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Yes, build in my backyard

by Patrice Onwuka
| June 30, 2024 12:00 AM

Gen Z is too young to remember the “Rent is Too Damn High Party” from 2005. However, they would likely appreciate the spirit of the movement.

Housing affordability is the top voting issue for an astounding 91 percent of Gen Zers ahead of the 2024 election, according to a new survey by Redfin, beating out abortion, democracy and student debt. 

Rent and shelter costs will remain stubbornly high until we address the long-standing shortage of affordable housing. Policymakers must break the stranglehold of heavy-handed housing regulations that limit community housing options.

Clearing the way for expanding accessory dwelling units (ADUs) — a popular living option — is a good place to start. 

Shelter costs are a significant driver of the inflation rate, hovering at 3.4 percent in May from the year before — well above government targets and consumer affordability. Shelter prices rose 5.5 percent, still well above pre-pandemic levels. Yet, real (inflation-adjusted) wages are barely above zero, which leaves Americans to shell out more for essentials like shelter from their stagnant income. 

Would-be homebuyers are locked out of the real estate market and have the chance to build generational wealth by the sticker shock of home prices, mortgage costs and interest rates. Meanwhile, they are stuck with rapid rent increases. The median rent jumped from $1,639 to $1,964 from 2021 to 2024. Consequently, a record half of U.S. renters (22.4 million) paid more than 30 percent of their income for rent and utilities, while 12.1 million of them paid more than 50 percent of their income on rent.

The U.S. housing market is suffering from the classic supply-and-demand problem. An acute housing shortage due to the underbuilding of homes for decades is driving up shelter costs. The economy is short between 1.5 million and 5.5 million houses. Residential construction spiked during the pandemic but is insufficient to make up for the deficit of single-family and multi-family home construction that plummeted during the Great Recession. Millennials and now Gen Z are experiencing surging demand for housing as they strike out on their own or expand their households.

Policies that help increase the number of accessory dwelling units are tested, bipartisan solutions to address this challenge. ADUs are defined as living units that are built on the same lot as single-family homes and boast a kitchen, bathroom and sleeping space. Think of guest houses, English basements, or mother-in-law suites. 

ADUs commonly facilitate multigenerational living by housing aging parents who are being cared for by adult children, as well as young adults seeking more independence close to home. Hired caregivers, such as au pairs and nannies, also benefit from their own private space within reach of their clients. 

Property owners may choose instead to rent out their ADUs to strangers. As an income-generating vehicle that simultaneously increases home values, monetizing accessory dwelling spaces is a popular option for half of homeowners. Renters willing to trade space for cheaper rent can save hundreds of dollars in expensive rental markets like Washington and Los Angeles by renting an ADU. 

ADUs are so popular that they have been featured in iconic television shows for decades. Fonzie from the classic 1970s show “Happy Days” lived in an apartment above the Cunningham family’s garage for just $50 a month. In the 1980s sitcom “Full House,” Danny Tanner rented his attic to his brother-in-law, Jesse Katsopolis, and his basement to his childhood friend, Joey Gladstone.

The problem is that many states and localities impose zoning regulations and land-use restrictions that impede the building of ADUs. The costs can be prohibitive for property owners, and the permitting process can be complicated and uncertain, delaying or even sinking projects. 

In addition, local residents with sometimes legitimate concerns — such as traffic and housing policies changing the character of their neighborhoods — can be powerful adversaries to even modest ADU expansion.

Some states and cities have acted due to the dire lack of affordable housing. Policymakers have successfully worked with stakeholders to reform restrictive zoning laws and permitting processes, incentivize property owners to build ADUs through grants, loans, and tax benefits, and streamline opaque or biased approval procedures. Policymakers can also ensure that local jurisdictions retain some discretion in permitting procedures and standards for development that protect the legitimate concerns of neighbors.

For example, in 2016, California eased restrictions on ADUs, leading to the construction of 80,000 units since then. More ADUs built following reforms qualified as low- or moderate-income units than other new housing.

Major cities in Massachusetts and Florida have also experimented with grant and loan programs to help property owners defray the costs of building ADUs, ranging from $60,000 to more than $200,000. 

Solving housing affordability won’t happen overnight, but promoting the expansion of ADUs is a common-sense housing policy that can deliver demonstrably lower housing costs, especially in areas facing the steepest housing costs.

Patrice Onwuka is the director of the Center for Economic Opportunity at the Independent Women’s Forum.