On June 19, CBS17’s Joedy McCreary interviewed the authors of an essay published recently in an NCSU Poole School of Management newsletter. In that essay, faculty members Eileen Taylor and Steve Allen mused about the inadequacy of Raleigh’s Missing Middle reforms to address housing affordability. CBS17 allowed the authors to repeat assertions from their essay without any scrutiny. CBS17 then went a step further by calling its story a “fact check” of Raleigh’s recent Missing Middle reforms. Though written by credentialed researchers, the essay (and by extension the CBS17 story) doesn’t hold up. In order to set the record straight, RaleighForward did its own fact check of the claims in the story and the underlying essay.

CLAIM: “The root causes of the high and rising prices of housing are well established. On the demand side, people are relocating to lower-cost areas as more work is done remotely. Also, large firms continue to relocate jobs to this region, bringing more people who add to demand.” And “…in the Triangle, where population is growing rapidly...”

MISLEADING: This claim conflates rapid population growth in the Triangle with slowing population growth in Raleigh. While population growth in the Triangle is growing, Raleigh’s population growth is slowing. Raleigh’s population growth rate began slowing right after hitting 3.9% in 2010. Population growth rate from 2011 to 2019 was just 1.8% - and between April 2020 and July 2022, Raleigh’s population growth rate slowed to under 1%.

CLAIM: “On the supply side, the costs of both labor and materials are well above their pre-pandemic levels, which has slowed new home building.”

PARTIALLY TRUE: Fewer single-family detached homes are being built in Raleigh today, but this trend started years before the pandemic. Between 2007 and 2010, the City issued an average of 3,438 residential building permits for all housing types. Between 2011 and 2020, the City averaged 3,758 residential permits for all housing types. However, while the total number of new residential permits remained roughly constant, the mix of housing types shifted. From 2007 to 2010, single family detached dwellings comprised 33% of the total, while the share fell to 24% between 2010 and 2020. It’s also worth noting that these numbers include permits for new homes on lots where a teardown occurred. Additionally, some building permits expire and are never built. Therefore, the total number of new homes built is proportionately lower than the number of permits issued.

It is true that there has been a shift away from single family homes to other types of housing, such as townhouses, condominiums, attached housing (e.g., duplexes, triplexes, fourplexes) and apartments.

CLAIM: “…the cost of land is a relatively small percentage of the build cost…”

FALSE: According to a report from Harvard’s Joint Center for Housing Studies, “land represents a large share of the value of homes in much of the country, these rapidly rising land values are a key driver of recent home price increases—along with labor constraints, building materials costs, and undue regulatory burdens.” The National Association of Home Builders report states that a finished lot makes up to 17% of the total cost of a newly constructed home and up to 20% of the cost of apartments. While the cost of a “finished” lot includes things like grading and financing costs, it also includes the cost of the underlying land.

CLAIM: “the permitting process… increase[s] the cost of building a home or an apartment — costs that end up being passed on to the consumer”

PARTIALLY TRUE: The regulatory permitting process and fees account for approximately 24% of the price of a new home. These costs only factor into setting the initial price of a newly constructed home. Thereafter, factors like location, lot size, market conditions, and the character and condition of the home become the main drivers of a value. While builders certainly try to pass along as much these costs as possible, it stretches credulity to suggest builders have sufficient pricing power to recapture 100% of these costs on every sale. Particularly because costs can vary widely depending on whether the underlying property required rezoning and/or other entitlements. These regulatory processes can drag on for years-especially when there is neighborhood opposition. When these entitlement costs are high and intersect with a slowing economy, sales can quickly turn upside down.

CLAIM: “Given limited land on which to build, a builder will maximize their return by building the largest and fanciest house they can.”

FALSE: In some parts of Raleigh, Missing Middle Reform is already causing housing diversity within traditional single-family detached neighborhoods. One of the first projects being entitled under Raleigh’s Missing Middle Reform involves a 2.3 acre parcel purchased by a developer for $3,750,000 to tear down an existing single family home in the Hayes Barton neighborhood to build 18 townhomes.

CLAIM: “…by allowing denser housing, the land itself becomes worth more per acre. This effect works to raise the cost of land, and thus, the cost of building a house, rather than lower it.”

MISLEADING: Missing Middle reforms are not intended to lower the cost of housing but rather to slow the rate at which housing prices go up. Missing Middle reforms seek to accomplish this by increasing the variety of housing types that can be built in areas of Raleigh that previously allowed only single-family detached homes.By creating more housing options at different price ranges, the rate by which housing prices are rising will eventually slow to an extent greater than without Missing Middle Reforms. I n the absence of some type of serious economic shock like the Great Recession or the COVID pandemic, housing prices generally rise over the long term. That’s how home buyers build generational wealth. Otherwise, housing affordability would not be the challenging public policy it is today.

CLAIM: “Even if the cost per lot is lower, that savings will not be passed on to the buyer, as the builder will price the home according to market demand, as noted above. If there is additional profit due to a lower land cost per unit, that profit will go to the builder.”

MISLEADING: Certainly, market demand influences the price of a newly constructed home. But this statement suggests that builders have absolute pricing power in a competitive housing, which is not true. In reality, prices for newly constructed homes are established by actual costs incurred, local market conditions at the time of sale and overall economic conditions. According to a recent survey conducted by the National Association of Home Builders, the average profit made on a newly constructed home is around 10%. This profit margin has remained fairly consistent since the survey started in 1998. If there was absolute pricing power as suggested by the authors, builders would impose profit margins higher than 10% as insurance against unanticipated factors like swings in the cost of materials, labor and financing-all of which can fluctuate significantly among different projects at different times in various regions across the Country. Builders would also likely impose higher profit margins to account for economic forces like the Great Recession and the Pandemic. Had they had such absolute pricing power, far fewer developers, builders, not to mention financial institutions would have experienced financial failure during the Great Recession.

CLAIM: “While there are other benefits and drawbacks of adopting missing middle housing policies, based on the research and the conditions in our area, increased density isn’t an immediate solution to creating affordable housing in the Triangle…”

MISLEADING: The authors treat Raleigh’s Missing Middle regulatory reform as if it operates in a vacuum and was offered as a singular solution to the housing affordability crisis facing current and future Raleigh residents. Raleigh’s Missing Middle reforms were not “marketed” as the singular solution to Raleigh’s housing affordability crisis. As RaleighForward discussed in a prior post, Missing Middle reforms are just one component of Raleigh’s comprehensive effort to ensure that people working Raleigh can also choose to live in Raleigh. While it’s too soon to determine how and to what extent Raleigh’s Missing Middle reforms will impact the housing situation in Raleigh in some way or another. At the same time, simply maintaining the status quo by retaining Raleigh’s exclusionary zoning framework is unlikely to improve the current affordability crisis.

CLAIM: “…for the most part, the city largely doesn’t have the infrastructure to support it.”

FALSE: The authors offer no support for this naked assertion. Actually, the City has been upgrading its water and sewer service for the last decade for the very purpose of accommodating future growth. A brief glance at the City’s website demonstrates the extensive upgrades it is making to this infrastructure. Years ago, the City entered into merger agreements with most of the other Wake County municipalities in order to deliver water and sewer services more efficiently and effectively throughout the County. In terms of transportation, the residents of Wake County voted in 2016 to approve the Wake Transit Plan that will deliver expanded high frequency bus routes, 4 Bus Rapid Transit routes, along with substantial upgrades to the number and quality of bus shelters. This integrated transit plan will increase the capacity of the system across Wake County. These critical and ongoing infrastructure improvements, along with expanded bike lanes, greenways and road improvements will ensure that Raleigh is positioned to accommodate future population growth over time.

CLAIM: “The professors say municipalities could negotiate with builders to include affordable housing in some of their projects.”

MISLEADING: The CBS17 story suggests that Missing Middle reforms are the only tool Raleigh is using to address housing affordability. In fact, City Council does negotiate with developers during the rezoning process. The majority of rezoning cases approved recently by Council include either a set-aside for a certain number of “affordable” units within a proposed development or the payment of a fee in lieu of the City’s affordable housing fund.

CLAIM: “…cities also could sell some of their surplus real estate, and subsidize builders looking to develop those properties so that they would make the same amount of money that they would by building a large house on a single lot.”

MISLEADING: The way this statement is presented in the interview suggests that Raleigh is not selling real estate to help build new affordable units. The City is using a portion of the recent $80 million housing bond and other funding to acquire property that can be used for new affordable housing. It recently entered into an agreement to buy the former DMV site downtown from the State. It has also been assembling land along the New Bern Avenue BRT route that will also be used for affordable housing. The City also has a program that actively identifies City-owned property that can be sold to developers and nonprofits that are willing to build new affordable housing.

Conclusion and Implications

CBS17 should use its platform to inform the community about the complexities of affordable housing. Instead, it produced a misleading story by stringing together a series of unsupported assertions about Raleigh’s Missing Middle Reforms. It then concludes with one of the authors stating “I think missing middle could work on the margins, but the city needs to leverage more of its power…” This rounds out the misinformation by leaving the impression that the City is essentially doing nothing beyond the Missing Middle Reforms to address housing affordability. Any objective report on this issue should acknowledge the City’s broader effort to address housing affordability in the short, medium and long-term. Local media must do better when covering these complex and often controversial public policy issues.