This post originally appeared at https://www.badgerinstitute.org/aei-building-more-homes-in-wisconsin-would-drive-down-cost/

Policy playbook shows how it could be done without taxpayer subsidies or taking up more land

Allowing more home construction on smaller lots in Wisconsin would substantially drive down prices, according to a new analysis by scholars at the American Enterprise Institute.

“What we’re saying is that your biggest opportunity here is to just build at somewhat higher density,” said Ed Pinto, co-director of the AEI Housing Center.

New home construction in Wisconsin from 2000 through 2023 produced about 316,000 single-family houses, nearly all of them owner-occupied. Sales prices, adjusted for inflation, averaged $387,000, according to AEI.

The lots they were built on averaged just over a third of an acre. In other words, Wisconsin’s average new house construction since 2000 has been at 3.5 units per acre, by AEI’s calculation of Census data.

AEI housing scholars have modeled four different scenarios that would have resulted in increased development over the last 25 years on the same amount of land, including, for instance, more infill construction in urban areas. The Badger Institute will report on those results in the coming weeks.

One of the scenarios estimates the impact of allowing the building of single-family houses on greenfield sites at higher density than actually occurred.

If development since 2000 had averaged 5.9 units per acre instead of 3.5 per acre, AEI estimates, an additional 209,000 single-family houses would have been built — a 66% increase on the same amount of land.

Alternately, if 80 percent of newly developed land had single-family houses at 5.9 homes per acre, and 20 percent had single-family townhouses at 33.8 units per acre — the median density of townhouses that were built in Wisconsin in that period — Wisconsin would have had approximately 707,000 additional new homes since 2000.

Under that theoretical scenario, the average sale price would have been an inflation-adjusted $337,000, about 13% less than what was built, according to the AEI model.

AEI’s estimate of 5.9 houses per acre — rather than 3.5 — is premised on what would have occurred if municipalities simply had smaller minimum lot sizes of one-tenth of an acre and allowed homes as small at 1,000 square feet. To put it in annual terms, builders would have provided an additional 9,000 single-family homes per year, according to AEI.

“You could have built a lot more homes on the exact same amount of land just by legalizing building starter homes,” said Pinto.

For comparison, 5.9 single-family houses per acre is about the density in the middle of West Allis, the north side of Appleton, or much of the west side of La Crosse.

The  income it takes to afford a median Wisconsin house has taken a sharp turn upward since 2021, with buyers spending a rapidly increasing share of their income on mortgages and other ownership costs. Middle-income employees, such as paramedics, are finding it more difficult, even impossible, to buy a house in places with constricted home supply, such as Vilas or Door counties, driving employers to unusual lengths to get starter homes built.

The problem mirrors housing woes that long have afflicted coastal cities with strict limits on new construction and, consequently, exorbitant prices. But instead of nostrums such as banning single-family housing in favor of rent-controlled apartments, Pinto and his team suggest what they term “light-touch density” — permitting, but not mandating, landowners to develop real estate at somewhat higher densities if they choose and if buyers want it.

“Why will they build housing that’s more affordable? Because they make money,” said Pinto. “Do the math.” Putting 3.5 houses selling at $387,000 each on one acre means $1.4 million to a builder. An 80-20 mix of single-family homes and townhouses selling at $336,500 each would average $3.8 million of sales per acre to a builder — all without taxpayer subsidies.

Builders have told the Badger Institute similar things, that large lot-size or floor-space minimums make it harder, if not impossible, to make starter-home developments pencil out, while smaller sizes make lower-cost development viable.

Opponents of denser development often argue that larger utility lines or bigger roads would be too expensive, says Pinto, who points out their error: “Most of the cost of extending water and sewer is actually getting the right-of-way, digging the hole, putting it in the ground. The size of the pipe is a rounding error,” he said.

This makes the proposition a win for municipalities, says Pinto, especially in state where employers routinely find it hard to hire.

“You want to bring in a new factory,” says Pinto. “You want to bring in some jobs: Where are those people going to live?” At only 3.5 houses per acre — and with the consequently costlier houses — “You’re not allowing any housing to be built for those people.”

AEI’s policy playbook recommends that Wisconsin make residential construction “by-right,” buildable without a variance so long as it complies with established zoning. The key, says Pinto, is to ensure that zoning allows builders to construct what buyers want across a spectrum of sizes and prices.

“There are large swaths of the country where a very important issue is, ‘We don’t want to become like California,’” he said. But it is a scarcity of houses, he points out, that makes California’s coastal metropolises costly and overpriced. Wisconsin doesn’t have to make houses scarce.

Objectors, he says, “should ask themselves the question, ‘Where will our children and grandchildren live?’ You want them living in your basement forever?”

Patrick McIlheran is the Director of Policy at the Badger Institute. 

Any use or reproduction of Badger Institute articles or photographs requires prior written permission. To request permission to post articles on a website or print copies for distribution, contact Badger Institute President Mike Nichols at mike@badgerinstitute.org or 262-389-8239.

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