Have we missed the wave?

Falling farther behind…

For those paying attention, it has been a while since I last posted. A month. This is the longest gap I have had since I started publishing my thoughts on housing. I have struggled during the past month. I started and restarted this post multiple times. I have questioned my abilities, my motive, and even drive to seek change over time. I have also questioned, why am I using my time, valuable to me, my family, and even others to attempt to educate decision makers in hopes they will do the right thing? I even contemplated quitting this work, writing to drive change that is, and taking back my time to do something more beneficial for me personally.

At the end of this reflection period, I clearly decided to continue. I have realized this helps feed me, not in the true sense, but as a thought leader and continual learner. I am a houser at my core and I desire to be a change agent, and I ask you to join me in that effort.

An economic cycle is the overall state of the economy as it goes through four stages in a cyclical pattern: expansion, peak, contraction, and trough. While the nation has its economic cycles, so too do local markets (aka communities) and local markets do not always move parallel to or with the same results as our national economy. Local decisions either support and leverage national cycles, or they can work against them and hinder the economic success of communities.

As example, I was reading recently about closed access cities, and their relationship to national economic cycles. What is a closed access city? Close access cities (think San Francisco, New York) have high and rising incomes, extremely low rates of homebuilding, rising rents, rising home prices, and a turnstile migration pattern of high-income households moving in and low-income households moving out.

Then, there are open access cities. Open access cities (think Minneapolis, Atlanta) may also have increasing incomes, rents, and home prices, but they also have committed to housing production and ensuring population [labor force] growth while tempering the size of housing [including rent] price increases. As a result of this commitment to housing, the Minneapolis population grew by 12.4% since 2000, and was the only city, in this economic cycle, across our nation to ward off inflation through housing production – see Fortune’s Build more houses and get rid of suburban-style zoning and inflation will disappear. Metro Atlanta has grown by more than 15% since 2010 and is anticipated to grow another 30% by 2050.

Those closed access cities are counter-cyclical. According to Kevin Erdmann, Erdmann Housing Tracker, “They don’t build enough housing to handle pro-cyclical changes in per capita demand, so when the economy is strong, they have room for less people.” He goes on to say, “Growth in closed access cities is much lower than growth in the rest of the country. That is good for everyone except the families displaced from the Closed Access cities.”

Why does population growth matter? Population growth supports business growth (aka jobs) and a growth in tax base to fund a city or region’s needs. It can also lower taxes for a community’s existing resident base if total obligations are spread over a growing taxable real estate base. Erdman points out, “Labor supply - both in terms of willingness to work and in terms of regional migration - is determined by housing supply.” What happens when a community has a no growth housing policy, or lacks motivation to drive housing production? No housing is produced and there is little to no access for new residents or even local residents in expanding households.

So, as I thought about closed access cities, I could not help but think about Rockford and other communities I work in where local economic cycles are counter cyclical to our nation, or close enough to being counter cyclical it is concerning. They seem to be a quasi-closed access city, largely in part because of political will, or the lack there of to incentivize housing production or change archaic land use regulations. I also understand that if mentioned low-income people are moving out of our communities and replaced by higher income people, some would say – great! This zero-sum mindset is not reflective of our community’s shared values, is harmful to business growth, and not who is really moving out. Low-income families are working families with jobs in low paid positions and are still contributing to our community. They often lack the resources to move and are essentially stuck in place. Often stuck in substandard housing and neighborhoods - conditions a lack of housing policy perpetuates.

Who is moving out when there is no housing production, inventory is fixed, or even declining, and prices are rising? The middle-income folks are moving out. These are folks traditionally part of the more skilled workforce, higher wage earners, and as data shows contributors to community in other ways i.e., being part of a neighborhood or social organizations, on nonprofit boards, serving in the PTO, etc.

The following national cost burden chart shows growing “housing burden” or the number of folks paying more than 30% of their income on housing costs - rent/mortgage and utilities. Renters are disproportionately affected. Why focus on renters? They are the most mobile members of any community and can choose to stay and possibly buy a home or move on to somewhere with greater opportunities.

Source: THE STATE OF THE NATION’S HOUSING 2024, Joint Center for Housing Studies of Harvard University, Harvard Graduate School of Design | Harvard Kennedy School, page 2

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In Rockford, the 2021 share of renters spending more than 30% of their income on housing expenses exceeded 52% and the trend of increasing burden continues as rent continues to rise.

Source: Harvard Joint Center for Housing Studies tabulations of US Census Bureau, American Community Survey 1-Year Estimates using the Missouri Data Center MABLE/geocorr14

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We need to note locally though that this does not just affect renters. The percent of Rockford homeowners experiencing a cost burden, despite the multiple new sources on Rockford’s housing affordability, topped 20% in 2021. It is also worth noting the median sale price of a home in Rockford has increased by more than $60,000 since 2021 which will present an adverse effect on housing burden for homeowners, and we can assume the rate is now well over 20%.

Source: Harvard Joint Center for Housing Studies tabulations of US Census Bureau, American Community Survey 1-Year Estimates using the Missouri Data Center MABLE/geocorr14

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It is also worth noting that burden rates are high across Illinois, and we are the worst state when compared against our Midwestern peers.

Source: Illinois Policy, U.S. Census Bureau Created with Datawrapper

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By looking at burden rates we can determine who is most adversely affected. The following charts show housing burden to be rising fastest amongst middle income households. While I do not have this data for Rockford and other Illinois cities as I write this, I can make some assumptions. In Rockford, our poverty rate is 21% meaning that at a minimum, the difference between the poverty rate and burden rate of 52% for renters, lies a population that is not living in poverty, was previously stable, but is now housing burdened.

Source: THE STATE OF THE NATION’S HOUSING 2024, Joint Center for Housing Studies of Harvard University, Harvard Graduate School of Design | Harvard Kennedy School, page 29

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At the end of April, I wrote, “Good News Rockford! Are we ready to grow? That takes your voice,” because of the Wallstreet Journal article on Rockford housing affordability. I wrote this with caution citing a good news view, but also expressed my concerns over the lack of inventory production. To date, while a few building permits have been pulled, we have yet to see the effects of city government inducements. As previously reported, they simply are not enough. We are also seeing home prices continuing to rise. Rents continuing to rise. We are inadvertently supporting closed access city conditions. This will be problematic as eventually, this false bubble will burst and we could move back towards Rockford being an underwater and delinquent mortgage leader.

Economically, Rockford and our region has historically lagged in economic cycles by a few quarters. Our upturns start later as do our downturns; however, we have seen the downturns often hurt more and last longer.

Assuming this lag, we should be concerned that nationally rents are beginning to drop, housing inventory is rising, and housing costs are flattening. If we follow history, chances are we will experience like conditions in the next several months. This really concerns me as we seemingly missed our window to produce new housing units, both single and multi-family units to keep the residents we have and attract more. We likely have missed our expansion cycle when we didn’t have to. Missing the cycle is a political issue and we need to hold our elected officials accountable.

The following chart shows we also need to hold our state officials accountable - Illinois was the third worst state in the nation for housing production. Most specifically, we should hold those officials who are anti-housing most accountable. And, since permit approval is largely determined at the local level one should look to the platforms and rhetoric of those local officials who speak against housing production. I would challenge, there is a direct correlation between negative housing and land use rhetoric and the number of building permits issued in a community.

Source: Illinois Policy, U.S. Census Bureau Get the data Created with Datawrapper

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We should all ask our representatives why we could not move legislation to reduce land use restrictions and barriers. We should ask why last year (2023) twenty states, smaller than Illinois produced more housing units than Illinois? In the City of Rockford, we should ask why 2023 showed so few building permits issued that they can be counted on our fingers and toes? This was in the upswing of the expansion cycle - locally and nationally.

Source: Illinois Policy, U.S. Census Bureau Created with Datawrapper

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And, we should also ask what will be done locally as the national housing market and prices cool, to trigger production now, and prepare us for the next expansion cycle? We should ask, our elected if they are reaching to leaders of communities like Champagne/Urbana, or Naperville/Aurora, or Bloomington to ask how they did it as the following chart shows their production far exceeded ours.

Source: Illinois Policy, U.S. Census Bureau Created with Datawrapper

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In the event leaders lack the “how,” I offer the latest New York City focused work by the NYU Furman Center. The Center offers offered six principles to guide NY policymakers as they try to create a housing strategy that will continue to welcome a diversity of new residents and to help them climb the economic ladder. These principles are relevant to any city and the following direct excerpts and expanded guidance can be found at Vital City:

·        The first principle is flexibility. The cities that will thrive in the future are those that can reinvent themselves in the face of remote work and other unforeseen challenges to come. Effective urban policies will make the stock of buildings in the city as adaptable as possible so that the city can evolve as economic, climate and demographic conditions change.

·        The second principle is openness to growth and change.

·        The third key principle is generality. The task of providing more housing — and more subsidized, means-tested affordable housing — cannot fall to just a few neighborhoods, as it is now. Efficiency, fairness, and political viability all depend upon every community district doing its part to provide more housing.

·        The fourth principle is equity. We must end exclusionary and unfair land use policies, reduce the city’s high levels of segregation and boost homeownership among households of color.

·        A fifth principle is targeting the neediest. We need to focus on the lowest-income households (in part because they will not directly benefit as much as others from new building).

·        The final key principle is thoughtful cost control. Recognizing and addressing the outsized increases we have seen recently in the cost to develop and operate residential buildings is critical, as these threaten both affordability and the financial feasibility of new and existing housing.

As I read the Furman principles, these are not new principles and ones locally we have historically struggled with – which brings me back to holding our anti-housers, anti-growth representatives accountable. That takes all of us. Do you know where your alderman or alderwoman stands on housing? Do you see pro-growth concepts or hear pro-growth rhetoric from him or her? Are they helping us grow as a community, or hindering us? Your vote matters and I encourage you to use it wisely.