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Cato’s Chris Edwards on the Housing Affordability Crisis

By

By T-REX @ Adobestock.com

America has a housing affordability crisis caused by the government that the government would like to fix with, you guessed it, more government. This is no way to solve it. When the government offers help, run. Cato’s Chris Edwards explains why the low-income housing tax credit (LIHTC) won’t work to solve the housing affordability problems, and offers up an alternative. He concludes:

Rather than micromanage multifamily development with the LIHTC, we need innovation in low‐​cost housing production such as modular construction, tiny houses, and new materials. Regulations are the enemy of such innovations.

In a 2022 study, the trade associations NAHB and NMHC found that regulations raise costs of apartment building construction by 41 percent. Higher costs stem from constant changes to building codes, affordability mandates, land set‐​asides, government delays, labor regulations, complex zoning approvals, unique development mandates, and developer fees. On top of that 41 percent regulatory cost, the study found that NIMBY battles add another 6 percent to development costs.

The study was based on a survey of multifamily developers. Half the developers said they would not build in places with inclusionary zoning mandates and 88 percent said they would not build in places with rent controls. The report concludes that “regulatory mandates discourage developers from building in the very marketplaces that have the greatest need for more housing.” Government solutions often backfire.

The Terner Center for Housing Innovation at Berkeley studies the costs of LIHTC projects. The center found that in 2019 prevailing wage laws in California increased the average cost of building LIHTC projects from about $400,000 per unit to about $500,000. LIHTC projects are high‐​cost construction.

Here is a final point on regulation. Economic studies, such as a 2022 NBER study by Goolsbee and Syverson, note that construction industry productivity has been stagnant for decades. While total factor productivity has trended upward in the overall economy, productivity in construction has dipped since the 1970s. Economists do not know exactly why, but overregulation that stifles innovation is one likely cause. We are building homes roughly the same way we did 50 years ago. Manufactured products are far cheaper today than in the past, but home construction is more expensive. The low‐​income housing tax credit compounds this regulatory cost problem.

To conclude, the way ahead should be deregulation, innovation, and lower costs, not more subsidies, higher costs, and central planning with tax‐​credit programs.

Action Line: As President Ronald Reagan explains in the video below from 1986, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.” Click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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