A recent article on Common Dreams, a news website serving the progressive community, claims that a lack of supply isn’t causing the housing crisis. The article claims that the United States has a surplus of housing—3.5 million more housing units than are needed. Further, a surplus exists in nearly every metropolitan area in the nation.
Whether this number is accurate or not is irrelevant. In fact, the author of the article implicitly admits as much, writing that “a great deal of new housing construction is luxury priced.” In other words, we may have a housing surplus, but it’s at a price point that low- and moderate-income households can’t afford. Which means, there is a lack of supply of housing for low- and moderate-income households.
Like most housing activists, the author fails to examine why there is a shortage of housing for low- and moderate-income households. Not surprisingly, he attributes the unaffordability of housing to greedy real estate developers. However, if we scrutinize this claim a little deeper, we’ll realize that it makes absolutely no sense.
There is a huge market for low- and moderate-income housing, and housing activists are quick to point out this fact. Then, they conveniently ignore the fact that those same households can afford many other things, such as televisions, smart phones, and automobiles. Why are those households able to afford modern gadgets but unable to afford housing? The answer is: The greedy producers of televisions, smart phones, and automobiles can offer products at a variety of price points, many of which are affordable for low- and moderate-income households. Greedy housing producers can’t because of the cost of government regulations.
As I demonstrate in my book, The Affordable Housing Crisis: Causes and Cures (available on Amazon), the cost of regulations can add 40 percent to the price of new housing. As one example, regulations in Austin can inflate the price of a new house by more than $110,000! When compliance costs are combined with land costs, which are inflated by zoning laws, a new house is virtually unaffordable, even before the foundation is poured.
If greedy housing producers could profitably build housing for low- and moderate-income households, they’d do so in a New York minute. But they can’t, so they don’t. If we want to solve the housing crisis, we need to free greedy housing producers.