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<font color="#002864" size="1" face="Verdana">http://www.mises.org/fullstory.asp?control=1288</font>
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<font face="Verdana" size="2"><font color="#002864"><strong><font size="5">The Roots of the Housing Shortage</font></strong></font>
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<font size="4">By Gene Callahan</font>
<span class="208060213-11082003">[</span>Posted August 11, 2003<span class="208060213-11082003">]</span>
<img alt src="http://www.mises.org/images3/forsale.gif" align="right" border="0" width="233" height="221">While
listening to New York City's CBS News Radio the other day, I was struck by the
juxtaposition of two stories, apparently placed together without ironic intent.
The first one was about New York Mayor Michael Bloomberg visiting Staten
Island to gripe about the"overdevelopment" of the borough. In his
recorded remarks (I quote from memory here), he noted that builders are
putting up houses"only fifteen feet wide," and charging $400,000
for them. This price, he asserted, was outlandish. He did not state exactly
what price fifteen-foot-wide houses in Staten Island should fetch, but
it was clear that Bloomberg knew that it should be less than $400,000.
The very next story was about a group of protesters that had assembled at
City Hall. Their gripe was… the lack of affordable housing in the city! And
what they sought was for the city government to do something about that lack.
It did not seem to occur to the protestors that a good start in that
direction might be for the city to stop getting in the way of those who want
to build more housing. There are few things that reduce the price of a good
like an increase in its supply. But the very people who decry the lack of
"affordable" housing in New York and other places are often the ones
who are most agitated about"overdevelopment." While the idea of
"a lack of affordable housing" is itself suspicious, as
pointed out elsewhere, it is clear that one effect of many government
programs is to make housing less affordable than it otherwise might be.
Besides laws designed to halt"overdevelopment," the government
reduces the supply of housing and drives up its cost in a number of other ways.
Wetlands regulations
often require extensive environmental studies before building is allowed to
begin, and they completely prevent building on many otherwise viable sites.
Licensing requirements restrict the supply of contractors, raising the cost of
hiring them. Rent control laws reduce the attractiveness of investing in
residential property. Government agencies that insure mortgages, such as
Fannie Mae and Freddie Mac, reduce the cost of housing for those who qualify
for their programs, since qualifiers can borrow at a lower interest rate with
the government insurance than they could without it. But such programs drive
up housing costs for everyone else, as those who do not qualify are faced with
increased competition in bidding for houses.
It might seem that, with all of the downside to government activities that
restrict supply in the housing market, a wily politician should be able to
muster a coalition to overturn some of these laws. But the people who would
like to buy or rent housing in a city, but cannot currently afford to do so,
also cannot vote in city elections. Any people who are able to buy a house or
apartment in the city as a result of previous"overdevelopment"
immediately acquire an interest in restricting further development. Once they
are"in," restrictions on new building increase the value of their
property compared to what it would have been, absent the restrictions.
Able workers who are shut out of careers in building trades due to union
and licensing restrictions cannot form a lobby as easily as those who already
are organized in a union can. Although developers can and do form lobbying
groups, they have a public relations problem vis-Ă -vis environmental lobbies:
Developers can easily be portrayed as acting merely out of their selfish
interest in profits, while environmentalists forward their proposals out of
their altruistic concern for nature. It requires a little thought to realize
that developers, in a free market, cannot profit from a project unless it also
benefits the people to whom they hope to sell the houses they build. After
all, if consumers don't prefer the new housing to all of their previously
available alternatives, they won't buy it! (I don't mean to portray developers
as saintly people. All too often, many developers have sought to gain from
influencing government policy rather than fulfilling the wishes of the
consumers.)
The current housing market provides a classic example of a pattern noted by
Mises, Rothbard, Ikeda, and others. Every government intervention in the
market thwarts the desires of at least some consumers to use their own
resources in the fashion they think will benefit them the most. If it did not,
there would be no point in intervening, since the market already allows every
participant to employ his resources in pursuit of his most desired ends.
Interventions are undertaken, at least ostensibly, to achieve some"social"
goal different than those pursued by individuals who are acting without a
centralized locus of planning.
Because they thwart some people's desire to use the resources they own as
they see fit, government interventions always create new frustrations for
those people. When price controls are placed on apartments, a shortage of
housing appears. Renters must jump through hoops to persuade landlords to rent
to them. There is a frantic rush to see any available rentals. When licensing
requirements limit the supply of workers practicing a building trade,
consumers must put up with innumerable scheduling delays from contractors.
When legislation reduces the number of lots upon which one can build in order
to prevent"overdevelopment," the price of the still-useful lots
soars.
If one does not carefully trace the problems back to their roots in a
previous intervention, it is very easy to believe that yet another
intervention is just the ticket for rectifying them. If potential renters are
having difficulties finding apartments, perhaps the state should build
apartments. If there seems to be a shortage of carpenters, maybe a
government-subsidized training program is the solution. If building lots seem
very expensive, perhaps government credits for housing expenses is the answer.
Politicians, of course, have a motive to encourage such conclusions, since
new interventions will further increase their power. Recommending
interventionist"solutions" to problems created by previous
interventions helps them to portray themselves as active statesmen willing to
tackle the"tough issues" and"get something done."
But each new intervention will create new problems in its wake. Subsidized
training for carpenters will lure workers into the trade who might have been
better suited for other jobs. Subsidizing housing will prompt buyers to
consume more of it than they otherwise would, at the expense of items that
would have pleased them better in the unhampered market. The only reasonable
solution to the vast, interlocking network of market interventions is to go
"cold turkey," and let the market work its wonders in supplying all
of us with what we desire.
<hr align="left" width="33%" SIZE="1">
Gene Callahan is author of Economics
for Real People. Send him MAIL,
and see his Mises.org Daily
Articles Archive. He delivered the Henry Hazlitt Memorial Lecture at
the Austrian Scholars Conference 9, March 13, 2003. Click HERE<font face="Verdana, Helvetica" size="2"> to
view the online video version of his lecture.
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