Making Housing Unaffordable

Panel addresses concerns over Des Moines’ proposed zoning code.

As anyone in the home construction or real estate fields knows, the most significant barriers to industry growth are construction costs and a lack of skilled labor. Over the past few years industry professionals and government leaders have teamed up to address the labor shortage with programs such as Future Ready Iowa and the Skilled Trades Alliance.

But proposed changes to the zoning code currently being reviewed by the Des Moines City Council could drive home prices even higher. The Home Builders Association of Greater Des Moines and Des Moines Area Association of Realtors^® (DMAAR) hosted a panel discussion recently to address industry concerns over the Des Moines proposal and to inform area professionals of the potential consequences of the changes.

Held at the site of the 2019 HomeShowExpo in Waukee on Thursday, July 18, the Lunch and Learn Home Affordability Panel included a luncheon, discussion, and Q&A led by Kalen Ludwig of Peoples Company and Sarah Miller-Huegerich of Coldwell Banker Mid-America Group. Panelists Karl Eckhart, Lauren Johnson, Dan Garrett, and Eric Webster answered a number of questions from the hosts as well as from the audience.

The issue under debate, a proposed zoning code for the city of Des Moines, is a form-based code, which would dictate not just structural standards for new homes but design items as well.

According to Karl Eckhart, VP of Intergovernmental Affairs for the National Association of Home Builders (NAHB), “The traditional parameter of a housing code is to address three things: health, safety, and welfare. The Des Moines code is concerned with how to make the houses look. It will mean no more vinyl. There must be a basement. There must be a two-car garage. It will specify square footage, roof pitch, and exterior finish. It will result in a starting home price of $300,000.”

Eckhart says housing affordability is the number one issue at NAHB right now and that government regulation accounts for 25% of the costs related to new construction.

Representatives from the city have stated that the new codes would increase home values and, therefore, generate more revenue from property taxes. Because about 40% of the properties in Des Moines are tax-exempt, city officials say they have to find new ways to generate that revenue.

“The creators of this proposal are trying to increase tax revenue without increasing taxes,” Eckhart says. “Ultimately, it will affect everyone. Housing affordability will be affected more immediately, but eventually everyone will be affected by it.”

The proposed code change targets new and, possibly, renovated properties, depending on the extent of the renovations. Because of this, the city believes that existing homes and multifamily options will be sufficient to meet the demand for buyers seeking homes under $300,000.

The panelists disagree.

In fact, Lauren Johnson, Policy and Communications Director for Polk County Housing Trust Fund, says, “According to a recent Workforce Housing Study funded by Polk County Housing Trust Fund, Capital Crossroads, and the City of Des Moines, the proposed code would eliminate 80% of current housing under construction in Des Moines.”

Panelist Eric Webster, General Manager of Berkshire Hathaway, says, “This will affect so many other aspects of the industry, not just the new-home prices. It throws a wrench in the appraisal process. There will be no comparables for an appraiser to compare in an area, so it will be difficult to appraise these new homes at the actual sale price. They will likely be appraised lower because there is no local or historical data to justify the sale price. That affects buyers who may have difficulty financing a home whose sale price is higher than its appraised value.”

With the restrictions proposed, minimum square footage requirements surpass that of the typical nonprofit project, like those built by Habitat for Humanity. As a result, says Dan Garrett, Vice President of Originations at WNC & Associates and chair of the Iowa Housing Partnership, “This code will crush Habitat for Humanity’s efforts in Des Moines. Numerous nonprofits will be affected—Home, Inc. and the Veterans Affairs, for instance.”

City officials have stated that, as with any zoning code, builders are free to seek variances if they want to build a home that doesn’t comply with the code. But participants at the panel discussion believe this is simply adding another unnecessary burden—and cost—to nonprofit agencies like those mentioned and to builders seeking to provide affordable housing within the city.

Johnson says any community needs to have a choice across the spectrum of home prices, not just specific types of housing in specific communities. “To meet all the needs of a community, there has to be affordable housing” as well as move-up housing, rental properties, and executive-style homes, he says.

“How do you build wealth?” Garrett asks. “With real estate. But this code raises that minimum bar too high. If you want a prosperous community, everyone needs to be successful and benefit.”

The Des Moines proposed code would likely eliminate that possibility for a significant percentage of residents. Recent studies indicate that the Des Moines metro area could add 157,000 new jobs over the next several years. Of those, 70% will be under $75,000 per year.

“If we don’t have entry-level housing, the workers will not come,” Johnson explains. “And in addition to affecting entry-level housing, when construction at this level is stopped, it halts mobility. There are fewer opportunities to move up as existing home prices go up.”

“Not only will it affect new construction, it puts pressure on an already tight resale market,” Webster says. “If new homes rise in price, nearby resale homes will begin rising as well. Ultimately, what is happening is the government is stepping in to mess with the free market.”

The panelists urged audience members to attend upcoming City Council meetings and share their concerns about the proposal. City staff spent nearly three years developing the recommendation. However, the Council members have only recently had a chance to review it and seek feedback from constituents and industry professionals.

“To address these concerns with elected officials, we have to approach the issue as concerned consumers first,” Eckhart advises. “Our concern is not primarily that it will cost more to build a home. We’re advocating for the end user, not the construction industry, because it’s the homeowner who will be paying the real cost.”