Rising home prices and apartment rents have been in the news lately, but almost no one is looking at the real causes behind these problems. Instead, they are proposing band-aid solutions that will do little to help most people afford housing but will greatly benefit special interest groups.
According to the news, Boston, Los Angeles, Miami, New York, Portland, San Francisco-Oakland, San Jose, Seattle, and Washington, DC, among other major urban areas, are all suffering from housing crises. Economists who have studied these regions know why their housing is becoming less affordable.
First, urban-growth boundaries and other land-use regulations in most of these regions have limited the amount of land available for new housing. Urban planners say these regulations are needed to control the externalities caused by urban sprawl. However, as New Zealand’s Deputy Prime Minister recently noted in a speech about a similar housing crisis in Auckland, urban planning itself “has become the externality” that is making housing the most expensive.
Second, in many of these regions–specifically, Los Angeles, New York, San Francisco-Oakland, San Jose, and Washington–rent control has only made housing less affordable for everyone not lucky enough to live in a rent-controlled apartment. Even though some of these cities exempt new developments from rent-control rules, developers know that such exemptions could be eliminated at any time and are wary of investing in new housing. Many of these and other cities have also passed “inclusionary zoning ordinances” that force developers to sell or rent 10 to 20 percent of the new housing units they build at below-market rates, which both discourages new development and increases the cost of the market-rate units that are built.
Although these problems are obvious to anyone who understands the rudiments of supply and demand, they are almost completely ignored by politicians, housing officials, and low-income housing advocates. Instead, the almost exclusive focus is on building government-subsidized (or, in the case of inclusionary zoning, developer-subsidized) housing. Yet this does nothing to solve the problem for the vast majority of homebuyers and renters.