Want More Affordable Housing? Try Free Markets.

More apartments needed… Affordable housing complex approved in Brooklyn, N.Y.

Exclusionary regulation at the local level is the root cause of unaffordable housing, and a rollback of exclusionary regulation is the best long-term solution, argue Salim Furth and Emily Hamilton, research fellows at George Mason University’s Mercatus Center.

“Contemporary American land use law embodies the bad idea that private land ought to be publicly planned. In practice, these plans routinely exclude low-income families by indirect means, causing income-based segregation,” they write in an attachment to April 2, 2019, testimony to the U.S. House Committee on Financial Services.

Exclusion is widespread: most jurisdictions, through zoning ordinances, ban apartments and manufactured homes in all but a few locations. Single-family homes are usually allowed, but only in specified areas and often on lots larger than many buyers want. As a consequence, those states that give the most power to planners and the least authority to property owners have abysmal housing growth rates. When wages rise in those states, rents and home prices soar.

The debate over unaffordable housing is intensifying around Virginia. We hear it in Northern Virginia where community activists fear that highly paid workers at Amazon’s HQ2 project will drive up housing prices and displace the poor. We hear it in Richmond where community activists are fighting to make it more difficult for landlords to evict tenants. We hear it in Charlottesville, where gentrification is equated with racism. In almost none of these places do Virginia’s economic ignorami acknowledge that the underlying problem is the inability of the housing industry to build enough housing to keep pace with demand or, to put a finer point on it, to build enough of the specific types of housing that are in demand.

The Furth-Hamilton essay provides a valuable overview of the problem and concludes with a detailed list of policy points which, if enacted, would go a long way to addressing Virginia’s affordable housing issues. They write:

Rising  home prices in cities with growing populations are not a law of nature. In Living Downtown, Paul Froth describes how low-cost apartments, long-term hotel rentals, and single-room occupancies provided affordable housing for low-wage workers in America’s fast-growing cities in the past. Today, single-family zoning, minimum unit size requirements, and single-room occupancy prohibitions have largely eliminated new construction of these market-rate affordable housing typologies.

In contrast, cities that have continued to allow new housing construction have avoided skyrocketing prices. Houston has exemplified a pro-housing regulatory approach, voting down zoning, shrinking minimum lots sizes, ending parking minimums downtown, and fast-tracking permitting. During a period of high demand, while the city’s population increased by half a million people, median Houston home prices topped out at $235,000, less than the national median. As a result of pro-housing policy, Houston households across a broad range of incomes can find housing that they can afford. …

The emergence of the environmental movement in the 1970s provided a reason homeowners could organize against new development in their neighborhoods and cities while pretending not to benefit their narrow financial self-interest. Over time, this opposition resulted in regions where very little housing construction has been permitted, and increases in demand have driven prices up as a result. …

On the 50th anniversary of the Fair Housing Act, America’s housing markets are more segregated by income than at any time since the act was passed and possibly in the history of the nation. Housing is increasingly bundled with community amenities including schools, access to employment opportunities, public services, and neighborhood peer effects. This has occurred because local governments, including many [Community Development Block Grant] entitlement communities, prohibit housing construction in the quantity that would serve low-income families.

The rising inequality in cost between metro areas now overshadows the inequality within most metro areas. For instance, metro Dallas has maintained affordability even in desirable suburbs, while the San Francisco Bay Area has allowed rent to skyrocket even in poor areas. Thus, Zillow data shows that the median two-bedroom rental listing in Frisco, Texas — an affluent suburb of Dallas with an excellent school system — is $1,600 per month. In Oakland, California, where three out of four school children quality for free or reduced price meals on account of their low family incomes, the median is $2,895 per month.

The incentives of developers are generally signed with the goals of the Fair Housing Act. Where demand is high, they have an incentive to use land more intensively: building smaller units in denser clusters that accommodate more residents. Construction is a competitive industry that should be expected to bring real estate prices down to close to costs. The difference between construction costs and prices is a city’s “zoning tax” — as much as 57% of the cost of housing in Manhattan.

So-called “inclusionary” zoning is not an effective answer, the authors argue. Mandates make multifamily projects less financially viable and in some places actually may increase rent and exacerbate segregation. “Top-down land use requirements can be a poison pill that causes markets or local policymakers to shut down development altogether.”

Those who suffer the most from restrictive land use policies are, of course, low-income Americans… who are disproportionately minorities. More likely to be excluded from affluent cities and suburbs, they remain immobile and do not participate in the economies of regions where employment and wages are growing.

So, what is to be done? The authors offer these suggestions:

Expand by-right housing development

  • Expand multifamily zoned areas by at least 1 percent of the land area of the jurisdiction
  • Allow duplexes, triplexes, or fourplexes in at least one-fourth of areas zoned primarily for single-family residential
  • Allow manufactured homes in at least one-fourth of areas zoned primarily for single-family residential
  • Allow multifamily development in retail and office zones
  • Allow single-room occupancy development wherever multifamily housing is allowed
  • Reduce minimum lot sizes by at least 50 percent in at least 25 percent of residential zoned areas
  • Reduce the number of buildings protected by historic preservation by at least 25 percent
  • Increased the allowable floor area ratio (FAR) by at least 25 percent in multifamily areas that must cover at least 5 percent of the land in the jurisdiction
  • Create transit-oriented development zones that account for at least 5 percent of the city’s residential zones and allow for a FAR of 10 or greater

Reduce costs of development

  • Eliminate parking minimums
  • Adopt parallel-process permitting
  • Establish one-stop permitting
  • Allow prefabricated construction
  • Eliminate minimum unit size requirements
  • Eliminate architectural standards other than those required for safety

Expand use rights in existing building stock

  • Adopt land value taxation
  • Adopt additive zoning
  • Adopt form-based zoning
  • Adopt non-zone-based regulatory frameworks
  • Adopt pre-approved plans for accessory dwelling units, single-family homes, duplexes, triplexes, and fourplexes
  • Reform subdivision regulations to allow for traditional mixed-density and mixed-use neighborhoods in new development

The main drawback of this presentation is that Furth and Hamilton do not address the “externalities” of greater housing density and the population growth it enables — particularly transportation congestion, water/sewer/storm water and other infrastructure, new schools, and taxes.

A couple of quick observations: First, as the authors themselves point out, every housing strategy has externalities. The primary externality of the prevailing housing policy is … unaffordable housing. Which is worse — traffic congestion or unaffordable housing? The answer, I suspect, depends largely on how much money one makes and how much value one puts on one’s time.

Second, higher density creates its own transportation solutions. With greater density, walkable, mixed-use neighborhoods, a greater variety of destinations are accessible by foot, mass transit becomes more economical, and car trips are shorter when they do prove necessary.

Third, mixed use development at higher density requires less investment in roads/public works/utility infrastructure per household than does low-density, sprawl-style development. The fiscal footprint is lighter, ameliorating some of the need for higher taxes.

Bacon’s bottom line: Let free markets work.

Share this article


(comments below)


(comments below)


10 responses to “Want More Affordable Housing? Try Free Markets.”

  1. Houston’s not a great example of reducing planning & zoning oversight as a benefit in a community’s development. The increased housing density and failure to preserve wetlands and drainage ways led to the catastrophic flooding in Harvey. Two years later, drainage improvements are barely underway. You can’t easily undo (true) wetland destruction and loss of function.

    In Virginia metropolitan areas, increasing density would increase demand from many aquifers that are already unable to replenish themselves. How many of those metro areas have barely adequate sewage facilities that dump raw sewage in major storms? What’s the cost of that infrastructure–either building it or cleaning up if it’s not built? Increased density only is a benefit if all the factors are involved are addressed. Where do schools fit into this denser world? Or will it be limited to the non-reproducing?

    1. All true, but I would argue that the water/sewer/storm water cost per household is lower with dense, mixed-use development.

  2. Steve Haner Avatar
    Steve Haner

    Living this issue in my neighborhood, as every homeowner is very wary about a 300-unit complex being completed, standing beside one of the largest tracts of undeveloped land left inside the city suitable for multi-family or some other dense development down the road. I’m not sure the laissez faire POV would go over at the next neighborhood association meeting, Jim. I’ll invite you but bring body armor….:)

    Break. Break. The marketing website on the new complex is finally up. Cheapest 1BR is almost $1200 per month. Not exactly aimed at starting salaries….(Well, that’s a low rent in some parts of VA I guess…)

    1. Zoning is the tool the middle class uses to protect its home values against incursions by the lower classes. Of course people are upset at the prospect of having poor people living nearby. Given the association between poverty, crime, yelling and profanity, used condoms, abandoned needles, and disorderly behavior generally, I don’t blame people. But let’s call zoning what it is and be honest about the effects it has.

      1. LarrytheG Avatar

        Zoning is also how ALL property owners – commercial and residential and church/schools/parks from other uses that are incompatible.

        It’s NOT just to “protect” some middle/high income folks.

        You don’t put a liquor store next to a church or a poultry processing plant next to the DMV, etc.

        Sure – someone could take the view that we’d have “more affordable” chicken if we did not have such restrictions but at some point – we’re competing full-out-everything-goes “free market” to ANY other land use. If someone buys the property – they can develop it regardless of it’s impacts to adjacent properties, highways, schools, rivers, etc.

        Also – if we REALLY want to hone in on the issue – we need to use a credible metric for what “affordable” is or is not.

        There are several out there like the 30% standard or one can use median housing cost compared to median income, etc.

        but the point is to be able to put a credible number on each city in terms of a percent affordability – THEN detail the “restrictions” that each city has or not – and validate it by showing some correlation.

        But we just can’t have a think tank like Mercatus slinging dead-cat BS and claiming essentially that most all cities have too restrictive policies except Houston – and never really provide a list of actual restrictions that the “bad” cities employ and the ones that Houston has removed.

  3. TooManyTaxes Avatar

    Development brings increased automobile congestion. Dense development increases the level of congestion substantially. Look at Tysons. Despite the availability of the Silver Line and substantially increased bus transit and TDM requirements that are largely being met, Tysons-related SOV traffic is up. Neighborhood cut-through traffic in surrounding neighborhoods is so high and complaints so many that VDOT seriously considered shutting the northbound entrance ramp to the Inner Loop of the Beltway from 1 to 7 pm every weekday as a trial.

    And that doesn’t address other public infrastructure, such as schools, parks, libraries, police, water, sewer and fire. Growth in Tysons is rapidly pushing McLean High School towards 125% of capacity. It’s also eating up space at Marshall High School.

    If everyone wants to capture and price the externalities from fossil-fuels, why shouldn’t the same be done for real estate development? Developers don’t want to build lower-priced housing; they want corporate welfare.

    1. djrippert Avatar

      Always funny to see the comments from residents of “core NoVa” vs elsewhere in the state. Core NoVa residents (like TMT and myself) immediately question the transportation and school funding issues associated with reduced / eliminated zoning requirements. Let’s be honest – The Imperial Clown Show in Richmond has proven that it cannot manage transportation needs in a world of carefully constructed zoning rules. Adopting a free for all as Bacon suggests would be disastrous. Of course, Bacon is correct from a libertarian perspective. The free market should be allowed to work. However, Jim Bacon (like other members of Richmond’s intelligentsia) can’t see the incongruity of libertarian free market economics and a Politburo-like, Dillon’s Rule Nanny State like we have in Richmond. If you want capitalistic free markets you can’t also have socialist government.

  4. LarrytheG Avatar

    The claim that there are economies of scale with regard to infrastructure like transportation and water/sewer is
    proven how?

    Similarily, claiming that densities gets more “efficiency” out of roads – so that therefore they are less costly – is basically making up stuff out of whole cloth – even worse than what Mercatus is doing – which is pure ideological BS.

    Mercatus is not a legitimate player in affordability – .. they basically are free-market no-matter-what advocates with precious little real evidence to support their claims.

    They really do not do a legitimate apples-to-apples job of comparing and ranking the cities based on their advocated criteria for less restrictions… They just look at one city anecdotally … Houston which really is
    not the best city for affordability but has become the darling of the free market folks.

    So, I’ll do what Mercatus did not and provide a REAL ranking of ACTUAL median (2018) home prices for major cities and SHOCKINGLY, Houston does NOT rank anywhere near the top on affordability – it’s actually ranked 37 on this list. Mercatus just ignored the 36 that did better than Houston – as well as the reasons why.

    Did all those cities do a better job of letting the “free market” work? Do these cities that are better than Houston at less restrictions and allowing more density?

    Nope.. It’s basically slam-bam-thank-you-mame “free market” pablum..for free market “thinkers”.

    Youngstown, Ohio 77,000
    Scranton-Wilkes-Barre, Pa. 100,000
    Toledo, Ohio 109,000
    Syracuse, N.Y. 112,000
    Dayton, Ohio 120,000
    El Paso, Texas 124,000
    Indianapolis, Ind. 125,000
    Cleveland, Ohio 128,000
    Akron, Ohio $135,000
    Rochester, N.Y. 137,000
    Pittsburgh, Pa. 138,000
    Columbia, S.C. 139,000
    Greensboro, N.C. 140,000
    Buffalo, N.Y. 141,000
    Memphis, Tenn. 142,000
    Kansas City, Mo. 143,000
    Winston-Salem, N.C. 144,000
    Little Rock, Ark. 145,000
    Tulsa, Okla. 146,000
    Oklahoma City, Okla. 148,000
    Birmingham, Ala. 153,000
    San Antonio, Texas 153,000
    Augusta, Ga. 155,000
    Detroit, Mich. 157,000
    St. Louis, Mo. 157,000
    Chattanooga, Tenn. 158,000
    Cincinnati, Ohio 158,000
    Knoxville, Tenn. 162,000
    Harrisburg, Pa. 163,000
    Lakeland, Fla. 165,000
    Albuquerque, N.M. 167,000
    Baton Rouge, La. 168,000
    Louisville, Ky. 168,000
    Greenville, S.C. 170,000
    Des Moines, Iowa 173,000
    Allentown, Pa. 175,000
    37 – Houston, Texas 178,000

    I don’t think Mercatus has added anything of any real merit to the issue other than to provide stuff for their free-market adherents to parrot…. as if it was actually true instead of just invertate hand waving funded by
    the likes of the Koch boys.

    1. Let’s set aside the issue of the externalities of housing and how to deal with them. Do you seriously deny that restrictions on the supply of housing is a root cause of unaffordable housing?

      1. LarrytheG Avatar

        I want to see REAL evidence of it in comparative form so we KNOW which cities do better at affordable housing and what reduced restrictions they do have.

        All these cities that are more “affordable” than Houston – why is that?

        do they have one or more reduced restrictions that Mercatus is advocating?

        Right now what we have is an ideology – a belief with precious little real evidence of it and just having Mercatus or other similar “think tank” repeat the list of reduced restrictions is not proof of anything other than their beliefs.

        Otherwise all we have here is a claim and beliefs.

        If Mercatus were right – there would be a MODEL ordinance for “good practices” for cities to follow -and some examples of cities that do just that – and as a result do have more affordable housing.

        And we could look at a place like Fairfax and GRADE them on what they do right specifically and what they do wrong – specifically.

        Right now it’s just hand waving ideology.

Leave a Reply