A letter to the editors in response to William A. Galston’s recent article, Trump Can’t Ignore Our Housing Crisis

This letter was originally published by The Wall Street Journal. You can read the original article here.

The three most important words in real estate are said to be location, location, location. The three most important factors in housing affordability are small lots, small lots, small lots. Small lots cost less—the still family-sized homes on them are smaller and cost less to build.

A common misconception is that builders build larger, more expensive homes because they make more money. This myth can be busted by a simple thought experiment: Would a builder make more profit building five customized homes each on a one-acre lot and selling for $1 million or by mass marketing 100 townhomes each on a 1/20 acre lot and selling for $300,000? Total profit would be higher selling $30 million worth of townhomes compared to $5 million worth of homes on one-acre lots.

While Mr. Galston points out some policy changes that would help at the margin, the real challenge is how to allow the market to build the millions of new homes needed. Our research has found restrictive zoning laws to be the primary impediment to housing affordability for the next generation. More than 12 million new homes were built from 2000 to 2024. If the median single family detached lot had been about 5,500 square feet rather than the actual 8,000, and 20% of those lots had been for townhomes, we would have had an additional 10 million homes today, with prices roughly 15% lower.

Next month AEI and the U.S. Chamber of Commerce will release 6,000 Housing and Economic Growth playbooks. Each will detail five strategies that states, counties and cities can use to address housing-supply challenges.