By Donna King
Carolina Journal

People are flocking to North Carolina because of its good weather, low taxes and strong economy, driving up demand and, in turn, housing prices. As the November election approaches, candidates are talking about further policies and what they would do to bring prices down.

According to a report from the North Carolina Housing Finance Agency, North Carolina housing prices have increased by about 47% over the past five years. This sharp increase is due to strong demand, limited supply and the state’s growing population. During the same period, rental prices have increased by about 28%, which is slightly higher than the national average increase of 26% and significantly outpaces wages, especially in the service sector.

According to the North Carolina Department of Commerce, wage growth in the state has been moderate, but inflation has eaten up many of the gains workers might otherwise have made. This trend reflects broader national patterns in which housing affordability has become a significant issue as both home prices and rents rise much faster than incomes.

According to Jim Burling, author of Nowhere to Live: The Hidden Story of America’s Housing Crisis, there is a simple reason for high prices: an imbalance between supply and demand, partly due to poor policy decisions.

Housing affordability has become an unavoidable theme in the 2024 presidential campaign, with both Vice President Kamala Harris and former President Donald Trump proposing strategies to give Americans more shelter. As in other policy areas, the proposals reflect a very different economic approach.

Regulations disrupt supply and demand

Burling, vice president of legal affairs at the Pacific Legal Foundation, said local zoning, regulations and lawsuits are the main causes of rising housing costs. Restrictions on multifamily housing and green space development, as well as legal opposition to development, drive up construction costs and lead to housing crises, including gentrification and homelessness.

According to the National Association of Home Builders, more than 25% of the cost of a new home is a direct result of government regulations. For some new multifamily developments, that figure rises to 42%.

“There are a whole bunch of regulations that are a huge hindrance to building homes,” Burling said. “I think people and consumers don’t realize that this has such a big impact on the availability of housing.”

But regulations such as eviction moratoriums and price controls also limit supply. During the COVID pandemic, for example, the state of North Carolina imposed an eviction ban at the initiative of the U.S. Centers for Disease Control (CDC). While the moratorium was a lifeline for some families whose jobs disappeared during government-imposed shutdowns, it was extended multiple times and ultimately drove up costs for property owners. It created an incentive not to build new rental housing or offer existing homes for rent. When eviction bans were lifted, eviction numbers across the state returned to pre-pandemic levels. In Mecklenburg County, eviction numbers exceeded pre-pandemic numbers.

Data suggests that in some regions, rental prices rose sharply due to a surge in demand from those previously shielded by the moratoriums as landlords sought to recoup revenue lost during the pandemic.

“You can’t drive prices down without creating shortages,” Burling said. “New supply isn’t going to happen in a price control environment. The new supply isn’t there, so demand continues to rise. Once the controls are lifted, there’s a bigger discrepancy between supply and demand.”

WHAT DO THE PRESIDENTIAL CANDIDATES PROPOSE?

Real estate developer Donald Trump has proposed strategies to improve housing affordability as part of his 2024 campaign. One of the key ideas is reducing regulations that Trump says are hindering housing construction.

During his previous term, he signed an executive order in 2019 establishing the White House Council on Eliminating Barriers to Affordable Housing Development. The group focused on removing barriers to building affordable housing, particularly by combating restrictive local building codes. He says he will build on those deregulation efforts if re-elected.

Trump has also focused his policy program on lowering interest rates and inflation overall and creating tax incentives for first-time home buyers. The program also includes a promise to eliminate housing subsidies for illegal immigrants and use the savings to house homeless veterans instead.

Kamala Harris’s campaign team recently proposed regulating rental markets, including partial nationwide rent controls. It also advocates banning commercial landlords from using software to measure supply and demand in a particular region to set their rental prices.

“Statewide rent control would make a local problem a national problem,” Burling said. “Rent control is politically popular in narrow circles, but I’m not sure the Harris campaign will really get much out of it, because there are a lot of people who don’t think much of rent control outside of the cities with rent control. More importantly, it will make the problems worse, because when there is rent control, people stop building.”

Harris has also proposed expanding the Low-Income Housing Tax Credit (LIHTC) and creating a new tax incentive for developers who build first-time homes for first-time buyers. Her housing plan also calls for putting $40 billion of federal taxpayer money into an “innovation fund” for local initiatives like home improvement loans and providing $25,000 in federal funds to first-time homebuyers, with first-time buyers getting even more. According to the Hoover Institute, the $25,000 promise would cost taxpayers $500 million.

“It will pump more money into an industry or sector of the economy without increasing supply,” Burling said. “Demand will stay the same, prices will go up. That’s generally what happens when you pump money into an industry.”

Both Harris and Trump have proposed selling excess federal land to developers who commit to building affordable housing. While Burling likes the idea, he’s watching for political red flags.

“There’s nothing free from the federal government,” Burling added. “There could be a number of conditions, and I imagine those conditions could have a racial component, that it might have to be about equity rather than equal opportunity, that it might be about project labor contracts… the country’s supply advantage will disappear.”

HOMELESSNESS IN NC

It’s difficult to talk about housing without considering homelessness, which has increased significantly in North Carolina since 2019. According to the North Carolina Housing Coalition, higher housing prices disproportionately impact people on the margins of society.

From 2019 to 2022, during COVID lockdowns, homelessness in North Carolina increased by about 23%. From 2022 to 2023, it rose again by another 4%. The increase in homelessness was most noticeable among veterans, youth, and Black North Carolinians. From 2022 to 2023, data from the U.S. Department of Housing and Urban Development (HUD) showed that the number of homeless veterans in the state increased by 10%. Additionally, estimates from the North Carolina Coalition to End Homelessness (NCCEH) suggest that about 30% of homeless people also suffer from a serious mental illness. Burling says it’s crucial to address their immediate treatment and housing needs.

“I’m a free market believer, but sometimes I think that private charities or the government or both need to step in and that there need to be meaningful treatment facilities for people who are seriously mentally ill; not the huge warehouses like the one I volunteer at, but not the streets either,” Burling said. “The streets or prisons are where the mentally ill go today, and if you have a tendency toward addiction, it only gets worse.”

North Carolina’s population has grown 10% over the past decade. As the state continues to grow, the cost of living is moving to the top of voters’ priorities. In a recent Carolina Journal poll, more than 50% of voters said inflation and prices were their biggest concerns ahead of the November election.