Opinion | Housing needs to be in higher supply, not price controlled
February 13, 2020
As the United States’ largest cities continue to be hubs for economic growth, more people find themselves having to move into the boundaries of cities to commute to work. This has drastically driven up housing prices over the last few decades to the point where millennials now spend an average 45% of their income on housing, compared to 36% spent by baby boomers when they were in the first decade of the workforce.
This growing problem has brought back calls for nationwide rent controls from the American political left, like Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders.
This would be misguided. Rent control in practice disincentivizes developers from building affordable apartments in areas that need it most in favor of buildings that can be bought by more wealthy tenants, since the amount of money they can make is essentially capped on the type of building.
A study published in 2018 by the National Bureau of Economic Research found as a result of San Francisco’s 1995 rent control policies, overall rental housing units fell by 15% and actually led to a 5.1% increase in rent costs.
It also disincentivizes developers and landlords to maintain the high quality of the buildings that do exist since the money that would be put into the renovations could not be made up through charging a higher price. This can lead to urban decay as buildings will go unoccupied and whither away, creating eye sores for the city.
In his book “The Political Economy of the New Left: An Outsider’s View,” Assar Lindbeck, a Swedish economist and former chair of the Nobel prize committee, stated, “next to bombing, rent control seems in many cases to be the most efficient technique so far known for destroying cities.”
The more effective way to make housing cheaper, and simultaneously provide more places for people to live and work is to, quite literally, construct more housing.
The problem of affordable housing needs to be tackled by the supply of housing itself, not the price which housing costs. Increasing the supplied amount of housing would drive it closer to match the demand needed, thus decreasing the price without negative economic effects.
This can only be done if cities like San Francisco, Chicago and Los Angeles make zoning protocols for building less restrictive. But despite its simplicity in theory, an increase in housing construction in the nation’s largest cities is caught up in city red tape and power structures in society.
Strict zoning laws prevent developers from being able to build where they please. Sectioning off areas of the city’s boundary for specific functions, like neighborhoods or businesses, leads to an inability for cities to naturally develop the way the market, for lack of better term, sees fit. More specifically, as Lyman Stone, a research fellow at the Institute for Family Studies, states, “strict land-use rules — whether framed as rules about parking, green space, height limits, neighborhood aesthetics or historic preservation — make new construction difficult.”
This in no small part is driven by the current generation of homeowners, primarily older Americans, being reluctant to want any development in their local sub-community. NIMBYs (Not In My Back Yard) are a heavy force for city councils and mayors to deal with, as they want to protect the aesthetic of their neighborhoods and the value of their property in fear that development around it will drive its value down.
Younger Americans who are often subject to the high housing prices do not have the economic or political capital yet to be able to stand up to the older Americans with it.
Furthermore, zoning laws that are created often lead to rent seeking behavior by politicians and businesses, even peddling corruption at times.
Jason Furman, the Chair of the Council of Economic Advisors during the Obama Administration has stated zoning laws have also been used as “tools of exclusion” that exacerbate inequality. This should come as no surprise given the racist origin of many of the nation’s zoning laws.
This all suggests changing the restrictive zoning laws in America’s largest cities would be driven only by those who benefit from the zoning laws in the first place. This gives the bad argument of rent control ground in the national conversation and makes the process for zoning changes painfully slow, if not completely static.
But for the sake of younger Americans’ ability to accumulate wealth and to help them move up the economic ladder the same way their parents did, this change must be made now.
Austin is a senior in LAS.