The key challenge is to choose the correct path for housing reform. Many of Carson’s critics think the proper line is to require new developments to save a proportion of units for low-income residents, which will ensure, they claim, “that economically diverse neighborhoods and housing affordability will be preserved for generations to come.” The implicit assumption behind this position is that government agents have enough information to organize complex social institutions, when in fact they are slow to respond to changes in market conditions and are often blissfully unaware of the many different strategies that are needed in different market settings. No one wants to say that governments should not lay out street grids and organize infrastructure. But they operate at a huge comparative disadvantage when it comes to real estate development on that public grid.
Far superior is an alternative view that I have long championed. The first thing to do is to abandon the assumption that there is a systematic market failure requiring government intervention. The second is to remove all barriers to entry in the housing markets, so that supply can increase and prices can fall. These barriers are numerous, and include an endless array of fees, taxes, and permits that grant vast discretionary authority to local officials. A removal of these burdens will allow us to harness the private knowledge of developers who will seek to work in those portions of the market that hold the greatest profit opportunities…
The so-called housing experts all sign on to the general mission of HUD to deal with the various ills of housing shortages, but none of them have the slightest interest in the market solutions that could improve the overall situation. To make the point more clearly, market solutions do not include letting developers steamroll small property owners through eminent domain abuse, or allowing local communities to pass restrictive zoning and permitting requirements that are intended to block low-income housing. Rather, the correct answer is to stop eminent domain abuse, to peel away layers of regulation, and to cut out the extensive network of government grants that impose strings on how housing can be built. Perhaps Carson does not know much about the current programs. But if he puts the necessary reforms in place, he will have no need to master the details of endless federal, state, and local regulations that have created the affordable housing crisis in the first place.
Epstein sees two issues: there is not “a systematic market failure” and too many regulations limits supply and discourages builders. While I am not suggesting federal government programs alone can solve affordable housing (see this earlier post where I discussed this idea with other academics who study public housing), I am skeptical about this line of argument.
First, the “systematic market failure” often discussed by academics is related to race: whites made rules (and then institutionalized them with lending institutions and the federal government) that ensured whites did not have to live with other racial and ethnic groups. Even before some of this was institutionalized, the relatively freer housing market of the late 1800s and early 1900s was already promoting residential segregation. See the case of the Black Belt on the South Side of Chicago or separate black suburbs (see Places of Their Own by Andrew Wiese). And if people didn’t make market decisions about housing based on race, they would do so regarding class. The idea of exclusionary zoning is that wealthier communities set up conditions that do not allow for the construction of cheaper housing. Epstein suggests at the end that exclusionary zoning might have to end but then how would he balance the interests of lower-income residents versus the property rights (often an important cause among conservatives) of existing owners?
Second, regulations may discourage builders. But, loosening regulations does not necessarily mean that they would suddenly build cheaper housing when they could make more money on larger houses. This is a common conservative argument about the Bay Area in California: if regulations protecting land could be done away with, more housing would be built and prices would drop. This could happen broadly though I suspect some of those existing homeowners would not like this (and property values are of utmost importance to many homeowners) and it is not clear that builders would construct housing that is that much cheaper (even if they are contributing to increased supply). Perhaps Epstein could provide some examples where this – builders have moved to fill cheaper niches in the market – has happened. And it may be hardest to do this in places where there are already a lot of regulations; moving to a lot fewer regulations or no regulations requires a major shift on everyone’s part and probably must be demanded by a majority of the public (requiring some sort of political movement).
Come to think of it, there are ways these arguments could be evaluated with data. Are there places in the United States that have more or less housing regulations and whose housing outcomes can be compared? Are there any truly free markets in housing that working in providing affordable housing?
Additionally, it may be time for some more creativity regarding housing. Could we have different locations – cities, states – try different approaches and see what works?