Last week I attended a meeting of the Boston Pipeline City Network, a sort of informal think tank project of a group called the Roosevelt Institute, on affordable housing. I was invited by my friend Gavin after I criticized his blog post on the topic, which I thought was too focussed on government solutions and homeownership and too dismissive of both the free market and the ways in which the various governments and government agencies involved in the housing market have contributed to unaffordability. They brought in Timothy Reardon, with the Metropolitan Area Planning Council, to talk about the issues.
There are a few ways in which government interference has distorted the private housing market. The most expensive has been with the Federal Home Mortgage Interest Deduction, where homeowners with a mortgage can deduct the interest they pay on it on their taxes. According to The Motley Fool, the Mortgage Interest Deduction costs the government as much as $130 billion a year in lost tax revenue — more than anything else except defense, entitlements, unemployment insurance and interest – and has no effect on homeownership rates. Moreover, as The Atlantic Cities demonstrates, the deduction is mainly used for rich people to buy larger houses than they otherwise would.
However, it also acts as a subsidy for suburban sprawl because there are no similar deductions for landlords or renters. This encourages the buying of single family detatched houses and that demand encourages they’re construction. Plus, as Reardon noted, housing and transportion costs are often inverse — if you move further out to the suburbs for a cheaper house, the cost of driving everywhere would make up for the difference.
But the big issue is really zoning, which is used to drive up construction costs with minimum lot sizes, parking requirements, set backs, materials contraints and so on all drive up construction costs. Zoning has a darker side, too: by preventing homes from being used as businesses it drives up capital costs and commercial rents. Construction cost rises also come from labor costs, although Boston unions have shown a willingness to cooperate with builders.
In terms of the existing housing stock, however, prices and rents are rising in response to demand. The vacancy rate is somewhere around three percent. Reardon said that to keep up with demand, Boston would need to add about 10,000 units per year, compared with the historic average of 6,000 units per year — and that’s metro-wide. More importantly, just maintaining the status quo just won’t be effective, because as the Baby Boomers retire and leave the work force there will be a labor shortage in Boston, which will discourage companies from moving here.
Another issue in Boston is that the average size of a household has decreased and the number of households has grown. This reflects a national trend and it is also worth noting that nationally, as the average household size has decreased the average square footage of houses has grown.
This is especially interesting because many Italian palazzi have a smaller footprint than some American single family homes — they tend to have more square footage because of multiple floors, but they occupy less land.
As this excellent article from Grist demonstrates, parking requirements raise rents by increasing costs and decreasing the housing supply. In Boston, the number of spaces per unit is as high as two for some neighborhoods and I know for a fact that where I live there are some apartment buildings with parking lots occupying a greater square footage than the building footprint. One woman at a Brighton Allston Improvement Association meeting even said that she opposed new multifamily units because increased density brings more cars and more traffic. It doesn’t: free parking brings more cars. Widening streets brings more cars. Disinvestment in public transportation infrastructure brings more cars. Single use zoning brings more cars.
Without investing in public transportation, however, there won’t be the extra capacity to absorb more ridership: many train and bus lines in Boston are already at capacity during rush hour and a few are at or near capacity for the entire week (something especially notable when running at reduced service Saturday and Sunday, or at night). Matt, the Walking Bostonian, has proposed an ingenious solution: allowing developers to trade parking spaces for transit funding.
Ultimately, the point is that whatever programs, whether expanded Section Eight vouchers, or a program like Utah’s, aimed at affordability have to be teamed with decreased regulation and a commitment to allow more housing to be built.