by James A. Bacon
Between zoning codes, parking regulations, development fees, tax abatements, transportation and infrastructure spending, caps on building permits and other local government intrusions into real estate markets, the surprisingly widespread notion that dysfunctional human settlement patterns can be blamed on unchecked capitalism has always been a ludicrous one. Now Smart Growth America has taken the wrecking ball to what remains of that particularly pernicious piece of nonsense with the publication of “Federal Involvement in Real Estate: A Call for Examination.”
Each year federal loan guarantees, tax expenditures and direct spending impact real estate markets to the tune of $450 billion yearly, concludes the report — and that doesn’t even take into account the role of Fannie Mae and Freddie Mac, which shape the sector through their mortgage securitization policies. “Though usually viewed as a ‘free’ market, the U.S. real estate sector is heavily influenced by direct and indirect government intervention,” states the report.
Here’s a breakdown of the federal influence on real estate programs FY 2007 to FY 2011:
Loans and loan guarantees………………….. $1.363 trillion
Tax expenditures……………………………….. $0.680 trillion
Direct grants and credit subsidies……….. $0.197 trillion
Total commitment……………………. $2.23 trillion
Federal financing is heavily skewed to home ownership — 84% of total federal spending on owner-occupied housing — which means that these programs also are skewed toward the higher-income households. Despite the fact that 35% of American households are renters, multifamily rental opportunities make up only 16% of total housing support.
Particularly egregious is the mortgage interest deduction (MID), which applies to first and second homes alike. In 2011, according to the report, approximately 30% of the households claiming the MID also claimed the deduction on a second home. Here’s a breakdown of the direct and implicit subsidies per household broken down by income group:
Graphic credit: Smart Growth America. (Click for more legible image.)
(I never could understand the Democrats’ obsession with raising tax rates. If the Dems want social justice, how about clawing back subsidies for vacation homes first!)
Federal programs also subsidize development on the outskirts of metropolitan regions that are very costly for communities to serve with utilities, transportation access and other infrastructure, while providing only a pittance for re-developing communities closer to the urban core. States the report: “This has a profound effect on the cost to taxpayers. Building new infrastructure rather than fixing existing infrastructure increases maintenance costs for states, municipalities and the federal government.”
Smart Growth American argues that it’s time to re-evaluate federal priorities and to shift resources to the following:
- Support balanced housing choices in suburbs, cities and rural towns.
- Reinvest in America’s existing neighborhoods and communities.
- Provide a safety net for American families.
- Help more Americans reach the middle class.
Personally, I believe we ought to scrap the wealth-transferring, market-distorting government programs outright. Let developers, builders and consumers decide what gets built and where, within a modest local regulatory framework to prevent blatantly inconsistent land uses. While Smart Growth America’s priorities make more sense than current priorities at this moment in time, they will just create another set of dependent populations and vested special interests that will work ceaselessly to protect and expand their privileges at the expense of the national good. With national deficits still running at $1 trillion a year, Congress needs to cut something. Every single one of these programs would make a good start. Then we could get the best of both worlds: lower deficits and smarter growth.
