The time has come for housing reform

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When the COVID-19 pandemic hit New Hampshire last year, it’s unlikely that even the cleverest among us thought, “You know, this is going to turn people against local housing ordinances.”

Yet here we are in the summer of 2021, and housing is tied with COVID as the No. 2 concern of Granite Staters, according to a July University of New Hampshire poll. 

Granite Staters are most concerned about “jobs and the economy,” with 26% naming it their top concern, according to the July 26th poll. Ten percent of respondents cited “housing” as their top concern, tying it with COVID-19 for second place. 

That’s a five-fold increase from last July, when 2% of respondents named housing as their No. 1 concern. 

Surely this is related to the huge spike in home and rental prices that has made finding a place to live in New Hampshire feel like a Mad Max-style battle for a vanishingly scarce resource. 

Granite Staters aren’t quite donning leather outfits and fighting each other with home-made weapons over apartments and houses. Yet. But the stories from the real estate front lines aren’t pretty. Bidding wars have priced all but the best-financed families almost entirely out of the home and rental markets. 

Old timers tell stories of bygone days when high school graduates could get an apartment soon after landing their first job, and homes could be bought by people who didn’t own yachts and condos in Barbados. 

Children shake their heads, refusing to believe that such a Shangri-La ever existed. 

“Tell me, grandfather, of the time you rented an apartment without having to sell an organ on the black market.”

But the numbers don’t lie. As we noted last month, the median rent for a two-bedroom apartment has gone up 24% in the past five years. The median home price in New Hampshire just surpassed $400,000.

The record rise in home prices and rents has left people feeling helpless, frustrated and angry. They’re watching their housing dreams evaporate before their eyes, and they know something is wrong. They might not know what, but they sense that this wouldn’t happen in a normal market.

And they’re right. The COVID-fueled surge in demand has collided with a NIMBY-fueled housing shortage. The result has been record price increases that the market can’t correct because the numerous local ordinances that caused the shortage remain in place.

For a recently reported example, see the excellent New Hampshire Sunday News story on some of the cases taken up by the new Housing Appeals Board. 

A Francestown couple wanted to subdivide some of their own property so their children could build homes on it and all of them could live together on the family land. People have been doing this in New Hampshire since colonial times. But the town refused to approve the changes. 

The family took the case to the Housing Appeals Board, which ruled in their favor in three months. A similar case took about 20 months to go through the court system. 

Stories like this are common, and they raise serious questions about the way we regulate housing in the “Live free or die” state. When you can’t even build a home for your own children on your own land, is it really your land anymore? 

Towns increasingly act like all land belongs to the community, not to the property owners. In the Francestown case, officials wouldn’t approve the family’s proposal in part because the officials thought the land would look better with more trees. They demanded the family replace trees that had been previously — and legally — cut. 

This kind of regulatory overreach is how the state wound up with a housing shortage.

Things are so bad that housingmight be at the point where Stein’s Law kicks in. 

“If something cannot go on forever, it won’t,” economist Herb Stein mused. Housing prices cannot rise forever. At some point, people will demand solutions. We seem close to that point.

Our poll in May found that people are willing to relax local housing regulations in exchange for lower prices. A majority (51%-29%) support relaxing local regulations so developers can build more rental housing, and a plurality (45%-34%) support relaxing local regulations so developers can build more homes. 

The pandemic has exposed numerous unnecessary and harmful regulations, from prohibitions on telemedicine to bans on sidewalk dining. Local anti-housing ordinances can be added to the list. 

People want more housing, and rolling back bad ordinances is the way to get it. The only question is, who will have the political will to push for changes?  

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While the market drives up wages, government prevents it from providing more housing

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There are two sides of the affordable housing equation: incomes and housing prices. While the market pushes New Hampshire incomes higher, the government prevents it from lowering home prices. 

Casual news readers can get only one side of this picture because reports on wages and housing costs often focus on the wage side and ignore or downplay the home supply side.

For example, a recent report by the New Hampshire Low Income Housing Coalition cites the state’s minimum wage and shows various wage rates that would be needed to afford various types of apartments in the state. 

But as we pointed out in May, it’s almost certain that no one in New Hampshire earns the $7.25 minimum wage. Market competition has driven wages much higher.

With labor scarce (the state tabulated more than 34,500 job openings in the state in May and June), the market has been pushing up compensation for years. The average weekly wage of workers covered by unemployment insurance in New Hampshire rose by 18.5% from the fourth quarter of 2019 to the fourth quarter of 2020, state data show. 

The average weekly wage in the Manchester-Nashua metropolitan area was $1,565 in the fourth quarter of 2020, up $255 from the same quarter the year before. 

Employment website indeed.com pegs the average laborer pay in New Hampshire at $16.29 an hour. 

In short, a highly competitive labor market is taking care of the income side of the housing equation. But the opposite is happening on the home price side. 

As we noted last week, a severe shortage of housing is sending rents and home prices to record highs. 

Rents for a two-bedroom apartment have risen 24% in the last five years, reaching a median of $1,498 this year. The median home price statewide passed $400,000 this spring. In Rockingham County, it passed $500,000. 

In a free market, developers would quickly build more supply to meet the huge demand. After all, there are huge profits to be made right now selling homes. But local governments have prevented the housing market from functioning properly. 

Record price increases are not a post-pandemic phenomenon. Prices have been surging for years because local government regulations have prevented developers from meeting the housing market’s sky-high demand. 

Developers aren’t refusing to build. Towns and cities are refusing to let them. 

Local planning and zoning restrictions have made the construction of new units both difficult and expensive. That’s true of both single-family homes and multi-family housing. 

Estimates vary, but the state’s housing shortage generally is pegged at approximately 20,000 housing units. The newly formed New Hampshire Council on Housing Affordability identified a critical need for 13,500 housing units by 2024.

Eliminating this shortage will be extremely difficult, if not impossible, until local governments remove some of the unnecessary obstacles that are causing it. 

Local elected officials would be more likely to remove housing obstacles if they understood that vocal anti-housing activists are not representative of most residents. 

Our poll in June found that a majority of New Hampshire voters (51%-29%) supported relaxing some local government regulations to allow more rental housing, and a plurality (45%-34%) supported relaxing some local regulations to allow for more single-family housing. 

Allowing the construction of much-needed housing is not unpopular. In fact, opponents of new construction are in the minority in New Hampshire. Unfortunately, they make up majorities of many local boards and of the crowds who turn up to their meetings. 

That’s a major reason why the market solution we’ve seen on the income side of the housing equation has not happened on the supply side. 

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State’s housing shortage has driven rents up 24% in five years

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New Hampshire’s severe housing shortage continues to drive prices to record highs and put rentals and single-family homes out of reach for many families. 

  • The median price of a two-bedroom rental in New Hampshire has risen 24% in the last five years and 43% since 2011, reaching a record high of $1,498 a month (including utilities) this year, the New Hampshire Housing Finance Authority’s annual rental survey has found. 
  • The median price of a two-bedroom rental rose 6% last year, and the price for all rentals rose 7%. 
  • In Hillsborough and Rockingham Counties, the median rent is more than $1,600 a month (including utilities). 
  • The vacancy rate for two-bedroom apartments is down to 0.6% and the rate for all units is 0.9%. (A healthy vacancy rate is around 5%.) In every county, the vacancy rate is below 1% for two-bedroom units and below 2% for all units. No New Hampshire county has had a vacancy rate above 4% for all units since 2017. 
  • The percentage of New Hampshire two-bedroom rental units considered affordable to the median-income renter household (meaning the household would spend no more than 30% of its income on rent) is just 13%.
  • Single-family home prices are also hitting records. The median home price in Rockingham County hit $509,850 in June. Statewide, it hit $409,000.
  • In 2012, homes spent an average of more than 125 days on the market. In June, homes spent an average of 18 days on the market. 
  • In 2012, there was a more than 10-month supply of inventory for single-family homes. In June, it was down to 1.2 months. 

 The state’s housing shortage is not new. It’s been a well-known problem for decades. It has persisted despite numerous state-level efforts to address it. But those efforts, often focused on housing subsidies or task forces, have made little impact. The Housing Appeals Board, the most promising recent reform, just started its work this year. And its focus is on enforcing existing laws and rules to ensure that local governments don’t overstep their legal authority.

The shortage persists, and has become worse, because it is largely a product of local regulations that restrict housing development. Local ordinances often outlaw small homes on small lots, severely restrict mixed-use development, and make it nearly impossible to build multi-family buildings even in areas where they are allowed. 

The cumulative result over many decades is a massive shortage of housing. Estimates vary, but the shortage generally is pegged at approximately 20,000 housing units. The newly formed New Hampshire Council on Housing Affordability identified a critical need for 13,500 housing units by 2024. 

Whatever the actual number is, filling the need will be no less challenging than it has been in recent decades — as long as local governments continue to needlessly restrict new home construction and deny needed developments at the urging of a handful of anti-housing activists. 

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Report illustrates New Hampshire’s dire housing shortage

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The dire state of New Hampshire’s housing shortage is illustrated in the New Hampshire Housing Finance Authority’s just-released spring Housing Market Snapshot. 

The median home price in New Hampshire hit $362,000 in April, up 16% from last April’s median price of $313,000. 

Last April’s housing snapshot showed that in March of 2019, the median was just $275,000. In just two years, the state’s median home price has jumped by $87,000.

Migration caused by the COVID-19 pandemic is not the primary cause of this increase. The report shows a roughly 5% increase in home buyers from Massachusetts and a much smaller bump in buyers from other states in 2020. 

The real culprit is supply. 

The number of new building permits issued in New Hampshire collapsed in the five years from 2004 to 2009 and has not recovered. In 2004, more than 500 permits for single-family homes and more than 200 permits for multi-family housing were issued in the state. By 2009, barely more than 100 single-family home permits were issued, and multi-family permits were in the low double digits.

Since 2009, the number of issued permits has climbed slowly but has not come close to its early 2000s levels. A little more than half as many permits are being issued annually than in the early years of this century. 

One way to think about the numbers is that builders were constructing hundreds more homes each year in New Hampshire when the hit TV show “Friends” ended its run than when “The Big Bang Theory” ended its run. 

Fewer homes being built means fewer homes on the market. There were more than 8,000 homes for sale in the state in May of 2018. This May, there were 4,613. 

Last spring, there was a 1.6 month supply of homes on the market, including a 1.1 month supply of homes priced less than $300,000. 

This spring, the overall supply has fallen to 0.6 months and the supply of homes priced less than $300,000 is down to 0.4 months. 

The only way out of this housing shortage is to build more homes. 

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