How Governments Outlaw Affordable Housing
The production of housing is one of the most regulated and micro-managed industries in the industrialized world, and attempting to meet the needs of renters and buyers continues to be guided by the prerogatives of land-use laws instead of a response to market demand.
It’s no secret that in coastal cities — plus some interior cities like Denver — rents and home prices are up significantly since 2009. In many areas, prices are above what they were at the peak of the last housing bubble. Year-over-year rent growth hits more than 10 percent in some places, while wages, needless to say, are hardly growing so fast.
Lower-income workers and younger workers are the ones hit the hardest. As a result of high housing costs, many so-called millennials are electing to simply live with their parents, and one Los Angeles study concluded that 42 percent of so-called millennials are living with their parents. Numbers were similar among metros in the northeast United States, as well.
Why Housing Costs Are So High
It’s impossible to say that any one reason is responsible for most or all of the relentless rising in home prices and rents in many areas.
Certainly, a major factor behind growth in home prices is asset price inflation fueled by inflationary monetary policy. As the money supply increases, certain assets will see increased demand among those who benefit from money-supply growth. These inflationary policies reward those who already own assets (i.e., current homeowners) at the expense of first-time homebuyers and renters who are locked out of homeownership by home price inflation. Not surprisingly, we’ve seen the homeownership rate fall to 50-year lows in recent years.
But there is also a much more basic reason for rising housing prices: there’s not enough supply where it’s needed most.
Much of the time, high housing costs come down to a very simple equation: rising demand coupled with stagnant supply leads to higher prices. In other words, if the population (and household formation) is growing quickly, then the housing supply must also grow quickly — or rents will rise.
Moreover, where the housing gets built is a key factor. We cannot speak of housing supply for an entire metropolitan area. Metro areas are composed of a wide variety of employment centers and neighborhoods. The mix of employers and workers varies from place to place depending on tolerable commute times, local industries, and geography.
In an unhampered market, of course, as rents rise, housing developers will respond by building more housing where it’s needed most — and thus potential prices are highest. Rents will then fall in those areas and developers will stop building housing — or build in other places — until rents rise again. Or, in response to rising rents, current homeowners will turn their homes into boarding houses. Others may build so-called mother-in-law suites over their garages. The number of ways to expand housing is actually quite long.
But, as everyone who’s ever tried to do any of these things knows, we most certainly do not live in an unhampered market. In fact, the production of housing is one of the most regulated and micro-managed industries in the industrialized world.
City planners control what sort of housing can be built — and where — through zoning and land-use laws. These central planners tell us where housing must be single-family or multi-family. They tell us if you’re allowed to rent out one of your bedrooms to a non-relative. They tell us if you can build an auxiliary housing unit on your property.
With so much government planning at work, the effect has been rising home prices and a higher cost of living. And again, those who suffer the most tend to be those with the lowest incomes.
This is then made even worse by “urban renewal” schemes in which privately owned low-cost housing is bulldozed by governments to make room for trendy shopping districts or for government-owned or subsidized housing.
The Rise of Zoning and Land-Use Laws
Prior to the rise of widespread zoning laws — which became especially popular after the Second World War — housing production was far more responsive to market demand. In areas where there was a housing shortage, many families rented out rooms to what was a booming industry of boarding houses in the nineteenth century and early twentieth century. Residential hotels were popular among the elderly and those living alone.
Over the past 100 years or so, thanks in part to control-freak Progressives who demanded “communistic” boarding houses be shut down, cities began to take over as planners who decided what sort of housing people were allowed to live in.
Over time, this newfangled method of central planning has become immensely popular, and we can no longer say that city planners and local governments are forcing their vision on a disgruntled and resistant public.
Government Controls on Housing Are Very Popular
Indeed, in many areas, it is the private-sector homeowners who most demand that every new townhouse, every new apartment building, and every new storefront be controlled, evaluated, and ultimately controlled by government bureaucrats.
Modern outer suburbs in most metro areas are notable for extremely detailed zoning. But even in traditionally more laissez faire inner areas (laissez-faire in terms of zoning) communities have been moving toward even more stringent zoning laws to prevent diversity and decentralization in land use.
We’ve all seen it at work over and over again in many of these older inner suburbs: A landowner realizes the housing demand has increased in the area and attempts to put a four-unit building where a single-family home once stood.
Naturally, this change will create more housing, bring down rents, and, of course, allow a private-property owner to exercise his rights as an owner.
But, in many cases, the private-property owner quickly finds he has no such rights.
The neighbors, who don’t want to live near a row of townhouses or have more cars parked on the street will protest to the city government, demand a zoning hearing, and fight to ensure that only a single-family unit is allowed on the lot. In many cases, they’ll use the increasingly-popular tactic of “downzoning” in which people who earlier bought property with the hope of developing it later will be robbed of their property rights. They’ll be told: “sorry, that thing we once said you could do with your property — you can’t do that anymore.” This is done so that the community’s other residents can maintain the status quo in that neighborhood until the end of time.
At the same time, employment continues to expand in nearby commercial areas, so employees — instead of living in inner suburbs — must move further and further outside the urban area and commute on taxpayer-funded roads.
Nor is this problem limited to what many view as primarily residential areas. Even on major thoroughfares, nearby residents will protest new apartment buildings because they are believed to be unsightly, or will create more local traffic, are are simply something different they don’t like.
The “solution” in this case is to shift traffic somewhere else — to the suburban freeways, for example — and shift the cost to statewide taxpayers who now must foot the bill for extending infrastructure ever further outward.
In all these cases, one group of voters uses the power of government to force costs onto some other group of voters in some other area — and onto the workers who must live further and further from employment. This is all done to save the “character” of the neighborhood. But it’s really done because many homeowners have no qualms about using the power of the state to prevent other property owners from using their own property as they see fit.