Not learning from history on affordable housing

Recently, the Manatee County Commission decided to spend county funds buying land to set aside for affordable housing, arguing that it would take the cost of land out of the equation for those seeking affordable housing. And the Sarasota County Commission is applying $25 million of COVID-19 relief funds to subsidize homebuilders to build affordable housing. 

Both ideas might have sounded brilliant decades ago when first proposed, but you would think they would learn from their consistent failure. Decades of subsidizing land, subsidizing construction costs, mandating affordable set-asides and constructing public housing have failed to cause even a blip in housing prices and the stock of affordable housing.

That’s because both counties — and the major cities within them — don’t want to confront the fundamental reality of affordable housing. Every year both counties gain thousands of new residents and allow the construction of only hundreds of new homes. Every year that population growth outstrips housing growth makes housing more scarce and less affordable.

The problem is made worse by the counties and their cities rarely if ever permitting the construction of low-cost housing, despite many applications by some developers.

For housing to be affordable, supply must be allowed to keep up with demand, and even better if developers are allowed to build some low-rent, mixed-use projects along with grand 5,000-square-foot single-family homes.

But "not in my backyard" activists who oppose housing growth in general and low-rent projects in particular carry too much weight with local governments. Local land use restrictions in the form of density laws, exclusionary zoning, lot size requirements, literal caps on construction, impact fees and many other laws raise costs of development and restrict supply of housing.

Noted Harvard scholar Ed Glaeser and his colleagues have conducted a series of studies over the past two decades that examine the connection between housing regulation policies and housing prices. They conclude that local governments restricting the supply of new housing is directly responsible for about 90% of the rise in a local market’s housing costs. A World Bank analysis of this phenomenon around the globe concluded that local governments that restrict housing supply can see up to 60% less affordable housing than markets that allow housing supply to keep up with demand. And since 2007, the famous Wharton Residential Land Use Regulatory Index has shown that while construction costs are similar across the nation, housing prices are much higher in localities that restrict housing supply or impose higher than average fees and costs for development.

I think all of that research just formalizes what is really common sense and what we all know about housing markets. We need to confront the reality that our quality of life and local economy rely on many working class individuals in service, tourism and recreation industries. We regularly see new reports showing that the average salaries paid for many good jobs in Sarasota are not sufficient to pay average housing prices in the area.

Now, the market for labor and the market for housing are very, very different. Labor is very mobile, as people move to chase jobs or better pay all the time. Supply and demand for labor change a lot and rapidly with changes in the national, regional and local economy. Housing obviously is not mobile, and supply and demand change much more slowly — especially supply because building housing takes time. That is why it is important not to fall behind on housing supply, as the Sarasota region has.

But if businesses have a hard time finding certain workers at the salary they are offering, they will have to raise pay to attract the workers they need, or new workers who are willing to work for that pay will move in, if they can find housing, or the business will suffer worker shortage and be unable to serve customers.

Put simply, the labor market in Sarasota is adjusting all the time — and fairly quickly. If we allow the housing supply to adjust too, even if more slowly, things will balance out. Especially if we let go of the strange notion that everyone needs to be able to buy a house, rather than embrace the idea that everyone needs to be able to find a good place to live, including renting and including low-rent housing.

Unwilling to let housing supply keep up with demand or to allow markets to supply low-cost housing, our local governments resort to subsidizing a trickle of affordable housing projects at high cost with very low benefits. It has failed for years and will continue to fail.

This needs to be reversed. Local governments should get out of directly intervening in a pitiful handful of affordable housing projects and instead commit to working with developers and planners to allow adequate housing growth to keep up with demand for the construction of low-rent and affordable homes. At the same time, they need to review and reconsider rules that needlessly increase housing costs, including some parking requirements, impact fees and zoning and density rules, as well as standing up to NIMBY groups.

Adrian Moore is vice president at Reason Foundation and a resident of Sarasota.