I will probably never own a home.
Ten years ago, you could buy a house in Missouri for the median price of $160,000. Today, that same home would cost you about $310,000. That is a 93% surge; an increase that more than doubles the pace of inflation. This climb is not unique to our state, which is why the typical age of a first-time homebuyer is now a whopping forty years old in the United States. Something has clearly gone terribly wrong; our generation finds itself in the midst of an affordable housing crisis.
In my first year of university, I took an introductory course in microeconomics. I’m no expert, but for a price to decrease, one of two things needs to happen. Either the supply needs to go up, or the demand needs to go down.
Enter another key concept: elasticity. Demand is ‘elastic’ when it responds to a good’s price. By contrast, demand is ‘inelastic’ when it does not change much, regardless of the price point. Concert tickets, for example, have elastic demand. If the cost of a ticket rises too much, it is likely to price many people out. But it is harder to price people out of a life-saving drug, because the alternative to paying the higher price is disastrous. The demand for these drugs, then, is inelastic.
So is the demand for housing elastic, or inelastic? Let’s get rational. If rent suddenly went up 10% across the board, what would you do? Would you adjust your budget and cough up the extra cash, or would you elect to lose the roof over your head? Probably the former, if you could manage! Therefore, the demand for housing is plausibly understood to be relatively inelastic.
People can not usually just decide to consume less housing when it costs more. They need somewhere to live. So if housing is going to get cheaper any time soon, we will need to increase our supply.
Experts recognize that we are in a deep housing shortage. The Brookings Institute estimates that we are short 4.9 million homes in the United States, for example. The U.S. Chamber of Commerce sets that estimate at 4.7 million. This is the cumulative result of years of underbuilding.
What causes underbuilding, especially underbuilding of affordable and attainable housing? The story is complicated, and there are lots of competing candidate explanations. People often point to financial crises, such as the 2008 Housing Crash and the COVID-19 pandemic. Another inconvenient fact is that the profit margin is higher for expensive homes, since land and permitting costs are relatively fixed regardless of the sale value. Additionally, the cost of both land and materials continues to rise, making construction more expensive.
These are all features of the market that make policy reform absolutely worth considering. But there is another driver of underbuilding, one that is not manipulated by the invisible hand. In fact, many identify it as the most consequential force of all. I’m speaking about the influence of zoning and land-use regulations.
These regulations, set almost exclusively by municipal and county governments, dictate which types of buildings are allowed to be built where. Can duplexes be built here? Consult the zoning code. Accessory dwelling units? Consult the code. How much square footage does each parcel of land need to have? How many parking spots per house? Are apartments allowed? How tall can the building be? Consult the code.
Of course, some zoning regulations are necessary to preserve the integrity of the community. But these regulations accumulate, making building harder and harder in communities across the country.
The academic literature’s confirmation of these basic intuitions is strikingly clear. First, zoning regulations are associated with higher housing prices. Doubling minimum lot sizes has been associated with a 14% increase in home sale prices and a 9% increase in rent. A literature review by Keith Ihlanfeldt revealed that, generally, “zoning regulation increases the cost of housing within suburban communities.”
Second, the evidence suggests that housing production is hindered by excessive government regulation. One study by the Cato Institute found that density laws explained 20% of the variation in housing growth. In another, it was demonstrated that larger minimum lot sizes are correlated with fewer building permits across time.
Finally, when zoning deregulation does occur, there is evidence to suggest that housing production increases. One group of researchers from the National Bureau of Economic Research found that deregulation spurred multi-family housing permit filings, greater housing availability, and lower housing costs.
Another question worth considering is one of political feasibility. Is deregulation broadly objectionable or partisan relative to other policy interventions? I think not.
Deregulation does not require more government funding and cuts bureaucratic red tape, allowing private firms to participate in a freer market. For these reasons, I think deregulation should be attractive to the principled economic capitalist. For the conservative populist, one can clearly appeal to the unaffordability of daily life, especially for young people trying to start families. Zoning deregulation is the common-sense solution that secures American citizens’ property rights, killing two birds with one stone.
As for liberals and progressives, an advocate of deregulation needs only appeal to first principles. Economic inequality is rampant, and one of the greatest forces exacerbating this issue is the affordable housing crisis. Deregulation would put money back in the pockets of lower- and middle-class families. Lower-income families, especially minorities who have suffered from a history of systemic racism in the realm of housing policy, would disproportionately benefit from this kind of intervention.
So far, I have shown that we are in the midst of a housing crisis, explored the reasons why that is, provided empirical evidence that deregulation is a promising path forward, and demonstrated the plausibly bipartisan nature of zoning deregulation. But if both parties could get on board with this policy in theory, why has change been so slow?
The answer has everything to do with perverse incentive structures.
When someone owns a home, their net worth is tied up in the value of the house. So, here is the catch. While almost everyone recognizes the need for housing prices to go down, nobody wants their own home value to decrease.
Local legislatures set the land-use and zoning regulations. The representatives that constitute those legislatures are elected by existing members of a community. Existing members of a community recognize that their home value may plausibly decrease if housing construction begins, especially affordable housing construction. Therefore, those constituents put electoral pressure on their representatives to make it more difficult to build new homes nearby.
This is not just theory, as we also have good empirical evidence of this phenomenon. A study by Dr. Evan Mast of Notre Dame identified a natural experiment: what happens to construction permitting when electoral systems switch from at-large to ward-based? With this shift, each representative is responsive to a smaller, more localized constituency. He found that this decentralization “decreases housing units permitted by 24 percent, with 47 percent and 12 percent effects on multi- and single-family units.”
NIMBYism, an acronym for “Not In My Back Yard,” is popular because of this very phenomenon. People know that housing construction is needed somewhere, but they do not want it near them. Who wants more traffic on their commute, more noise on their day off, more construction eyesores on their evening walks, and lower home values?
Something needs to be done about the housing crisis. Owning a home is the top way to build wealth in America today, but the prospect is completely out of reach for so many.
People who pay over 30% of their income on housing are considered cost-burdened, and people who pay over 50% are classified as severely cost-burdened. As it stands, an eighth of all people in Missouri are severely cost-burdened. To pay for housing, many everyday Americans are forced to compromise on other areas of their budget. They eat lower-quality food, skip routine medical care, push back repairs, and consistently find themselves under more financial stress.
Yet if perverse incentives make it difficult to make change at the local level, and that is where the zoning and land-use regulation happens, what hope is there? If something needs to be done, and it is difficult to get it done at the local level, then I argue that it needs to be done through the state.
But how can this be done? There is one strategy that clearly stands out above the rest: preemptions.
Preemptions are policies that allow a higher level of government to override the authority of a local government on some particular issue. Because counties and municipalities are creatures of the state, the state can impose its authority over them. As one example of many, the state of Missouri could (in theory) tell municipalities that, so long as a duplex project checks all the boxes listed in the legislation, you must allow it to be built. In this way, the state overrides the ability of the municipal government to impose prohibitive regulations on the construction of duplexes.
While this is just one solution strategy, I argue it is the best path forward. It gets around the perverse local incentives, enjoys plausible bipartisan appeal, has sweeping effects across many local governments simultaneously, tends toward economic efficiency rather than away, and plausibly increases the rate of home construction. For these reasons, now is the moment when states need to be considering by-right preemptions in the housing space. Now is the moment for change.
Josef Westberg ‘27 studies in the College of Arts & Sciences. He can be reached at j.r.westberg@wustl.edu.