In Strong Towns

Each financial crisis — Savings & Loan in the 1980s, the subprime mortgage crisis in 2008 — led to even greater centralization of housing finance, as short-term fixes reinforced the dominance of national lenders and government-sponsored entities. The repeated cycle of risk, collapse and bailout has made housing a primary vehicle for financial speculation rather than a stable, accessible market for homebuyers.

Today, the product isn’t a home; it’s the promise to pay contained in the mortgage note. The buyer isn’t an individual or a family; it’s a financial institution acquiring that mortgage note and the decades of promised payments.

The innovations and efficiencies of scale we see in the housing market today are innovations in finance, not in home construction. These financial innovations have not been good for homebuyers or for affordability.

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Ironically, the one-dimensional efficiency of financialization has created a massive gap in the real market for homes. Large financial institutions are eager to fund single-family homes in bulk or large apartment complexes that fit their investment models, but they have no interest in small-scale, entry-level housing. A so-called "efficient" housing finance system has, in reality, left little to no capital available for small, incremental projects — like converting single-family homes into duplexes, adding backyard cottages, or financing small starter homes. This is despite the overwhelming demand for entry-level housing.

What do housing, transit and lifestyle statistics have to do with loneliness and unhappiness, you might ask. Well, I don’t think it’s a reach to suggest that separating people physically also leads to emotional and psychological separation. Moreover, the implements that make sprawl-induced physical separation work on a societal level — cars to contract long distances and digital media to ameliorate the effects of social isolation — deepen loneliness and unhappiness on the personal level. These implements also make people sedentary, directly relating to the fact that 73% of the total American population is overweight and 42% is obese, per the CDC.

One of the biggest issues is population density. At the risk of oversimplifying, it’s a lot harder to socially isolate when there are people around you.

We’re screwed if housing prices keep going up. We’re also screwed if they go down.

That’s the trap.

It should be obvious by now that the housing crisis is a complex, multi-faceted issue. There is no one silver bullet for addressing it. Unwinding the trap in a way that doesn’t cause a new Great Depression is going to take a lot of different changes working together in order to shift to a housing market that is responsive to local needs, rather than to global capital flows and national fiscal and interest-rate policy.

We need to rapidly add more housing at affordable price points. We also need to avoid crashing the current housing market. We need to encourage investment in our communities, increasing local economic productivity, without allowing all the profits to be siphoned out to faraway global investors. And we need to do it without adding more infrastructure liabilities to our already struggling cities.

What that will look like is more people doing home-to-duplex conversions, building backyard cottages, allowing more small businesses to mix into our residential neighborhoods to create local jobs while eliminating productivity-killing commutes, and growing local financing options.

Somerville, Massachusetts, is a thriving city. It has, in spades, the attributes that the median city planner and real estate professional alike will tell you are in great demand and short supply in 2020s America: walkability, vibrancy, sense of place. Adjacent to central Boston, Somerville is known for top-tier educational institutions, a robust arts and culture scene, and lively civic squares surrounded by locally owned shops and restaurants.

Unsurprisingly, the city’s attractive lifestyle comes at a price. As of this writing, there are dozens of homes for sale in Somerville listed for over one million dollars.

Such a price ought to be a clear signal that there is ample market demand for a place like Somerville. According to economic theory, developers should respond by building more housing in Somerville, and by creating more blocks and neighborhoods that resemble the most in-demand parts of Somerville.

There is only one problem: they largely can’t. In 2015, Somerville’s city planners undertook a study to find out which of the city’s existing residential properties conformed to Somerville’s own zoning code. The number of fully zoning-compliant lots in the city of 80,000 people was a surprise to everyone: there were only 22.

The city of Somerville, it turned out, had declared itself illegal.