New WILL report shows how laws and regulation add to WI housing prices
The News: The Wisconsin Institute for Law & Liberty (WILL) issued a new policy report, Priced Out of House and Home: How Laws and Regulation Add to Housing Prices in Wisconsin. The report examines the ways in which government regulation has contributed to the rising cost of home prices in Wisconsin. The report makes recommendations for both state and local policy makers to remove barriers to the development of more affordable market-rate housing.
The Quote: WILL Policy Director, Kyle Koenen, said, “Arbitrary government regulations that restrict property rights and depress the supply of affordable, market-rate housing options are pricing more and more families out of their version of the American dream. Policymakers at all levels of government should work to remove unnecessary barriers that contribute to the growing costs of homes nationwide.”
Background: Over the past few years, the rising cost of housing has been a growing concern amongst Americans, particularly those looking to purchase their first home. Fewer Americans believe that now is a good time to buy a home than those who believed this during the Great Recession. Furthermore, a record low number of Americans believe they are ever going to own a home. Historically, low levels of housing inventory suggest that the lack of supply plays a key role in the shortage of affordable market-rate housing options. In a nation where homeownership has historically been one of the primary means of wealth creation for lower- and middle-class families, the increase of people being crowded out of the housing market has the potential to obstruct upward mobility in the long-run.
This tight supply can be attributed to a number of factors, including the inflation of construction materials and a lack of qualified labor. However, for developers that prepare land for housing and builders that build the homes, government regulations from the local, state and federal level make it more difficult and expensive to develop affordable-market rate housing.
- Government adds approximately $88,500 to the average cost of each new-built home in the Midwest. Based on national data on the cost of regulation, and regional data on the cost of new homes, this figure represents more than a quarter of the cost of the average new home.
- The regulatory hoops before new construction can begin are extensive. A survey of Wisconsin builders found that the average development takes 14 months to even begin construction. Much of this is due to a tangled web of regulations where development can be stopped at every term.
- Hyper-local control obstructs affordable market-rate housing and the exercise of property rights. National research shows that most people are supportive of the development of affordable housing, so long as it is not in their backyard. The more opportunities for community input on a particular project, the less likely it is that the project will reach completion.
- “Pro-environment” policies often worsen sprawl and pollution. Requirements for extensive green space in a development sound good on paper, but limit the density of new developments. This increases urban sprawl as people must move further and further out to find an affordable home.
Policy Recommendations: Based on the findings of this report, WILL recommends the following to Wisconsin policymakers at both the state and local level:
- More “by-right” zoning. “By-right” zoning leads to the creation of community-wide standards on what sort of building can and cannot be allowed. It limits the ability for “hyper-localism” to stymy new development of projects outside of those standards.
- Decrease or eliminate minimum lot sizes and minimum setbacks. These policies limit supply, hike prices, and encourage sprawl. We should allow the market to decide how big lots must be to meet consumer demand.
- Encourage “missing middle” housing. It’s become typical to only allow the building of low-density housing, often standalone single-family housing; even though denser and more affordable types of homes, like duplexes, used to be a more prominent form of housing in Wisconsin. These types of housing that fill in the “middle” between rented apartments and large single-family homes allow for greater density, while also potentially providing another source of income (from renters) to the working-class homeowner.
- Create transparency in the process for approvals and rejections. The level of subjectivity and opacity in the municipal evaluations of individual development proposals leads to unpredictability; and, often the appearance of incompetence or impropriety. Setting clear standards on areas, such as green-space requirements and fees to which the developer will be subjected to, will work to streamline the process.
Heatmap of Affordability by County:
This map shows the severity of housing unaffordability across our state. For each county, we consider the median household income. We also consider the median price of a home and the household income that would be necessary for that median-priced home following the rule of thumb that no more than 30% of household income should be spent on housing. The interest rate on the home loan (which factors into that calculation) can be adjusted with the slider. The colors show the gap between each county’s median household income and the income needed for its median-priced home. Mouse over a county to see specific numbers.
Box and Whiskers Plot of Smallest Minimum Lot Sizes in SE WI Municipalities:
Zoning regulations often include required minimums for how small a home’s lot is allowed to be. Municipalities will apply varying zoning standards to specific areas within their boundaries. Each “zone” typically has different minimum lot sizes enforced. It’s revealing to see just how restrictive zoning is by looking at the smallest minimum lot size permitted in any zone for each of the municipalities in the counties of Southeast Wisconsin. These are displayed in the plot, with cities and villages separated out, where each individual dot represents one municipality and the light gray box represents the middle 50% of the data. Mouse over each dot to see which municipality it represents and what their exact minimum lot size is.