Regulation Indicted as the Root of Excessive Housing Cost
The leadoff speaker of the builders panel sounded the themes which were reprised again and again by later speakers at MIT's fall symposium, House Poor: The High Cost of Homes. "The crux of housing cost is regulation," he said. "The reason we have a housing crisis is we don't build enough housing; and the reason for that is there is no land zoned for our use, period." He went on to remind his 150 listeners that three-quarters of all affordable housing in Massachusetts in the last three decades was constructed under the housing statute known as Chapter 40b. "If 40b is stripped, we'll lose that housing in the future," he concluded. His fellow builders expanded on the types of regulation, the exactions and impact fees, the proliferating regulatory bodies and lack of infrastructure that create barriers and add costs to housing.
High home costs affect different groups within the economy differently. A second panel of speakers described some of the impacts. Low-income renters are adversely affected, particularly when, as now, creating affordable housing through low-income housing tax credits is the favored policy. The housing created requires relatively high rents and is not affordable to very poor tenants. On the other hand, homeowners have on average seen an increase in housing wealth of roughly $7000 per household in the last three years, wealth which they can use to support consumption. High housing costs can hurt economic growth if it makes it too difficult for employers to hire needed employees from lower cost areas.
Harvard economist Ed Glaeser returned to the regulatory theme. He pointed specifically to reasons for the high cost of land. "The conventional economic story is that we are running out of land and demand is pushing the price up. There is a second story, the zoning story, which says that demand is only part of it. We've really got plenty of land, but regulation makes it impossible to build on it." Classic economic theory says that where land is expensive density should increase sharply, as happened in the 19th century in Manhattan. Today, there has been an empowerment of the community to block development. "For the first time in history, zoning has shut down the supply response," he stated.
Cornell planner Rolf Pendall responded that there are good regulations that promote increased density, a broader mix of housing types and more affordable housing. "Government has to reshape markets so that builders will provide more housing choices in good locations." He advised Massachusetts housing advocates to fight to keep Chapter 40b in its current form, but at the same time to work toward housing planning: determining the housing need and allocating it. "Regulations can be the culprit in reducing housing opportunity but they can also be the heroes."
The final speaker of the day, the well-known housing economist Tony Downs, Senior Fellow at the Brookings Institution, took on the big question, what can we do about the shortage of affordable housing? Politically it is a very thorny problem because the 67% of Americans who are homeowners oppose doing anything that might threaten the value of their homes, their primary financial asset, and local governments respect their needs. Downs listed strategies for controlling the power of local governments to make all the housing decisions, many of them the "good" regulations Pendall had described earlier, including Chapter 40b. But he was not hopeful about such methods being adopted widely. "It would take a serious housing crisis affecting politically important groups to overcome the political disincentives," he concluded. He urged housing advocates to keep trying in spite of limited prospects for success.
Download highlights of the symposium (pdf, 28K).