| Mandated Affordable Housing Does not Work! |
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| Wednesday, 13 February 2008 19:43 | |
CRMS warns that forcing developers to supply houses at below-market prices will actually reduce housing supply and raise prices for everyone.(See also the media release on forcing supply of housing released on the 25th November, 2007.) However, since then, the new Housing Minister, Maryan Street, has introduced the "Enabling Territorial Authorities Bill" to Parliament, and yesterday, the Prime Minister, in her Speech from the Throne, again promoted this approach (what the US authorities call "Inclusionary Zoning") as a means of solving the unaffordable housing crisis in New Zealand. Ms Street claimed "“The Bill, which is based on tried-and-tested schemes in place in the United Kingdom and the United States, will enable local authorities to address imbalances in the supply of new homes through a combination of requirements and incentives for developers.” The Prime Minister also told Morning Report this morning that these programmes are "working" in Australia and elsewhere. However, they may be "operating" but they are not "working" if by "working" we mean generating public benefits. Governments everywhere are prone to confuse spending taxpayers' money with delivering tangible results. Unfortunately, for the Government, the most recent research from the US confirms that such affordable housing mandates have proved a failure in every way. Over a ten year period, in US markets where mandated affordable housing mandates have been implemented, they have reduced supply, on average, by ten percent, and increased house prices, on average, by twenty percent. This does nothing to make housing more affordable and indeed only makes things worse. These results are summarised in the following brief essay. Housing Supply and Affordability: Do Affordable Housing Mandates Work? (812-kb pdf)Authors: Benjamin Powell and Edward StringhamThis summary concludes with the following unequivocal statement:"By restricting the supply of new homes and driving up the price of both newly constructed market- rate homes and the existing stock of homes, inclusionary zoning makes housing less affordable. Inclusionary zoning ordinances will continue to make housing less affordable by restricting the supply of new homes. If more affordable housing is the goal, govern-ments should pursue policies that encourage the production of new housing. Ending the price controls of inclusionary zoning would be a good start." The full study is reported in the following research paper: Housing Supply and Affordability: Do Affordable Housing Mandates Work? (1.5-mb pdf)Authors: Benjamin Powell and Edward StringhamCitation: Los Angeles, CA: Reason Foundation, 2004, 6 pp.Summary: This study of fifty communities in the San Francisco Bay Area shows that inclusionary zoning -- a requirement that homebuilders sell some homes at "affordable" prices -- not only does not produce much affordable housing, it actually makes most housing less affordable. Quote: "Inclusionary zoning causes the price of new homes in the median city to increase by $22,000 to $44,000. In high market-rate 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." This kind of legislation, designed to "correct" problems caused by existing public policy, requires downstream legislation to address consequent anomalies. Legislation is immediately needed to prevent people buying an "affordable" house on Monday and selling it for market rates on Tuesday. Most states pass laws that prevent resale for up to 25 years, or require that 100% of any capital gain must be passed back to the local government. This has two outcomes. People are reluctant to improve the home because they will lose their "sweat equity" on resale. Worse, people are reluctant to buy these homes because they do not benefit from an important reason for buying rather than renting – they are locked out of participating in the long term capital gain, a popular means of saving. Hence, in many developments, the homes end up being occupied by associates or family members of the developer or the council. There is no need for New Zealand to repeat this failed experiment. The failures are well documented by experts who have studied these "mandated markets" over many years. We should not be surprised by these outcomes. "Inclusionary zoning" is simply disguised rent-control and has produced the same outcomes – reduced supply and high prices overall. The officials who advise Government must be fully aware of this research and its damning findings, but have chosen to ignore them and exposed the Government to ridicule. |
