[Julian] Castro would provide housing vouchers to all families who need help. Right now, only 1 in 4 families eligible for housing assistance gets it. He would also increase government spending on new affordable housing by tens of billions of dollars a year and provide a refundable tax credit to the millions of low- and moderate-income renters who have to spend more than 30% of their incomes on housing.I'm actually surprised it's as much as a fourth. Most government programs outside medicare and social security attract tiny fractions of the eligible people. Watch out budget if people catch on.
Massachusetts Sen. Elizabeth Warren calls for a $500 billion federal investment over the next 10 years in new affordable housing....
[New Jersey Sen. Cory Booker] would also provide a renters' tax credit, legal assistance for tenants facing eviction and protect against housing discrimination...
Sen. Kamala Harris has also introduced a plan for a renters' tax credit of up to $6,000 for families making $100,000 or less.
New York Sen. Kirsten Gillibrand has signed on to both the Harris and Warren plans, which have been introduced as legislation.In sum, they're piling on to pay your rent or mortgage.
The economic foolishness of all this is painful. Housing is not a single good. It's location, location, location, and also size and condition. This isn't about homelessness. Everyone lives somewhere, so the point is to subsidize larger, better, or more conveniently placed housing. Or, to free up money for people to spend on other things.
Economics is about incentives. If the government pays for all your rent past 30% of your income, that's a big incentive to rent a huge apartment and not to earn any extra income. =
"Affordable housing," doesn't mean affordable housing, in the same way affordable hamburgers mean affordable hamburgers. It's a catchword for "below-market rate" housing, usually mandated by zoning boards, but now I guess to be paid for by the government. But when you give away something for, by definition, less than the market rate, that means people line up for it. Like scarce rent-controlled apartments, is one more impediment to people moving for better opportunities.
Econ 101: What happens if you subsidize demand, but do not unleash supply?
Prices go up. Period. It ends up entirely in the pockets of current property owners. There is a good case this happened already. To earn a gazillion dollars in tech, you need to move to the Bay Area. There are only so many houses, so the great gains in productivity end up in the pockets of existing landowners.
Aha, you will answer, but they have a fix for that: rent control, now sweeping the nation. We know where that leads.
They also answer, as above, the Federal government will start building houses and apartments.
I guess millenials are too young, and nobody reads any history any more, but, we and especially Europe have tried this one over and over, to catastrophic failure. Go visit the sites of housing projects, now thankfully torn down, in Chicago. They look like Chernobyl. Go visit the cruddy outskirts of European cities, with government built cement apartment blocks. This is our vision for the "middle class?"
In sum, the candidates promise to repeat for housing the immense success of subsidies and supply management and provision that the the government has just accomplished for health care, insurance, and education.
In sum, the candidates promise to repeat for housing the immense success of subsidies and supply management and provision that the the government has just accomplished for health care, insurance, and education.
It's usually a good idea to figure out what's broken before we start fixing things. That idea never seems to occur to anyone in politics when talking about economic policies. Where is the market failure in home and apartment building? Why is the private sector not building more housing? The answer is pretty obvious -- zoning, building codes, insane permitting processes and so forth.
So, the government restricts supply, and prices go up. Then it subsidizes demand, and prices go up some more. Then it puts in price controls. So the plan seems to be to bring the government's huge success with health care and health insurance to the housing market.
So, the government restricts supply, and prices go up. Then it subsidizes demand, and prices go up some more. Then it puts in price controls. So the plan seems to be to bring the government's huge success with health care and health insurance to the housing market.
One tiny ray of light:
New Jersey Sen. Cory Booker would provide financial incentives to encourage local governments to get rid of zoning laws that limit the construction of affordable housing.Zoning laws largely keep poor people away from rich people and enforce a lot of racial segregation.
But again, "affordable housing" means "housing allocated by politics," and "housing you'd better not leave once you get it, and better not earn too much either." I wish the article just said "limit the construction of housing, which makes it unaffordable!"
The usual coexistence of subsidy and restriction plays out almost comically in the "gentrification" issue, politicians wanting to be all things to all people:
"It is not acceptable that, in communities throughout the country, wealthy developers are gentrifying neighborhoods and forcing working families out of the homes and apartments where they have lived their entire lives," [said] Vermont Sen. Bernie Sanders,..
Warren would also give grants to first-time homebuyers who live in areas where black families were once excluded from getting home loans. "Everybody who lives or lived in a formerly red-lined district can get some housing assistance now to be able to buy a home," Warren told attendees at the She the People Presidential Forum in Houston this spring.Technically, "Everybody" includes white millennials. I wonder how she will stop that.
Calfornia's SB50 proposal to force local zoning to allow development near transit had a similar feature. Yes, we allow development everywhere -- except in poorer neighborhoods most in need of development, which are protected from the evils of new Starbucks and Whole Foods popping up.
***
These are tough times to be an economist. As a matter of technocratic policy, this is not hard stuff. Physicists don't have to write blog posts because the candidates want to enshrine the phlogistic theory of heat. Doctors don't have to rail about HHS policy on four humor management. Somehow we are left railing against fallacies understood since the 1700s.
It is, of course, no better on the right. The benefits of free trade and migration have also been known since the 1700s. It is just, sadly, that there is no debate on the right at the moment.
This is a real weakness of the American political equilibrium, that in a reelection year all the new ideas and analysis come out of the party in opposition. It would be a great time for the Republican Party to try to come to terms with what Trumpism means, how it relates to traditional conservatism, and to hash out ideas like this. Alas, that will not happen.
One is tempted to dismiss all this as rhetoric that will settle down in the general election. But I don't think one should take too much comfort. Trump ended up doing a lot of exactly what he said he would do. Politicians often do.
On this, I found fascinating a tidbit from Dan Henninger in WSJ, covering a poll of Democrats conducted by Fox News.
Fox asked these Democratic voters whether they wanted “steady, reliable leadership” or a “bold, new agenda.” Steady and reliable crushed bold and new by 72% to 25%.
Anyone consuming the media every day the past year would have concluded that the Democratic left’s “bold, new agenda” had taken over the Democratic Party lock, stock and barrel. Most of their presidential candidates obviously thought so.
How else to explain why Sens. Warren, Harris and Cory Booker instantly saluted Bernie Sanders’s socialized medicine or, even more incredibly, the antic Alexandria Ocasio-Cortez’s multitrillion-dollar Green New Deal? Recall how Nancy Pelosi, whose 70-something sense of political smell is still more acute than her juniors’, called it “the green dream, or whatever.”
In fact, when Fox asked these Democrats what they most wanted from their candidate, 74% chose “unite Americans” against just 23% who want to “fight against extreme right-wing beliefs.” Looks like there’s a silent majority inside the Democratic Party, unmoved by the propaganda of social media.
These are the parts of the Fox poll, surfacing a nostalgia for steadiness and unity, that should upset the Trump campaign, not Mr. Biden’s 10-point lead 16 months before the election.Mr. Henninger did not add that Mr. Biden is the one who should be listening hardest. He is currently drifting fast to the left. The poll tells us that this time, my friends, the answer is not blowin' in the wind. I hope more people listen.
I disagree with your sentiment that the government can not successfully build housing the NYCHA has provided housing for over 400,000 NYC residents it may not be the most glamours houses but it is housing, and NYC homelessness is nothing compared to San Francisco
ReplyDeleteHow's that working out? Biggest slumlord in NYC apparently. Perhaps the most damaging aspect of this nonsense is that sincere dialog on effectiveness is drowned by economically illiterate politics.
DeleteIn the UK at least, most state-built housing (built by local councils, not central government) is ordinary houses and flats, not enormous tower blocks. The question you don't ask is why, if the housing market is so efficient, it was thought necessary to build several million such dwellings in the UK.
ReplyDeleteWould that we could abolish property zoning.
ReplyDeleteOne trick that might work would be to reward local governments with a federal payoff based upon population densities on land adjacent to freshly unzoned property. That is, if a government unzones a parcel in a densely populated area, thus allowing a super residential high-rise, they get a pretty good payoff.
Maybe then the local government can bribe local property owners and renters to get a new hi-rise project approved.
But as it stands, there are no atheists in foxholes and there are no libertarians or free marketeers when neighborhood property zoning is under review.
"Would that we could abolish property zoning."
DeleteNah, zoning is like the old Churchill quote: it's the worst system of property law except for every other system that's been tried before.
"NIMBYism" is not new: our great-grandparents were perfectly aware it was a serious flaw of zoning. But they had also seen the alternatives to zoning in action -- like the old "nuisance law" regimes -- and concluded (almost unanimously!) that zoning was the lesser of the evils.
This isn't to say that we should ignore the flaws of zoning. But before we run off and abolish it altogether, let's remember the alternative regimes had their own pitfalls, and the path to those pitfalls was steep and slippery.
I don't think you can compare economists to physicists and doctors. Those are hard sciences with testable and predictable results. Economics is more of a social art with almost no predictive abilities. Generally a backward-looking-trying-to-fit-a-model-to-data art. So yes, when you hear a "truth" from an old economic model, you should take it with a giant grain of salt.
ReplyDeleteThe world of human behavior has a lot of variance unaccounted for. Positive analysis is pretty rigorous, but not always generates reliable predictive power. The models do the best they can given the observable data. Data tells a story -- or stories. ;)
DeleteThose who can afford to live in high end homes and middle class priced homes do not want poor people infesting their neighborhood, for even those who grew up in the poor neighborhoods (i.e the ghetto), want out. Can you imagine those who grew up in the ghetto, but got an education and a good job and found a nice place to live, then learning their local government is going to build low income housing in their neighborhood? In other words, the person who escaped the ghetto is having the ghetto brought to them. It may sound callous to say this, but those who have lived in poor areas and don't any more, know that they don't want to go back to that or have it brought to them.
ReplyDeleteI feel your pain on this and multiple other elementary economic issues. The illiteracy is frightening and lack or reasoned dialog more concerning. I think proponents of this nonsense have limited to no arguments that can be delivered.
ReplyDeleteThus, a political screed ensues. Your commentary is genuinely appreciated. How about a Grumpy Economist club?
I am not a big fan of government-provided housing, but I do not think it is always as disastrous as it turned out in America. Singapore and Hong Kong have a lot of government-built housing, and the results are not terrible (granted, Singapore used its freeholds over housing to intimidate political opposition, but this is mostly about lack of democracy there).
ReplyDeleteI personally lived a social housing in England - it was a neat three-storey terraced house. The neighbours were just a bit noisy, but otherwise I have not noted any significant problems. Of course, England used to be notorious for building modernist disasters back in the day, but social housing need not to be a catastrophe.
On the other hand, people who advocate for building homes in the American cities that need them most (Bay Area, New York City, etc) say that actually getting social housing built there is not much easier than a market-rate housing - zoning, hearings, design review, environmental review, a shadow on a zucchini garden, &c, &c, &c
Personal experience. Rent control and zoning restrictions in NYC severely reduced available housing in the late 1980's. Across the Hudson, rough and gritty Hoboken and Jersey City beckoned to developers, of whom, I was one. Gentrification ensued. Hoboken is now referred to as the "Sixth Borough."
ReplyDeleteProf Cochrane,
ReplyDeleteI think you missed out an important part of Warren's plan, which I present with a single commentary below:
"These investments are one big — and necessary — way that we can reduce rental costs. But there’s another driver of expensive housing costs: some state and local zoning rules needlessly drive up the cost of construction. These aren’t necessary rules that protect the environment or ensure that homes meet safety codes. These are rules like minimum lot sizes or mandatory parking requirements. These kinds of rules raise the costs of building new housing and keep families from moving into areas with better career and school choices.
My bill gives state and local governments a real incentive to eliminate these unnecessary rules. It puts $10 billion into a new competitive grant program. States, regions and cities can use the new grant money to build infrastructure, parks, roads, or schools. But to even apply for these grants, they must reform land-use rules to allow for the construction of additional well-located affordable housing units and to protect tenants from rent spikes and eviction. Similar efforts have resulted in states making serious changes in the hopes of securing valuable federal grants."
https://medium.com/@teamwarren/my-housing-plan-for-america-20038e19dc26
You can question if this is a large enough incentive or even if this is just window dressing, and you're welcome to dispute other parts of the plan, but clearly Warren's team understands the density of housing is an important issue, as it's right in the middle of her plan, and it's focusing on the key aspect: density.
Minimum lot sizes and mandatory parking requirements are 100% necessary aspects of zoning; eliminating them would be pure nonsense.
DeleteWarren* has fallen into the common trap of thinking that because a law is often misapplied, the law itself is bad.
Some people in Menlo Park are worried about their gardens getting enough light, and try to use zoning laws to ensure this happens by limiting construction of badly needed apartments. This is ridiculous, and should be stopped. But in the early 1900s in NYC, new building techniques were developed capable of preventing ANY natural light whatsoever from reaching street level.** NYC residents were upset, and adopted their early zoning laws (in part) to prevent their neighborhoods being locked in perpetual darkness. This is NOT ridiculous.
The thing to realize is that the zoning laws being applied in both examples are the same. And while a non-lawyer might think it'd be an easy thing to refine zoning law to apply in the NYC example but not in the Menlo Park example, they'd be wrong. The only realistic way to solve for the Menlo Park problem is for people to get involved in their local politics, and boot the garden club and NIMBYers from the zoning board.
*This is not a shot at Warren specifically, as I appreciate similar quotes can be found from politicians all over the political spectrum.
**This is why modern buildings are usually tapered as they rise in height... it has nothing to do with physics or needing a "large base" or anything along those lines, it's so we can actually see the sun at street level.
"I'm actually surprised it's as much as a fourth. Most government programs outside medicare and social security attract tiny fractions of the eligible people. Watch out budget if people catch on."
ReplyDeleteA small point, but "if people catch on" isn't the right way to think of low-participation here. The reason take-up is so low is not because people do not apply for housing assistance - it is because it the only part of our social safety net that is rationed. This is why waiting lists for housing assistance are so long. The average person receiving housing assistance had been on a waiting list for 2.5 years. When Chicago opened their waiting list in 2014, 260,000 households, or about 1 in 5 households in Chicago, applied.
Oakland could offer some very interesting real-world data over the next few years on the impact of new supply on rents. The old 'Auto Row' stretch of dealerships, tire shops, and warehouses is being utterly transformed by an array of large market-price apartments/condos. Just today I counted 7 new or almost completed buildings along with a couple lots just starting construction within a 2 mile stretch. All are walking distance to BART have good bike lanes to downtown. Oakland is politically quite progressive so it's not fair to lump all on the left together in terms of opposition to new construction.
ReplyDeleteOne thing that strikes me about state provision of housing is, as the author notes, it is often astoundingly ugly.
ReplyDeleteHere in the UK, polls of the public fairly consistently show that the most popular type of high-density housing is Georgian terrace housing. This actually has higher density than the monolithic tower blocks, and is cheaper to construct. Aesthetically, it is a nearly universal opinion that they are easier on the eye!
However, whilst tower block is not often the opted for option these days, state-provided houses never opt for this style of housing.
I would posit the trouble is that planning committees/projects etc are often run by architects and 'experts'. They build what they think people SHOULD want, not what the DO want. Undoubtedly their expertise is required to make sure projects are feasible/safe etc, but they should be given no input on product selection in my opinion.
Of course, a significant number of the proposals submitted will still be 'cutting-edge', 'novel', or (aarrgh!) 'dynamic in use of space' (paraphrasing). But if architectual firms are finding that more traditional housing is what actually gets selected, it won't be too long until they start submitting on this basis consistently.
"Zoning laws largely keep poor people away from rich people and enforce a lot of racial segregation."
ReplyDeleteThe essential purpose of zoning is to enhance property values by taking externalities into account. Obviously in practice it's a political process that doesn't always achieve the best outcome, but it's a better way to understand regs like minimum lot size, single vs multi-unit, commercial vs residential. Of course the de facto result may be segregation by income, but that doesn't make them bad regs. I don't see how they result in segregation by race except as an indirect result of segregation by income.
As to vouchers, they are preferable to most other approaches like government-built low-income housing (which probably just crowds out private housing and certainly segregates by income de jure, not just de facto. Of course you are correct in pointing out that the only way to make housing more affordable it to make it less expensive to build, by removing unnecessary regulations, bureaucracy, mandates, and taxes.
I fully agree on your view on zoning, but this European milennial disagrees with your view on the historical European experience of rent controls and subsidized / government controlled housing. There are clearly bad examples, but also good ones.
ReplyDeleteTake Amsterdam, the case which I know best. Slum housing was a large and widespread problem in the 1900s, and throughout the early 20th century, the government declared many homes inhabitable, posted laws on housing quality and strongly promoted / subsidized the construction of social housing. Around the World Wars, there was an extensive system of rent controls. The final result was a large and regulated supply of public housing.
In your view, this would be recipe for disaster. Although it's only correlational evidence (hard to do causal inf when rent controls are applied on all properties for decades, and governmnet subsidizes new construction at the same time), the actual statistics don't seem that disastrous: real housing rents and housing inequality went down during the heyday of this system (1900s-1980s), quality improved drastically and a significant part of the social housing built in this period is nowadays perceived as very beautiful (search e.g. for "Amsterdam School"). It's mostly the social housing from the 1950s and 1960s that is perceived as bad-looking. I think style matters!
There are many deficiencies in the system, and I am generally not in favour of rent controls and large housing subsidies, but let's at least admit that the outcome doesn't always have to be that disastrous if policies are designed well. (and if I have to choose which is the lesser of two evils, I like a Dutch neighbourhood with plentiful social housing over a zoned Menlo Park neighbourhood. But maybe this is a literal home bias?)