surge, Senator Elizabeth Warren pinned the blame on "the effects of corporate greed on product size and rising inflation." However, the truth lies far from these accusations.
The surge in inflation was primarily fueled by excessive federal spending and the Federal Reserve's willingness to accommodate this spending during the Covid-19 pandemic. Economists of all stripes predicted this outcome, yet here we are, confronting a housing affordability crisis.
Similarly, politicians are now targeting algorithmic pricing programs used by landlords as the cause of artificially high rental prices. These programs analyze market data, including pricing, occupancy, and lease information, using algorithms. Landlords have always been attuned to local market dynamics, and algorithmic software simply enhances their capabilities by offering faster and more accurate analysis.
Laying the blame on algorithmic programming is merely a convenient scapegoat. The real issue lies with problematic policies, including restrictive zoning regulations, that limit housing supply and drive up borrowing costs. Property owners and renters alike benefit from improved information, which is why technologies like algorithmic software should not be construed as a negative force.
Admitting that errant policies create housing affordability problems rather than technology is essential. Families, particularly the next generation, are negatively impacted by this decline, and the ability to leverage homeownership to bolster personal wealth becomes increasingly difficult.
Reforming housing affordability necessitates fundamental policy changes. Regulatory policy improvements, such as relaxing zoning regulations and eliminating artificial mandates that inflate building costs, can lower construction costs and expand the housing supply.
Addressing the housing affordability crisis requires honesty and a comprehensive understanding of its underlying causes. The current situation arose due to failed policies that can be corrected by implementing thoughtful reforms for a more balanced and affordable housing market.
The National Association of Realtors (NAR) suggested that misguided policies are a major contributor to the housing affordability crisis. Specifically, strict zoning regulations, costly environmental regulations, and solar mandates in places like California have resulted in a housing shortage of approximately 3.5 million units, driving up home prices.
To address the housing affordability issue, it's crucial to implement regulatory policy improvements such as relaxing zoning regulations and eliminating artificial mandates that inflate building costs, which can lower construction costs and expand the housing supply.
