Lowering housing size would be bad economic move
A committee looking at Barrow County’s rules and regulations has recommended that the county government lower the minimum house size to 1,400 sq. ft., down from 1,600 sq. ft.
The argument behind the idea is that the county needs to take action to jumpstart the community’s construction and real estate industry. Before the economic crash, building and development was one of the largest employers in the county.
But this issue is fraught with complexity and has been — and will continue to be — hotly debated.
There are three essential questions that need to be addressed:
1. Would lowering house sizes really accomplish the objective of creating construction and development jobs in the county?
2. Is it in the best interest of Barrow County to have a large part of its employment in the construction/development/ real estate sector?
3. What are the larger ramifications of this move beyond employment and how should the county government balance market forces with public policy objectives?
On the first question, it’s not clear that lowering the minimum house size would indeed spark a boom of new construction in Barrow County. There are many other factors involved in boosting housing development and real estate sales beyond just house sizes.
The essential element in this size debate is cost; smaller houses, in general, cost less than larger houses. By driving down the size, the theory is that the cost will be lower and more people will be willing to buy homes.
But in today’s economic environment, there are other forces that also play a role. For one thing, a large number of people in Barrow County are unemployed, or have had homes foreclosed. No matter how small the house, those people can’t qualify for a loan. In addition, the tighter lending rules put even more people out of reach of qualifying for a loan. (And given the last few years, what bank would loan any builder money to build anything on speculation in Barrow County today?)
Coupled with that is the inability of potential new residents moving to Barrow County to sell their existing homes, especially in Gwinnett County. To a large extend, Barrow’s growth during the boom years was driven by people moving out of Gwinnett County. Today, that migration has slowed as people are stuck with their current homes in a flat real estate market.
So is there really a demand right now for new homes, even cheaper ones? And is there really a lack of supply to meet whatever the existing level of demand may be?
According to online data, there are some 660 homes for sale in Barrow County today. Of those, 400 are priced under $150,000. In addition, a look at some recent home sales show that most are well below that range. So it’s not clear that there is the demand today for a spurt of new houses, given the availability of existing homes in the market at cheap prices.
It’s “iffy” at best that lowering the size of houses would indeed spark new construction; and even if it did, that could lead to even more empty houses sitting unsold in a depressed market and more developers walking away, further depressing the local market.
On the second question, should Barrow really seek to make the construction/real estate business a major factor in the community’s economic profile?
As a recent Wall Street Journal articled pointed out, policy makers often seek to spur construction and development in a community because “few activities have such a direct, intense and immediate positive economic impact as new home construction.”
But the article goes on to say this:
“Those positive effects are transitory, however, when local economies have insufficient permanent employment to justify a constant level of demand for new housing stock.”
In other words, if a community isn’t also creating new local jobs, new housing will eventually stop.
And the articles asks: “What becomes of the work force once the party is over?”
Well, Barrow County knows that answer: High unemployment and an overall economic collapse.
For all the bragging some Barrow leaders did during the boom years, that construction and real estate growth wasn’t of their own making; it was a factor of location. In reality, Barrow leaders failed during the residential boom years to also lure new jobs (beyond low-paying service jobs) to the community.
It may not be good for Barrow to make construction its number one industry. Those jobs are not reliable and the up-and-downs of real estate can whiplash communities that tie their fortunes to building and development.
On the final question of overall public policy objectives and market demands, the issue gets a little fuzzy. From a public policy standpoint, massive new residential construction is a double-edged sword. On the one hand, more people bring in more businesses and that in turn brings in more sales taxes. In addition, land that was at one time raw agricultural property is converted to residential, which brings in more taxes.
But more people also bring in more government costs for new schools, roads, law enforcement, etc. Unless the growth in residential is coupled with a growth in hard jobs — manufacturing or high-end white-collar professionals — the cost to government exceeds the income from just adding bedrooms.
So while governments like growth, too much of the wrong kind of growth will eventually backfire. That’s why many governments put minimum house sizes in place in the first place. It’s a legal way to force up house prices to a level where government won’t lose so much money.
But there is a limit to that. It would be illegal for a government to require a 5,000 sq. ft. minimum house size just to manipulate the tax digest via the housing market. Housing is driven by market demand and this market could not support that high minimum price. At that level, the entire market would collapse.
On the other hand, housing standards don’t just affect those who are in real estate, they also affect the economics of all existing housing. The community does have a legitimate interest in assuring that its government sector and its building sector don’t do long term harm to existing property owners in a bid to get a short-term boost by artificially lowering housing standards, including housing size.
Perhaps instead of lowering the minimum size of houses, the county should raise it to 1,800 sq. ft. That would make the existing housing stock more valuable to investors and it could perhaps stabilize the downward spiral of overall county property values.
In the end, one could make a strong argument that Barrow leaders should do nothing today on changing house size minimums: The market has sufficient existing supply to meet the demand in the price range; making the cyclical housing industry the key to local economic growth is bad economic policy; and lowering housing size could do long-term harm to the overall real estate market in the county.
If Barrow leaders want to spark more residential construction, the best way to do that is by encouraging the development of new jobs in the community. Give people a reason to invest in Barrow County through the creation of employment opportunities.
And the best way to spark business investment in the community is to improve the local school system and get tough on crime, the two critical issues that appear to be holding the county back.
None of that will happen overnight. But getting impatient and trying to artificially “fix” construction by manipulating housing sizes won’t fix the problem, either.
It’s just a waste of energy and focus while the deeper, more fundamental problems continue to fester.
Mike Buffington is co-publisher of the Barrow Journal. He can be reached at mike@mainstreetnews.com.
But this issue is fraught with complexity and has been — and will continue to be — hotly debated.
There are three essential questions that need to be addressed:
1. Would lowering house sizes really accomplish the objective of creating construction and development jobs in the county?
2. Is it in the best interest of Barrow County to have a large part of its employment in the construction/development/ real estate sector?
3. What are the larger ramifications of this move beyond employment and how should the county government balance market forces with public policy objectives?
On the first question, it’s not clear that lowering the minimum house size would indeed spark a boom of new construction in Barrow County. There are many other factors involved in boosting housing development and real estate sales beyond just house sizes.
The essential element in this size debate is cost; smaller houses, in general, cost less than larger houses. By driving down the size, the theory is that the cost will be lower and more people will be willing to buy homes.
But in today’s economic environment, there are other forces that also play a role. For one thing, a large number of people in Barrow County are unemployed, or have had homes foreclosed. No matter how small the house, those people can’t qualify for a loan. In addition, the tighter lending rules put even more people out of reach of qualifying for a loan. (And given the last few years, what bank would loan any builder money to build anything on speculation in Barrow County today?)
Coupled with that is the inability of potential new residents moving to Barrow County to sell their existing homes, especially in Gwinnett County. To a large extend, Barrow’s growth during the boom years was driven by people moving out of Gwinnett County. Today, that migration has slowed as people are stuck with their current homes in a flat real estate market.
So is there really a demand right now for new homes, even cheaper ones? And is there really a lack of supply to meet whatever the existing level of demand may be?
According to online data, there are some 660 homes for sale in Barrow County today. Of those, 400 are priced under $150,000. In addition, a look at some recent home sales show that most are well below that range. So it’s not clear that there is the demand today for a spurt of new houses, given the availability of existing homes in the market at cheap prices.
It’s “iffy” at best that lowering the size of houses would indeed spark new construction; and even if it did, that could lead to even more empty houses sitting unsold in a depressed market and more developers walking away, further depressing the local market.
On the second question, should Barrow really seek to make the construction/real estate business a major factor in the community’s economic profile?
As a recent Wall Street Journal articled pointed out, policy makers often seek to spur construction and development in a community because “few activities have such a direct, intense and immediate positive economic impact as new home construction.”
But the article goes on to say this:
“Those positive effects are transitory, however, when local economies have insufficient permanent employment to justify a constant level of demand for new housing stock.”
In other words, if a community isn’t also creating new local jobs, new housing will eventually stop.
And the articles asks: “What becomes of the work force once the party is over?”
Well, Barrow County knows that answer: High unemployment and an overall economic collapse.
For all the bragging some Barrow leaders did during the boom years, that construction and real estate growth wasn’t of their own making; it was a factor of location. In reality, Barrow leaders failed during the residential boom years to also lure new jobs (beyond low-paying service jobs) to the community.
It may not be good for Barrow to make construction its number one industry. Those jobs are not reliable and the up-and-downs of real estate can whiplash communities that tie their fortunes to building and development.
On the final question of overall public policy objectives and market demands, the issue gets a little fuzzy. From a public policy standpoint, massive new residential construction is a double-edged sword. On the one hand, more people bring in more businesses and that in turn brings in more sales taxes. In addition, land that was at one time raw agricultural property is converted to residential, which brings in more taxes.
But more people also bring in more government costs for new schools, roads, law enforcement, etc. Unless the growth in residential is coupled with a growth in hard jobs — manufacturing or high-end white-collar professionals — the cost to government exceeds the income from just adding bedrooms.
So while governments like growth, too much of the wrong kind of growth will eventually backfire. That’s why many governments put minimum house sizes in place in the first place. It’s a legal way to force up house prices to a level where government won’t lose so much money.
But there is a limit to that. It would be illegal for a government to require a 5,000 sq. ft. minimum house size just to manipulate the tax digest via the housing market. Housing is driven by market demand and this market could not support that high minimum price. At that level, the entire market would collapse.
On the other hand, housing standards don’t just affect those who are in real estate, they also affect the economics of all existing housing. The community does have a legitimate interest in assuring that its government sector and its building sector don’t do long term harm to existing property owners in a bid to get a short-term boost by artificially lowering housing standards, including housing size.
Perhaps instead of lowering the minimum size of houses, the county should raise it to 1,800 sq. ft. That would make the existing housing stock more valuable to investors and it could perhaps stabilize the downward spiral of overall county property values.
In the end, one could make a strong argument that Barrow leaders should do nothing today on changing house size minimums: The market has sufficient existing supply to meet the demand in the price range; making the cyclical housing industry the key to local economic growth is bad economic policy; and lowering housing size could do long-term harm to the overall real estate market in the county.
If Barrow leaders want to spark more residential construction, the best way to do that is by encouraging the development of new jobs in the community. Give people a reason to invest in Barrow County through the creation of employment opportunities.
And the best way to spark business investment in the community is to improve the local school system and get tough on crime, the two critical issues that appear to be holding the county back.
None of that will happen overnight. But getting impatient and trying to artificially “fix” construction by manipulating housing sizes won’t fix the problem, either.
It’s just a waste of energy and focus while the deeper, more fundamental problems continue to fester.
Mike Buffington is co-publisher of the Barrow Journal. He can be reached at mike@mainstreetnews.com.
Today we have independent groups working on economic development in Barrow. The EDC is well funded but they strive to be isolated and disconnected from all other county leaders. Economic development efforts will not be successful in Barrow until they are intergrated into every facet of day to day operations throughout the county.
I find it remarkable that Jackson County is brimming with new job/employer prospects and Barrow seems totally dormant. Our County leaders and our EDC members need to figure out why this is. Mike pointed out two of the main issues, education and public safety, but there are other factors as well.
Real job growth will not happen here until we can take a hard look, from the business and employers vantage point, on why Barrow is not a place they would consider as a location for their new business venture.
It's hard to look at all of our flaws but we can't begin to fix them until we acknowledge that they do exist.