The state of Georgia has a shortage of at least 350,000 new housing units, states a report by the Georgia House of Representatives’ Study Committee on Workforce Housing.
The Peachtree State faces the prospect of soaring population growth and a woefully inadequate housing supply, especially in the booming Atlanta metropolitan area, the report states.
“Since 2007, 75% of the building industry has evaporated,” the report states. “People who were building houses at the height of the market left the industry during the recession and never came back. Meanwhile, Georgia’s population never stopped growing.”
From 2000 to 2009, the state issued 654,000 building permits for new homes, a figure that declined to 285,300 from 2010 to 2018.
In Georgia, “the issues are with supply, not demand,” the legislators wrote.
Allow Markets to Work
In particular, the growing population in and around Atlanta is increasing the demand for housing, causing prices to rise, the report says.
“In the Atlanta metro area, higher-wealth households have been driving the market by increasing competition and prices for homes in more desirable neighborhoods,” the report states. “From 2011-2018, the average single-family home sales price in Georgia jumped from $163,220 to $301,000, an increase of 85.5 percent, making Atlanta the nation’s third-hottest housing market, behind Houston and Dallas/Fort Worth.”
More housing will be built as prices rise, says Christine Ries, an economics professor at the Georgia Institute of Technology.
“As a classical economist, I would argue that any ‘shortage’ will be eliminated by the market if prices are allowed to rise, drawing new housing supply into the market,” Ries said. “As the quantity of housing rises, the shortage disappears.”
“How high would prices have to rise to eliminate the shortage? Not very much in Atlanta, where there are very few geographic boundaries that restrict locations of neighborhoods,” Ries said.
Rising Regulatory Costs
The report identifies four factors behind the housing shortage: rising labor costs, land values, and prices for building materials—and government policy.
“Laws, or land use regulations, account for 24.3 percent of the final price of a new single-family home,” the report states. “The national average for regulatory costs for an average single-family home went from $65,224 in 2011 to $84,671 in 2016—a 29.8 percent increase. The national average price of a new home sold went from $260,800 to $348,900 over that span. By comparison, disposable income per capita increased by 14.4 percent from 2011-2016.”
Cities and counties in Georgia exercise home rule, which means they control zoning, land use, and building codes that can raise construction costs for houses and apartment buildings. In north metro Atlanta, for example, 89 percent of residential land is zoned single-family residential, leaving the “missing middle” out of the housing market, the report says. The middle market consists of families and individuals who earn too much to qualify for ‘affordable’ housing subsidies but not enough to buy a home.
In Atlanta, rental rates are rising faster than wages.
“Between 2011 and 2016 the metro Atlanta region saw a 10% growth in wages and a 48% increase in rents,” the report states.
Rents are rising faster than wages partly due to zoning restrictions and partly due to costly local building regulations, the report says.
“In 2017, the City of Atlanta adopted an ordinance that required every new multi-family development provide electric vehicle charging station equipment for 20% of the parking spaces,” the report states. “Developers claim this requirement will add between $2,500-$10,000 per parking space.”
Some local authorities are limiting shelter alternatives, such as prefabricated housing, the report states.
“A Georgia town recently banned manufactured homes as a ‘permitted use’ in several residential zones, segregating them into one special overlay zone in one area of the city,” the report states. “A Georgia county recently required a minimum of five acres for the placement of manufactured home on private property.”
‘Worst Enemy’: Regulation
The report recommends local governments remove aesthetic restrictions from their building codes for things like house color, window style, and construction techniques, to help alleviate the housing crisis. In addition, some zoning restrictions are outdated and should be revised, the report says. Local and state officials should also approve building materials certified by the International Codes Council, the report states.
In California, costly new mandates are contributing to homelessness, Ries says.
“In Los Angeles, the law requiring new solar panels on new homes can be shown to increase housing costs and can be traced directly to tens of thousands of additional homeless,” Ries said.
Overregulation is the worst enemy of a competitive housing market, says Craig Rucker, president of the Committee for a Constructive Tomorrow.
“In tight housing markets, the push for ‘sustainability’ turns out to be unsustainable,” Rucker said. “Micromanagement of building materials, lot and home size, and insistence on ‘smart growth’ distort the market and penalizes families seeking a suitable place to live. Local officials in Georgia should take note of what has happened in Los Angeles, San Francisco, Portland, Seattle, and New York City, and avoid their mistakes.”
Bonner R. Cohen, Ph.D. ([email protected]) is a senior policy analyst with the Committee for a Constructive Tomorrow.
Georgia state Reps. Vance Smith, James Beverly, John Corbett, Tom McCall, and Jason Ridley, “The Final Report of the Georgia House Study Committee on Workforce Housing,” Georgia House of Representatives, Dec. 5, 2019: https://heartland.org/publications-resources/publications/the-final-report-of-the-georgia-house-study-committee-on-workforce-housing