Tag: affordable housing

Poverty, Politics, and (Crony) Profit

Earlier this week, PBS Frontline ran a documentary titled Poverty, Politics, and Profit discussing major barriers to housing America’s poor. The show centered on the Low Income Housing Tax Credit (LIHTC) program, a federal program that subsidizes low-income housing construction.

Chris Edwards described Frontline’s LIHTC investigation well here. In short, the show found LIHTC costs taxpayers 66% more, but produced 20,000 fewer housing units than 20 years ago. Frontline made the case that the program’s failure is partly due to poor oversight and attendant corruption.

For those unfamiliar with LIHTC, Frontline’s narrative about developers’ outsized profits may sound extraordinary. But PBS does well to highlight a problem that the social sciences have long provided evidence for. For example, in Rethinking Federal Housing Policy, economist Edward Glaeser suggests that LIHTC’s “prime beneficiaries are the recipients of the tax credits, not poor renters …. [there] is little doubt that … a significant portion of program benefits accrue to developers.” And on the issue of LIHTC oversight, the Government Accountability Office flatly stated in a 2015 report that “oversight of the Low-Income Housing Tax Credit (LIHTC) program has been minimal.”

There are additional issues that were not covered in the Frontline piece. For one, the private market would produce the same housing in the absence of LIHTC subsidies. Economists call this phenomenon “crowd-out” and a recent study suggests “the impact of the [LIHTC] program on the [real] number of newly developed rental housing units appears to be small” because of it. In other words, LIHTC’s advocates are disingenuous when they pretend LIHTC-subsidized housing would not exist without government subsidy.

New Study on Low-Income Housing Subsidies

A new study at Downsizing Government looks at low-income housing aid. Howard Husock of the Manhattan Institute examines the history of federal aid and discusses problems with current policies, particularly rental subsidies and public housing.

One problem is that housing aid is costly to taxpayers. The federal government spent $30 billion on rental subsidies (Section 8 vouchers) and almost $6 billion on public housing in 2016.

Another problem is that housing aid and related rules are costly to urban communities. Howard argues that federal interventions undermine neighborhoods, encourage dependency, and create disincentives for long-term maintenance and improvements in housing.

Trump Understands Housing

Trump won, and free market types have valid concerns about a Trump presidency. It certainly won’t be a conventionally free-market administration, and it won’t likely be an ideologically coherent one in the conventional Republican sense. However, one area that free-marketers can find some solace is development regulation. In fact, as a developer and businessman himself, there’s reason to think that Trump intuitively understands this policy area better than any other and self-interest makes him an ally.

All the way back in August, Trump spoke to the National Association of Homebuilders and decried the “horrible regulations” that are stacked against developers to the resounding cheers of the crowd. He described development regulations as increasing by almost thirty percent over the past five years, and complained about the “frivolous lawsuits” brought against homebuilders. Notably, he even framed the discussion in terms of low-cost housing, rather than housing affordability.

Decades of experience taught Trump that more regulation means higher cost housing. Taken together, Trump emphasized that development regulations increase the cost of housing by a whopping 25%. Although that figure may sound substantial, it may actually underestimate the impact of regulation on housing prices in some areas of the country. In Manhattan, for instance, it’s estimated that up to half of the price paid for housing is attributable to the hidden costs of restrictive zoning regulations alone.

Land Use and Economic Mobility: You Could Have Read It Here First

Wednesday’s Wall Street Journal contains a great page 3 article on how stricter land use regulations are slowing the growth of housing in areas that need it most. Laura Kusisto reports on a developer’s fight to build middle-class housing in downtown San Francisco, but she notes that similar problems can be seen in wealthy communities from New York and Connecticut to San Diego and Portland, Ore. She also cites academic research on the topic:

According to research by Daniel Shoag, an associate professor of public policy at Harvard University, and Peter Ganong, a postdoctoral fellow at the National Bureau of Economic Research, a decadeslong trend in which the income gap between the poorest and richest states steadily closed has been upended by growth in land-use regulations.

Moving to a wealthier area in search of job opportunities has historically been a way to promote economic equality, allowing workers to pursue higher-paying jobs elsewhere. But those wage gains lose their appeal if they are eaten up by higher housing costs. The result: More people stay put and lose out on potential higher incomes.

For on-the-ground reporting, you need newspapers. But you could have read about that paper twice in Cato Institute publications. Regulation magazine editor Peter Van Doren wrote about it in Winter 2013-2014 in his “Working Papers” column on new research (page 78). 

And just two months ago a summary version of the paper appeared in the Research Briefs in Economic Policy series edited by Jeff Miron, director of economic studies. 

I hope state and local policymakers will take note of the findings in this paper.

Stay tuned to the Cato Institute for more ahead-of-the-curve ideas.

From Utopia to Animal Farm

In a society such as ours … is appears crazy at first to want revolution.  For we have whatever we want.  But the aim here is to transform the will itself so that people no longer want what they now want… .The question with which we had to deal … amounts to the question of whether … in order to set free these needs, a dictatorship appears necessary…

–Herbert Marcuse, “The End of Utopia” (1967)

All ‘favourable’ Utopias seem to be alike in postulating perfection while being unable to suggest happiness.  . .  The inhabitants of various [Utopias] are chiefly concerned with avoiding fuss. They live uneventful, subdued, ‘reasonable’ lives, free not only from quarrels, disorder or insecurity of any kind, but also from passion … .  Nearly all creators of Utopia have resembled the man who has toothache, and therefore thinks happiness consists in not having toothache. They wanted to produce a perfect society by an endless continuation of something that had only been valuable because it was temporary. The wiser course would be to say that there are certain lines along which humanity must move, the grand strategy is mapped out, but detailed prophecy is not our business. Whoever tries to imagine perfection simply reveals his own emptiness.

–George Orwell, “Why Socialists Don’t Believe in Fun” (1943)

If another group tie takes the place of the religious one – and the socialistic tie seems to be succeeding in doing so – then there will be the same intolerance towards outsiders as in the age of the Wars of Religion.

–Sigmund Freud, “Group Psychology and the Analysis of the Ego” (1921).


The actual distribution of income or wealth has often been compared with a hypothetical ideal (Utopia) rather than actual experience in any country at any time. 

Many Westerners once believed incomes were nearly equal in the former Soviet Union, for example, but we now know that substantial privileges did exist for a select few – based on political power rather than economic contribution.[i] Even aside from bribery and corruption, special access to health care, education, housing and special shops was often granted to the Communist Party hierarchy and the bureaucratic elite.  Urban people in general were subsidized at the expense of rural areas.

By the late seventies, only a handful of Western leftists continued  to defend such dictatorships as Stalin’s Soviet Union, Mao’s China, Castro’s Cuba, or North Korea’s Kim Jong-il/Kim Jong-un feudal dynasty.  

In recent years, the left’s previous romanticism of communism has sometimes been briefly salavaged by relabeling similar authoritarian regimes as “socialist” (Chavez in Venezuela), which sounds nicer but isn’t. Others have switched to romanticizing some golden age of the past.  In the U.S., for example, the Golden Age of greater equality was said to have occurred between 1930 and 1973. Yet the realtively egalitarian (“fair”?) suffering of 1930-39 is difficult to romaticize, for obvious reasons, as is the post-1973 stagflationary collapse of Nixon’s authoritatian price controls.

Vague allusions to social justice are often employed to suggest that a larger fraction of the economy’s benefits (food, housing, health care, etc.) could and should be distributed by government rather than by markets.  In theory, we could turn over all of our income to democratically elected officials and let them decide who gets what. But distribution on the basis of political criteria is not necessarily fairer than distribution on the basis of economic criteria.  Political markets also tend toward one-size-fits-all solutions, with less variety and innovation than in economic markets.

Those currrently expecting politicians to make various goods or services “affordable” or “free” are really just asking government officials to force someone else to pay.  But artificially low prices (e.g., for colleges or physicians) inflate demand and discourage supply, requiring some bureaucrat to use nonprice rationing such as waiting lists, lotteries or preferential treatment for those with the most political clout.

The only alternative to a free market is a politically rigged market, and that invariably turns out to be neither fair nor pleasant. 

The only way to ban markets is to beat them down with force. And since markets are abstractions, the force is used against people. So the alternative to a market-oriented society in which everyone is required to respect everyone else’s rights is a society in which those in power use force on whomever they can get away with using it on.”

–David R. Henderson, The Concise Encyclopedia of Economics (1997)


[i] David R. Henderson, Robert M. McNab & Tamás Rózsás, “The Hidden Inequality in Socialism,” The Independent Review (Winter 2005)

Zoning, Grandmas, and Affordable Housing

On its front page today, the Washington Post writes about legal and regulatory obstacles to building small second housing units on single-family lots, often for aging family members.

Second homes, often called “granny flats,” have become a new front in the conflict that pits the need for more housing in the country’s most expensive cities against the wishes of neighbors who want to preserve their communities. The same battles flare over large developments that might loom over single-family neighborhoods. But even this modest idea for new housing — let homeowners build it in their own back yards — has run into not-in-my-back-yard resistance….

Homes like the Coffees’, proponents argue, could help ease housing shortages that have made $2,000-a-month one-bedrooms look like a bargain in cities such as Los Angeles. They could yield new affordable housing at no cost to the public. They could add rentals and economic diversity to more neighborhoods. And they could expand housing options for a population in which baby boomers are aging and millennials are stuck at home.

Many neighbors, though, protest that a glut of back yard building would spoil the character of neighborhoods designed around the American ideal of one family on one lot surrounded by verdant lawn. …

“You have surging housing prices in the most prosperous cities in the country, and at the same time income inequality is growing, and there’s a cultural and demographic resurgence of urban living,” [Alan Durning, executive director of the Sightline Institute] said. Young people with less money, in particular, he adds, are “slamming into their parents and grandparents’ regulatory regimes of strict limits on construction of new housing.”

It’s not the first time I’d heard of the problem. In 1996 George Liebmann wrote in Regulation about how “Zoning makes it more difficult to keep aged parents close by and care for them.” He recommended that “Duplex homes and accessory apartments should be permitted in all new residential construction. Housing options such as these allow elderly persons to live near their adult children without intruding on their children’s privacy.” (“Modernization of Zoning,” pp. 71, 75). Note that he was talking not about separate structures but simply residential units attached to the main house. And even those were impeded by zoning regulations. I mentioned them briefly in my 1997 book Libertarianism: A Primer and my 2015 update, The Libertarian Mind (p. 309).

Local officials think their zoning rules are more important than keeping families together.  They fume that allowing such small structures for grandma would “turn our zoning ordinance upside down.” And what’s more important, saving money and keeping grandma near her family or strict adherence to zoning regulations? The Post article, featuring a conflict in Los Angeles, notes the problem of NIMBY or “not in my back yard” attitudes by neighbors. And in this case, as reporter Emily Badger notes, it’s actually in your back yard. Or technically, it’s a matter of “not in my neighbor’s back yard.”

Brink Lindsey wrote about how zoning limits affordable housing in his recent paper on regressive regulation, as did Edward Glaeser and Joseph Gyourko in Regulation.

Language Matters: Call It Low-Cost Housing

Housing affordability is an issue that’s been paid considerable attention over the previous two decades, but it doesn’t show signs of meaningful improvement. This even despite the almost $50 billion HUD spends in taxpayer dollars annually on solving the affordability crisis and related concerns.

So what gives? One likely culprit is the language we use to describe the problem.

Take the word “affordable.” Affordable housing – used in a public policy context – is a misnomer of sorts: affordability implies the ability to pay for something given your budget. But budgets vary considerably between households, and so the definition of affordability varies considerably, too.

There are only two – improbable – ways that any given housing could be affordable to the aggregate U.S. population. One option is that everyone’s incomes are identical. Another option is that housing is altogether free.