“Where there is the greatest government intervention, housing is least affordable.”
– The Housing Boom and Bust
Bernie Sanders and the Democrats continue to demagogue the topic of affordable housing with calls for universal rent control. Without rent stabilization, they claim, the working class cannot obtain suitable housing. These erroneous statements only serve to create a problem that doesn’t exist and then masquerade as the cure for the disease they just created. As you will soon see, housing was much more affordable before their political meddling ripped open Pandora’s box.
Unnecessary government interference negatively impacts the cost of apartment living by limiting the increase in monthly rents to a certain percentage each year. These artificially low rental payments incentivize people to rent rather than buy, to stay in their apartments longer, to seek larger apartments than they would normally need, and to avoid downsizing when their family gets smaller. Roommates can also afford to get their own apartments and live on their own. In fact, 49 percent of San Francisco tenants with rent-control apartments live alone; in Manhattan, that number is 46 percent, while the national average is just 27.
Landlords who now receive less rental money, are forced to abandon maintenance and repairs, ultimately leading to slum conditions. Builders have less incentive to build lower-and-middle-income apartments and switch instead to high-end properties since luxury units are typically exempt from price controls. All of this leads to a greater demand for rent-controlled apartments at the same time it leads to a shrinking supply. It’s not surprising that homelessness is greater in cities that have rent control as fewer housing options are available. An additional irony is that wealthy people hold a significant number of rent-controlled apartments in San Francisco and New York. The very opposite of what affordable housing is meant to accomplish.
The government also creates unaffordable housing for homebuyers. The price of land is made more expensive when zoning laws that restrict land use drive up the cost of the remaining land. These artificial limitations are applied even though less than 10 percent of the land area in the US has been developed. Increasing the minimum size of a single-family lot and adding green regulations further increases the cost of housing, while additional onerous regulation increases the cost of labor to build new housing. In fact, one-quarter of the cost of a new home can be attributed to government regulations. Housing demand and housing prices are further affected by the government’s manipulation of interest rates.
Before the housing bust, the government forced the reduction in mortgage standards. They demanded lower down payments and then no down payments, before lowering income requirements and dismissing poor credit histories. Unfortunately, homeownership isn’t just about getting the family through the front door but maintaining that house going forward. These easing of restrictions have put many people into precarious situations they should have best avoided. The resulting collapse was an accident waiting to happen.
In Thomas Sowell’s 2009 book, “The Housing Boom and Bust” written following the housing bubble and the subsequent bust, Sowell details the conditions that led to the inflated housing market, the role of politicians and governments in creating the conditions for the bubble, as well as the ensuing finger-pointing and cover-up.
From the first federal and state mandate, there was little need for government intervention in housing. As Sowell noted, “Homebuyers have paid no more than the old-fashioned standard of 25 percent of their incomes for housing in any year since 1985. Renters have in recent years paid a somewhat higher percentage of their smaller incomes but not more than 30 percent in any year over the past several decades.” Government intrusion has raised the costs, priced people out of housing, and forced others onto the street in severe cases. The real barriers to affordable housing are rent control, unnecessary regulations, and green policies that feed governments' obsessive desire to control every aspect of life.
Government interference distorts the market and drives up the cost of housing, ironically making it more expensive. As the fallout from Coronavirus restrictions leads us towards another economic downturn, we need to insist that the government stays out of the way, so people can make choices based on real prices.
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