Laying the Foundation

Five ways housing affordability will hopefully improve under new laws


 Tom Larson  |    June 08, 2018
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One of the WRA’s top priorities during the 2017-18 legislative session was to make home and property ownership more affordable throughout Wisconsin. While there is no silver bullet to fix the housing affordability problem, lawmakers passed numerous legislative initiatives into law to help the problem. 

Background

From southeast Wisconsin to the Fox Valley to Dane County to Eau Claire, housing is a growing economic development issue. Housing affordability is becoming a key issue for employers as they try to attract and retain workers. Communities with an adequate supply of housing that families can afford are finding it easier to attract workers than those communities with more expensive housing. 

Although not the only contributor to higher housing costs, local government regulation has a direct impact on housing affordability. One way in which local government regulation contributes to the housing affordability problem is by unnecessarily restricting the supply and imposing excessive fees on new housing construction. According to the National Association of Home Builders, government regulations add approximately 25 percent to the cost of a new home. As a result of local regulations and several other factors, the cost of housing continues to outpace the average wage increases throughout Wisconsin, which makes it more challenging for Wisconsin workers and families to own a home. Moreover, with states competing for a limited, skilled workforce, housing affordability for workers is becoming a more important consideration for businesses in deciding where to locate. 

Consider the following:

  • In a balanced real estate market, six months of housing inventory is the norm. Today, the statewide average is four months of inventory and is much worse in urban markets at 3.1 months. 
  • Year-over-year inventory is down 17 percent compared to March 2017.
  • Prices increased 7 percent to a statewide median of $174,900, which is nearly three times the rate of inflation over the last year.
  • New home starts are considerably lagging pre-recession numbers. From 1999 to 2005, Wisconsin averaged 25,000 to 30,000 new home starts per year. From 2013 to 2016, the average dropped sharply to 7,000 to 8,500 per year.
  • With individuals living longer and millennials starting to purchase homes, the affordability problem will likely become worse.

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Housing affordability initiatives passed into law

To help address the growing housing affordability issues in a comprehensive manner, the WRA worked with state lawmakers to pass legislation to address the following five goals: 

1. Reduce the cost to own a home: One of the top priorities of the WRA was to reduce overall homeownership costs in Wisconsin. At the state level, one of the best ways to do this is by lowering property taxes. Over the last eight years, Wisconsin lawmakers have reduced property taxes by approximately $600 million and placed spending limits on local governments that can be raised only through public referendum. This last session, lawmakers reduced property taxes by an additional $90 million per year by eliminating the state portion of the property tax, which was used to fund the state forestry program. See 2017 Wis. Act 59. 

2. Reduce the cost to build a home: New housing is getting more expensive due to, among other things, government regulation costs. To help reduce government regulation costs, lawmakers streamlined the approval process for residential development and reformed the development-related fees charged by local governments. Lawmakers closed loopholes in the impact fee law, which allowed local governments to impose excessive fees on new development that in turn passed onto homeowners in the form of increased housing costs. In addition, lawmakers removed obstacles to the development-approval process that allowed neighbors in opposition to new development to trigger supermajority voting requirements by elected officials for any zoning changes. This unnecessarily politicized the development-approval process, which already required all zoning changes to be consistent with the local comprehensive plan. See 2017 Wis. Act 243.

3. Provide financial incentives for local governments to approve higher-density and more affordable housing: Currently, state law places a limit on the tax levies of local government to keep property taxes low. Under a new law, an exception to the levy limits was created to provide an incentive for local governments to approve higher-density and more affordable housing. Under the exception, a local government can raise its levy by $1,000 for each new, single-family home built within the community if the home meets both of the following parameters:
Built on a quarter acre or smaller in a city or village, or a parcel of 1 acre or less in a town.
Sold for no more than 80 percent of the median price of a new home within the city, village or town.
While not huge, the $1,000-per-unit increase to the levy limit provides a small financial incentive to encourage municipalities to think of ways to reduce housing costs and promote higher densities. See 2017 Wis. Act 243. 

4. Provide financial incentives for developers to build affordable housing: To further encourage developers to build affordable rental housing, Wisconsin lawmakers approved a new Wisconsin Low Income Housing Tax Credit (LIHTC) program that provides $42 million in annual tax credits to finance apartments reserved for low-income renters. The program is administered through the Wisconsin Housing and Economic Development Authority (WHEDA) and creates a 4 percent state match to the 4 percent federal credit already offered through WHEDA. The program requires WHEDA, among other things, to give preference to developments located in municipalities with populations with less than 150,000. Currently, 43 percent of renters in working households are not able to find affordable housing in Wisconsin. The program is modeled after successful programs in other states such as Missouri, Georgia and Oklahoma. See 2017 Wis. Act 176.

5. Better educate state and local lawmakers about the impact of regulations on the cost of housing: Well-intentioned state and local lawmakers often pass regulations that unintentionally increase housing costs in a variety of ways, including building codes that increase the cost to build a new home or environmental regulations that make it difficult to develop new subdivisions. To help lawmakers better understand the impacts of both new and existing regulations on the cost of housing, a new law was passed to require state agencies promulgating new rules to analyze the impact of these rules on the cost, financing, sale, ownership and availability of housing. The analysis must be provided to state legislators who can better understand how a proposed rule may impact new housing and request changes to the proposed rule, if necessary. See 2017 Wis. Act 68.

At the local level, another new law was passed to require cities and villages with a population of 10,0000 and above to conduct a self audit of development-approval processes, building codes and development-related fees and analyze the impact on the cost of housing. In addition, these municipalities are required to analyze existing inventory of vacant lots and market demand for new housing to better understand the need for an increased supply of developable land. Finally, local governments will have to identify ways to reduce housing costs by 20 percent within their community. See 2017 Wis. Act 243.

Over the next several years, the WRA will be monitoring the impact of this legislation to determine whether it has helped address the affordability housing problem.

Tom Larson is Senior Vice President of Legal and Public Affairs for the WRA.

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