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It’s the Old Folks Fault

By | | Housing
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Usually, The Economist lives up to its name in analyzing important issues. But it misses the point in its latest article on housing affordability. The article notes that the British government has set a target of building enough homes so that real housing prices rise only 1 percent faster than inflation.

That’s an idiotic target. First, why should housing prices rise faster than inflation at all? In a market unhampered by government regulation, housing prices will rise and fall with incomes, and rising incomes lead to higher prices because people buy bigger or more luxurious homes, not because homes themselves rise in price faster than inflation.

Second, the idea that government planning can control housing prices is as bad as the idea that government should plan housing in the first place. The government’s plan is to relax some housing regulation, which is good, and to subsidize new homes, which just transfers the burden from one group of people to another. What the government should do is get out of the way entirely.

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Confusing Cause and Effect

By | | Housing, Regional planning
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“National housing prices have risen much faster than construction costs since the 1990s,” says Paul Krugman (agreeing with Obama’s economist, Jason Furman), “and land-use restrictions are the most likely culprit.” While Krugman is right about this, he confuses cause and effect in several other parts of his article, “Inequality and the City.”

His first problem is when he credits (or blames) urban gentrification on, “above all, the national-level surge in inequality.” In fact, as MIT economist Matthew Rognlie has shown, it is the other way around: the increase in inequality has resulted from the surge in housing prices.

Krugman’s next problem is when he asks, “why do high-income Americans now want to live in inner cities, as opposed to in sprawling suburban estates?” The answer that he misses is: most don’t. The regions where housing prices have risen fastest–San Francisco, Los Angeles, Seattle, Portland, Boston, New York–are ones where suburban growth is stifled by growth boundaries or some other form of land-use regulation. Without that stifling regulation, more high-income families would live in the suburbs, just as they do in regions that don’t have that regulation.

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Affordability Baffles Planners and Politicians

By | | Housing
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The Washington, DC, public housing authority has figured out how to solve the region’s affordability problems: Evict people from public housing, convert the dwellings into luxury homes, sell them at a profit, then use the profits to build more affordable housing. This cycle can be repeated endlessly, especially since it won’t really solve the problem.

The housing authority claims it is only selling homes at “scattered sites,” especially ones in “more desirable neighborhoods,” while it concentrates the subsidized homes in what must be less-desirable neighborhoods. In other words, it is increasing income segregation, exactly the opposite of the Department of Housing and Urban Development’s goal of promoting more integration of both races and incomes. Apparently, DC’s housing authority didn’t get the memo.

In Portland, which has been known to have its own issues with raising rents on so-called affordable housing, the city just passed another rule that will make housing less affordable. After cheering developers for tearing down homes and building apartments or several smaller homes, the backlash against the practice has grown so strong that the city council has decided to charge developers $25,000 for every house they tear down. That’ll make housing more affordable (Not)!

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Higher Cost = Less Affordable, Not More

By | | Housing
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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.

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The Most Racist Urban Area in America

By | | Housing, Regional planning
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Yesterday, the Department of Housing and Urban Development (HUD) approved a new fair housing rule called Affirmatively Furthering Fair Housing. This follows the Supreme Court’s recent ruling allowing HUD to use disparate impact as a criterion for determining whether a community is guilty of unfair housing practices.


Racists. Wikimedia photo by Bernard Gagnon.

In one form of disparate impact analyses, HUD compares the racial makeup of a city or suburb with the makeup of the urban area as a whole. If the city doesn’t have enough minorities, it is presumed guilty and must take steps to attract more. Under the Affirmatively Furthering Fair Housing rule, that could mean subsidizing low-income housing or rezoning land for high-density housing.

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More Expensive Than It Should Be

By | | Housing
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The Economist reports that housing in China is “cheaper than you think.” The magazine-that-calls-itself-a-newspaper’s measure of affordability is the average price of a 100-square-meter (1,076-square-foot) home divided by average household income.


Older mid-rise homes in Shanghai are torn down and replaced with high rises. Flickr photo by Paolo Vasta.

In megacities such as Beijing and Shanghai, such a house costs nearly 15 times the average incomes of those cities. Not to worry, says the Economist: in medium and small cities, housing is only about 8 times average incomes. As of November, the national average is 8.9 times.

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Liberals and Unaffordable Housing: Cause or Effect?

By | | Housing, Regional planning
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As the Antiplanner noted yesterday, the Washington Post has observed that unaffordable housing markets tend to be in liberal metropolitan areas while conservative metropolitan areas tend to be affordable. This is based on a comparison by Trulia economist Jed Kolko of housing prices (in dollars per square foot) vs. voting for Obama or Romney in the 2012 election.

Note that not all liberal metropolitan areas are expensive while not all inexpensive markets are conservative. But nearly all expensive markets are liberal and nearly all conservative markets are inexpensive. (The one exception, Orange County, California, is partly land-locked by other, more liberal communities.)

New Zealand economist Mish Shedlock asks if this is merely a correlation or does one factor cause the other? His weak conclusion is that “Union work rules, land availability, and building restrictions (or lack thereof) are all likely in play.” In fact, there is plenty of land available in all of the expensive regions; it is just rendered off limits to development by state or local land-use rules.

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House Defunds Affirmatively Furthering Fair Housing

By | | Housing, News commentary
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The House of Representatives has approved an amendment offered by Arizona Representative Paul Gosar to the Transportation and Housing & Urban Development appropriations bill that would prevent HUD from spending any resources on its Affirmatively Furthering Fair Housing program. As previously noted, this program is basically an attempt to use fair housing laws to force suburbs to rezone land for higher-density housing.

As described by Stanley Kurtz, under regulations drafted by HUD, suburban communities of single-family homes that do not have a perfectly balanced racial composition would be de facto guilty of housing discrimination. To remedy this, such communities would be required to rezone for multifamily housing.

Ironically, the rules implicitly make a racist assumption that racial minorities prefer multifamily housing. On a per-square-foot basis, single-family homes are less expensive to build than multifamily, so the rules could have required construction of smaller homes. But, of course, the real goal isn’t racial integration; it’s increasing densities.

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Rents Too High?

By | | Housing
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When the 2008 financial crisis hit, many writers piously suggested that homeownership was not for everyone. Most recently, New York Times blogger Josh Barro argues against homeownership, saying that “a 20 percent decline in home prices may wipe out the equity interest entirely, making it a riskier bet than buying stocks.” But housing prices rarely decline by more than 10 percent in regions with little land-use regulation; by restricting supply, it’s the regulation that makes prices volatile. (Meagan McArdle responds to some of Barro’s other points.)

Adding to this, now people are discovering that the same things that put homeownership out many people’s reach can make rents unaffordable as well. Unfortunately, many of the writers and analysts have failed to connect high rents with land-use restrictions.

A Houston writer named Aboubacar Ndiaye is one who gets it, blaming high rents on several factors but leading off with government regulation. In this, he includes “housing-choice vouchers, affordable housing mandates, rent control, height regulations, historic designations, and protective zoning laws.” Though some of these seem to be intended to make housing more affordable, he observes, they actually make it less so.

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