Ideologues will ask what is fair and just and advocate for government policies promoting equity. Pragmatists, which seem to be in the majority in government, will be more concerned about what generates the most revenue for government. Public policy analysts look for opportunities for the former to also be the latter, while admitting sometimes policies are so horrendous, they spur alternative markets, like trading bribes for special workarounds.
Cato scholar Ryan Bourne recently rattled off a list of things government is doing to keep people poor and dependent, “Zoning laws and urban growth boundaries raise house prices. Regulations make childcare more expensive. Sugar, milk programs, and the ethanol mandate increase food costs.
Tariffs on clothes and footwear have particularly regressive effects. Energy regulations which seek to subsidize renewables rather than being ‘technology neutral’ can raise prices. CAFE standards, constraints against ride sharing, and some regulations on gas taxes raise some transport prices, too. Not to mention the broader effects of protectionism and occupational licensing in both raising prices and reducing efficiency across the economy.”
In 2016, Asheville voters approved $74 million in bonds, with $25 million dedicated to affordable housing projects. The bonds allowed the city to expand its budget without raising taxes in the short-run. (Maintenance of at least a portion of the buildout is expected to be sustained by the public sector well after the bond revenues run dry.) That Asheville has an affordable housing crisis is taken to mean government – not the realtors and developers government has the power to jerk around in design review processes – should now; in addition to its responsibilities of containing crime, fighting fires, maintaining streets and sidewalks, treating water, and a whole host of other initiatives for which it has assumed responsibility; assume control of the housing market.
To make the case, consider the Eagle Market Street rehabilitation project. A smattering of online sources estimate the cost of building a 2000-square-foot custom home in Asheville at close to $300,000. The total includes materials and labor, but not land-acquisition. By way of comparison, at a recent city council meeting, Vice Mayor Gwen Wisler challenged her peers’ intentions to effectively raise the city’s subsidy for affordable housing units in Eagle Market to $135,000-$170,000. Eagle Market is receiving $4.7 million from the city – as well as a $2.3 million loan from the county and $7 million from the state. The project is also a recipient of federal Low-Income Housing Tax Credits (LIHTCs). As it stands, the project, built on prime downtown real estate, will create 24-30 units of affordable housing, some of which will rent as low as $200 a month.
That is not out of the ordinary for taxpayer-subsidized projects nationwide. The federal government now spends $44 billion a year to fight affordable housing crises across America. $9 billion a year is administered as LIHTCs. Multiple studies have concluded LIHTCs are not adding to housing stock but only substituting for projects that would otherwise have been constructed by the private sector. What’s more, LIHTC projects have been described as low-income housing with luxury condo construction costs.
In addition to typically being built on prime real estate where housing codes are most stringent, LIHTCs come with high overhead. The federal government distributes LIHTC funds to state governments, which have their own administration machines. State agencies, as well as developers, must draft plans; and the Government Accountability Office found cobbling together accountants, lawyers, and administrators to manage the funds consumes 10-27% of the grants. Complying with federal, state, and local standards for materials and labor drove LIHTC project costs 29% higher than privately-funded development in Minnesota, and about 100% higher in Washington. The program rewards high estimates and offers no incentives for efficiencies.
LIHTCs are tax breaks for developers, $9 trillion government might just have to recoup by raising taxes on somebody else. According to elementary mathematics, if government operates a lot of antipoverty programs, it will need to raise taxes on people too poor to afford accountants to find loopholes. If government taxes a family, that family will have less money. If government taxes a store, that store will have less money and thus be under pressure to pay lower wages and/or raise prices. Visioning strategic priorities built off the backs of highly-taxed, low-wage earners with less buying power is not government’s only poverty trap.
Cato’s Vanessa Brown Calder recently published a study showing a correlation between land-use regulations; namely, zoning, and deficits in affordable housing in major US cities. The study attempted to compensate for variations in time and place. Would data corroborate speculation that height and density caps crowd out development – and that costs escalated by mandated aesthetic preferences and protracted design review processes with additional professional fees incentivize developers to build in other jurisdictions?
Calder discovered a strong correlation nationwide and then found the pattern persisted in a state-by-state analysis. Not only did she corroborate the obvious, that tighter regulation was driving up the cost of housing; she found federal aid for affordable housing was typically greatest in places with the most restrictive land-use policies. And that, she said, served as a disincentive for state and local governments to address root problems. North Carolina, incidentally, was among the better performers; but Asheville is a different story.
Other research corroborates Calder’s findings. John Quigley and Steven Raphael at the University of California, Berkeley, concluded each regulation on the books for California cities, on average, drives the cost of homeownership up 4.5%; and renting, 2.3%. Salim Furth at the Heritage Foundation estimated land-use regulations add 50% to housing costs in large coastal cities, and estimated that burden could be reduced 20% for homeowners and 9% for renters, by adopting policies more aligned with those of flyover cities. Looking at a broader picture in a study for the National Bureau of Economic Research, Chang Tai Hsieh and Enrico Moretti concluded land-use regulation was responsible for a 50% decrease in economic growth and an 8.9% decrease in economic output between 1964 and 2009.
In a paper prepared for Gallup and George Washington University in 2009, Jonathan T. Rothwell found density regulations accounted for 20% of the range between high and low housing growth rates in metropolitan areas, “and this result is remarkably robust to alternative measurements and assumptions about other land regulations,” he wrote. Calder listed other significant drivers of housing prices as, “geographic constraints, immigration, unemployment rates, consumer confidence, technological advances, marriage patterns, and location-specific amenities.”
Rothwell’s paper concluded, “Despite the apparent fiscal incentives behind it, I know of no reasonable justification for anti-density zoning, since limiting taxes in one area simply increases them somewhere else. The current system of local rule plays out as a beggar-thy-neighbor strategy, which forces the poorest jurisdictions, often central cities and their immediate suburbs, to bear the full cost of high population density. It permits rustic towns and suburbs to escape their fiscal responsibilities to the larger population area, while concentrating poverty and preventing desegregation. Whether these laws are motivated by racial or class bias or logical aversion to higher taxes, they are a tremendous burden on metropolitan economies.”
While the thorn of land-use regulation remains in the paw of affordable housing, municipalities continue to invent more Band-Aids. Among popular “solutions” are inclusionary zoning, which prohibits construction of multifamily housing without subsidized units; luxury condo taxes; and linkage fees, a one-time, per-square-foot charge against new development. All of the above, unfortunately, exacerbate the problem by giving developers more costs to recover, incentivizing them to build elsewhere. If they stay, financing will be more difficult, and costs will typically be recovered by raising costs on other units or cutting corners slumlord style. On the margins, a middle-income earner who could afford a market-rate unit but not the unit priced-up to subsidize the rent controls, will have to snatch a home from among the offerings accessible to lower-income earners.