Georgia Has A New Housing Crisis: Affordability

This week’s Courier Herald column:

Every crisis isn’t the same.  Most are similar in that no one sees the crisis coming because they’re too busy trying to make sure the last one doesn’t happen again.

The last major economic crisis had at its core an oversupply of housing.  While there were many reasons that fed the housing bubble, the core consisted of a combination of too many loans made to people that could not afford their houses. 

Ultra-low interest rates added fuel to the fire until they became the catalyst that caused the bubble to burst.  The damage went well beyond the housing industry.  One quarter of Georgia’s banks failed in the aftermath.  The economy sank to levels not seen since the Great Depression. 

We, at least for now, seem to have learned that lesson.  I have.  A decade before the crisis I was a banker that became a builder, developer, investor, and Realtor.  My real estate license is currently inactive, though I still work with Realtors in an advisory capacity.  I don’t miss carrying eight figures of leveraged real estate debt in order to try to make a living.

Banks are required to fully underwrite mortgage loans or otherwise hold them on their balance sheet in a less than profitable manner.  There are minimum income and credit standards for borrowers.  Banks are regulated as if they’re utilities. 

In an effort to control the oversupply of housing, a not too surprising result has occurred.  Georgia’s housing market is undersupplied, with almost no housing being added in many areas outside of metro Atlanta. 

Frank Norton Jr is a mega-agent from Gainesville.  In addition to running his multi-generational real estate enterprise, he’s become a self-described “housing evangelist”, making frequent appearances at legislative study committees between the last legislative session and the current one. 

Norton appeared not only at the study committee focused on workforce housing, but was also invited to testify during legislative budget hearings.  As we learned in the last crisis, Housing is directly related to our economy.  His data painted a stark picture for rural Georgia.

Georgia is growing faster than ever, with most of that growth clustered in metro Atlanta and along Georgia’s coast.  While we’re now adding about 100,000 new residents per year consistently, our new housing supply is down to that of the 1970’s.  

The problem is complex and like the last crisis, there are many contributing factors.  The conclusion is relatively simple.  Georgia isn’t producing enough housing that is affordable.  The failure to do so is impacting economic development in regions that need it the most.

One of the first questions a company looking to relocate will ask is “where are my employees going to live?”  If the company’s employees are working class hourly labor, too often there is not an answer.  The company then crosses that community off the list before making a short list of targeted site locations.

Norton’s data shows that roughly 9,000 total houses were added in 2018 outside of the greater metro Atlanta area.  Worse, he indicated that most of those were student housing developments clustered around Georgia’s colleges. 

It’s not that the demand isn’t there.  It’s that workers can’t afford the houses that are being or can be built. 

The message to policy makers is direct and pressing.  For the rest of Georgia beyond Atlanta to attract new companies and industries, affordable housing must be available in numbers that it currently isn’t.

Policy makers have tools to improve the situation on the supply side and the demand side.  Currently, there are regulations that are driving the cost of housing to artificially high levels, while an overcorrection on underwriting standards has many that have documented ability to pay unable to qualify for debt.

In areas across the state, local governments are implementing “design standards” specifically to add costs to new homes under the guise of protecting property values.  It’s a thinly veiled practice of exclusionary zoning which keeps working class Georgians from sharing in their community’s prosperity. 

On the affordability side, it’s now cheaper to own a home than it is to rent in many areas.  Yet, even if a mortgage applicant can document a lengthy rent payment history, they may still not be deemed able to afford the mortgage.  Additional latitude should be allowed here if all other underwriting criteria are met. 

Many parts of rural Georgia are in crisis.  Georgia’s policy makers need to understand that more housing, specifically more affordable housing, is the solution and not the problem.