April 29, 2008
RALEIGH – Local government leaders who want “affordable” housing should scrap their affordable housing policies. A new John Locke Foundation Regional Brief says those policies often cause large increases in local home prices.
“Even if they’re acting with the best intentions, cities that pursue policies to provide housing to low-income citizens ignore fundamental economic realities,” said report co-author Dr. Michael Sanera, JLF Research Director and Local Government Analyst. “These policies increase the price of all housing, making the entire housing stock less affordable. This is the opposite result from the one city leaders intended.”
Affordable housing policies are more than just ineffective, Sanera said. “These policies often involve unaccountable land trusts that offer people the illusion of homeownership,” he said. “In some cases, cities have also pursued home price-fixing schemes that seem to violate North Carolina laws banning rent control.”
City leaders concerned about rising local housing prices should also consider the role their own policies play in creating the problem, Sanera said. “If a city has a so-called ‘housing crisis,’ there’s a strong chance government created the problem by imposing restrictive land-use policies under the name ‘smart growth,’” he said. “Rather than getting rid of the restrictions, too many city leaders ignore their culpability. They want homebuilders and homebuyers to pay the price for government mistakes.”
Communities in the Triangle do not need special affordable housing programs, Sanera said. “Dynamic metropolitan areas like the Triangle automatically produce affordable housing without forcing builders to build it,” he said. “Plus elected officials in individual cities and towns should remember that they are not isolated communities. It’s harmful and expensive for a particular city to determine that it must mandate ‘affordable’ homes within its boundaries.”
Sanera and co-author Abby Alger, a JLF research intern, explain in their Regional Brief the basic elements of affordable housing policies. “Mandatory affordable housing policies force homebuilders to designate a certain percentage of homes in a new development as ‘affordable’ — in other words, available at below-market prices,” Sanera said. “Homebuilders take a loss on these homes, and homebuyers also lose. Most North Carolina cities with affordable housing policies make them ‘voluntary’ officially, but difficult to avoid in practice.”
“Builders will take on smaller projects, or they’ll simply focus on neighboring communities that have no price restrictions,” he added. “This artificially reduces the housing supply and artificially increases housing costs. A 2004 study of the California housing market also showed that government restrictions reduced the number of affordable housing units produced.”
Middle-class buyers take the biggest hit from these policies, Sanera said. “They have too much money to qualify for the ‘affordable’ housing and too little money to pay the inflated prices on other homes.”
Sanera and Alger also explain problems linked to so-called “density bonuses,” to federal formulas used for calculating “affordable” housing prices, and to a type of government mandate known as “inclusionary zoning.”
“Cities like Manteo and Davidson that adopt inclusionary zoning mandate by law that homebuilders sell a percentage of their new homes at a price set by government,” Sanera said. “Builders must also guarantee that the housing will remain affordable.”
Inclusionary zoning faces potential legal problems, Sanera said. State laws banning rent control have helped persuade communities such as Chapel Hill to move slowly on pursuing inclusionary zoning, he said.
The affordability guarantee also causes concerns for Sanera. “Communities usually handle this issue through government-approved affordable housing providers, such as a housing or land trust,” he said. “In this scheme, the trust permanently owns the property surrounding the ‘affordable’ home. The ‘owner’ of the affordable housing is essentially a long-term renter. This gives a false promise of home ownership to home ‘buyers,’ and it transfers property from the private market to permanent quasi-public ownership.”
More public involvement with housing prices would create more problems, Sanera said. “City leaders who are quick to decry housing prices that spiral ever upward ignore their responsibility in causing those high prices,” he said. “Consider places such as Chapel Hill and Carrboro, where tree protection ordinances, open-space requirements, and a restrictive ‘rural buffer’ around the towns guarantee home prices that are higher than the market would otherwise dictate. These types of polices demonstrate that local officials are not serious about allowing builders to build low-cost homes.”
“The solution to a high-priced housing market cannot be more government regulation,” Sanera added. “The solution is less government intervention. Local governments must examine their own role in creating the problem — and then change it.”
Michael Sanera and Abby Alger’s Regional Brief, “Un-Affordable Housing: Cities keep low- and middle-income families from home ownership,” is available at the JLF Web site. For more information, please contact Sanera at (919) 828-3876 or [email protected]. To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected].