This is the second of a two-part series on the global housing crisis. Read the first installment here.
The affordable housing crisis in America and many other advanced countries keeps getting worse because it is largely dominated by the wrong voices talking about the wrong places.
For years the YIMBYs and NIMBYs have debated development in urban centers: While “Yes in My Back Yard” advocates seek to “build, build, build” ever more density in urban centers for environmental reasons, the “Not In My Back Yard” forces want to limit development often to preserve property values and the existing character of neighborhoods.
Meanwhile, housing prices have continued to rise to often unsustainable levels from San Francisco to Seoul, putting the dream of home ownership out of reach for many who are forced to pay much of their salaries in rent. Both YIMBYs and NIMBYs rely on heavy-handed regulation and other policies that discourage and complicate home ownership. Their effects have been particularly severe in California, Canada, Australia, Britain, and other places where policies aimed at funneling more people into dense urban areas by making it expensive to build in the suburbs and exurbs are negatively distorting the market.
There is now a growing pushback to this approach. Even some long-time advocates of forced densification and urban growth boundaries are recognizing that “sprawl” is not only here to stay, but that it offers a cohesive and market-friendly way to spur greater construction and lower prices. Given enough freedom, the market can do much to address the housing problem.
In the future, the shift from urban centers to suburban and exurban growth will likely be accelerated through the rise of remote work and new transport systems such as autonomous vehicles. A recent study by the Federal Reserve Bank of Kansas City noted that demographic conditions, the rise of online work, and migration to less expensive regions create conditions for a family-friendly housing boom. The issue is how to meet this burgeoning demand and build a society where the opportunity for home ownership becomes ever greater.
Market-Based Solutions
Trying to force people to live in dense urban areas against their wishes contributes to the continued outflow of people to suburbs and exurbs, and from highly regulated to less regulated states. It is not enough to simply call for building more houses as a solution to the crisis when regulation-heavy “urban containment” policies have increased land-related costs and made housing affordability impossible in many regions.
Thanks to market forces, peripheral development has long been the way cities have grown virtually everywhere in the world. Contrary to the claim that density represents social and economic progress, wealthier countries are producing ever more decentralized cities. Even in places like Tokyo, London, Paris, and New York, the vast majority of population growth takes place in the periphery. As one report put it, “human settlement has always tended to sprawl out from key urban centres.”
This is particularly true today. What we are experiencing is not the “back to the city” mantra so beloved by urban supremacists, but what can be best described as counter-urbanization – a trend accelerated by the pandemic. Census data from Canada, for example, shows that between 2019 and 2023, large markets experienced a net loss of nearly 275,000 domestic migrants. Smaller markets gained nearly 110,000, while the rest of the country gained 165,000. Smaller markets also gained more residents than large ones from 2004 to 2018.
Similarly, in the United States since 2010, large metropolitan areas have experienced increasing out-migration. Between 2020 and 2023, according to census data, metro areas with over 1 million people lost net domestic migrants, while all classifications below 1 million gained them. This marks a major shift in settlement patterns, which could be very helpful in terms of housing prices. These more scattered, generally smaller markets tend to have lower prices and have the blessing of shorter commutes.
Simply put, the periphery is where the action is and where the solutions to the housing crisis largely lie. The exurbs, defined as outside the principal urban area, have been growing almost twice as fast as the rest of the country. Virtually all the fastest-growing 50 counties in the country are exurban. Some of the most significant examples are Kaufman County in the Dallas-Fort Worth metro area (the fastest growing county in the nation), Comal County in metro San Antonio (and near metro Austin), Jackson County in metro Atlanta, Polk County, between metro Orlando and metro Tampa-St. Petersburg, Pinal County in metro Phoenix, Canadian County in metro Oklahoma City, and Tooele County in metro Salt Lake City.
Rise of New Housing Markets
This trend has also been accelerated by the rise of the information economy. Even a decade ago, many experts believed tech and high-end jobs would migrate to expensive, dense cities and tech hubs like New York, Los Angeles, and San Francisco. Instead, these places have been losing educated young people to metros such as Sarasota, Nashville, Jacksonville, Las Vegas, and Austin. Unlike traditional manufacturing economies or elite financial services that often depend on physical proximity, most software and high-end service firms do not require a dense urban core; the leading tech centers in the country, like Silicon Valley, Orange County, north San Diego county, Austin, and Raleigh-Durham, are primarily suburban in nature.
Now, some tech titans are even planning new cities with town centers: Elon Musk in Texas, Bill Gates in Arizona, and a gaggle of Silicon Valley investors in the exurban reaches of Solano County.
The priority now should be facilitating this expansion that is clearly based on market forces. Areas that accommodate growth – such as in Texas and Florida – tend to dominate the creation of new communities. This is greatly helped by the use of such things as Municipal Utility Districts (MUDs) that help finance infrastructure without undue burdens on municipalities. Texas has more than 900 MUDs, averaging about 1,000 acres each.
This business-friendly approach has helped spur the construction of new communities not only in the Dallas-Fort Worth and Houston areas, but in the border metro of McAllen, which is approaching 900,000 residents. This is not just a Texas phenomenon, and it is not especially new. Since the 1970s, new communities have sprung up in the communities of Columbia and Reston outside Washington D.C., Irvine in Southern California, the Woodlands and Cinco Ranch outside Houston, New Albany in metro Columbus, and the Domain in the city of Austin.
These communities have a long lineage, reflecting the promise of “garden cities” as proposed by British visionary Ebenezer Howard (1850-1928), with their own or nearby offices, recreational facilities, and cultural amenities. As suggested by Howard, these new communities allow people to live closer to nature, often with hiking and biking trails amidst extensive woodlands. “This field is just exploding,” says Gretchen Daily, a professor of environmental science at Stanford University.
Some urbanists might object because these areas are largely car-dependent. But they also represent distinctly urban communities. Carmel, Indiana, for example, has transformed itself into a vital cultural and business hub. There have been significant downtown revivals in places like Orange and Fullerton, in Southern California, and even in small towns in Middle America.
Such communities, the architect Frank Lloyd Wright said decades ago, are not a repudiation of urbanism but offer “a means of liberation” for families by allowing them to work at home or nearby, as well as close to the blessings of nature.
Technological Imperatives
New technologies in transport, communications, and construction offer ways to reduce housing prices and boost production in affordable areas. The pattern of urbanization can be defined by the dominant transportation technologies. Before the first half of the 19th century, walking was the most common form of travel within urban areas, requiring high population densities in an area of limited size.
Gradually, the walking city was supplanted by one dominated by mass transit beginning in the first half of the 19th century. This allowed urban areas to expand, lowering population densities. By 1900, London had reached 6.5 million, New York 4.2 million, and Paris 3.4 million.
In the years that followed, the automobile era led to the largest and most dispersed urban areas, with 30 million to 40 million residents (such as Tokyo-Yokohama, Jakarta, and Delhi) by the 2020s.
Today, we are entering the fourth era, the “virtual era,” as remote work and online shopping displace some urban travel. The virtual era seems likely to lead to lower population densities by enabling many households to have less geographical connection between home and work and shopping.
These trends may also be a win for the environment, as fewer people spend energy going into dense cities, whose own “heat island” effect impacts their level of carbon emissions. One recent study saw reductions in both electricity and energy use, in some places cutting the carbon footprint by as much as 20 to 30%. Remote working can be characterized as the most environmentally friendly way to access employment by eliminating the physical commute.
Finally, future information technology improvements, especially virtual reality, could support even greater remote working. Recent research by the U.S. government-sponsored Federal Home Loan Mortgage Corporation (“Freddie Mac”) indicates that “The pandemic amplified existing urban deconcentrating by threefold, from large, expensive metro areas to smaller, more affordable destinations.”
Equally promising, many new suburban areas, as MIT professor Alan Berger suggests, are being designed in a more sustainable way by employing sophisticated systems for controlling energy and water use. Suburbs, he argues in Infinite Suburbia, are excellent places for water storage and wildlife preservation, and have far more room for trees, grass, animals, and people. Places like Cinco Ranch and the Woodlands have restored acres of wetlands and waterways for the benefit of local residents.
New communities are already using digital technology to become more sustainable. Ontario Ranch, on 8,200 acres in Ontario, California, is, according to John Burns Real Estate, the region’s top-selling master planned community and number five nationally. It offers the use of e-scooters, drones to deliver packages rather than trucks, and even robot carriers to help people lug groceries home without a car.
Finally, there is the promise of new construction technology that could generate more affordable manufactured homes and modular homes, perhaps eventually constructed by AI-enabled robots. Technology could also help reduce costs if governments allow it. One promising innovation may be manufactured housing, which has the potential to also speed construction by as much as 50%, according to a 2019 McKinsey & Company report. An even more promising technology may be the use of 3-D printers to build new homes at far lower prices.
Some of these homes may be traditional trailers, although much larger units are also built. They directly address the cost issue: New mobile homes average around $124,000, while new single-family homes typically cost more than $400,000. Critically, manufactured shipments grew by more than 60% over the past decade and provide the largest source of unsubsidized low-income housing, giving shelter to 21 million Americans.
Washington Can Help
The return of President Trump is being greeted with trepidation by many urban leaders. Yet Trump may be in a position to boost housing production. There has long been a federal role in land policy, going back to the settlement of the Northwest Territory in the late 18th Century and the Homestead Act enacted under President Abraham Lincoln.
After World War II, the federal government expanded the availability of low-interest loans, notably in the GI Bill, as well as the 1948 Housing Act. These acts and others helped millions buy homes, although with a sad legacy, now thankfully ended, of discrimination against ethnic minorities, notably African Americans. Today, in contrast, the vast majority of growth in suburbia comes from minorities.
During his campaign, Trump pledged “to open up tracts of federal land for housing construction.” This is no minor matter; the federal government is the nation’s biggest landowner, holding a third of all property – an area six times that of California. In Las Vegas, Phoenix, Salt Lake City, Albuquerque, Riverside-San Bernardino, San Diego, and other metro areas, federal lands brush up against the suburban periphery. These markets are running out of room, with soaring rents and house prices. Las Vegas, for example, is surrounded by considerable federal land – part of the potentially vast available supply.
Trump has already launched the idea of “Freedom Cities” on federal land. House Budget Committee Republicans also have floated the sale of federal lands as an option for closing the deficit. This could radically alter the trajectory of housing in America.
To create affordable homes on federal lands, the administration shouldn’t sell lands for development – it should lease them, notes attorney Mike Toth. The sale of federal lands requires the buyer to comply with expensive state and local regulations once the land is privatized. Local land-use policies – like California’s solar mandate and the state’s aversion to suburban developments that rely on car-oriented transportation – are much of what makes housing a luxury good in many parts of the U.S. Under this approach, both anti–growth locals and density-obsessed planners stay sidelined. Leasing cuts through such red tape.
Building homes on leased federal lands will make homeownership more affordable. It could alleviate the undersupply of single-family homes. Freeing up land and reducing regulatory burdens would allow market forces and consumer preference to exercise their magic, which we can see in metro Austin, where housing costs have declined, in part due to an epic home-building spree.
Give Me Land, Lots of Land
Dramatically lower construction costs or other technological breakthroughs will have limited impact if land prices remain artificially high. Building affordable and attractive communities will require a determined regulatory reform that allows popular preferences and market conditions, not planning ideology, to drive housing.
Given the tenuous hold of populist conservatives over government, and their utter powerlessness in many states, a lot depends on changing opinion in the Democratic Party, which was once strongly in favor of expanded home ownership but more recently seems to have abandoned this goal. After all, it was under the democrats that the government, through such acts as the GI Bill, promoted home ownership. Similarly, left-leaning post-war governments in Britain and Australia also backed expansive home-building, largely on the periphery.
Both parties can benefit from facilitating more housing construction. Two-thirds of millennials favor the suburbs as their preferred residence, and a greater percentage of Americans age 18-29 view homeownership as “essential” to the American dream than older cohorts. There could be a political cost to not producing housing for young families. Ultimately, the future of the country will depend on our current generation fostering the dream for our increasingly diverse population.
One key priority is finding ways to bring back the starter house that made a big impact at the end of the Second World War, the era of Levittown. To accomplish this, land use regulation on the urban fringe needs to be liberalized, given the large share of housing costs attributable to land in urban containment markets.
This is what is most missing now, as people stay in their homes longer and new construction has slowed in many markets. Making that future available represents the key to making sure that Western societies remain youthful and energetic in the coming decades.
To get there, we will first have to dismantle the planning regimes that have so substantially contributed to the severe unaffordability in metros like Vancouver, San Francisco, Los Angeles, London, and Sydney. The good news is that even long-time advocates of densification, like the New York Times’ Conor Dougherty and Matt Yglesias, now concede that “sprawl” represents an important strategy for solving the housing affordability crisis.
There is a growing recognition even among hardcore progressives that their own “proceduralism” has stood in the way of the home building that would address the needs of core constituencies like young people, minorities, and immigrants. California Gov. Newsom, one of the most fervent backers of containment and other climate-driven housing regulations, has embraced the idea of reducing regulations, in response both to the L.A. fires and the growing concern about home prices and rents in his state. If California can move in this direction, albeit against entrenched opposition, it could be an important signal of change.
Housing and home ownership transcend politics. They are key to a healthy society – impacting everything from wealth accumulation to personal safety and happiness. “Housing is not a question of Conservatism or Socialism,” observed British Prime Minister Harold Macmillan. “It is a matter of humanity.”
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