Why can’t the private sector address the “crying need” for affordable, decent housing? The short answer is that it isn’t a private sector phenomenon but rather that regulation and restriction are in large part responsible: Ed Stringham and Ben Powell of San Jose State University have shown that housing market interventions in California that were supposed to increase the supply of low-income housing have actually made housing less affordable.
“Safety regulations” are also an issue. I came home yesterday to find that our back door lock had been replaced with the explanation that the city of Saint Louis doesn’t allow double cylinder locks. Inspections and new locks alone don’t add much to our rent, but a pile of small costs can turn into large costs rather quickly. Many municipalities also have occupancy restrictions that regulate the number of unrelated people who can share a house or apartment. In sum, building codes and housing regulations act as a tax on occupancy.
A real solution would be to scale back the extent to which governments intervene in housing markets, but that may never happen. Since it has worked so well everywhere it has been tried, why don’t we bring back rent control?
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By sheer coincidence, I just finished writing a piece on my blog about NYC’s dismal housing market, and how to change things.
Read it here: http://iceberg18.blogspot.com/2005/06/nycs-housing-woes.html
Please feel free to comment there if you agree or disagree with my conclusions.
I would agree with Dr. Powell & Dr. Stringham; price controls do lower the quantity and quality of any good.
However, I do not completely agree with some conclusions Drs Powell and Stringham state in their article, “Affordable housing quotas at ORD discourage solution,” located here: http://www2.sjsu.edu/depts/economics/faculty/powell/docs/housing/Californian12-2003.pdf
I am not sure I care if lower priced land costs taxpayers or government; but lowering the cost of land through coercion is morally wrong and economically inefficient. If lower tax assessments due to government price controls result in lower tax revenues, I am not sure I care about that either. Property taxes are no different than any other type of government confiscation. Lower property taxes would then be less (very slightly less) of an immoral and destructive thing. Generally speaking, though I agree with the ideas put forth in this and other articles located at the Housing Research Page.
As to the comments by Iceberg:
Iceberg is correct in that there are many barriers to development in NYC. Rent guidelines, onerous regulations, zoning, and community boards with stunning power over the use of private property are just a few of the many obstacles that stand in the way of providing more housing units in New York. If these obstacles were removed, I believe that development would proceed at a dizzying pace. The demand is certain there. Of course, the fact that land is in finite supply also has an impact on the costs involved.
The discussion about affordable housing is predicated on an assumption that no one bothers to evaluate – where the housing is located. The unquestioned assumption is that people “ought” to be able to find a cheap apartment right in the middle of things; say, the West Village or Upper East Side. These neighborhoods would cost more even in a free economy because they are more desirable. When people say that there isn’t enough affordable housing, what they are actually saying is, “there isn’t enough affordable housing in the most preferred locations.”
I heard someone moan about the lack of affordable apartments in NYC the other day. I pointed out to her that there are plenty of affordable apartments; you just have to commute farther to get to them. “But I don’t want to commute farther,” she whined. I didn’t bother to suggest that perhaps she could pursue more lucrative employment. She felt entitled to (actually that everyone was entitled to) affordable housing in central locations without considering that this made little economic sense.
Prices, even outrageous ones, are the markets way of allocating resources. If a resource such as land is in short supply, it’s value in the marketplace will rise. The regulatory leviathan a developer or landlord faces takes the shortage and prohibits the free market from offering a solution.
Of course we will probably never know just what a free economic playing field would look like. I’d guess that if the state got out of the way, free enterprise would add enough housing to NYC that we’d see a decline in overall prices, but the most preferred locations would still command a premium. Either way, good stuff from Iceberg.
“Of course we will probably never know just what a free economic playing field would look like. I’d guess that if the state got out of the way, free enterprise would add enough housing to NYC that we’d see a decline in overall prices”
I often find it funny to see how close the idealists of the Austrian school are so close to the Marxists of all stripes. All the excuses for the failure of the systems approaching their ideal are put on the fact that the ideal hasn’t been achieved just yet. They ask all of us to take a leap of faith: as we see the lives and worldviews ground into dust they promise that just around the corner, if only we’ll hold out a little longer, the new revolution will make us all better off. I haven’t read the entire article, but I see equally compelling work with the use of facts and figures by leftist economists and they all say that the only way to end any crisis is to pay closer attention to the laws of their purest revolutionary science. In another post, I see calls for enlightening the masses and accusing “them” disdainfully of being lazy and ignorant. I find this hard to stomach from people who claim to have their best interests in mind. All of the pronouncements of either school love to make the reversal of what they see as conventional wisdom their fundamental ethos. It is fun to read, but a crummy way to run a society.
During the period of “enclosure” and the beginning of the Industrial Revolution in England the people who were forced off the land went to London because that’s where the jobs were. The slum areas exploded and the City Fathers tried zoning. Didn’t work then and doesn’t work know because people still go where the jobs are. All zoning does is determine who gets rich and who loses money.
One thing the Russian Revolution demonstrated is that the building, even room, doesn’t exist that can’t be duplexed.
If I was single I would live in a class c motorhome and work graveyard shift. I could sleep during the day when the public parks are open and save half my pay.
Sean:
There always are two solutions to shortage problems.
1) Total deregulation: Let the market work without hinders. Any shortage is then turned into a profit opportunity, and as entrepeneurs race to get a share of the profit they as a side effect resolve the shortage.
2) Total regulation: Take the funds you need at gun point to build as many houses as you deem sufficient, then rent them out at the rent you consider just. Repeat until the shortage goes away.
People who frequent mises.org obviously prefer the first solution, both because it will give a more efficient use of resources, and because it does not include human rights violations or increased socialism.
There is a lot that can be said about the US housing crisis. It is important to note that every market is different. The difference is Because of different employment opportunities and or commuting distances from neigboring metropolitian areas.
It is also important to note that the housing market is manipulated like the stock market. For instance in New York state the upstate housing market areas 75 to 100 miles or more north of Manhattan is some of the most inexpensive in the nation. However all housing within this 75 to 100 mile commuting radius is some of the most expensive in the nation. Even Getto areas can demand a $400,000 to $500,000 or more in price range. And Boosting of rents of over $1200 per month.
This is because regulations have keep most of the job growth in the southern wedge of the state. While industry has vacated the western and upstate regions. Also illegal immigration has pushed up rents and overcrowed once nice suburbian Long Island communities.
Sira-After warching the whole mess from day 1, I have come to the totally unworkable conlusion that William Shakespear had it right when discussng housing and land problems ” First, let’s kill all the lawyers”. Since this is not possible, we come to the conclusion that we should remove all government regulation and let the people who actually own the land argue it out. Unfortunately, this is not workable as enough people are greedy and stupid to the point this would be total disaster.That’s why we have government.The man who did as much if not more to put the Constitution through the Continental Congress, John Adams, wanted government to act as a Restraint on the people. Of course, no founding father believed in democratic government as we have it today, they called it ‘ mobocracy’ and dreaded it like the plague. They firmly believed the people should be ruled by the most fit, in terms of education and experience and wealth.Even Thomas Jefferson, who was far more liberal that John Adams,George Washington, or Alexander Hamilton, felt strongly that voting and holding office should be limited to landholding white males.John Adams, when he was President of the United States, still worked on his farm. Frankly, I think they were right,other than cutting women out of the picture.Democracy as we have it is not a workable solution.People who have earned the right to vote and hold office, by education,experience, and earned wealth should be the ones running the government and those holding the vote. Since this is not a workable solution either, I believe we are going to have these messes untill we wind up in a dictatorship, and I am frankly glad that I am old enough, 68, that I won’t live to see it.
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