Legislature eyes housing crisis solutions

As a general rule, policymakers love to take action when Americans are faced with a perceived crisis. The results often vary depending on how prudent their policies were, but their bias for action in times of uncertainty is apparent nonetheless.

Given this axiom, it shouldn’t come as a surprise that the Georgia General Assembly is mulling free-market solutions to the nagging housing crisis that, if left unaddressed, could worsen and turn into a longer-term problem.

Practically everyone with knowledge of the housing market will tell you that Georgia’s is unhealthy and riddled with serious dysfunction. It isn’t a problem unique to the Peach State, but Georgians are particularly feeling the sting.

Much of the problem boils down to a market imbalance. Georgia Trend reported that the state has the 10th-worst housing deficit. Put simply, there’s not enough supply to meet demand. “Statewide, the gap was 118,388 homes in 2019, an increase of 2,655% since 2012,” Georgia Trend wrote. Without a doubt, the gap has since grown even greater.  

Without enough homes to meet demand, housing prices go up. It’s elementary economics, which Georgians have witnessed firsthand. From January 2020 to January 2023, the average home price in Georgia surged from around $235,000 to $336,000. This has far outpaced wage increases, and the majority of homeowners now say that they wouldn’t be able to afford their homes in today’s prices.

While this was initially great news for established homeowners, it’s been misery for homebuyers. Matters seem particularly dire in metro Atlanta where the average person cannot afford to purchase a home, according to the Federal Reserve. This is especially true for younger generations. The majority of Americans aged 18 to 41 want to buy a home, per a recent survey, but they can’t afford one.

Thanks, in large part, to the Federal Reserve’s interest-rate-hiking actions, conditions have grown increasingly challenging. Mortgage rates have gone through the roof. If you are fortunate enough to have an 800-plus credit score, want to purchase a $400,000 home, and have a 20-percent down payment, then your interest rate for a conventional loan would be around 7 percent. Compare that to 2.65 percent, which was the national average in January 2021. Due to these increases, a 400,000 home now costs around $800 more a month than it did in early January 2021.

The mortgage rate hikes also mean that many current homeowners simply cannot afford to sell their home because they would lose their low interest rate, which complicates matters and restricts supply even further. All of these issues combined have led to an overpriced housing market with limited inventory and a shortage of qualified buyers.

This isn’t to say that there’s no inventory. Redfin reports that there may be upwards of four months of supply. More would be much better, but a quick perusal of the available homes shows why they are still for sale. Many are overpriced, have languished for months, and are aesthetically displeasing, if I am being charitable. It’s a fine time to buy a home if you’re independently wealthy, willing to be saddled with crippling debt, or have flexible standards. Unsurprisingly, mortgage demand has hit a 28-year low nationally and housing sales have plummeted by about 37 percent from January of 2022 to January 2023.

What happens next in the housing market is anyone’s guess. The Dallas Federal Reserve has warned of the chance of a severe drop in housing prices, but other experts disagree. Whatever happens, dysfunction will persist so long as mortgage rates are grossly inflated and there’s an unhealthy imbalance in supply and demand.

There’s little that the state of Georgia can do to address mortgage rates, but reducing red tape and construction costs could incentivize homebuilders to answer demand. Earlier this year, Rep. Dale Washburn, R-Macon, introduced a bill to do just this. 

If enacted, HB 514 would prohibit local governments from imposing unnecessary development moratoriums on single-family homes of 180 days or more, which prevent private companies from meeting demand; and it would permit local governments to waive regulatory fees on construction—making it cheaper to build homes. The goal of HB 514 is clear: remove barriers to construction and let the market organically meet demand.

“The spring is typically the most important season for the housing market, with about 40% of existing-home sales for the year typically occurring from March through June,” wrote the Wall Street Journal, but recent indicators seem to predict underwhelming home sales this spring.

The Legislature can’t do much about that, but if they pass HB 514, they may be able to spark new construction and salvage the housing market for the Spring of 2024. This bill is far from a cure-all, but some modest reforms are better than nothing.