"Perfect storm" illustrates the case for smarter growth

Many of us watching the last few decades of development in America have been repeating the mantra that the weight of crushing commutes, skyrocketing fuel and energy prices, overly large and costly houses and understated demographic changes were converging on us with serious ramifications and that changing the rules to create more affordable, smaller footprint housing in areas close to jobs, schools, and shopping with access to transportation options would help stem the rising tide.

You can see the trends in new census data  just by scanning last week’s headlines in the Wall Street Journal, New York Times, and USA Today: The housing market is slowing, home sizes are tapering off, we are commuting farther, waiting longer to marry, having fewer children, and paying dangerously large shares of our income for housing.

All of this evidence leads to a decisive question for the future: What are we going to do about it?

The housing market has fundamentally changed—seemingly overnight, but it has been building for quite some time. The burgeoning affordability crisis has been masked by low interest rates, questionable lending policies and “innovative” mortgage products, all of which are disappearing amid the sudden credit crunch. Even as home prices fall and sales slow, those who want to sell aren’t exactly finding a sellers’ market—because fewer buyers qualify for loans under tighter guidelines. The money faucet for expensive loans has dried up for risky debitors who could qualify for a dangerous adjustable-rate mortgage just mere months ago.

In the quest for affordable housing over the last 10 years, it was easy to just “drive ’til you qualify,” accelerated by growth policies that facilitated low-density sprawl on the fringe of the fringe. Sure you could get a house for cheap “way out there,” but the traffic, health, and social costs have been piling up in ways we didn’t anticipate.

From the USA Today piece on the ever-lengthening commute:

As housing prices soared in many areas in recent years, people sought cheaper homes and found them where land is cheaper: farther out. Sprawl and more cars on the road worsened congestion and lengthened commutes even for those who hadn’t moved to far-flung locales.

The affordable homes that people are driving extreme distances to and from aren’t really all that affordable anymore. According to the New York Times piece, “housing costs ate up more of the monthly paycheck for millions of Americans in 2006 than the year before, despite signs of a slowdown in the housing market…Nationally, half of renters and more than one third of mortgage holders [37 percent] spent at least 30 percent of their gross income on housing costs, the level many government agencies consider the limit of affordability.”

It is no secret that households have shrunk in size over the last 30+ years. But it’s a trend that is still gaining momentum and will have a radical effect on the demographics of our country. USA Today reports predominantly on how younger people are delaying marriage, but also highlights this significant change from a country of mostly married people with children, to mostly single and married without children:

“The Census data also reflect continued decline in the percentage of married-couple households, dropping from 52.5% of households in 2000 to 49.7% of households in 2006. Census survey estimates released last year showed that unmarried adults for the first time represented more than half of American households.”

At the same time households have been shrinking, home sizes were growing, but the growth is finally showing signs of slowing. According to the Wall Street Journal piece, “the expansion continued into the first quarter of this year, with the median home size inching up to a near-record 2,302 square feet. But it slipped to 2,241 square feet in the second quarter, and many analysts think a broader decline may be in the offing.”

As the housing market slowed in the wake of the credit crunch, it’s becoming harder to qualify for a loan to buy that 6,000 square-foot home. And even if buyers do qualify, as a Toll Brothers rep told the WSJ, it’s not just about having the money. “It’s that they’re afraid of them now—it’s a confidence issue more than an affordability issue.”

Some builders are responding by downsizing floor plans and producing smaller homes:

“…while home builders are aware that customers increasingly want smaller, cheaper homes—and in some cases can’t afford anything else—building those homes eats into their profits, often because of the high price they paid for the land the homes are built on. That leaves them having to hope for higher sales volume to offset their reduced margins.”

There is an enormous demand for houses that are smaller and more affordable than what we’ve been seeing, but to meet that demand and pay higher land costs builders need to build at higher densities and with a greater mix of incomes in mind.

The evidence is in—we have painted ourselves into a corner. But we ask again: What are we going to do about it?

As commutes begin earlier, new daily routines emergeUSA Today
Housing costs punish family budgetsUSA Today
Young adults delaying marriageUSA Today
Housing costs consumed more of paychecks in 2006 New York Times
Size of new homes shrinking as builders battle housing slumpWall Street Journal