“We have a housing crisis and we need more affordable housing!” It’s become a mindless chant in every discussion of the topic of housing. What is the “crisis?” When did it start? How do we know it’s over? The stubborn resistance to ask and answer these questions is perplexing until one applies the old “follow the money” rule. Every answer offers some overwhelming quantity of problem (usually cost burden) that can only be solved with lots of money for the construction of subsidized housing. This “more money” answer leads to inflation in the housing market, exactly the opposite of what people with less money need.
A recent colloquy on housing at Brookings called, “How can government make housing more affordable?” highlights how even smart and well-intentioned organizations can get housing wrong. Brookings says that there are two problems,
“First, the poorest 20 percent of families everywhere cannot afford minimum quality housing: their incomes are too low to cover the rent on standard apartments without some subsidy from the government.”
And what’s the second problem?
“Increasingly strict local government regulations have driven up the cost of building new homes in many large metro areas along both the East and West Coasts. Because of these regulations, housing supply has not kept pace with demand, leading to increasingly higher prices.”
Well isn’t this just about the most rational explanation? It would be if the two things didn’t sort of cancel each other out. Brookings immediately points to a ratio of income to housing cost. Later they correctly say that, “The most direct way the federal government could relieve housing cost burdens on low-income households is by giving them subsidies.” They even point to the ideas we’ve offered to connect federal funds to measurable reductions in regulation.
MORE FOR YOU
A Look Back At Housing 2020: Relief, Reality, And Rationality
Why America Is In Trouble – 20 Largest Federal Agencies Admit To $2.3 Trillion In Improper Payments Since 2004
Donald Trump Has At Least $1 Billion In Debt, More Than Twice The Amount He Suggested
But the notion that the problem is somehow the ratio is misdirected. There aren’t two problems at all, there is one, too much regulation squeezing housing production and vexing the operation of rental housing. When organizations like Brookings point to that ratio the most obvious answer isn’t just giving households cash, but building more “affordable housing,” that is new housing built by government and non-profits.
Household incomes can go up when there are more jobs than workers. Creating more jobs is a good idea. But what accounts for the gap between wages and housing costs? It’s what Brookings identifies as the second problem. The ratio is a symptom not the disease. When the door is left open to local governments with egregious land use and housing policies to close the gap with subsidies, their preferred route is not cash to buy down cost burden, but building more non-profit housing using tax credits and other subsidies, including money extorted from developers using Mandatory Inclusionary Zoning (MIZ).
Check out a one pager on Mandatory Inclusionary Zoning
Chicago is the latest city to start toying with the idea of MIZ, but 2020 has not seen a lot of cities jump on this idea of charging a fee for every square foot of new housing to subsidize non-profit housing. That doesn’t mean the idea is dead, however. The notion is intuitively satisfying to politicians: housing is expensive because developers are building so much of it to make a profit, and since they are making a profit we should just tax that to fund housing that is subsidized.
The beauty of this is that the “bad guys,” greedy developers out for money building housing for the rich, get punished with a tax for their greed. They pay a share of their profits so that government can build housing for everyone else who can’t afford their housing. Locals can blame high prices on greed, tax greed, and then cut ribbons on new housing. This ignores the fact that its regulation that keeps prices high not greed, and that charge on new market housing just makes it more expensive and thus raises it’s price. The policy is self defeating and inflationary.
The money is the easiest thing to get since the public thinks that high prices – the “crisis” – are either about greed or a lack “affordable housing.” At best groups like Brookings are giving the symptom equal footing with the causes of the disease and when money is the answer, it is far easier to treat the symptom with feel good fees. At worst, not pointing out that it is limits on housing that raises its price putting it out of reach for poor people means the solution can be to subsidize the supply choking regulation with fees that ironically keep housing prices high.
As I’ve said before, we don’t need more affordable housing we need more housing so that it is affordable. While Covid-19 has pushed policies like MIZ to the back burner in 2020, the danger is that the impacts of destructive policies during the epidemic will mean solving the housing “crisis” created by those policies will be more bad policies like MIZ. What is going to be needed to recover from Covid-19 won’t be subsidies for residents paid for with fees for construction permits, but incentives for developers to build more housing.