Georgia won’t lower cost of housing until state tackles the ‘regulatory tax’
If you’ve spent any time scrolling through social media or watching the evening news lately, you’ve likely heard a familiar villain blamed for the skyrocketing cost of housing in Georgia: the “institutional investor.”
The narrative is simple and, for many, emotionally satisfying. We’re told that Wall Street hedge funds are swooping into neighborhoods from Gwinnett County to Glynn, outbidding hard-working families with all-cash offers and turning the American Dream into a permanent rental nightmare.
I’m not here to convince you this never happens, or that these companies are sympathetic figures. I would simply tell you that if housing affordability is one of your concerns, the “investor” issue is a distraction.
The math of the housing market is remarkably straightforward: Prices rise when demand outstrips supply. And in Georgia, the supply of housing isn’t being held back by investors. It’s being strangled by government regulation.
If we want to ensure that the next generation of Georgians has a place to call home, that’s the problem we have to solve.
Why regulations make homes more expensive
Research from the Georgia Public Policy Foundation shows the “corporate landlord” narrative doesn’t hold up under scrutiny.
Institutional investors represent a relatively small slice of the overall market: only 3% across all of metro Atlanta, ranging from 0.5% in Spalding County to 8.3% in Henry County.
At the same time, homeownership rates in each metro county have risen in recent years after bottoming out due to the Great Recession.
The logical conclusion is that if institutional investors are increasing their market share, then it’s more at the expense of smaller investors in rental property than of would-be homebuyers.
But even if your pitchfork is still drawn, know that these investors are a symptom of the problem, not the cause.
Investors are drawn to Georgia’s housing market precisely because they see a chronic, government-induced shortage that practically guarantees home values will continue to climb. They are responding to scarcity, not creating it.
The real culprit is what we might call the “regulatory tax.”
According to our research, government regulations — ranging from impact fees to outdated zoning laws — can account for about 27% of the final price of a new single-family home in Georgia.
That’s higher than the national average of about 24%. For a home priced at $400,000, those extra 3 percentage points alone represent about $12,000. That’s real money.
Allow for different types of housing in communities
Homebuilders today face more than just the costs of lumber and labor. They must also contend with minimum lot-size requirements that force developers to build on large, expensive plots.
They must meet “design standards” that dictate everything from the type of siding used to the pitch of the roof, piling tens of thousands of dollars onto the price tag without adding a lick of structural value.
Housing’s “missing middle” — townhomes, duplexes and smaller cottages — comprises options often banned outright by local zoning boards that view anything other than a 2,500-square-foot home as a threat to “neighborhood character.”
When we make it prohibitively expensive or even illegal to build modest, attainable homes, we shouldn’t be surprised when modest, attainable homes are hard to find.
If a young teacher or a police officer can’t afford a home in the community they serve, it probably isn’t because a hedge fund manager in Manhattan outbid them. More likely, it’s because their local government made it impossible to build a home at a price point that fits their budget.
There are also national headwinds making it tougher for hard-working Georgians to purchase a home.
Changes to federal lending standards following the Great Recession have made it much more difficult for buyers with short credit histories to get mortgages, even if their earnings would otherwise justify a loan. That’s true even in places where local regulation hasn’t gone overboard.
We can lessen regulations on homebuilding by streamlining the permitting process, eliminating unnecessary design mandates and allowing for a greater variety of housing types. We need to allow the market to work.
When we artificially restrain supply through red tape, we create a “musical chairs” economy where the person with the most money always wins. We can keep blaming the people winning the game, or we can finally decide to add more chairs. For the sake of Georgia’s future, it’s time we chose the latter.
Kyle Wingfield is president and CEO of the Georgia Public Policy Foundation, a nonprofit research institute based in Atlanta.
