Researchers found these policies “lowered aggregate US growth by more than 50% from 1964 to 2009,” which is a massive amount of economic damage done, bit by bit, by local governments trying to control what goes on in their real estate markets.
By JOHN C. MOZENA
What They Said:
“Builders in and around southeast Michigan say it is now hard to make a profit on entry-level homes because of higher construction materials costs, a shortage in construction labor, local zoning and regulation issues and the cost of land in desirable areas.” – Detroit Free Press, 4/8/2018
What Should Be Said:
“Local zoning and regulation issues” shouldn’t be treated the same as true market-price costs like labor, land and materials when it comes to rising new home prices. Zoning and urban planning laws are a form of everyday central planning where individuals use the power of local government to promote their own personal economic interests, even when the resulting inflation in housing costs is bad for the community and for the nation as a whole.
City councils, planning commissions, zoning appeals boards and other local government bodies tend to do everything they can do discourage lower-cost “starter” housing. This is unsurprising, because they’re made up of and controlled by local residents, who tend to be homeowners. These people own houses and have personal financial stakes in their value, so they have little incentive to want new houses built in their community that are cheaper than their existing homes. These new low-cost homes generally drive down average sale prices and attract new residents with lower incomes, decreasing a community’s average household income. This makes the existing residents’ homes less attractive and decreases their resale value, so they support local ordinances and rules that make it hard for lower-cost housing to be built.
While local government officials will often pay lip service to “affordable housing,” they tend to do so in a way that does not actually lower aggregate housing costs in a community. One common method is to require that a certain number of units in a proposed development be rented at artificially below-market costs. Another is limiting the rents that landlords may charge through rent control, which socialist Swedish economist Assar Lindbeck famously called “the most efficient technique presently known to destroy a city, except for bombing” because of the incentives it creates against property maintenance and remodeling.
Local planning and zoning policies that drive up costs are usually presented in terms of “protecting local home values” or “preserving community character,” but there is no inherent reason why it’s good for a community to have rising house prices. In fact, while most homeowners consider their houses to be investments, the reality is that they’re a consumer good.
Throughout history, government policies that intentionally increase the cost of consumer goods rarely end up working out for the best, and houses are no exception. According to researchers at the National Bureau of Economic Research, local government efforts to control housing markets hamstring the U.S. economy as a whole by making it harder for younger or lower-income people to afford to live where the best jobs are. The researchers found these policies “lowered aggregate US growth by more than 50% from 1964 to 2009,” which is a massive amount of economic damage done, bit by bit, by local governments trying to control what goes on in their real estate markets.
Public Choice, Private Benefit
This kind of interference with free markets comes about because “the government” is made up of people, and those people don’t stop caring about what’s best for themselves just because they’ve got a role in that government. This is an example of what’s known as “public choice theory” in action — a deceptively simple method of analyzing how decisions are made in politics and government, public choice theory won its co-founder James Buchanan the 1986 Nobel Prize in Economics. Its fundamental principle is the simple recognition that voters, elected officials and government employees tend to make decisions based on what they think is best for themselves, just as they would in any other part of their lives. (As journalist and “Masterpiece Theatre” host Alistaire Cooke once explained it, “Public choice embodies the homely but important truth that politicians are, after all, no less selfish than the rest of us.”)
Importantly, public choice explains that the people making these self-interested decisions don’t even need to recognize they’re making decisions that are good for themselves but bad for others. The kinds of civic-minded individuals who tend to sit on local planning commissions and zoning boards rarely approach their work from an intentionally selfish standpoint, thinking “What’s in it for me?” Rather, they look at the best interests of the existing people in their community — which includes themselves — and then logically make decisions that add up to higher housing costs and lower access to affordable housing than otherwise would have existed.
Bit by bit, town by town, state by state, these well-meaning interferences with the free market add up to a massive drag on the collective economy. It’s one more example of how even the smallest and most well-intentioned local government interference in the free market can make things worse for everybody concerned, and should help us recognize that the best way to make homes more affordable would be to take the power to make them cost more out of the hands of local government officials.
John C. Mozena is a communicator working to spread liberty and free markets. He has been a vice president at a free-market think tank, spent two decades in a variety of private-sector marketing and communications roles and began his career as a newspaper reporter and editor covering health care policy. Follow him on Twitter or visit his website.
What Should Be Said shows effective ways of communicating freedom principles by using a storytelling approach, taking the moral high ground, and staying hopeful and aspirational. Media, politicians and thought leaders often fail to include the freedom perspective at all by omitting critical facts. Alternatively, when they do make a sincere attempt to sell the freedom philosophy, they often do so with a stale and defensive approach that is missing stories that humanize the dry facts and figures. Here we show examples of how storytelling and emotionally compelling changes in message will make all the difference for those trying to advocate for liberty.