If It's A Bubble, Why Worry?

A Maryland newspaper today published an opinion piece about affordable housing. In it, the author, an editor of the libertarian Cato Institute's Regulation Magazine, supports the existence of a housing bubble, and then cites it as a reason to not enact programs designed to increase the amount of affordable housing.

If the bubble's about to pop, why worry about building affordable housing?

Washington County, Maryland, a community of nine municipalities 70 miles northwest of Washington D.C., isn't about to wait. In fact, it's set to review the work of a task force charged with addressing the lack of housing affordability in the area. The recommendations take aim at reforming some building codes and zoning laws, as well as relaxing so-called "snob laws" that keep factory-built housing out of some neighborhoods. It also suggests things like making use of public land for residential housing in exchange for land rent. The author of the opinion piece in the Herald-Mail likes some of those ideas, but makes a case for not pursuing other options because, he argues, the housing bubble might burst, which leaves the reader to presume that would leave the community flush with affordable homes.

It's a notion that should trouble every wannabe homebuyer priced out of this market whether they live in Washington County, or not.

The author appears to be all for removing restrictions. After all, the Cato Institute is dedicated to "the traditional American principles of limited government." And, therefore it's no surprise when he argues against the establishment of new government programs, describing them as having "costly unintended consequences."

If Washington County's run-up in house prices is part of a regional real estate bubble that is about to deflate, then there is little need to adopt a slew of cumbersome and costly government interventions.

This idea is something I hadn't heard before, but that I fear will become more common in the coming months. It's worrisome for several reasons, the most obvious being that it appears to serve only the interests of an industry that wants supply to remain limited. A limited supply helps prices maintain their lofty heights as long possible. Indeed, a hold-off-and-wait approach denies that it could, and very likely will, be years before a bubble pop results in housing prices falling to a level that would be considered "affordable" for people in the lower and middle classes.

The nature of housing bubbles cannot be denied — they don't pop overnight. In some places, a bubble pop might mean that prices continue to rise, but at very modest levels. In other locales, a bubble pop might just level off prices, leaving them out of reach for many people for more than a decade. Taking an action like eliminating a road block to factory-built housing, for example, might appear to go a long way toward improving prospects for the hard-working, lower- and middle-class members of the community. But the fact is that the pitch to remove restrictions like this is often met by the Louisville Slugger of local control, which often knocks it out of the ballpark, resulting in another loss for the underdog.

Take California's granny flat fiasco. A couple years ago, California lawmakers pursued legislation intended to remove the vague restrictions that prevented granny flats — those backyard dwellings sometimes located over a garage, or as a stand-alone guest house. The intention was that this would help alleviate the need for rental housing. In response, however, leaders in affluent communities rose up in opposition, claiming that such action would double their community's density, as though every resident would suddenly add a granny flat and hang a for-rent sign in the tree out front.

I am not versed in the issues surrounding Washington County, Maryland, but I am certainly very familiar with how neighborhood associations and local governments sometimes operate. And it's this kind of wait-and-see bubble logic that's precisely the kind of strategy some might use to prevent so-called deregulation from resulting in the construction of more affordable homes.

Deregulation is not the answer. As good as removing roadblocks might sound, it's simply not enough. Cities must design programs that actively encourage the construction of affordable housing because, if left to the market, the market has proven for the last several years that it will gravitate to the large profit margins to be enjoyed in large houses, and not the small profits in small ones.

Some will label efforts to stop these kinds of programs as "smart growth," or describe their opposition as "prudence." Others will criticize it as NIMBYism. But at its core, isn't greed a part of all of this as well? Doesn't opposition to affordable housing done in the name of "protecting property values" or "maintaining neighborhood character" become a kind of code for classism? How long can communities continue to deny that they have service workers — teachers, police, firefighters, clerical staff, and, yes, journalists — who are a part of their fabric and yet are unable to afford to live where they work? Why do states continue to allow some cities to cater solely to high-income residents, while sluffing off to outlying municipalities the duty of providing both affordable rental and owner-occupied workforce housing?

There are some significant housing markets, the Los Angeles area among them, where people making as much as $120,000 a year can't afford the median-priced, detatched single-family home. When six-figure income earners are unable to buy a house, wouldn't it be considered disingenuous to adopt a wait-and-see approach in the name of being prudent? Washington County, Maryland appears to be one of the few places in the country that's actually trying to do something about the problem. It would be encouraging to see others follow a similar path, and then to see through the course of action recommended by those who studied it. But, if efforts like this fail, hopefully the watchdogs will take a close look at the reasons why. And I'd suggest that some of it might have to do with the fact that most elected officials aren't feeling the pain. The overwhelming majority of them already own homes.

Housing is not a right, or a privilege. It is a basic human need. Isn't it time society began to take that responsibility seriously?

— The Boy in the Big Housing Bubble