Housing
Coastal California has a housing problem. We don’t have enough houses or apartments, and many of our citizens are spending a disproportionate amount of their earnings on shelter. A major component of the problem can be summed up in one word: Government.
Hold your anger! I am not condemning all government intervention in the free market. It is my libertarian contention, buttressed by a lot of real world evidence and consensus among most economists, that the free market is the most efficient way to allocate resources. But efficiency is not a god. The market produces externalities (pollution, for example) which require regulation. Regulation that promotes a level playing field and dismantles cartels is key to proper operation of a market economy. As long as the regulator is a referee, not the quarterback, I’m all for it.
Some regulation in the housing sector has also been mostly salutary. Upgrades to building codes in Florida seem to have produced structures that did very well in the last hurricane. Updates to codes in California will undoubtedly minimize damage when the “big one” next strikes. I believe that zoning codes have gotten out of hand, but some sort of zoning makes sense. Houses and factories ought not to be located next to each other.
Regulation is also a boon to those in my profession. Anything that limits supply and/or adds barriers to entry creates larger profit margins. Government has created a monopoly for knowledgeable/persistent participants.
What can be done to modify the regulatory climate in a way that will alleviate our housing shortage? I have five suggestions that might go a long way toward doing so.
First, let’s bring back the notion of private property. The original draft of the Declaration of Independence said “life, liberty and property”. Then, there is that other part of the Fifth Amendment to the Constitution (not the one cited by Lois Learner). Today, every coastal property owner shares ownership with one or more planning authorities, the neighborhood activist and an environmentalist attorney. My flippant summation is: Land is worth nothing; all the value is in the building permit. Any property owner who conforms to the building code and the zoning code should, by right, be able to build or rebuild whatever and whenever he/she wishes.
Second, change the norm from no to yes. The laws and procedures governing development today favor those who oppose. If an activist insists that I do an EIR (at my expense, of course) or redo an EIR (because the existing EIR didn’t consider the alternative of building my project on the moon) and takes me to court, he/she gets the benefit of the doubt. If I lose and want to appeal, I have to post a big bond. If I win, appeal can go forward without a bond. And the appeal always comes, because the appellant wants to make the process so expensive and painful that I will abandon the effort (or pay legal fees and make a big contribution to the organization sponsoring the lawsuit). If legislators specify a limit to the time a bureaucrat can spend reviewing a project, the bureaucrat often gives the applicant the choice of waiving the deadline or being turned down. That should be illegal. The burden of proof needs to shift from those proposing to build to those opposing.
Third, end rent control. Rent control is supposed to help the poor. It does the opposite. Do you think–really–that owners of rent controlled property rent to poor people. Given any opportunity, they rent to the applicant with the highest credit rating. Rent control is a wealth transfer from property owners to tenants who know how to work the system. It produces inefficient use of housing. One former mayor of NYC kept his rent controlled apartment in the Village for the entire time he was living in Gracie Mansion. If rent control is expanded (as is being espoused by several current campaigns) to vacant units, apartment construction will cease immediately.
Fourth, facilitate the expansion of factory built housing. Prefab construction has been around for decades, and it makes a great deal of economic sense, but it has never gained traction. I am at a loss for a comprehensive explanation. Perhaps a combination of opposition from planning bureaucrats (and the professors who educated them), lenders, labor unions and neighborhood activists contributes to the problem. There is an image problem–they’re nothing but glorified house trailers. Whatever the cause, we need to work on a solution. Factory built housing is more energy efficient, both in production and performance. It can be designed to perform better in fires, hurricanes and earthquakes than stick built housing. It goes up faster, meaning that builders can respond more appropriately to market conditions. With enough volume, the savings in labor cost and construction interest can bring a living unit to market at a significantly lower cost.
Finally, make the process of subsidizing low income housing much more straightforward. I won’t bore you with the calculations, but summarize by saying that the subsidy required to generate a return that will attract the capital to build a low income unit is about 50% of all-in costs. Those wishing to produce low income units should make a simple trade. If I produce a building that meets specifications and passes inspection, and I sign an agreement to keep rents at a level affordable to those whose income is 50% of median (plus inflation) in perpetuity, you write me a check for 50% of the cost of the deal.
The shortage of affordable housing is a problem that the market can solve, if allowed to do so.
