By David Larson

Carolina Journal

Recently, I was a little critical of some more-vocal members of GenZ, mostly because I’m tired of seeing so many of them blame their grandparents, the “Boomers,” for financial difficulties. But one area I have total sympathy for them is in the price and supply of housing.

Boomers were often able to buy their first house younger, despite mortgage rates in the 1970s being consistently over 10 percent, because there were a lot more “starter homes,” with the size of the average home about 1,000 square feet smaller in the 1970s than today. Of course, larger homes did exist, but, according to the Washington Post, homes with four or more bedrooms were only 20 percent of homes in the 1970s. Now they’re about 50 percent. And this dynamic held into the 80s, with the Census Bureau saying that 40 percent of homes in 1982 were “starter homes,” meaning homes under 1,400 square feet. Only 9 percent of homes built in 2023 were.

So it’s not just that we have a housing supply problem — which we do, with 5.5 million home national shortfall and a 764,000 shortfall in North Carolina predicted by 2029. It’s that most of the shortfall is in “starter homes.”

Plenty of big homes are getting built. But that alone will not fix it. If we had a vehicle shortage that was pricing out young drivers, we couldn’t just increase the supply of BMWs and Ferraris to solve it.

The main cause of high prices

The reason that only large, expensive homes are getting built is not due to Americans’ preferences. Many young prospective homebuyers are begging for more modest options. Builders are very open about the fact that they don’t build smaller homes because they can’t. Local governments won’t let them.

Speaking with those connected to the state’s homebuilding industry, they’ve heard directly from city officials that they simply would not approve homes below a certain price point, with one mayor giving the specific figure of $650,000 as the floor for approval, because lower-priced homes would decrease the tax base and surrounding home values.

Well, not many young adults early in their career can afford that price tag. So they are forced to spend their money on rent payments (which do not build wealth over time) rather than mortgage payments (which do). The long-term effect of that on their net worth is huge.

When I asked Chris Millis of the NC Home Builders Association about the situation, he said, “The starter home is disappearing in North Carolina, not because builders are unwilling to build it, but because the cumulative effect of costly conditions imposed through local government rezoning processes often makes lower price points financially unachievable. NCHBA’s members stand ready to deliver homes at every price point, including the entry-level homes that young families need most.”

One frequent complaint from developers is that local planners and commissioners have preemptively downzoned vast swathes of their county (meaning they reduce the allowable density of housing) so that when someone attempts to build housing, they are forced to enter into a “conditional zoning process” to get the density zoned back. This process involves voluntary concessions from the developer to adjust their plans in ways they cannot be legally forced to do otherwise.

But because it’s the only way the planning board will approve the upzoning in density, they “choose” to go along with it.

On this process, Millis told me, “We have seen applicants agree to luxury amenities, mandates on the number of stories, the placement and number of windows, rear-loaded garages, ornamental exterior lighting, prohibitions on materials such as vinyl siding, expanded open space set-asides, and even payments to the local government for ‘affordable housing.’ Each condition drives up the cost of the lot, and prices another young family out of the market.”

The “affordable housing” payments are a cruel irony, allowing local officials to appear as if, and maybe even believe, that they are working to fix this problem, all while they pour gasoline on it.

There is some understandable concern about the pace of growth in North Carolina, with more people moving here than almost anywhere else in the country. Many areas of the state are bursting at the seams and spilling way out into the countryside. But the way we’re dealing with it locally is often the worst of all worlds.

People move to the area, and when they are unable to buy or build close to the city centers, they are forced to move well outside city limits, where it might be a bit easier and more affordable. But it’s much more expensive to extend roads, sewer, water, electricity, and other utilities further and further out than it would be to just let people build in the areas people want to live.

The young workers, moving to our area and graduating from our colleges, want to buy smaller, more-affordable homes.

The homebuilders want to build and sell them those homes. But until local governments get out of the way, or are forced to by the state, North Carolina is unlikely to have nearly enough starter homes to meet the demand. And it will cripple many financial futures.

For Millis, the answer is simple: “The first step toward restoring access to lower-priced homes is straightforward: ensure that the conditions attached to local government rezoning approvals are limited to those the law actually permits. Discipline the process, and the market will once again be able to deliver the starter homes North Carolina families need.”

David Larson is managing editor of Carolina Journal.