Voting in Massachusetts is generally an uninteresting activity where the Democrat always wins and spending always ratchets upward. This year there is one interesting technical proposition on the ballot, a proposal to repeal an obscure “affordable housing” law that has yielded billions of dollars in subsidies and profits for developers. The folks behind this have a Web site at http://www.affordablehousingnow.org/. I surveyed the Millionaires for Obama in my neighborhood and they were generally in favor of repealing the law (“yes” on 2), which keeps towns perpetually in fear of falling below a state threshold for the percentage of units that are “affordable”. Once a town falls below this threshold, a developer can apparently buy a 5-acre lot and put up a 200-unit condo without regard to local zoning laws. The developer can apparently draw on taxpayer funds to finance his 200-unit condo as long as a small fraction of the units are sold relatively cheap (apparently a high percentage of the folks who get to buy the cheap units turn out to be friends and in-laws of the developer). If the project fails, the taxpayers are stuck with the loss. If the project succeeds, the developer collects the profit.
One bizarre aspect of the law as it has stood for some years is that the counting is done separately in each of the approximately 350 towns and cities (http://en.wikipedia.org/wiki/List_of_municipalities_in_Massachusetts ) of the state. Instead of putting a pin in the map on top of an employer and asking “What’s the chance that a person could find an affordable place to live within a reasonable commuting distance of this employer?” the question is asked “What if someone really wants to live in Acushnet or Tyringham?” If a formerly compliant town were to split into two separate entities, it is quite likely that the law would kick into action because one of the two new towns would have a surplus and one would have a deficit of affordable housing. Despite the fact that nothing had changed from the perspective of an individual, millions of dollars in taxpayer-funded subsidies and lucrative zoning exemptions would begin to flow automatically.
Discussing the proposition made me reflect on whether affordable housing is an achievable goal independent of economic prosperity. Much of the cost of building a house is in materials whose prices are set on the world market by demand from successful growing economies, such as China and Brazil. If a country has a growing population and a shrinking or stagnant economy, inevitably housing is going to become less affordable for the average worker. A job that formerly was sufficient to afford a two-bedroom apartment will now be sufficient only to pay for a studio apartment or perhaps to share the two-bedroom apartment with another worker. What purpose is served by funneling hundreds of billions of dollars (nationwide) into subsidizing housing? Wouldn’t an American be better off in the long run with a smaller simpler house and a larger set of skills and better education? If so, why not put the money that we’re currently spending on affordable housing into free educational materials for the Web and into subsidized educational programs? (Assuming that returning the money to taxpayers is too radical an idea for any politician to propose.)
Good points all, except for this: “Much of the cost of building a house is in materials”. Maybe in places unconstrained by regulation and geography (think Indianapolis or Bismarck, ND) but in the expensive, blue parts of the country, much or even most of the cost of a housing unit is due to supply restricting regulations. Minimum lot size, maximum lot coverage, minimum unit size, design reviews, affordable housing mandates, overengineered roads, etc drive the price cost of producing a unit up, and the restriction on supply drives it up even more.
Local government is paid for by residential property tax, and the only way to make people pay more is to force them to buy bigger, more expensive property. So you have old towns whose minimum building requirements are bigger than the current average house size, districts with declining student enrollment requiring big houses and preventing apartments, etc. If local government was funded by a per-person or per-household tax instead of property, then supply and demand in housing wouldn’t be so manipulated.
Peter: I should have said “much of the cost of building housing” rather than “a house”. I was thinking more about a 100-unit apartment complex rather than a single family house on a 1/4 acre lot. So I was envisioning a lot of concrete and steel relative to the land price and whatever political and personal contributions to local officials are required.
If education is more about signaling than actually gaining skills, all pouring more dollars into education will achieve is to raise the salaries of administrators and ever more lavish university buildings, as has been the trends for over 20 years.
The best place to put those dollars is in rebuilding critical infrastructure like sewers built in the 1900s and now reaching the end of their design life.
Aside: Isn’t it annoying that many Roman aquaducts still work fine while “sewers built in the 1900s and now reaching the end of their design life”. That makes me angry.
Thanks for the discussion on the abuses of the affordable housing law, I hadn’t seen a solid explanation as to how the existing law was being abused.
I did find it telling that the ballot question was to completely repeal the affordable housing law, not attempt to close the loopholes in it, though. Like it or not, a metropolitan area is always going to have minimum wage (or lower!) jobs that will simply not pay enough to afford to live in the city. So the option is for low-wage workers to have long commutes, putting strain on the transit networks, and establishing city-slums on the outskirts of the suburbs. Required affordable housing is supposed to mitigate this somewhat.
Curious what your thoughts are on the sales tax reduction question, as well. Unlike the income tax one in 2008, it seems the sales tax reduction question may actually pass.
Joshua: Much of the shortage of low-cost housing is due to government regulation in the first place. If you look at the space that a single city worker actually needs and can afford, it is much more like a single-room occupancy hotel than a studio or one-bedroom apartment that meets modern zoning regulations. The inevitable result is 6 or 8 workers sharing a two-bedroom apartment. Requiring that housing be “affordable” is equivalent to requiring by law that the U.S. be prosperous. Zimbabwe could have laws requiring high minimum wages, affordable housing, food, and medical care, and high quality education for all, but they would still be poor unless it was possible for a country to cheat its way to wealth.
I haven’t thought much about the sales tax proposition. First, I think it is very unlikely to pass (see this article for the huge funding gap between opponents and proponents; public employee unions are not going to let taxpayers escape without a fight). Second, the one-party legislature apparently has the option of not implementing the referendum results. Third, our governor also has the option of blocking implementation of any cut. Finally, the state actually needs a lot more money. Under the rosiest possible assumptions, Massachusetts has unfunded pension and health care liabilities of at least $37 billion (source). That’s about $5,600 that has to be reamed out of every man, woman, and child in the state (population 6.6 million). If investment returns aren’t 8 percent annually as assumed, or if retired MA workers start living longer, or if health care costs keep rising, the liabilities could skyrocket. I don’t think it is possible for voters to repudiate obligations incurred on their behalf by politicians of yesteryear. Legally, if every current worker in Massachusetts has to be taxed down to the standard of living of today’s average Cambodian in order to pay a retired teacher living in Florida or Costa Rica, that’s the way it will be.
http://www.nytimes.com/2010/10/10/realestate/10posting.html has a piece about a developer in Manhattan who won’t be paying property tax for 20 years “under a program originally meant to stimulate construction of affordable housing… [with] a building with no affordable housing component”. A 1000-square foot apartment in the building would cost $80,000 per year to rent.
At first I was like “humm… seems like a fairly reasonable law…” then you reveal the negative sides of the law and I’m facepalming. Why why why was the law designed this way? Why can’t lawmakers ever employ, say, a 12-year-old boy to look at their laws in advance and say “haha that’s going to be exploited to hell!”
Xamuel: I think historically most expansions of government authority, originally sold as delivering some sort of public benefit, have eventually been turned to a private advantage. It seems inevitable as long as there are clever people in the private sector and/or politicians who need money to finance election campaigns.
See http://en.wikipedia.org/wiki/Regulatory_capture for example.
You simply can’t legislate away the market. Interference in the market will result in unintended consequences, hardship, and excess profit for some participants.
Why don’t the people who are concerned about affordable housing set up co-operatives? I once visited a family living in a co-op in Manhattan. Although neither breadwinner worked on Wall Street, the apartment was reasonably spacious and in a great location. A private, societal solution will always beat a legislated one.
Actually, materials account for only about a third of the cost of a new house. Another third-to-half is labor, and the remainder is land cost and regulatory overhead.