See
Microsoft's Affordable Housing Plan Addresses a Government Failure. Salim Furth of Mercatus.
"Writing in the New York Times’ blog, The Upshot,
Emily Badger contrasts Microsoft’s pledge to invest $500 million in
affordable housing with the long-term decline of federal spending on
public housing. Microsoft is not, as Badger claims, addressing a market
failure but a government failure. And the principal government failure
it is addressing is not the long-term decline of federal spending but
the strict regulations that Washington’s state and local governments
impose on all housing construction.
Lack of shelter is a great evil, but it is not a “market failure” in
the technical sense. Housing for the poor is not scarce because of
incomplete information, moral hazard, monopoly power, or any of the
usual catalog of ways that markets fail to live up to the ideal. In
fact, the housing market’s greatest deviation from the textbook model of
a perfect market is that homes are durable and immobile, so their
prices can fall far below the cost of production. In lightly-regulated
housing markets, older housing is much cheaper than its construction
cost, so people can afford larger, better accommodations than they could
pay to build.
Society’s ability to provide shelter even for the very poorest is
underlined by the concentration of homelessness in a few
highly-regulated areas of the US. Residents of cities and states with
permissive building policies would be shocked by the prevalence of
homelessness in Seattle and other strictly-regulated West Coast cities.
According to the best estimate of the Department of Housing and Urban Development,
10,621 people in Washington State were unsheltered on a single night in
January, 2018. Texas, by contrast, had slightly fewer unsheltered
people among a population four times larger. Mississippi, the nation’s
poorest state, had just 621 unsheltered people.
Not only are market-rate and charitable housing more affordable in
lightly-regulated places, federal housing subsidies go much further when
regulation is light. When the supply of land on which apartments can
legally be built is restricted by local government, federally-subsidized
apartments will crowd out private ones. Evidence consistent with this
effect has been found in the US and France.
Homes are so expensive in the Seattle area because growth is strictly
controlled. Most of Seattle is zoned to allow only single-family homes.
And Seattle’s suburbs are restricted from outward growth by a
state-imposed “urban growth boundary.”
Like Oregon and California, Washington has made a political choice to
preserve both nature and suburban-style living at the expense of
affordability. Texas regulates much less: it allows both sprawl and
density. As a result, a larger share of Texans than of Washingtonians lives in apartments, and Texans also have access to affordable single-family homes.
Microsoft’s laudable generosity aims to address a regulatory failure
imposed by Washington’s state and local governments. To call the West
Coast housing affordability crisis a “market failure” is to blame the
victim."
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