Ruder Featured in OP Chamber Business Perspective

ruder imageHousing: Five Ls Control Supply
It is difficult to imagine anything more consequential to the overall economic health of a community or of the health of its residents than housing.
by Will Ruder | EVP, Home Builders Association of Greater Kansas City

Every community in the metro is taking on the topic, albeit in differing ways and on different terms. Building enough homes to meet the need is an enormous challenge to tackle. Recognizing that the costs of housing have continuously increased at a higher rate than the average would-be buyer’s wage growth, it is more important than ever that our region’s governing bodies actively partner with housing providers of all types if we are to mitigate the effects of an extreme housing shortage.

The Home Builders Association of Greater Kansas City (KCHBA) utilizes the five Ls to illustrate the construct of the housing market. The five Ls are:

Lots – The land utilized for housing and the costs associated with developing it into buildable ground.
Labor – The volume of people doing the work to bring housing to market and the wages they command.
Lumber – An all-encompassing term meant to include all of the physical materials used to build a home.
Loans – The terms and overall availability of credit and capital that finance the construction and purchase of homes.
Laws – The regulatory environment consisting of federal, state, and local parameters pertaining to land development and new home construction.

If you think of these five Ls as individual circles that come together in the form of a Venn diagram, where they overlap functions as the market in which new housing can come online. The introduction of new supply constraints like rising interest rates, volatile costs for building materials, or new regulatory barriers pulls those respective circles away from the center thereby shrinking the prospects of new housing supply.

This model of understanding the housing market is simple to grasp yet difficult to interpret. However, where local housing markets are concerned, we should focus primarily on controlling what can be controlled. A city council or county commission cannot affect interest rates or solve an international supply chain bottleneck. A local governing body can, however, ensure that the local regulatory conditions have the best possible opportunity to yield a diverse inventory of housing options at a broader range of prices. Housing has always been primarily governed at the local level.
In order for that to happen, local governments like Overland Park, must make and ultimately keep new housing as a top priority. Additionally, we would recommend that every policy change that comes before a local jurisdiction be subjected to a test: Does this new policy make home ownership more or less likely? Until the answer to that question shifts from today’s predominant “less likely” to an increased frequency of “more likely,” housing options will continue to narrow. We cannot speak new housing options into existence. It takes planning and collaboration. The KCHBA is an active voice in the housing industry, but we are not the only perspective. Together, the broader business community and our local housing providers can initiate a housing renaissance in communities like Overland Park.

 

This editorial was originally featured in Overland Park Chamber’s July publication of Business Perspective. Click here to read the full issue.