Monday, July 20, 2009

TANSTAAFL -- housing edition

There ain't no such thing as a free lunch. You can't obtain something without giving something else up. It's an immutable law of economics. Learn it, live it, love it. This, however, has not stopped politicians from repeatedly trying to obtain free lunches, with examples abounding.

Minimum wage laws attempt to give workers free money, but then result in businesses either raising prices or hiring fewer workers. State government mandates that health insurance offer gold-plated benefits such as in vitro fertilization -- ostensibly so that beneficiaries get more for their money -- result in insurance providers simply raising the prices, which is why health insurance in New Jersey is roughly double that of other states. Restrictions on imports designed to preserve American jobs end up raising prices and making the rest of us poorer.

Here in the nation's capital, meanwhile, the city government frequently forces developers of new residential buildings to set a certain number of units aside as "affordable" housing for people with certain income thresholds. (By logical extension the rest of the units are "unaffordable" which makes you wonder how anyone buys them)

A local developer discusses the impact of such laws:
Affordable housing is going to be an important goal for any urban municipality. But it needs to be balanced against the unintended consequences. The total number of affordable units the legislation might actually produce is tiny when compared to the existing affordable housing stock in the city. But the impediment to production of market rate housing, due to the legislation’s material impact to a project’s economics, means fewer income tax-paying, urban consumers that DC so desperately needs to remain vital.

Everyone thinks that developers are making money hand over fist and we’re not. We’re making risk-adjusted returns for the capital invested with us, and right now, we can’t even make those returns because of the current economic conditions. That means it’s going to take that much longer for the urban renewal to continue.
In D.C. we have height restrictions on the construction of new buildings, which serves to artificially limit the supply of housing. Then the government adds affordability mandates and rent control, and everyone scratches their heads wondering why housing is so expensive.

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