Federal Subsidies Won't Promote Fair Housing

By Angela Logomasini of CEI.

"Democratic vice presidential candidate Tim Kaine recently outlined his and Hillary Clinton’s plan to promote fair housing. Basically, they want to throw money at the problem of high home prices, offering to match buyer down payments of $10,000.

This won’t help low-income home buyers much, and belies the reason that homes have become so very expensive in many cities.

As Cato Institute Scholar Randall O’Toole explains in a recent blog post, free markets are not the source of this problem; it’s largely created by dumb government policies. Housing prices within the metro regions of places like Los Angeles, Portland, Ore., New York, and Washington D.C. are inflated in good measure due to misguided urban planning policies.

Consider government zoning programs, which once were used for the insidious purpose of segregating populations based on race. The federal Civil Rights Act of 1968 (also referred to as the federal Fair Housing Act) eventually barred all housing discrimination based on race, color, religion, or national origin, yet today many zoning policies still disadvantage low-income families.

In his essay “An Economic History of Zoning,” Dartmouth economics professor William A. Fischel notes that during the past several decades, zoning has become a tool of the Not-In-My-Back-Yard (NIMBY) suburban homeowners’ movement. Unable to use zoning to keep specific groups of people out of their neighborhoods, the NIMBY activists advocate “smart growth” policies in the name of “environmental protection.”

Many of these so-called smart growth policies involve zoning codes that make property too expensive and inaccessible to lower-income families. Such zoning regulations include mandating relatively large lots per house, prohibiting multifamily housing, banning certain home-based businesses, and other restrictions that make housing in these suburbs too expensive for many lower-income families.

In addition, so-called smart growth policies limit housing development in and around cities creating housing shortages, which obviously puts upward pressure on prices. For example, Oregon imposes “urban growth boundaries” that encircle the state’s cities, barring new home construction outside the boundary in would-be suburbs. The boundary around Portland has created severe a housing shortage and high prices.

Unfortunately, the Clinton-Kaine plan doesn’t address these very real housing problems but instead would dole out subsidies for select homebuyers. These subsidies will mostly benefit people in better financial situations, as you must have $10,000 in the bank to qualify.

O’Toole explains the problems with this approach perfectly:

To the extent that the Clinton platform aims to increase homeownership among low-income families, it sounds a lot like the programs of the previous Clinton administration that many people say contributed to the 2008 financial crisis…As it turned out, the Clinton programs did increase homeownership, which reached a record level in 2004. The problem is that this was followed by a crash that reduced homeownership rates to their lowest levels in 20 50 years. Low-income families were hurt the most, not only losing their homes but losing a larger share of their wealth than wealthier families.

We don’t need more of the same.  A truly fair approach would be for the government to get out of the way and allow developers to build housing where people want it.

For more on this topic see How Urban Planning Drives Up Home Prices, by Angela Logomasini, Ph.D."