Higher Cost = Less Affordable, Not More

Portland columnist Steve Duin laments that the city is not doing more to make housing affordable. He proposes to either tax new homes and use the money to build affordable housing or to mandate that developers to sell or rent a certain percentage of their new homes at below-market prices (inclusionary zoning).

The problem with either of these policies is that they create a few “affordable” homes by making housing more expensive for the vast majority of renters and homebuyers. Taxing new homes obviously makes them more expensive. But like the rising tide lifting all boats, it also raises the price of existing homes because sellers of those homes see that their competition–new homes–is more expensive so they can ask for more too.

Research has shown that inclusionary zoning leads developers to build fewer homes and then to sell the market-rate homes they do build for higher prices to make up for the losses on the below-market homes. Since inclusionary zoning pushes up market rates for new homes, that same rising tide makes all other homes less affordable as well.

Duin mentions that “New single-family subdivisions are not on the horizon inside Portland’s urban growth boundary.” But it never occurs to him that the boundary is the real problem. If we take literally the headline of his article, “Unleashing the Cities,” then he really should be writing about getting rid of that boundary.
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What is it about the progressive mindset that it cannot comprehend the basic economic principle that more expensive means less affordable? Is it that they never studied economics? Or are they simply more interested in increasing government power by creating a few showcases than in actually solving problems?

One answer comes from California, where the Antiplanner cheered when Jerry Brown persuaded the California legislature to abolish tax-increment financing (TIF). TIF was a source of both crony capitalism and social engineering, and without TIF, urban planners would have a hard time persuading builders to construct unmarketable high-density housing projects.

Jerry Brown to the rescue. The state is now using revenues from his cap-and-trade carbon program to fund New Urban developments, not to mention high-speed rail and other social engineering projects. Of course, some people probably say the funded developments contribute to affordable housing. Most of those people probably live in single-family homes but are perfectly happy consigning everyone else to stack-and-pack housing.

So Brown terminated one slush fund merely to create another. The results are the same: more crony capitalism and social engineering.