Affordable Housing Oxymorons
By Arnold Kling
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 Davisï¿½s 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?