How local governments can respond to the housing crisis

Charles Marohn, a longtime critic of suburban real estate development and the founder of the nonprofit media group Strong Towns, wants local governments to take matters into their own hands to encourage small-scale housing projects and make homes more affordable.

Marohn and Daniel Herriges (a former editor-in-chief for Strong Towns) laid out ways that cities and towns could spur the creation of new homes in their new book Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis.

“The broad feeling I get from people when it comes to housing, is helplessness,” Marohn said in an interview with Route Fifty. “‘We’re helpless to do anything about this. This is all beyond our ability to affect. It’s Wall Street. It’s Washington D.C. It’s inflation. It’s stimulus. Whatever it is, we’re helpless.’”

“The takeaway that we hope people take from the book is that we are anything but helpless,” he said. “There’s a lot that we can do that will be really effective. We just have to step up and do it.” 

Marohn said housing is crucial to the work that Strong Towns does because it is a central component of suburban development. Housing took on a new role in the U.S. after World War II, he said, because people started viewing housing as a financial product. The widespread adoption of long-term mortgages and the prominence of single-family housing changed a lot more than just the homes people live in.

That’s why he wants local governments to get more involved in innovating and financing new kinds of housing products.

“The more housing we build becomes abstracted from the people who live in it, the more it morphs into a financial product, the less responsive it becomes to … what people are asking for and need,” he said. “We build single-family homes, we build large apartment buildings, we build 5-over-1 condo towers, not because that’s what the market is asking for. We build them because they’re great financial products. They’re easy to sell on the secondary market, to bundle, to securitize, to hypothecate, [to] bet against and borrow against, and do all the things that a financial market wants to do.”

There are two main problems that show the disconnect between the housing market and the demands of consumers, he said. 

The first is that housing prices seem to be “disconnected from actual people’s ability to pay. It’s like the system is responding to something else, not us.” 

The second is the fact that there are very few entry-level products for people new to the housing market.

Marohn suggests local governments can alleviate the housing crunch by reducing regulations on creating simple starter homes like backyard cottages, making single-family homes into duplexes or adding accessory apartments.

He gave the example of a family in a four-bedroom house. If they put a microwave, a refrigerator and a toaster oven in a basement or a bedroom with its own exterior door, a high school student could live in it without running into trouble with the city, Marohn said. “But as soon as you put a renter in there instead of your own kid, it becomes a duplex. You have to have a firewall, in some places you have to add sprinkler protection, a separate HVAC system, a separate water system. The city is going to say you have to have a separate water meter, a separate sewer pipe coming out.” 

“Why?” Marohn asks. “It doesn’t actually improve public health, safety and welfare at all. What it does is it makes some of the administration of providing sewer bills and water bills a little easier. But that marginal benefit to city staff … does not justify what we put people through.”

Another way that cities could encourage more housing is to take a more direct role in financing projects themselves, Marohn said.

He pointed to the approach taken by Muskegon, Michigan, that uses tax increment financing, or TIF, to finance new homes on vacant lots at a lower cost than the private sector. The approach can lower the cost of a new home by a quarter.

Developing those sites makes sense, Marohn added, because they don’t require new infrastructure like, for example, a new subdivision would. “They already have sewer, water, roads and sidewalks. … The city doesn’t spend anything. The city borrows the money and pays it back with your taxes. If you default on your house, the city still gets paid. If you get foreclosed on, the city still gets paid. The city is first in line, so there’s no risk to the taxpayer.”

Another approach would be for the city to cosign loans for smaller improvements for residents. Banks don’t typically offer a loan that would help someone who wants to spend $40,000 to build a backyard cottage. But they might consider it if a city cosigned the loans. Even if the property owner gets foreclosed on, the city would be at the front of the line to get paid back, Marohn noted.

Finally, he encouraged cities to foster a new type of small developer, the kinds of people who develop one unit at a time but could use recommendations for skilled laborers, connections to banks that will lend to them or help navigating city regulations. “There’s a lot of social capital that is sidelined in our communities that can be part of solving these housing problems,” Marohn said, “but we have to work to get them together and mobilize them.”

Those kinds of approaches help city officials think beyond federal programs and the financial products that align with them, he said. “Those things aren’t helping. They don’t scale. They don’t get us where we need to go.” 

We ask, Marohn continued, “‘How would we do this if we were doing it on our own?’ We’re just opening people’s eyes to the power that they already have.”