Fixing The Housing Crisis Means Facing Three Contradictions

In NH, everybody says they want more housing built. But solving the state's biggest problem means getting real about housing's three deep-rooted contradictions.

One thing about most politicians - regardless of their reading comprehension level, they are proficient at reading polls. And in New Hampshire, the polls have been loud and clear going back to at least early 2023: Housing - or, more specifically, the lack thereof - is the number one issue.

The University of New Hampshire’s Survey Center regularly conducts “The Granite State Poll”. For decades, they’ve been asking voters to name the most important issue facing New Hampshire. The last time they asked was June of 2024:

Housing has been moving up in the poll since late 2020, and took over as the top concern in New Hampshire by early 2023. In fact, it is the highest any issue has polled since the opiate crisis dominated the responses in the late 2010s.

Politicians on both sides of the aisle are prioritizing it, at least rhetorically. Governor Ayotte made it one of the top priorities of her inaugural speech last month, and there are a slew of bills in the legislature right now trying to get at increasing housing supply, all well-intended, and generally quite bipartisan:

HB577 - with six GOP and three Democratic sponsors - would allow people in single-family lots to build non-attached accessory dwelling units, or ADUs. Think of it as allowing you to build an in-law apartment behind your home.

HB685 - with five GOP and five Democratic sponsors - would update the definition of “manufactured housing” (think modular homes), and allow its construction in most residentially-zoned areas.

HB631 - seven Democratic sponsors and three from the GOP - would allow by right in certain urban zones the construction of multi-family residential or mixed-use development.

HB382 - with four GOP and two Democratic sponsors - would remove the authority of municipalities to regulate mandatory on-site parking requirements.

Full disclosure: Count me in on all of these. I personally think HB382, which deals with minimum parking requirements, would have the greatest potential positive impact on everything from additional multi-family housing, to increased walkability of communities, to improved aesthetics and architectural styles, to lessened environment impact of development. Minimum parking requirements are an ugly byproduct of Urban Renewal.

If you look at most of the sponsors of these bills, from both sides of the aisle, you’ll see that they are among the youngest members of the legislature, and include representation from (some would say) the most ideologically conservative and progressive wings of the two parties.

I don’t know how many, if any, of these bills are going to make it to Governor Ayotte’s desk, and if she would sign them if they do. But I know this: They are at least trying to get at addressing one of the three contradictions in New Hampshire public policy as it relates to the housing crisis. What are those three contradictions, and how could we tackle them?

1. The Way We Fund Public Education

I am trained as a public administrator (I got my MPA from Syracuse University, and used to do performance audits of state, county, and local governments for a living). At the age of 31, I was elected mayor of Portsmouth, NH, but as somebody who had already been a professional municipal auditor and a political campaign manager by then, it created a unique skill set at a young age that got me invited to keynote national conferences back in the 2000s for public sector administrators and executives.

One of these conferences was in Las Vegas, and as I walked out of my hotel room, through a ballroom casino, and into a sterile conference room full of city managers and county executives, I thought about what I was about to say, and anticipate the types of questions that would come up in the Q&A.

During my remarks, I mentioned that I was a lifelong resident of New Hampshire, in addition to being a current mayor. Then, the first hand went up.

“You said you are from New Hampshire. That is the quirkiest state in the country for public administrators! The joke is that, whenever we want to know what American public administration looked like in the 19th century, we look at New Hampshire today!” And then a bunch of people knowingly laughed.

That was almost 20 years ago, and it is still true today. Over a century ago, when the professionalism of local government management became a priority following the types of pay-for-play and patronage typified by Boss Tweed’s Tammany Hall scandals in the late 1860s, public administration became recognized as a science. The idea was to de-politicize the day-to-day management of counties, cities and towns as much as possible, and put professionals in charge of transparently enacted the decisions made by the elected boards. The saying, “There is no Democratic or Republican way to plow a road” is true now…but it was sort of not true before the public administration revolution, because an insider would give the contract to their friend in exchange for a kickback, rather than the lowest qualified bidder.

New Hampshire did the MPA part of the revolution, but not the rest of it. Over a hundred years ago, most states, counties and communities figured out that if every town has its own schools, fire and police departments, town manager, public works department, etc., that eventually you would end up with both incredibly high local taxes and diminished quality of services.

I cannot stress this enough: No state in America ignores the use of scale as a tool for driving down costs, and directing dollars towards the best return on investment, more than New Hampshire.

I added Florida (the state closest to how NH does it) and Vermont (the state that relies the least on local property taxes to pay for public schools) and then the national average.

The ramifications of New Hampshire’s model are everywhere in our budgets and public policy - including housing. Consider: In most states, if your school’s enrollment increases, the impact on local property taxes is relatively muted, because a larger chunk of the funding for that kid moves with the kid. In red states like Wyoming or Alabama, which get a lot of their money from federal sources, a kid moving from, say, Huntsville to Montgomery doesn’t change the amount of money Montgomery has to raise from local property taxpayers much at all compared to New Hampshire.

But in New Hampshire, the incentive structure is borderline perverse. Towns are penalized when a family with school-aged kids moves into town, particularly if the family moving in is, say, a renter of a small two-bedroom apartment with two little kids sharing the second bedroom. In that case, the amount of incremental property tax revenue being brought in by the rental unit is negligible - but the cost of bringing two more elementary school-aged children could be tens of thousands of dollars of additional costs (especially if the kids have learning disabilities, or are English as a Second Language students).

One way to deal with that? Zone out children. If you make minimum lot size an acre, then only McMansion-sized homes will be built, which will have the dual benefit of more property tax revenue and an effective cap on the number of kids who can live in town. There is zero incentive in most New Hampshire towns to encourage lower-income housing, multi-family housing, or increased density. Look at how easily age-restricted (typically at least 50+) developments get approved relative to other developments. One reason why? Additional property tax revenue, but virtually zero additional students.

There are really only two ways to address this, and they are both heavy lifts. You could move the funding model for paying for public schools away from local property taxes (which could dramatically lower your property tax bill, but would almost certainly require new forms of state-level revenue generation).

The other choice would be aggressively moving to what most of the country did over a century ago: Greatly consolidated governmental services, including school districts. It may not seem odd to New Hampshirites that Newington, New Castle, and Greenland all have their own elementary schools, at the same time that Portsmouth has three of the top-10 performing elementary school in the state within five miles of them…but to the rest of the country, this is generally very odd. Ask people in much of the country where they live, and they will first tell you their county for this reason. It helps explain why our property taxes are so high, while our teacher salaries (the best use of education dollars to improve outcomes) do not reflect those high property taxes.

2. State Mandate vs. Local Control

I can read our license plates in my driveway: “Live Free or Die”. In the state that doesn’t require adult seat belt use, holding auto insurance, or wearing a motorcycle helmet, there is little appetite for state government telling us what to do. (Although this seems selective: Don’t you dare use cannabis in New Hampshire!)

As it relates to housing policy, we do largely tell towns it is nobody else’s business how they zone for housing. But as I explained in the first point above, that leads to most local governments (almost all of them small towns that are rural, exurban, or suburban in nature) looking at housing through the prism of their own self-interest. Why would my town of North Hampton encourage density and multi-family development when the reason most people with young families would move there is because they’re getting in their car every day to go to Portsmouth, Boston, or Manchester?

The bills described at the top of this piece generally are making modest efforts to say that state government can override local government in some land use policy, because it is the only way to get the volume and diversity of housing The Granite State Poll highlights is the #1 priority.

Minimum parking requirements have the effect of making parking and paved lots cheaper…but housing more expensive. Not allowing multi-family and mixed-use housing development in urban areas increases pressure on the outskirts of town, and on the towns around places like Keene. It also increases transportation costs for the very people least in a position to afford it.

Housing is, at a minimum, a regional problem. If Nashua needs more housing, then the towns around Nashua need to be part of the solution, because let’s be honest: Hudson, Hollis, Brookline, and Merrimack wouldn’t be gaining residents, and increasing the value of housing, if Nashua was not a hub of economic activity. There has to be a discussion about how to balance this state and regional crisis with the importance of local control. On a bipartisan basis, these bills are at least trying to have that discussion.

3. Your most important asset…which thrives in a scarce market

Earlier this week, Massachusetts Congressman Jake Auchincloss was a guest on The Ezra Klein Show. The whole 63-minute podcast is worth a listen, but I was most intrigued by Auchincloss’s take on this contradiction in housing policy.

He noted that the way housing is currently built is an example of something called Baumol’s Cost Disease: Services that are very labor-intensive, and where it is tough to dramatically increase the efficiency of the workers providing that service, tend to go up in price a lot faster than other parts of the economy.

Auchincloss does an excellent job of connecting this to housing, so I’m going to quote him from the podcast:

“Haircuts are a good example of this. Haircuts are non-automatable and service-intensive. Yet the wage for a hairstylist has to be competitive with the wage for somebody in a sector that has higher productivity gains. So you’re going to see more and more share of wallet going toward these sectors.

“Imagine if you were going to build your car. And instead of buying a car at a dealership, you stood in your driveway, called up a general contractor and had them subcontract out the various parts of the car. And people came to your driveway and built the car piece by piece. Imagine how much that car would cost. A lot more than the typical car, right?

“Well, that’s how we build houses. And it doesn’t actually have to be that way…if you’re trying to lower the cost of living for the typical American family, you need to unlock supply rather than subsidize demand. You need to build more stuff…

“You can’t just unlock supply if it’s a supply of a sector that has low productivity gains. You first have to turn those services into products and then unlock supply. Yes, we need zoning reform to expand supply. But we also need to lean into off-site construction to turn housing production away from stick-built, where it’s highly service-intensive, and toward modular construction, where it’s more factory-intensive. [Emphasis mine.]

There will always be a vibrant market for large, gorgeous, custom-built homes, and that’s great. But we’ll never address the sheer magnitude of the housing crisis without unlocking tremendous additional supply. And you can’t do that unless you address the inherent high costs in the current model.

But that means we have to face the final contradiction. For almost all property-owning Americans, their greatest asset is their home. I know many people that have Zillow bookmarked, and look regularly at the “Zestimate” of their home’s value the way a stockbroker might look at the Dow Jones. It isn’t people being selfish; it’s the way the economy is set up.

But when it comes down to it, and an aldermanic or zoning board is holding a public hearing to consider allowing a 20-unit development in a neighborhood, what typically happens? The neighborhood shows up in protest.

It will change the character of my neighborhood. It will hurt the resale of our home. It will increase traffic, or crime, or noise. It will devalue my home.

This is not an easy problem to solve, although HB685 (the manufactured housing bill described above) does get at this challenge, and it does have bipartisan support. I would argue strongly that the delta between the supply and demand curves of housing in New Hampshire (and, honestly, the entire east and west coast of the U.S.) are so out of whack that it would take decades of building for most homeowners to notice a difference in their home’s resale value. But we can’t ignore this sentiment - it is one of the three contradictions policymakers are going to have to face.