Up Sucker Creek

Up Sucker Creek
Photo Courtesy of the Lake Oswego Library

Wednesday, October 19, 2016

Government faulted for high cost of housing

While citing land use laws as a culprit for high housing costs on New York and San Francisco, the author failed to mention the impacts of those cities' housing regulations - rent control - that exacerbate shortages of housing supply, the attraction of a strong economy in those areas which causes a greater demand by in-migration, and demographics - the two largest generational bulges in world history competing for housing at the same time.

Easy credit caused a real estate boom in the early 2000s and took rental housing out of the market as apartments converted to condos. (Apartment owners were left with high vacancy rates and plummeting income as renters rushed into the housing market, but government was not offering reverse-rent control then!) The subsequent market bust left a shortage of lenders, buyers, investors and builders to satisfy the pent-up demand for housing units. A perfect storm was created for housing shortages and price increases. Only one factor - the birth rate bulge of the 50s and 60s and 80s and 90s - that wasn't caused by government's interference in the housing market.  (Read article below for other government causes of housing shortages and high prices.).

Solutions are not simple, but most government agencies are not capable of figuring out the long-term consequences of their fixes.  Urban, progressive municipalities and State and Federal programs tend to want to control the outcome of the market to further some notion of "economic and social justice."  The results are usually wasteful and don't work - rent control, inclusionary zoning, and public housing being the worst.  Private entities, responding to market demand, do housing better - without subsidies.

Temporarily subsidizing those in need and staying out of the housing market does more to stimulate a growth in housing supply than trying to solve housing problems directly.  Increased supply is the only long-term solution to high housing costs.

Politicians get elected to "solve" problems, but can't bring themselves to believe they are not smart enough nor powerful enough to control economic markets and human nature.  Bureaucrats and unions congratulate themselves for being generous and kind, and at the same time are guaranteed a never-ending pool of customers.  It's a hideous Merry-Go-Round of dependency at taxpayer expense - but the real harm is to the clients themselves who are trapped in government-assistance hell.

USC NOTE:  USC is an apartment owner and has extensive knowledge and experience in the Portland-area rental market.

Wall Street Journal, October 18, 2016, By Laura Kusito
New Culprit for Income-Inequality: Land-Use Regulations
Trend of income gap between poorest and richest states steadily closing is upended by growth in regulations

De­vel­oper Patrick Kennedy wants to build apart­ments for mid­dle-class fam­i­lies near San Fran­cis­co’s Fi­nan­cial Dis­trict, but he is struggling to win the city’s ap­proval. The prob­lem: in one spot the building’s court­yard is 5 feet too nar­row.

Mr. Kennedy said his ef­forts con­stantly run up against such ob­sta­cles, which he said drive up the cost of con­struc­tion and make it nearly im­pos­si­ble to build any­thing but lux­ury hous­ing in one of the nation’s most ex­pensive mar­kets.

In this year’s elec­tion, can­di­dates have fo­cused blame for ris­ing in­come in­equal­ity on broad economic forces, from glob­aliza­tion to the de­cline of the Amer­i­can man­u­fac­tur­ing base. But a growing body of re­search sug­gests a more or­di­nary fac­tor: the price of the av­er­age sin­gle-fam­ily home for sale, from Fair­field, Conn., to Portland, Ore.

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.

The typ­i­cal home in New York in 1970 cost 4.5 times as much as the in­come per capita, while a home in Al­abama cost about four times what a typ­i­cal fam­ily made. By 2010, that gap had widened significantly, with a home in New York cost­ing six times what a typ­i­cal fam­ily makes and one in Alabama cost­ing roughly 3.5 times as much.

“There are tra­di­tionally two ways to change your fate—get an ed­u­ca­tion or move to a higher-wage part of the coun­try,” Mr. Shoag said. “The sec­ond chan­nel isn’t re­ally available be­cause the prices make that a bad deal.”

Data from home-price tracker Zil­low show that wealth­ier ar­eas are do­ing a poor job of rem­e­dy­ing the im­bal­ances. San Fran­cisco and New York City, for ex­am­ple, built just one unit for every four adults who moved there be­tween 2010 and 2014. San Diego added 15 adults for every unit of hous­ing.
USC NOTE:  San Franscisco, New York and San Diego all have Rent Control laws that discourage new construction of housing units; Housing shortages raise the prices of all other housing in the city and nearby jurisdictions. 
 While it is likely the U.S. as a whole would ben­e­fit from mak­ing it eas­ier for lower-in­come res­i­dents to move to wealth­ier cities, that doesn’t mean wealth­ier cities like San Fran­cisco and New York would be bet­ter off. Build­ing large amounts of new hous­ing threat­ens to de­stroy the dis­tinct hous­ing stock that has helped make these cities ap­peal­ing in the first place.

“Most of those reg­u­lations aren’t just crazy. They’re there to main­train a sense of iden­tity that people care about,” said Vishaan Chakrabarti, founder of Prac­tice for Ar­chi­tec­ture & Ur­ban­ism, a New York ar­chi­tec­ture firm.

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