Market-Driven Solutions Can Help Create Affordable Housing in Sarasota

Commentary

Market-Driven Solutions Can Help Create Affordable Housing in Sarasota

Misguided policies like housing subsidies and inclusionary zoning drive up prices

As former City Commissioner Eileen Normile told the Observer, “I don’t know how we understand the term ‘affordable housing’ without defining what that term is. What’s affordable to one person isn’t affordable to another.”

But generally, public policy about affordable housing stems from a combination of concerns about homelessness and about working-class families not being able to buy homes in the city.

As I speak to people about this issue, I am struck by how many suggest that “we need to build more housing that young workers can afford to buy,” or “look at all these high-end developments and large new homes. Regular workers can’t afford to buy those.”

The simple fact is new housing near downtown Sarasota is expensive housing. Land is expensive there, and lots of people with lots of money want to live there, and they will bid up the price of housing. But many owners of those multimillion-dollar condos didn’t start out being able to afford them either.

Many people seem to have forgotten about the age-old concept of the “housing ladder.” Affordable housing is created when homeowners sell to buy a newer or nicer home, opening up older and less nice homes for first-time, often younger, homeowners.

Thirty years ago, no one in his right mind thought a young couple just getting started should be shopping for a new home. Everyone understood your first home would be 20 to 30 years old, hopefully well maintained. Your first newly built home would come after a few promotions.

The housing ladder is still a very real part of the actual functioning housing market, yet it has almost disappeared from our public discourse on, and cultural perceptions of, affordable housing.

While ignoring the housing ladder, local governments all over the United States have pursued many ruinous policies in pursuit of “affordable housing,” believing that everyone should be able to afford a brand-new, large home.

Subsidizing housing has long been one of these often ruinous, albeit popular, policies. If these policies that target helping people rent homes are well designed with careful screening of recipients, are time-limited and are tied to other programs to help individuals succeed in escaping the need for assistance, such programs can be beneficial. But if they become a permanent entitlement, they neither help the housing market nor the individuals involved.

Worse by far are subsidies for home purchases, especially for young people. Young workers tend to have high-turnover, lower-skilled jobs because they don’t have the experience yet or simply don’t want to secure more stable circumstances. Many like being able to move on short notice to take advantage of better job or life opportunities.

When we subsidize housing for younger workers – for whom renting is often a better lifestyle match – we are communicating two wrong ideas: 1) that renting is less desirable for everyone than buying; and 2) that they should buy homes they cannot afford.

Local programs to subsidize home purchases severely distort the market, creating more demand for purchases in a market where high demand is already driving prices up. In markets where some get subsidies to buy homes, the cost of homes for everyone else goes up. And that means people who were just barely able to buy a home on their own can no longer do so.

Even more disastrous are government-owned housing projects. America’s cities are dotted with horrible public housing projects, many of which have been closed and bulldozed in recent decades. Managing housing is simply not a core competency of democratic local government.

At the same time, alongside the larger issue of housing affordability, we need effective efforts to address shelter for the homeless, domestic violence victims and similar situations. The best models are those with community-based and nonprofit housing units partnered with city and county social services.

This capitalizes on the city’s strengths at coordinating diverse services that are aimed at promoting self-sufficiency. By partnering with these services, the city stops managing housing itself.

When cities manage housing, they tend to regard their efforts as permanent entitlements instead of helping families become self-sufficient. Indeed, in many cities, housing projects support several generations of families. This is where nonprofit community organizations can help foster change for the families that need it most to end the cycle of government-supported housing.

The most popular affordable housing policies these days are mandates or restrictions on developers to sell some units at below-market rates. Typically, policies require a percentage of units to be sold at “affordable” prices in return for approval of a development, and sometimes developers are given “density bonuses” – allowed to build more units in return for selling some at below-market prices.

These policies are often called “inclusionary housing.” The Sarasota City Commission has discussed inclusionary housing policies, so understanding their inevitable failings is crucial.

First, this falls right into the trap of trying to make new housing into affordable housing, rather than letting the housing ladder work. But even worse, it simply does not work.

A detailed empirical research project on the effects of these policies found that they reduced the supply of housing and raised average home prices – the exact opposite of the desired effect.

In the Los Angeles region, inclusionary housing policies led to 770 affordable units being sold over seven years, while during the same period reducing the total number of new units built by more than 17,000 and raising the average home price by about $50,000.

The reason is that developers need to cover their costs when they build homes. If they are forced to sell some below market, the remaining ones need to be priced above market.

Again, many potential homebuyers who could have afforded to buy a home on their own were priced out of the market by that $50,000 increase. When some are subsidized, others – typically those just barely making it on their own – take the brunt of it.

What really drives housing affordability is supply and demand. We have no shortage of demand in Sarasota. Supply is the problem. Like so many places, Sarasota has throngs of people who have moved here, purchased their home and now want to put a stop to any more growth. They got theirs, and now they want to shut the gate on everyone else.

This stance is unfair and morally bankrupt. Moreover, it simply violates the property rights enshrined in our Constitution, which are crucial to our way of life.

Everyone who buys a parcel of land has equal right to build a home on it, so long as he doesn’t impose an undue burden on any others in the process. The fact that the economy involved developers to make this process more efficient doesn’t make the rights any less fundamental.

High home prices outside of downtown and on the keys can be squarely laid on the shoulders of land-use restrictions. Over the past decade, researchers at Harvard and the University of Pennsylvania studied this problem and found that housing price differences between cities are not attributable to variation in land prices or construction costs but to regulatory differences, primarily zoning and building restrictions.

Similar research for the Lincoln Institute of Land Policy found that “house prices in cities with stricter regulatory policies rose 30% to 60% relative to less restrictively regulated cities over a 15-year period.”

There are some rays of light in Sarasota’s affordable housing landscape. City commissioners have considered allowing more housing to be built in both downtown and on the city fringes.

Indeed, the recipe for affordable housing is to deregulate markets for land and allow market-driven densities and development, especially in the suburbs. It means getting rid of costly elements, such as building codes that serve arcane interests rather than measurably improving public health and safety. All those do is result in higher home prices.

It also means setting impact fees sensibly. These fees are supposed to mitigate the effects of more housing, such as increased traffic, but they have become a way for government to force builders to do their bidding. Remember, whenever developers are forced to pay more fees, that cost is eventually passed down to the homebuyer. So these impact fees should not be a bargaining chip, but a data-driven assessment of unusual impacts with fees set commensurate with addressing those impacts.

Those fees should be spent only on addressing those impacts effectively. Using high fees to limit growth or waiving or reducing fees to incentivize certain developments only distorts the market and makes the affordability problem worse.

There is no silver bullet. The lack of a clear definition of affordable housing means it will always be a messy policy area. But we have decades of experience showing that interfering with housing markets makes homes less affordable, while working with the markets puts homes in the reach of ever more people. That is my definition of affordable housing policies.

Adrian Moore is vice president of policy at Reason Foundation. This article originally appeared in the Sarasota Observer.

Correction: This article originally referred to the Lincoln Institute of Land Policy as the Lincoln Land Institute.

Adrian Moore

Adrian Moore, Ph.D., is vice president of policy at Reason Foundation, a non-profit think tank advancing free minds and free markets.