From Graham Stephan.
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WHY HOME PRICES ARE SO HIGH:
People compare today’s market to the 1950s, when the median home cost $7,300 dollars (about $89,300 dollars today) and represented roughly three years of income. Now, the median home is $430,000 dollars, seven times income nationally and up to eleven times in California. But the major drivers are not greed, Wall Street, or immigration.
HOMES ARE GETTING LARGER
In the 1950s, starter homes averaged 983 square feet and were extremely basic with no air conditioning, minimal amenities, and tiny lots. Today, buyers expect more than 2,700 square feet, multiple bathrooms, garages, efficient windows, and luxury level features as the minimum standard. Cultural preferences shifted toward larger homes, reducing the share of true entry level homes from about 40 percent in the 1980s to about 9 percent today.
LAND COSTS AND POPULATION PRESSURE
The US population more than doubled since the 1950s, concentrating heavily in a handful of metros. Cheap land disappeared, prices rose, and development moved farther outward. Combined with rising construction costs and consumer expectations, the price of a starter home inflated dramatically.
THE REAL VILLAIN: ZONING AND REGULATION
Regulation now accounts for roughly 25 percent of the cost of a single family home and 40 percent of multifamily construction. Developers face zoning laws, environmental reviews, impact fees, permit delays, and red tape that did not exist decades ago. Fees often do not scale with home size, making smaller homes unprofitable. In Minnesota, a home costing $182,000 dollars in labor and materials ended up costing $372,000 dollars after fees. Over regulation destroys affordable construction.
CALIFORNIA: THE EXTREME CASE
Parking minimums, lot size rules, required planted space, and multi department approvals make small projects unviable. A 600 square foot unit can effectively become the cost of building an 1,100 square foot space. Even small projects face endless loops of trench permits, tree permits, sewer permits, environmental reviews, and long waits. This makes only luxury units financially viable.
THE WALL STREET MYTH
The narrative that corporations are buying all the homes is overstated. Viral claims often misrepresented build to rent communities. Investor purchase share today is lower than peaks in prior cycles. Most investors are mom and pop landlords. Only about 2 to 3 percent of homes go to large institutions. Institutional ownership of rental homes is about one half of one percent nationwide. Wall Street has almost no meaningful impact on nationwide pricing.
THE REAL CAUSES OF UNAFFORDABILITY
The true drivers are locked in sellers with ultra low interest rates, restrictive zoning blocking new inventory, over regulation making small homes unprofitable, high consumer debt reducing buying power, and heavy demand in desirable metros. Immigration contributes only a few percentage points to price changes in specific areas, not nationwide.
WHAT SHOULD BE DONE
First, streamline permits with one stop approvals and strict timelines. Second, reduce excessive fees that distort incentives and push people into unpermitted work. Third, encourage modular and smaller housing by removing parking minimums and reducing lot size mandates. Fourth, offer builder incentives such as tax abatements for projects that increase supply. These changes would significantly improve affordability if implemented.
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