The 21st Century Road to No Affordable Housing

by Randal O’Toole

Why Congress’s Housing Act is Just Political Theater

A recent bill passed by Congress aimed at making housing more affordable will lead to almost no improvements in affordability. In fact, some provisions of the law will make housing even less affordable than it is today.

Imagine that, in response to an airline crash that killed 100 people, a member of Congress proposed a bill to repeal the law of gravity. “If it weren’t for gravity, those 100 people would still be alive!”

That’s just silly.

It would be like ignoring the law of supply and demand that states, “if the supply of something is constrained and demand continues to rise, then prices are going to increase.” Yet, in fact, most members of the California, Hawaii, Oregon, and Washington legislatures have been pretending this law doesn’t exist for the last forty to sixty years.

These state legislatures have all passed laws that led to the creation of some sort of urban-growth boundaries, outside of which developers cannot build the housing needed to accommodate new residents. Oregon’s growth boundaries encompass less than 1.33 percent of the state, indicating that the state has created a housing shortage in order to protect farms, forests, and open space that are in fact available in abundance.

In response to rising housing prices, all four states have attempted to “grow up, not out.” In other words, instead of building more single-family homes, the states have promoted the construction of mid-rise and high-rise multifamily housing, often finding room for such buildings by tearing down existing single-family homes.

This makes housing less affordable for two reasons. First, multistory buildings cost a lot more to build because they need elevators, more concrete and steel, and large common areas such as lobbies and hallways, all of which add to the cost without adding to the livable square footage. Second, 80 percent of Americans say they want to live in single-family homes, so building housing they don’t want won’t make the housing they do want more affordable, especially if doing so means demolishing some of the single-family homes they indeed want.

The other response to high housing prices is to spend more money on so-called affordable housing, meaning subsidized housing that is only available to low-income people. Thanks to the efforts of density advocates, most of this money is now going into mid-rise and high-rise housing, which means it isn’t really affordable. The average cost of subsidized housing being built in Portland is nearly $800 per livable square foot, and some projects are well over $1,000 a square foot.

These projects are making housing even less affordable for everyone unlucky enough to qualify to live in one. For one thing, some of the money used to build these projects is funded by taxes on housing, which makes housing even more expensive for everyone else. Moreover, the shortage of skilled construction workers means that, for every ten subsidized homes built, at least eight fewer market-rate homes are built.

High housing prices are almost exclusively caused by state and local laws and regulations, so there is little reason to think that a new federal law can make housing more affordable. It is no surprise then that the so-called 21^st Century Road to Housing Act Congress passed in June will have little effect on housing prices.

Part of the law is based on the deluded belief that impediments to increased mid-rise and high-rise housing are keeping housing prices high. The law proposes to make such multi-family housing less expensive by allowing the construction of such housing with only one stairwell that people can use to evacuate in case of fire. That will make such housing even less desirable to live in than it is today.

Another part of the law is based on the even more deluded belief that increasing the demand for housing when housing prices are high will make housing more affordable. Parts of the law would make it easier to get loans for new homes, which increases demand without increasing supply.

The rest of the law is based on another deluded belief that more affordable (i.e., subsidized) housing makes housing more affordable. The terms affordable housing and housing affordability may sound alike, but one refers to subsidized housing for low-income people and the other to the general level of housing prices for everyone in a state or region. As noted above, building more subsidized housing can make overall housing less affordable because of the limited supply of skilled construction workers.

The 21^st Century Road to Housing Act is really nothing more than political theater designed to make it look like Congress is doing something about housing when in fact housing prices are mainly influenced by state and local laws. Housing is more affordable in North Carolina than in Oregon and in Texas than in California because North Carolina and Texas do not have urban growth boundaries. Housing will remain unaffordable in Oregon until the legislature abolishes those boundaries.

Randal O’Toole is an Adjunct Scholar at Cascade Policy Institute, Oregon’s free market public policy research organization. He is a transportation and land-use policy analyst and the author of several books, including American Nightmare: How Government Undermines the Dream of Homeownership and Romance of the Rails: Why the Passenger Trains We Love Are Not the Transportation We Need. He writes from Central Oregon.