Arnold Kling  

Affordable Housing Oxymorons

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Here is an elementary example of presumably well-intended regulation without thinking through the consequences. Edward P. Stringham and Benjamin Powell write


Under most inclusionary ordinances, builders must sell 10 to 25 percent of the homes to very low, low, or moderate income households. The most obvious result is revenue from building goes down. We conducted a study and found that in the median city in the San Francisco Bay Area, builders must forgo $345,000 in revenue for each below-market unit. In one quarter of jurisdictions builders must forego more than $500,000 in revenue for each below market rate unit. Governments do not pay for the cost of producing the price-controlled units, so inclusionary zoning works like a tax on builders. The size of the inclusionary tax is quite substantial.

Unfortunately builders do not just passively accept lower profits. They build fewer homes and raise prices on remaining market-rate homes. The cost of the affordable units is spread among the remaining market-rate units. That makes all other homes less affordable. In the median Bay Area city, inclusionary zoning imposes an effective tax on each market-rate home of $44,000. In cities such as Cupertino, Los Altos, Palo Alto, Portola Valley, and Tiburon, we estimate that inclusionary zoning adds more than $100,000 to the price of each new home.


If you want to know what the country would be like if every jurisdiction were Blue, these mindless regulations come to mind. For example, I live in the same Blue county as Russ Roberts, who reports on the way our people's republic uses regulation to weed out "big box" (i.e., efficient) retailers.

So basically, this regulation protects Giant Food, a mediocre chain that fears the encroachment of the extraordinary Wegman's, from serious competition. That means higher prices and less selection for shoppers.

Of course, when people vote with their feet, they vote Red, as Cafe Hayek reader Don Noone wrote

Beginning in the 1960s and continuing right up to Gray Davis�s California, huge numbers of people fled, above and beyond normal migration patterns, the liberal paradises that were created for them in places like California and New York.

For Discussion. Does the Tiebout Hypothesis explain why the red states are getting redder and the blue states are getting bluer?


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COMMENTS (12 to date)
Boonton writes:

Arnold,

I agree that SF's 'low income housing' plan is quite short sighted. At a cost of $300K+ for each 'low income unit' gov't would have been much more efficient to hand out housing vouchers to 10 people for $30K each! But let's not forget the opposite thing happens just as often, if not more. Well off communities pass zoning laws that prohibit low income housing by mandating min. lot sizes, fancy styles, no multi-famly homes etc.

This 'red regulation' is quite common in the most republican of communities.

Also, while we are on the topic let's explore the odd fact that those 'liberal blue states' are net suppliers of tax dollars while many red states are net consumers of tax dollars.

Mcwop writes:
Also, while we are on the topic let's explore the odd fact that those 'liberal blue states' are net suppliers of tax dollars while many red states are net consumers of tax dollars.

Source?

Lawrance George Lux writes:

Demographics play a role here, in that the Wealthy chase the Sunshine, and impose their desires for less taxation, and less Low-Income housing to pull down their own Housing values. Reveral of Blue and Red could well mean a reversal of Red and Blue. The Tiebout Hypothesis (when costing less than $2000 per $100k) would not seem as operatiive as Sunshine.

The (Reversal) of the 'low income housing' plans means Government housing for the Poor, or invasion of Business and Transportation areas by the Homeless. lgl

Mcwop writes:

Boonton, I found the Census bureau source. Thanks.

lindenen writes:

"Also, while we are on the topic let's explore the odd fact that those 'liberal blue states' are net suppliers of tax dollars while many red states are net consumers of tax dollars."

Could this have something to do with military bases? Hmmmmmm?

ATM writes:

A better question is whether or not republican voters pay more in taxes than Democratic voters. The flow of income to and from states doesn't tell you anything about the people who are benefiting or not. For all we know, Republican voters in the Blue States are paying a higher tax burden and are funding Republican voters in Red States.

Another thing to consider is whether the tax base includes national companies with headquarters in blue states. Wouldn't the federal corporate income tax paid (as well as pay for top executives) come in the Blue state column, even though income and operations might be spread out across the country? After all a lot of companies are headquartered in blue states.

ATM writes:

Also don't forget NASA too with its operations in Texas, Alabama, and Florida, with Florida being mandated by geographical necessity.

Another thing to remember is that a considerable portion of many red states is owned by the federal goverment, which necessarily involves spending and reduces the revenue generating potential within those states. ANWR anyone?

Boonton writes:

Here's an alternate source on Red States vs. Blue States in terms of Federal spending. It's a blog but its pulling from a study by the Tax Foundation and it has a helpful map and summary with the top ten and botton ten receiving states (with Red and Blue highlighted in bold):
http://bigpicture.typepad.com/writing/2004/11/red_states_feed.html

Especially interesting was Florida which was just about even, receiving $1 in spending for each $1 in taxing last election. Now Florida gets more in spending than taxes (the recent hurricans there played a role before you read too much into that).

lindenen, I'm not sure how much military based would be a factor here. Off the top of my head states like California and NY (and also NJ) should seem to be prime candidates for military spending since they have easy access to the ocean. Landlocked interior states would seem to have less reason to reap military dollars. Regardless, I think as large as military spending is it would not alter the effect of something like several million retired people collecting SSI payments. Farm subsidies too, while not as large, would be a source of concentrated Federal spending.

Also don't forget NASA too with its operations in Texas, Alabama, and Florida, with Florida being mandated by geographical necessity.

Another thing to remember is that a considerable portion of many red states is owned by the federal goverment, which necessarily involves spending and reduces the revenue generating potential within those states. ANWR anyone?

Actually there's no reason NASA has to be in Florida. It could 'outsource' the actual launches to a foreign country that sits on the equator (physics says it is easier to launch a ship from the equator) while the 'mission control' center could be located in any state.

I'm not sure Federal ownership is the cause either. While the Federal gov't does have to spend some money for park rangers and such most of the land it owns is basically nature preserves. Aside from some management, that doesn't cost very much per acre to own...

Bernard Yomtov writes:

Beginning in the 1960s and continuing right up to Gray Davis’s California, huge numbers of people fled, above and beyond normal migration patterns, the liberal paradises that were created for them in places like California and New York.

US population growth, 1960-2000: 57%
CA population growth, 1960-2000: 216%

Bernard Yomtov writes:

Sorry. CA's population growth from 1960-2000 is only 116%. Only twice the national rate, not four times.

Jon writes:

The article by Edward P. Stringham and Benjamin Powell seems to neglect the cost side of the equation. By counting only lost revenue they may significantly overstate the net costs of the regulations. The "affordable" units generally have lower construction costs and take up less land then the "average" market price unit. The affordable units in most communities are townhouses or condos. Thus calculating the "cost" by subtracting the regulated price from the average market price of surrounding new homes is very misleading.
The "affordable units" are required for reasons beyond merely having more affordable homes, but to try to keep society a little less segregated.

Also missing from the analysis is pressure that would work in the opposite direction. A good part of the housing costs are land costs. If it is less profitable to build new homes, then there should be downward pressure on the price of buildable land!

James Wink writes:

About the military bases: both policy and geography have dictated their placement. On the Air Force end: the Cold War Mission of defending the North Borders from Russian bomber attack helps explain why so many AF bases are up North. The Army's bases are partly a legacy of the Indian Wars and the Civil War witness Fort Leonard Wood and Fort Bragg. The Navy has one of the world's prime harbors in Norfolk.

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