3 Building Blocks for More Housing in Nebraska

3 Building Blocks for More Housing in Nebraska

Even before the COVID-19 pandemic, Nebraska communities of all sizes were experiencing housing shortages, and from 2008 to 2018, Nebraska saw the 6th fastest increase in home prices among all states.

That’s why the Blueprint Nebraska economic initiative has set the goal of increasing the housing supply and making our state a national leader for housing affordability.

The Nebraska Legislature has also committed more funding to help communities support housing programs.

But the pandemic, and the changed economy that followed, has also provided a wake-up call that the real estate market in the U.S. and Nebraska is in an especially unhealthy condition, which can’t be remedied with only token efforts. 

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Without major changes to housing policy, the state will struggle to contain prices for residents who already live here, or add enough homes to recruit the additional workforce the state badly needs.

According to data from the St. Louis Federal Reserve, in 2019, the number of single-family homes, condos, and townhomes listed for sale in Nebraska peaked at nearly 6,000. But once COVID-19 came into focus, available homes declined dramatically. In March 2022, the Fed reports there were only 1,744 of these homes listed for sale.

Even our rental home vacancy rate is among the lowest it’s been in decades.  

While there is a widely acknowledged need to build more housing, the gap has been growing for a long time. At our highest points in the 1990s and 2000s, Nebraska home builders received about 900 permits a month for building private housing units. But after the 2008 recession, that number flattened to about 400 a month. Only now, in the 2020s, is the number of permits reaching similar levels as our past peaks. That means Nebraska has a lot of catching up to do. 

Today, we’re discussing the three ways Blueprint Nebraska can help build more housing.

  1. Reducing regulatory barriers to building more affordable housing.
  2. Helping more Nebraskans invest in housing.
  3. Creating opportunities for builders in Nebraska.

Keep reading to learn how industry leaders and experts think these changes can allow our communities to become even more desirable and attainable places for people to live. 

#1. Reducing regulatory barriers to building more affordable housing.

In most of the country, the word “home” or “house,” evokes an image of a single-family home that is not attached to any other structure. And there’s nothing wrong with living in this kind of house if you want to—I live in one, and there’s a good chance you do, too.  

But our housing needs and budgets can change over our lifetimes, and with our rapidly rising housing prices, there isn’t an abundant supply of other options to meet all the different needs Nebraskans have.

Most people might assume I’m talking about apartments, and we certainly need more apartments. But there’s more housing options situated between single-family detached homes and apartment buildings.

On the very same lots where many single-family homes are built in Nebraska, it’s possible to comfortably fit a variety of housing. Developers sometimes build duplexes, with two units of the same size, or townhomes, where connected units are built in a row. It’s also possible to build smaller, additional housing units on a vacant portion of a lot, in place of a basement, garage, or attic, or on top of a retail or office location.

Many have taken to calling these housing types “Missing Middle Housing,” because they’re housing styles that used to be very widespread, but today, have become harder, if not impossible to build.

Why is that? Well, cities of all sizes in Nebraska have their own local zoning regulations that determine what kind of housing can be built where, and how the land housing is built upon must be used. And while there are ways for developers to seek permits for more flexibility, you’ve probably heard the phrase that all politics is local.

It can be costly and time-consuming for a developer to persuade local planners, officials, and residents that different types of housing should be permitted.

In most U.S. cities, the vast majority of residential land is zoned for single-family detached housing.

Here’s Grace Thomas with the Omaha Missing Middle Housing Campaign with some more local facts.

In Omaha today, 88% of land is zoned for single-family housing only, and about 70% of our homes are single-family detached with large lots. So, in most of the city it’s illegal to develop things like duplexes, fourplexes, townhomes, Accessory Dwelling Units. And those not only get you more bang for your buck per unit of land, but can also if done correctly, be more affordable options for folks, because they’re smaller to maintain, and can also help folks live out different types of lifestyles—whether it’s being able to cohabitate close to your family or not wanting to care for the property that single family housing presents. – Grace Thomas, Omaha Missing Middle Housing Campaign

Grace is describing the status quo in Omaha to a T, which is also where I live. Our largest residential district has a minimum lot size of 5,000 square feet. You can’t build another, smaller home on that lot, also known as an Accessory Dwelling Unit, or a granny-flat, and the city requires a minimum of 2 parking spaces per unit.

And believe it or not, that 5,000 square foot limit is actually on the lower side. Some Nebraska cities have a minimum lot size of as much as 9,000 square feet, which is a fifth of an acre.

In 2020, the median single-family home was about 2,300 square feet. So even with fairly sizable single-family homes, there’s often room to build much more in Nebraska’s cities.

Different states are taking different approaches to reining in local zoning and land use regulations. In some states, policymakers are requiring cities to end zoning that is exclusively for single-family units. That doesn’t mean developers or homeowners can’t build single-family houses if they want to, it just means that it’s not prohibited to build other kinds of housing in the same neighborhood.

In Nebraska, we’re currently taking a lighter touch. Cities are required to report to the Legislature with affordable housing action plans, which includes what they’re doing to reform their zoning and land use policies to address housing challenges.

Through the Blueprint Nebraska initiative, we’re encouraging communities to use this process to identify the many opportunities to open the marketplace and let Nebraskans find more of the types of housing that meet their needs.

Cities need to take this responsibility seriously. If their action plans just sit on the shelf and don’t move the needle on housing supply or affordability, it’s reasonable for the state to consider additional legislation that will get things moving.

After all, obstacles to building housing are often hyperlocal—somebody in the neighborhood may not want something built in their backyard. But the cost of restricting housing impacts Nebraskans all across the state, from what we pay for mortgages, rents, insurance, and taxes, to lost opportunities from employers who can’t locate here or expand.  

Here’s Dr. Emily Hamilton, a housing expert at the Mercatus Center at George Mason University, with more on the tug-of-war between state and local government, and which policies impact the different types of housing construction.

The more decentralized housing decisions are made, the more concerns about housing get weighed relative to the benefits of new housing construction. Because the downsides of new construction, like more street parking, and more traffic or construction noise, tend to be highly, highly local, whereas the benefits of new housing construction—we don’t even know who’s going to have jobs from that new construction, who’s going to live in that new construction, so looking at things from a 50,000-foot view really emphasizes the benefits of new housing construction relative to thinking about them at a local or even neighborhood level. And for that reason, I do think there’s a role for state policymakers to play in setting requirements for housing accessibility across their states.

There’s been a lot of focus at both the state and local levels, in jurisdictions across the country, at tackling single-family zoning but beyond single-family zoning that bans Missing Middle and multifamily construction, there are all kinds of rules in zoning codes and building codes that can make Missing Middle difficult to be viable, so things like minimum lot size requirements, parking requirements, setback requirements, oftentimes all need to be addressed, in addition to that top line single-family zoning. – Emily Hamilton, Ph.D. Senior Research Fellow, Mercatus Center at George Mason University

Of course, even with the need for regulatory reform in housing, there’s always going to be a significant amount of government involvement, from inspecting the safety of construction, to collecting taxes, to providing funding for housing for those who simply don’t have the means or ability to afford it. One of the resources the state and local governments can provide is knowledge about the role Nebraskans from all walks of life can all play in addressing the housing shortage.

#2. Helping more Nebraskans invest in housing.

There’s been a lot of reporting in recent years about the rise of large firms buying up homes for rent. It’s understandable that there would be a perception that homebuilding and investing is just for big businesses.

But, in fact, the vast majority of real estate investors are small business people who own property close to where they live.

To reach Nebraska’s goals for building housing, we need to equip more Nebraskans with the tools to be part of that group of local investors. And more communities need the resources and expertise to make a positive impact on their housing markets. Nebraska has many smaller cities that are nonetheless very economically consequential for their regions and the state. We aren’t going to meet our housing goals as a state if only communities with the most established real estate industries have access to additional knowledge and resources.

Fortunately, you don’t have to be an aspiring tycoon to be part of the solution.

For example, if you own a home or hope to buy, there are government programs that can enable you to become a landlord, potentially without even moving out of the place you bought.

Now, some people do this by just having roommates to help pay their mortgage, but there’s another way to use your property to build wealth while providing people a place to live.

You might be familiar with FHA-guaranteed mortgages. In exchange for paying monthly mortgage insurance, the Federal Housing Administration backs a loan for borrowers with a very low down-payment.

While FHA loans are intended for residences an owner will occupy for at least a couple years, they are not just for single-family homes. You can also buy a multifamily property under these loans, with as many as four units. Meaning, the homeowner can live in one of the units and generate income by renting out the others.   

Some families may want to split expenses by living under the same roof, but in different units. People looking to downsize might want to live in a smaller unit, but be able to use their equity to generate an income. Area nonprofits may want to help residents in their community establish generational or community wealth, and local employers or retailers may want to place housing closer to where they hope people will work and spend their money.

Some of these opportunities certainly would require local policy changes or initiatives. But others might only require informing Nebraskans about programs and policies that already exist.

Here’s Kyle Arganbright, the mayor of Valentine, with more on how his city partnered with the University of Nebraska to develop a stronger knowledge base.

“A lot of the legislative actions have been for the larger communities in the state. Valentine’s not even a City of the Second Class, but we’ve found a little success in tying into the Rural Prosperity Nebraska and getting some resources out of the University to help us think through housing. There’s not a lot of city planners, or land-use planners, or even architects in the Third District, and so getting access to those resources is really important in helping move this conversation. So, we we worked with the University in the College of Architecture to rethink a development.

How can we drive our cost of infrastructure per lot down? How can we lay this out in a way that’s attractive for people that are attracted to a rural community? How can we design this in a way that blends single-family homes with multifamily very effectively? And so these types of conversations, I think, are really important and we need to continue to drive those at a state level so that we can have smarter development in the end.” – Kyle Arganbright, Mayor of Valentine, Nebraska

We’ve already discussed removing barriers to the planning and development of homes. Now I’d like to talk about the actual construction of homes. We know that the cost of materials and the availability of workforce can’t be uncoupled from our housing problems. 

#3. Creating opportunities for builders in Nebraska.

There are different construction methods for building housing. Most commonly, we have site-built housing. That’s when a crew builds a frame on a foundation at a construction site.

But another way of building housing is through manufacturing. That’s when the unit or parts of the unit are built in a factory and then transported and assembled at the site.

According to the Federal National Mortgage Association, also known as Fannie Mae, building manufactured housing can cost half as much per square foot, on average, as site-built housing.

And being the manufacturing state that we are in Nebraska, we already do have local companies that build manufactured housing, which is in demand nationwide.  

Now, in fairness, it’s not up to me or the government to decide whether people or businesses should invest in manufactured housing or site-built housing. But if we have policies that are more favorable for manufacturing and construction in general, that will create a rising tide for housing of all types.

We also need to give homebuilders the very best chance to invest in the people and technology that allows them to be productive in a historically tight labor market. Unfortunately, Nebraska’s tax code makes this problem worse in several ways. A big one is that we aren’t competitive on taxes that people working in the trades and manufacturing will end up paying on their paychecks.

Under the Blueprint Nebraska plan, we’re proposing individuals can earn up to $50,000 free of state income tax, or $100,000 for a married couple filing jointly. But today I’d like to discuss a less-noticed part of the tax system related to homebuilding.

Everyone knows Nebraska has high property taxes on real estate, which certainly makes the cost of owning or renting housing higher than it otherwise would be. But there’s another type of property tax that impacts manufacturing and homebuilding. It’s called the personal property tax, and it’s a tax on the equipment and technology businesses use to provide goods and services.

This means equipment and machinery for building housing of all kinds is taxed every year, and businesses have to hire someone to keep track of all of these taxable items in an annual tax return. And if a builder or contractor invests in new or more modern equipment, their personal property tax bill can actually increase the next year.

Some Midwestern states, like Iowa, don’t have personal property taxes at all. Businesses don’t have to submit a local tax return for their equipment or pay higher property taxes because they bought new equipment.

But even in states that do have personal property taxes like Nebraska, many take a smaller bite out of investments in equipment and technology because their overall property tax rates are lower. Plus, states often have an exemption level where businesses don’t pay tax, or may not even have to file, until they own equipment worth a certain amount.

Currently in Nebraska, a business that owns any taxable equipment is supposed to be filing their personal property tax return, no matter how small its value. We even pay personal property tax on our business equipment at the Platte Institute, and we’re not exactly running a state-of-the-art manufacturing facility here.   

Speaking of which, the state of Nebraska does indirectly acknowledge that personal property taxes are a bad idea when it comes to growing Nebraska’s key industries. There are specific industries that are heavily dependent on technology and whose equipment has already been exempt from personal property tax. These exemptions are not wrong or bad economics, it’s just worth pointing out that if we want these industries to succeed, we should be just as eager for homebuilding, manufacturing, agriculture, and other parts of Nebraska’s economy to succeed and be free of these barriers.    

Proposed changes to personal property taxes have struggled in the past because of the perception that real estate property tax was a higher priority, but Kathy Mesner of Mesner Development and the Blueprint Nebraska housing initiative mentions that what’s good for building housing in Nebraska is also good for addressing Nebraska’s other challenges with taxes and workforce development.

“What we have to understand is that housing and tax reform aren’t necessarily mutually exclusive. What we need to understand is that when we build and develop more housing across our state, we expand our tax base, and we recruit workers. Because we can’t do economic development in our state without workers, and we can’t recruit workers without housing. The first day I met with the Blueprint people, I told them that housing is where jobs sleep. And so, we’ve got to really buckle down and look at all of the different ways that we can incentivize the development of housing across the state and that’s in every community and every neighborhood.” – Kathy Mesner, Mesner Development & Blueprint Nebraska Housing Industry Council 

Once again, these are three ways we aim to remove barriers to building more housing through Blueprint Nebraska.

  1. Reducing regulatory barriers to building more affordable housing.
  2. Helping more Nebraskans invest in housing.
  3. Creating opportunities for builders in Nebraska.

Now, if you’d like to hear more from the experts featured on today’s episode, check out the Platte Institute webinar “A Place to Live: Challenges and Opportunities for Housing in Nebraska.”

(Webinar) A Place to Live: Challenges & Opportunities for Housing in Nebraska

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