July 6, 2020 1:43PM

If Housing Affordability Is a National Priority, Then Why Does the Government Tax Almost Everything You Need to Build a Home?

A few weeks ago, Cato hosted an event on rising home prices and the resulting housing crises in many US cities. It’s an issue that has enjoyed much media attention and widespread calls for reform – even the 2019 creation of a White House Council on Eliminating Barriers to Affordable Housing Development “to identify and remove obstacles that impede the development of new affordable housing.” Most of the Cato event was—much like the broader public discussion on US housing reform—spent debating the merits and effects of single‐​family zoning and other land use regulations. Less discussed, however, were the many ways in which federal, state and local regulations inflate construction costs, which—as the White House press release notes—often drive home prices (and affordability) in many US localities.

Among those regulations (yet unlikely to be mentioned by this administration!) are US import restrictions on almost everything you need to build a house, from the foundation to the roof and in between:

As the chart above shows, these import barriers primarily take the form of tariffs on imports, especially from China, implemented pursuant to various US trade laws. Duty rates can range from a few percent to well over 100 percent – an effective ban on the product at issue.

Some of these measures and their economic harms for US consumers—in this case, American home-builders/buyers—have been widely‐​reported (e.g., President Trump’s “Section 232” tariffs on steel and aluminum or “Section 301” tariffs on Chinese imports). On the other hand, others—especially those implemented under US “trade remedy” (antidumping, countervailing duty or safeguard) laws—are less known, even though they can result in much higher duty rates (often using rather dubious methodologies) and can have similar economic effects.

Speaking of those effects, numerous studies show that these tariffs (1) are mostly borne by US consumers, not foreign governments or exporters; (2) increase domestic prices—regardless of origin—for the goods subject to the tariffs (indeed, eliminating low‐​priced imports’ “adverse” effects is often the whole point); and (3) in the case of essential housing inputs like lumber, can inflate construction costs and end up pushing tens of thousands of Americans out of the housing market altogether. (They also aren’t very good at saving the protected US workers/​industries, either, but that’s a story for another time.)

At a time when affordable housing has become a national priority, you’d think that US law (or at least the Trump administration’s implementation thereof) might allow the agencies administering the long list of “housing taxes” above to prioritize the consumer harms that they impose or the broader national economic interests that they might undermine. Unfortunately, you’d mostly be wrong. The blanket Section 232 and Section 301 tariffs allow US importers to obtain narrow exclusions, but the process is costly, opaque and usually unsuccessful (especially when a domestic competitor opposes the exclusion). Our AD/CVD laws, meanwhile, expressly prohibit agencies from considering duties’ consumer harms, and – unlike other jurisdictions – lack any test for choosing the “public interest” over domestic industry pleas for import protection.

As a result, these housing taxes will likely remain in place for years to come, regardless of the affordability crises to which they contribute.