A Century of Crisis

For nearly a century, Americans have been told that we face an affordable housing crisis. Despite an endless number of government schemes purported to address the problem, it has only grown worse. Why?

The simple answer is that supply has failed to keep pace with demand. But the simple answer doesn’t explain why developers and builders haven’t been able to produce the supply of affordable housing that Americans want and need. Developers and builders make money by producing housing, and the unmet demand represents the potential for enormous profits.

The fact is, it is almost impossible to produce housing that is affordable for low-income families. The reason isn’t the cost of labor and materials. One reason is the cost of meeting a litany of government regulations, restrictions, and controls. A second reason is the cost of land, which is impacted by government regulations, restrictions, and controls. Interestingly, many of these regulations, restrictions, and controls came into vogue approximately a century ago.

As one example, zoning became popular in the 1920s. Most zoning ordinances limit a substantial portion (60 percent or more is not unusual) of a city’s land to single-family homes. The result is low housing density and higher prices for the available land in desirable neighborhoods. Higher land costs are reflected in higher housing costs. If a lot costs $100,000 (which is low in many cities) and is zoned to single-family, a profit-seeking developer cannot build a house that would be affordable to low-income families.

Another example is rent control. First enacted as a temporary measure in New York City during World War II, a growing number of cities have enacted rent control ordinances. In setting a cap on the rents that landlords can charge, rent control discourages the construction of new rental housing and encourages property owners to remove their rental properties from the market. To illustrate, in San Francisco, an average of 400 rent-controlled housing units were removed from the market each year between 2008 and 2018.

These are but two of the many examples of government policies that drive up the cost of housing and discourage its production. And virtually every attempt by government to address the affordable housing crisis ultimately adds to those costs, imposes more controls and restrictions on housing producers, or both. In their zeal to solve the affordable housing crisis, politicians, pundits, and activists want more of the failed policies that created that crisis. It is little wonder that we have endured a century of crisis.