The rising cost of housing and rent has emerged as a defining public policy problem of the 2020s.
In response to the rapidly increasing price of housing, most experts in the housing sphere have pointed to the culprit: housing supply. High-demand metro areas are growing rapidly, but housing supply has not caught up with that demand. When demand outstrips supply, guess what? Housing prices go up.
Why hasn’t housing supply kept up with demand? Experts in the housing sphere say it has a lot to do with local housing policy. Rigid zoning, policies that favor single-family housing, and a patchwork of housing support between public housing, rent controls, and federal vouchers have led to a system that has slowed housing growth to a spigot in many metropolitan areas while population has continued to grow.
Simply put: governments have been too rigid in telling people what kind of housing can be built where and have distorted the housing market.
Two Bloomberg stories caught my attention lately that showed policymakers putting their thumbs on the scale in local economic development in different ways.
One was about a trend in local governments subsidizing grocery stores to encourage them to stay open in “food deserts.” The idea here is that the local food market is not strong enough to support a grocery store, so the public sector should subsidize stores to reduce food insecurity.
Another was about local governments banning new car washes in their neighborhoods. Local citizens have felt overwhelmed by the number of car washes in their neighborhoods and have been working to use local control ordinances to reduce the opening of car washes in their neighborhoods.
I see both of these as examples of a similar phenomenon: local policymakers trying to shape the character of their neighborhood by encouraging or discouraging certain types of development.
There are a few problems that come with this approach.
First, corruption. The types of tools policymakers use for these sorts of interventions are easily abused by businesses. Subsidies are more likely to go to companies that are connected to policymakers. We saw this with the infamous HB6 scandal in Ohio. “Exemptions” from bans are more likely to go to companies that have the ins to advocate for them.
Second, efficiency. What if the most efficient intervention for one family to stave off food insecurity is to grow a community garden? What if the most efficient way for another is access to transportation to a part of town with more job opportunities? What if the most efficient intervention for another family is allowing them to take part in programs like SNAP-Ed? Subsidizing grocery stores does not help any of those families. A more efficient approach would be to give cash to families and allow them to decide what to spend them on, an approach showing positive results across the country and world.
Third, unintended consequences. What if a subsidized grocery store runs others out of town? What if a car wash banned from a neighborhood means fewer jobs for local residents? These are possible occurrences that come from trying to put pressure on local economic development that isn’t centered on improving the well-being of residents.
The experts say that the best way to keep housing prices low is to reduce barriers to development, not increase them. They also say the best way to reduce poverty is to give resources to families, not make decisions for them about what they do with those resources.