housing

Smart Growth Decreases Housing Affordability

by Marc Scribner on November 5, 2010 · 1 comment

in Deregulate to Stimulate, Economy, Property Rights, Regulation

Wendell Cox had an interesting article this week on his new findings on land-use regulation and housing prices. Long a critic of smart-growth planning, Cox’s new study puts a quantitative face on what excessive land-use regulations do to housing prices:

The overwhelming majority of new housing in the United States continues to be detached and is built near or on the urban fringe (Note 2). For new detached homes, the Index is 1.0 in six metropolitan markets (Atlanta, Dallas-Fort Worth, Houston, Indianapolis, Raleigh-Durham and St. Louis). This indicates that land use regulation is less restrictive and does not add more than normal to the price of new homes (Note 3).

In the other five metropolitan markets, the land and regulation cost ratio has risen above 20%, resulting in a higher Index. The Index is 2.4 in Minneapolis-St. Paul, 3.9 in Seattle, 4.5 in Portland, 5.7 in Washington-Baltimore and 13.2 in San Diego. It is estimated that more restrictive land use regulation raises the price of the least expensive detached houses from nearly $30,000 (in Minneapolis-St. Paul) to more than $220,000 (in San Diego) than would be expected if these metropolitan markets had retained less restrictive land use regulation (Figure 2).

Ironically, smart-growth proponents are still peddling the myth that “sprawl” is the main problem, rather than their misguided central planning. Take this new report from left-wing environmentalist and “[un]affordable housing” advocates, which claims that any of the benefits of cheaper housing on Virginia urban peripheries are outweighed by increases in transportation spending.

Of course, their analysis doesn’t consider the fact that the vast majority of Americans prefer to live in detached single-family homes on larger lots, as opposed to apartments in dense urban areas. This is particularly true of families with children. While demonizing cars, the report’s author fails to note that car ownership significantly increases employment opportunities and pay (and that this is particularly significant for lower-income minorities). His solution? Continuing the same aggressive central planning that made housing too expensive in the first place, that disproportionately harms the poor, and that likely helped drive the housing crisis.

Rent Is Too Damn High

by Kathryn Ciano on October 20, 2010

in Property Rights, Regulation

Not much to add to this brilliant insight: The rent is too damn high!

Jimmy McMillan doesn’t get into details about what he intends to do about such high rent. The answer is clear: Let the markets go!

Sure it’s nice to live in a safe, high-rent neighborhood. Hopefully Jimmy McMillan understands that the problem with rental price caps (like rent control) and regulations (like banning food trucks) is that these policies create spikes and troughs across abutting rent districts. This artificially ghettoizes neighborhoods rather than permitting rents to rise and fall naturally to reflect the more nuanced actual rent prices people are willing to pay.

If he intends to fix the “too damn high” problem by mandating a maximum rental price, neighborhoods will suffer. From a 2004 CEI paper:

Price controls are, historically, a dismal failure; in the short-term they may produce a drop in prices, but they also destroy the incentives to produce more goods. Under rent control, housing stocks deteriorate[.] A survey of economists 20 years ago demonstrated that the destructive effect of price controls is more widely recognized by economists than is practically any other regulatory effect. As a Swedish(!) economist once noted, “rent control appears to be the most efficient technique presently known to destroy a city–except for bombing.”

Even that bastion of conservative thought the New York Times filled its latest article decrying the “disappearing rent-controlled treasures” with tale after tale of sad disrepair. The simple truth is that when housing boards prevent landlords from earning market price for the apartments they rent, landlords cannot afford to fix apartment problems as they arise.

After all, city-imposed rent control may keep the rent from getting too damn high, but the price of plumbing, masonry, flooring, repairing a leaky roof, bread for the landlord, plumber, et al–none of these fall under a price cap.

That’s how markets work, kids, in a nutshell. Prices aren’t pegged to anything; they simply reflect information.

Pegging one item’s price to an arbitrary number will either destroy the market for that item or it will require such extreme control over all related markets that even a Stalinesque dictatorship can’t keep it together. Only when the government lets go of price control entirely do prices correctly reflect what things are worth to the relevant market.

Rent is high. When rent is too damn high people move. Relate to your people all you want, Mr. Politician, but keep your hands off of price control!

Obama’s Broken Pledge to Cut Wasteful Spending

by Hans Bader on September 16, 2010

in Bailout Watch, Deregulate to Stimulate, Economy, Politics as Usual, Sanctimony, Zeitgeist

When Obama was elected, he claimed he would “go through our federal budget– page by page, line by line–eliminating those programs we don’t need.” But as president, he seems to have forgotten about this pledge. The Cato Institute reminds him of it in a full-page advertisement in today’s Washington Post and other newspapers, identifying $525 billion he could cut annually from the federal budget by eliminating unnecessary or harmful programs.

For example, it notes that “Federal interference in housing markets has done enormous damage to our cities and the economy at large. HUD subsidies have concentrated poverty and fed urban blight, while Fannie Mae and Freddie Mac stoked the financial crisis by putting millions of people into homes they couldn’t afford. Getting the government out of the housing business will save $45 billion annually.” It also notes that “Federal workers enjoy far greater job security than their private sector counterparts—and far better total compensation: an average of $120,000 a year in wages and benefits. Cut federal compensation by 10 percent to save $20 billion annually.”

In 2008, Obama pledged to implement a “net spending cut,” but he has instead exploded government spending.  Federal domestic spending increased by a record 16 percent in 2010.  In 2010, the Congressional Budget Office concluded that “President Obama’s policies would add more than $9.7 trillion to the national debt over the next decade.”

The Obama administration’s housing spending is particularly wasteful.  It is now using regulations and billions in tax dollars to promote more of the risky lending that led to the financial crisis.  It is ratcheting up affordable-housing mandates that created markets for junk sub-prime mortgages (thus spawning the mortgage meltdown, as even the liberal Village Voice has conceded), and it is increasing regulatory pressure on banks to make risky loans.  A $75 billion federal mortgage bailout program harmed the very real estate markets it was supposed to help.

Regulation of the Day 130: Roommates

by Ryan Young on March 29, 2010 · 1 comment

in Personal Liberty, Regulation, Regulation of the Day

In New York City, it is illegal for four or more unrelated people to live together. At least 15,000 New York homes openly flout the rule.

The ranks of lawless hooligans cut across lines of class and race. According to the New York Times, violators “include young actors and ponytailed post-graduates; rising and falling junior investment bankers; immigrants, legal and illegal; and trend-obsessed residents in Brooklyn neighborhoods.”

The Times also interviewed a young film star who lives with five other people. He is not related to any of them.

People break the regulation to save money on rent. Given the cost of living in New York, this is a smart and prudent way to save money. It also leaves more housing left over for others, which helps to drive down housing costs.

Even better, if enough people pool their resources, they can afford to live in a larger home in a nicer neighborhood than they could pay for alone.

The city has the good sense to rarely enforce the rule – just three times since July, according to the Times. This is good. What would be better is to repeal it. When a law is almost universally regarded as counterproductive, not only should go unenforced, it should go away.