Edward Pinto of the American Enterprise Institute examines the impact of government policies on the price and availability of housing.
Recently there has been a flurry of legislative proposals to add yet more housing subsidies to the housing sector, already one of the most heavily subsidized. For example, S.2962 by Senator Cantwell would increase the Low-Income Housing Tax Credit (LIHTC) program to about $15 billion annually (a 50% increase) and S. 3175 by Senator Wyden would provide a refundable tax credit of up to $10,000 to first-time buyers with annual incomes of up to $80,000 (individuals) and $160,000 (married). As a frame of reference US median annual household income is $53,700.
These are the most recent in a long history of ill-conceived policies that increase housing demand but do nothing about supply. The result: higher home prices and rents, particularly for low-income and minority households, the very ones these initiatives profess to help.
Today’s subsidy laden, government-centric housing finance and land-use control systems are “economics free zones”, indifferent to supply and demand. The housing finance system’s alphabet soup of agencies has promoted a massive liberalization of mortgage credit backed by countless trillions of dollars in lending. At the same time, layers of subsidies combined with federal, state, and local regulations act to drive up costs while simultaneously constraining supply. …
… For example, Los Angeles has a median home price that is 8.8 times median income, up from 4.2 times in 1979. And median rent in LA is 49% of the median income, up from 32% in 1979. These results are largely driven by (i) easy access to credit which drive demand and prices ever higher, (ii) local land use restrictions and regulations that constrain new supply and drive building costs higher, and (iii) housing subsidies that make it even more difficult for market rate housing to compete.
