Virginia’s Housing Shortfall

Underproduction as a % of 2015 housing stock.

Between 2000 and 2015, 23 states fell 7.3 million units short of meeting the housing needs of their growing populations — equivalent to about 7.3% of the housing stock of the United States, according to a new study, “Housing Underproduction in the U.S.,” published by the Up for Growth Coalition.

Although not the worst offender, Virginia was one of the states notable for housing underproduction, falling short of demand by 131,000 units over the 15-year period.

Restrictive zoning and development policies in Virginia and elsewhere have created an imbalance in supply and demand imbalance that has dire economic consequences. States the report:

As people migrate toward cities in search of jobs, education and economic opportunities, the demand for housing in our most populous and economically productive regions has far outstripped the production of new housing units. Due to dramatic shifts in generational preferences and household demographic trends, migration to cities over the past decade are at the highest level since World War II, while housing production has fallen to historic lows. This imbalance has led to rapidly rising housing prices, economic displacement of lower income families and communities of color, and increases in homelessness.

Long-term Bacon’s Rebellion readers familiar our Smart-Growth-for-Conservatives critique of Virginia land use and development policies will be right at home with this study. The report blames “restrictive local development and land use policies that reflect opposition to high-density, multi-family urban growth in favor of low-density, single-family, suburban sprawl.” Offending policies include:

  • Zoning restrictions, which create a shortage of zoned, high-density sites;
  • Escalating and misaligned fee structures, such as impact and linkage fees;
  • Poorly calibrated inclusionary housing requirements; and
  • Lengthy review processes that invite gaming and abuse by growth opponents that can delay projects, create unpredictability, reduce incentives to invest and increase the per-unit cost of development.

Not only do dysfunctional housing markets produce fewer units than would be supported by demand, according to the report, they produce units in the wrong locations. The market for housing in walkable, high-density, high-value urban areas is significantly under-served, while housing continues to be built in lower-density suburban communities with a backlog of land zoned for residential.

Average change in home prices by county, 2000-2016.

The study advocates a loosening of anti-development restrictions to encourage  a “smart growth” model of growth that promotes high-density residential development in major transportation corridors. Benefits will include increasing the housing supply, exploiting existing infrastructure, and increasing tax yields to local governments. Four broad tools would achieve these aims:

  • By-right approval. Establish “by right” high-density residential development in a half-mile radius around a transit station (roughly 5 percent of a metropolitan region’s land area).
  • Impact fee recalibration. Recalibrate impact fees to reflect actual costs of infrastructure service for high-density development.
  • Property tax abatement. Use property tax abatement as a gap financing tool to enable denser and more affordable housing production.
  • Value capture. Establish mechanisms to capture value created through up-zones and tax abatement investments to be used as dedicated funding for a range of housing programs.

Clearly, Virginia has a lot of work to do. We’re not as bad as the West Coast, the Northeast, or even our neighbor to the north, Maryland, but we’re the worst state in the Southeast (excepting Florida). The cost of housing is harming our economic competitiveness and hindering our ability to adapt to economic circumstances.

One of the ways to address rural poverty in Virginia, for instance, would be to encourage unemployed or under-employed workers in small towns and countryside to migrate to metropolitan areas offering better employment opportunities. When local governments in metro areas restrict housing development, they block this migration. Lower-income Americans literally can’t afford to make the move. The result is the worst of both worlds: sub-par employment opportunities in rural areas combined with job shortages in the major metros.

The higher cost of housing also helps explain another phenomenon — the shift of Virginia in recent years from a state from a people-importing state into a people-exporting state.

Finally, as the report alludes to, high housing costs disproportionately impact the poor and minorities. High housing costs, not racism, keep minorities trapped in public housing projects and slums. High housing costs block them from becoming homeowners, building home equity, and accumulating wealth, thus perpetuating income inequality.

Where is the General Assembly on the housing issue? Where was the McAuliffe administration? Where is the Northam administration? AWOL, all of them.

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14 responses to “Virginia’s Housing Shortfall

  1. http://dls.virginia.gov/commissions/vhc.htm

    AWOL? Among the perennial issues at each meeting of the Assembly are zoning authority, proffers and impact fees, the taxation of real estate and a host of other issues that help determine housing costs and supply. Two groups you are careful not to tangle with unless you come loaded for bear are the Realtors and the home builders, and they make their living building and selling stuff. This is one of those areas where the regiment of local government lobbyists are constantly organizing their defense, and they too are formidable opponents (usually fighting with the Realtors and builders).

    Along with the legislative commission noted above, there is also a department of housing and community development, and of course many local governments have their own programs – some quite muscular. So these issues are not ignored in Virginia.

    Kind of curious how this works – the state is suffering from out-migration and yet it is not building enough new housing? A little digging into who is actually behind the “Up for Growth Coalition” is in order, but it clearly is advocating denser development and a particular POV on zoning. It might be correct, but it certainly has a financial stake in the matter.

  2. This has to be coming from the 2030 Group or some other builders group looking for corporate welfare. Building anything near a rail station pushes up the price tremendously. Studios in Tysons go for more than $2K per month. And rents near the Whiele Reston station aren’t much behind.

    Proffers no where come near the infrastructure costs generated by development. And the GA and McAuliffe severely restricted their use in residential development. That results in tax increases for the rest of us.

    The developers in Tysons are working with the Clemente group to build more workforce housing and are trying to get rid of or limit proffers. More tax increases.

    Value capture I like. But notice how the real estate industry killed this concept for supporting WMATA.

    Jim, you best look for your wallet. These guys and gals probably took your cash.

    • The authors of this study are aligned with the Smart Growth movement. So what? Sure, that’s a tip-off to look closely and see if their biases permeate the analysis. But please show me where their analysis is wrong.

      The numbers I found most interesting were the “underbuilding” numbers. Do you contest the conclusion that Virginia built 131,000 fewer units than supported by demand? Do you deny that the West Coast, the Northeast and Maryland have imposed restrictions that have throttled new housing construction?

      As far as the analysis of how and why this is happening, I spent about 10 years in Bacon’s Rebellion making similar claims. (Surely you remember!)

      • Here’s where there are problems. By right development is, obviously, development that is consistent with the Comp Plan, zoning ordinance and any other applicable laws (say the Chesapeake Bay Act, for example). What the authors are seeking is to develop property in a manner that is not consistent with the Comp Plan, zoning ordinance and any other applicable laws. Such development could well present problems for other landowners, residents, businesses as well as those developers that made their projects consistent with the above standards M any also paid proffers and complied with development conditions. It could well result in higher taxes for others as well as a decline in the quality of life.

        Second, the Tysons Comp Plan, which is bringing extreme density by Virginia standards does NOT allow high density beyond 1/4 mile. After years of study and arguments by stakeholders, the County concluded that high density beyond 1/4 mile would drastically increase traffic congestion.

        Proffers/impact fees. The Clemente group is asking for a break on proffers for its workforce housing project. Conceptually, I can see some merit to the request. But most proffers, at least in Fairfax County, no where near rise to the level of recovering the costs imposed by the development. The argument calls for discounting a below-cost rate.

        Property tax abatement. Given Fairfax County’s inability to control costs, eliminate programs that are not effective or efficient or address its pension problems, residential real estate taxes are on a track where increases generally exceed changes in income. Fairfax County’s $4.3 billion general fund advertised budget contains $3.4 million in cost reductions. Fairfax County has gone through two comprehensive reviews of its c. 600 “lines of businesses” and has been unable to identify any lines that could be eliminated. Fairfax County’s pension liabilities exceed $6.1 billion. The average weekly compensation for residents of Fairfax County fell again from 2016 to 2017. No more tax breaks.

        Value capture. Ya right. The Tysons and Reston landowners have and will pay c. $450 million for Dulles Rail, Phase 1, while Dulles Toll Road users are paying billions, including the full amount of all cost overruns for Phase 1.

  3. I’d like to see some real metrics collected and a ranking of localities to see what localities actually take some of these steps and which ones don’t or do less – and the effect on available housing.

    Perhaps there is a real problem with rural folks moving to cities but even lower income Asians manage to not only find an affordable place to live but where the “good” schools are – not in those poverty neighborhoods – which is surely what would happen to those poor rural whites moving to the big city.. their kids would get put in those “bad” schools, right?

  4. Where to start?

    1. The period from 2000 – 2016 included a massive recession that was not only a recession but a housing-centric recession.

    2. The authors use a sweeping average of 1.11 housing starts per family formation but ignore the fact that annual housing starts grew by about 52% from 1998 to 2007. Were there 52% more family formations in 2007 than there were in 1998? If not, a housing surplus was being created.

    3. Housing starts have been rising sharply for the last 3 years. Why? Because smart growth has become the law of the land? Or, because the housing surplus built up between 1998 and 2007 was consumed by 2013 and housing starts are once again more than keeping up with household formation?

    4. “The higher cost of housing also helps explain another phenomenon — the shift of Virginia in recent years from a state from a people-importing state into a people-exporting state.” Really? I’ll cheat a little and use population growth as a proxy for people importation. Idaho is the fastest growing US state and it’s shaded the same color as Virginia on your map.

    5. “Clearly, Virginia has a lot of work to do. We’re not as bad as the West Coast, the Northeast, or even our neighbor to the north, Maryland, but we’re the worst state in the Southeast (excepting Florida). The cost of housing is harming our economic competitiveness and hindering our ability to adapt to economic circumstances.” The chart you published doesn’t show the cost of housing. It shows the change in home prices over a 16 year period. First, subtract 43% from the color keyed percentage increases since that’s the CPI growth over that period. The areas in yellow have increased 7% in real terms over 16 years. Second, you have to correlate the cost of housing to some measure of income. If housing cost me 10% of my gross income in 2000 but costs me 20% of my gross income now, what is my situation? Answer – I still spend a very low percentage of my gross income on housing. They have such a chart in the report and Virginia looks somewhat better than other areas on the East Coast. Oddly, the only red coded county appears to be somewhere on the Southside.

    Next Saturday starts trophy rockfish season in Maryland. Every time I caught a keeper rockfish on opening day I was wearing my tan cargo shorts. Obviously the rockfish can see my tan cargo shorts and are attracted to them so they come up to my boat whereupon I catch them. Or … I have several pairs of tan cargo shorts which I like to wear for fishing because they have lots of pockets. And, I only wear shorts when it is warm enough to do so. And, warm weather warms the water in the bay. And, rockfish spawn when the water temperature is at least 52 degrees. And, Maryland only allows you to fish in the main stem of the bay rather than the rivers where the fish spawn. So, the warm weather (and related warm water) which triggers the post-spawn fish to leave the rivers and head for the main stem to get back to the Atlantic puts fish in the vicinity of my boat. The color and type of pants I wear have nothing to do with that.

    Some of the conclusions drawn by the very accurate data in this study are as fishy as the rockfish I won’t catch this Saturday because the water is too damn cold and the fish are somewhere between hanky and panky up in the rivers where you’re not allowed to fish. This will be true even if I chose to freeze my ass off in the boat wearing those tan cargo pants. Ugh!

    • Wow, Don. Your ability to overlook the obvious is really amazing.

      The most highly regulated housing markets in the U.S. also happen to be the markets where housing prices have increased the most, where housing is the most affordable as a percentage of income, and that are suffering the greatest domestic outmigration.

      • Once again your causality is off. Density increases housing prices and high levels of regulation are required in densely populated markets. You are also struggling with methodology. Zoning decisions are almost always made at the local level, not the state level. So, why look at states when you should be looking at cities and/or counties. Here are the US cities where you have to earn the most to afford the rent along with their 2010 – 2017 population growth statistics.

        1. SanFrancisco (+9.8%)
        2. New York City (+5.5%)
        3. LosAngeles (+4.8%)
        4. Boston (+9.0%)
        5. Washington, DC (+15.3% !!)
        6. Seattle (+15.7%)
        7. Miami (+13.5%)
        8. Chicago (+0.3%)
        9. Philadelphia (+2.7%)
        10. Dallas (+10.0%)

        US grew at 5.5%

        So, seven of the ten most expensive cities to rent a home grew faster than the US as a whole. Where is the pervasive out-migration?

        https://smartasset.com/mortgage/the-income-needed-to-pay-rent-in-the-largest-cities

        • Domestic out-migration doesn’t stop the population from growing. Metros can grow even if the native-born middle-class population is leaving due to (1) natural population increase, and (2) foreign in-migration.

          Also, you ask why look at states when zoning decisions are made at the local level. In this particular blog post, I looked at states only because the study I was citing looked at states. I agree, metropolitan comparisons are much more revealing of demographic trends.

  5. Re: tan cargo pants…. and fishy data… You may well be on to something… better luck on the fish!

    We see these “reports” and “studies” from time to time but like you, I come away unimpressed and unconvinced because even though they lay out the bill of particulars – there is no “beef” – i.e. a list of cities with each one adherence or lack of to the advocated policies.. – and and rank list of cities and results… i.e. housing prices, median incomes, percent of poor in “better” housing , etc.

    In other words cities that actually “work” in this regard – as models for others to emulate.

    We do have a serious problem in many places with income stratification that tends to – in turn – manifest itself into entire low-income neighborhoods and wards – which, in turn, ends up with grossly substandard schools – many of them these days with majority minority populations that – truth be known – whites – rich and poor – don’t want their kids to be.

    If the goal is to attract white rural folks to urban areas with jobs – we’d be in a quandary where we’d be asking why did we wait for rural white to migrate to urban areas to fix the low-income neighborhood school “problems”.

  6. It also should be pointed out that many urban region workers – across many income ranges – choose to commute fairly long distances to find 1. an affordable home (as opposed to an apartment or other dense housing) and 2. decent schools.

    Prince William, Stafford and Spotsylvania are 3 exurban counties to the Washington MSA that have thousands of daily commuters and many are lower income, entry level … blacks, Hispanics and Asians. who choose a long commute rather than a short commute to much higher priced housing and/or housing only available in “projects” and/or lower income neighborhoods with problematical public schools.

    This seems to be a fairly universal phenomena… that’s why composing a rank list of urban areas along with their policies and metrics with respect to lower income , housing, etc…

    I’m not convinced that this is a universal “problem” with restrictive urban area land-use/housing policies – as even middle-income folks often join the ranks of commuters because – even entry-level single family homes are beyond their financial reach.

  7. I’d like to agree with your conclusions as well as your arguments for less restrictions on new construction — but the statewide averages shown in the first chart don’t support the arguments here and leave me cold. If there’s undersupply in the East from DC all the way to southern New England, it doesn’t stop right at the Potomac but clearly spills over into NoVa. And the statewide contrast between adjacent Maryland and Virginia on that chart, despite all the similarities between the Washington suburbs in those two States, shows how geographically concentrated in NoVa the undersupply problem must be in Virginia, and how even less-undersupplied the rest of Virginia must be, as the county-specific housing price data more or less confirms. Steve and TMT, who know a lot more about the real estate markets than I ever will, make sense to me. I’m out there in the coldest Spring in a while, waiting for the Rockfish in shorts.

  8. Actually – what the urban areas DO is an attempt to designate WHERE to provide the infrastructure to support density – AND to restrict density where the infrastructure has not been upgraded to support it.

    It’s not about restricting “growth” . It’s about WHERE to invest in the infrastructure with taxpayer and developer funds to SUPPORT density.

    It’s also a bit ironic to criticize transit – both rail and wheel as inefficient and wasteful then point to it as where density should be “allowed” then Uber can do transit “cheaper” by leveraging it’s services on government-provisioned transportation infrastructure.

    “Density” requires govt-provisioned services – not only transportation but water/sewer, schools, public safety, fire and rescue, libraries, parks, etc.

    Developers are only after – and responsible for , usually just the dwellings – not all the other needed infrastructure and services.

    Developers can’t drive density where they think they can make a profit selling dwellings. The govt restrictions are, in fact, WHERE the govt can provide the infrastructure and services and where they cannot – at least not EVERYWHERE .. simultaneously. THAT’s why we do see “designated growth areas” and why the areas not so designated do not allow more density; those areas are also not designated for upgraded infrastructure and services need to support higher density.

    The reason developers do not build more “affordable” dwellings is that the private sector is economically oriented to the “highest and best” use of land – which by definition is not the most “affordable” use of land.

    So how do we really “grade” the availability or non-availability of “affordable” housing? Is it the job of govt or the private sector? Does Govt really “restrict” density and growth or does govt try to direct it to where they are provisioning the upgrading of infrastructure and services to support increased density?

    There actually is already, some basic metrics to assess “affordability”. Median income and median housing prices.

    Here’s One:

    “2018 Cities with the Lowest Cost of Living in America”

    https://www.niche.com/places-to-live/search/cities-with-the-lowest-cost-of-living/

    so.. it’s not like there are no places that actually do provide more “affordable” housing… perhaps a good question is – how do they do it and is it Govt that does it with less restrictive “growth” policies or other things also?

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