When certain government policies — like minimum lot sizes, off-street parking requirements, height limits, prohibitions on multifamily housing, or unnecessarily lengthy permitting processes — restrict the supply of housing, fewer units are available and the price rises. On the other hand, more efficient policies can promote availability and affordability of housing, regional economic development, transportation options and socioeconomic diversity...
...barriers to housing development can allow a small number of individuals to enjoy the benefits of living in a community while excluding many others, limiting diversity and economic mobility.
This upward pressure on house prices may also undermine the market forces that typically determine patterns of housing construction, leading to mismatches between household needs and available housing.What's even more praiseworthy is what Furman does not say: "Affordable" housing constructed by taxpayers, or by forcing developers to provide it; rent controls; housing subsidies; bans on the construction of market-rate housing (yes, SF does that); bans on new businesses (yes, Palo Alto does that), and the rest of the standard bay-area responses to our housing problems. The first few may allow a few lucky low-income people to stay where they are, as long as they remain low-income, but does not allow new people to come chase opportunities. Subsidies that raise demand without raising supply just raise prices more. As in child care or medicine.
When President Obama's CEA chair writes an oped, most of which could easily have come from Hoover or CATO, it's a hopeful day, no matter what happens tonight.
Moreover, Furman recognizes that a thousand-point federal program imposed on states and local governments by regulation is not the answer:
While most land use policies are appropriately made at the state and local level, the federal government can also play a role in encouraging smart land use regulationsWe have found the enemy, as Pogo said, and it is us.
The real political economy is tough, of course. Current residents vote for restrictions, and not just out of misunderstanding. Current residents (people like me), who buy expensive houses in this beautiful area, vote to keep things just as they are. Restrictions mean they can't sell houses for $10 million to a developer who wants to put up a 100 story office building and turn it in to Manhattan. But restrictions mean they can sell for $2 million and retire comfortably to Mendocino. Or stay right where they are, paying property taxes based on the 1965 value of their house (another big impediment to housing mobility and affordability) and making sure the neighbors don't sell and ruin their view. Renters vote for rent control, affordable housing mandates, and so on that applies to current residents but not to newcomers. This behavior has a negative externality on low-income ("low" means out of top 0.5%in SF!) people who want to move here. But a Trumpian mini-wall of regulation keeps them out. The most local government is not always the best. The most liberal government often acts with effects that are surprisingly conservative.
Furman has it right. HUD is trying to force a builder in our community to provide "affordable housing" for proposed new apartments. His profit margins are thin as he needs about 80% to 85% occupancy at market rental rates to break even. I believe he is having second thoughts about building here. If he doesn't build, no new supply, rent may go up with increased demand.
ReplyDeleteI would like to see more commentators come out with a blanket indictment of property zoning, as they do with the minimum wage. One can read calls to totally eliminate the minimum wage, but rarely to totally eliminate property zoning, although I think at this point property zoning is the larger structural impediment.
ReplyDeleteIndeed, I think it would make sense to eliminate the minimum wage, but only after decriminalizing push-cart vending, truck-vending and eliminating all property zoning.
Then micro-entrepreneurs could set up their own businesses, as is common in other nations. Recently I espied street vendors in Bangkok, who carried trays at the waist, like the cigarette girls seen in old movies. Try that in the USA!
Right now in the USA we outlaw much self-employment, so a minimum wage makes some sense, since we have tilted the playing-field against self-employment.
Some people rave about food trucks---but why not any sort of product or service sold from a truck, but it consumer goods, tax form work, haircuts, massages etc.
There is an appalling amount of class bias in the class for less regulation and free enterprise.
On property zoning, I think that zoning creates artificial shortages and redounds to benefit of existing property owners. Without zoning, there would be a forest of condo towers along the West Coast and perhaps occasional gluts.
I am sad to say that the free-market, libertarian movement in the USA is deeply undercut by overt class bias.
There is also the issue of property rights. When you buy a house you also buy the right to elect a council that will decide on zoning. Otherwise the value would be different.
DeleteGreat, lots to agree with Furman on his housing piece. And yes, it is a good day when the chief economist of the Obama Admin wants more market in the housing sector. All fine and dandy.
ReplyDeleteHowever, my question is, why doesn't Furman see that his approach could be extended to other markets, like medical care, labor markets, energy, etc?
One would think that a guy with an MSc from LSE and a PhD in Econ from Harvard and having studied under Mankiw, would see the irony of this.
In early 2013 I moved to a new area for a job. Never been there before, never knew anyone there, so for 2 weeks I lived in a hotel while looking for a place to rent. This was far more difficult than I originally imagined, because due to being a professional with a good living albeit not what I consider rich, I made too much money for all the apartments I was going to and if they allowed me to rent there, they would no longer qualify for federal housing subsidies where they take so many people that make underneath a certain level. Where I was from and rented before was hardly a glamorous place and I had not had this there, where I moved to was not in terrible shape but some manufacturing jobs had left and they were small towns with reasonably good apartments, so this whole process was bizarre to me. Ended up I found a place but had to live 45 minutes' drive away from work to get a place to live.
ReplyDeleteAn admittedly anecdotal example of the federal government helping one set of people that in turn makes it more expensive for everyone else.
Ahhh, but Dr. Cochrane, it does not matter if you believe in politics if politics believes in you! ;) Seriously, now might not be quite the best time to rise above it all.
ReplyDeleteHaving lived in the southern Oregon region, Jackson County, the last 15 years I have seen rents on residential real estate suddenly rise by 45-70% just since 2013/14.
ReplyDeletePeople blame the legalization of marijuana but that is not the driver since rents really started to pop prior to the legalization. Others blame net inflow of new people but while that has happened it was going on long before rents spurted up recently. Builders have always managed to keep up with demand by new entrants into the market.
Others blame the residential RE collapse of 2008 and that did indeed stoke demand for rentals as people were robbed of their housing, but again it did not impact the monthly rental prices noticeably.
So, what did happen? I contend that the vast towering increases were triggered by a state law, Oregon HB 2639 that made it illegal for landlords to consider source of income when renting properties. It forced them to accept section 8 housing vouchers from HUD. The penalty for discrimination can be as high as $11,000 per incident.
If you are an Oregon landlord and you do not want to accept poor people with no savings and dubious credit how do you legally sidestep this law? Mind you, qualifying for these rent subsidies requires one to have no savings and usually poor to zero credit.
Well, this law was passed - forced down our throats - with little to no public debate, and the response by landlords was predictable. HUD will only pay market rates for rental units so landlords simply raised the prices they charge beyond what HUD would pay.
This is a double whammy since as those new rates are reflected in the data the government collects the higher rents will become the market rates and force an ever escalating pricing structure.
This was not the only trick the landlords employed to keep the poor at bay, they also started demanding larger deposits and removed appliances such as refrigerators and stoves from rental units. These are big ticket items one needs to have either savings or credit to obtain.
As usual the state government and the author of the law take NO RESPONSIBILITY for the housing catastrophe they engineered. Far from making more housing options available to the poor it has taken away much of the choices they once had while placing even median income people such as myself into a state of housing insecurity.
I actually have left Oregon and am moving to the Irish midlands because as a disabled veteran on a fixed income I simply cannot pay the rents here anymore. My living standards have dropped by at least 40% in an economic era which the Fed and Federal Government claim has little to no inflation.