America should be in favor of housing

Back in October, Daniel Kay Hertz of City Observatory explored some of the contradictions in American housing policy and the consequences of those contradictions for African-Americans.

Hertz summarized American housing policy as the mutually exclusive precepts that “Government policy should help keep housing broadly affordable, so as not to price out people of low or moderate incomes from entire neighborhoods, cities, or even metropolitan areas” and “Government policy should protect residential neighborhoods from things that might negatively impact housing values, because homes are an important investment and wealth-building tool”.

The second policy is currently prevailing over the first. Through restrictive zoning laws in suburbs and NIMBYism in cities, housing prices in metropolitan areas are rapidly increasing.

“One result of all this is that many white families have built generations of wealth through homeownership, while black families have made barely any progress . . . The Atlantic reported on a study suggesting that homeownership has been a net financial loss to African Americans since 2000 . . . Giving up entirely on the idea of homeownership as a path to wealth-building would essentially be saying that black Americans have just missed the boat on this one, and will have to remain behind forever. On the contrary, in the relatively few places where housing values finally do go up in mostly black neighborhoods, it represents—at least in part—a kind of justice: giving black homeowners the same access to financial gain that their white counterparts have enjoyed for the better part of a century.”

This seems in itself contradictory: homeownership has been a net loss for African-Americans, so we should increase their homeownership rates.

According to the United States Census, between the first quarter of 2010 and the fourth quarter of 2014, the homeownership rate of black Americans fell from 45.6 percent to 42.1 percent. From whites it went from 74.5 percent to 72.3 percent. Those numbers don’t tell the whole story, though. According to Slate‘s Jamelle Bouie, black families don’t have the cushion of savings that white families do, so losing their homes is more severe. “And in the event that black households are able to save and afford a home, they aren’t as financially secure as their white counterparts,” he wrote. “All else being equal, a black schoolteacher who loses her job to budget cuts is less likely to have savings – and thus a safety net – than her white counterpart.”

I think Bouie hits the nail on the head: the problem is savings. Any person who has to pay more than half of their income for housing, as is now the case in many metropolitan areas, is not going to have any savings with which to so much as put a downpayment on a home unless they’re already upper middle class or getting paid like it. It’s one thing to want blacks to have the same access to the wealth creation ladder whites have used, but keeping housing prices artificially high prevents them from getting on it at all. Again, according to the Census, in 1940 the median home value (in 2000 dollars) was $30,600 and in 2000 it was $119,600. If white families had to pay $120,000 to move to Levittown, I doubt the white middle class would be so large right now.

But there is another elephant in the room: houses aren’t great investments. According to Yale economist Robert Shiller, housing has incredibly poor real returns. According to him, American home price appreciation between 1890 and 1990 was essentially zero. It’s not really a question of whites pulling up the ladder behind them as it is recognizing that it wasn’t the ladder they climbed up.

The real economic benefit of homeownership, I think, is not as an asset but as capital. A house can serve as collateral on a loan, but it can also be capital in and of itself. According to the Foundation for Economic Education, one of the reasons low-income and minority voters in Houston have historically opposed zoning is because not only does the lack of zoning keep market prices down, but it’s much easier to start businesses in their homes.

However, I bet that in metropolitan areas, with the housing supply kept artifically restricted and conversion to rental an easier and surer bet, returns are somewhat higher.

What that means, though, is that policies preventing increases in the supply of housing are hidden taxes, redistributing wealth from the poor to the rich – especially in states like Massachusetts where property tax rates were capped in the 1980s.

This is most obvious in California. Proposition 13 capped property taxes and anti-development policies have, in the booming technology  sector, led home prices in the Bay Area and Silicon Valley to skyrocket in value for existing homeowners while they pay no higher taxes. Existing homeowners thus acrue a huge increase in their wealth while renters are left with rising rents and new homeowners face both high prices and more of the tax burden.

It seems to me that the benefits from allowing more housing to be built such as lower home prices and rents, more jobs in the building trades, bigger tax bases for cities, lower per capita energy consumption and so forth, would far outweigh the costs to society of more housing subsidies, more homelessness, more workers in low wage jobs and more automobile-dependent sprawl.

It is time to build.

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