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Roger Valdez: Affordable Housing in the Next Recession

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Share to facebook Share to twitter Share to linkedin Photocredit: Getty Getty I’m no economist but judging from what I see in the media we may be heading for a recession, an extended period of negative economic growth. Maybe it’s wishful thinking for the left’s cognoscenti; certainly a recession will finally turn even Trump’s base against him, right? And it’s been a long recovery. We’re about due. What about housing? Well, if you believe that big demand and little supply means higher prices, a recession might present an opportunity for American cities that want to help people who need housing, especially those with less money. Here’s the five things I recommend cities do as we slide into recession to create a

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I’m no economist but judging from what I see in the media we may be heading for a recession, an extended period of negative economic growth. Maybe it’s wishful thinking for the left’s cognoscenti; certainly a recession will finally turn even Trump’s base against him, right? And it’s been a long recovery. We’re about due. What about housing? Well, if you believe that big demand and little supply means higher prices, a recession might present an opportunity for American cities that want to help people who need housing, especially those with less money. Here’s the five things I recommend cities do as we slide into recession to create a surplus of housing so that while households see the economy stagnate and fall so will their housing costs. And these interventions also promise that when the economy roars back, those housing costs will lag as demand for housing created by new jobs and economic growth increases.

  • Suspend zoning laws — Zoning is a 20th Century solution to a 19th Century problem. Originally devised to separate uses — avoiding a pig in the parlor — zoning has succeeded too well, creating far flung suburbs, transportation problems, increased carbon emissions, and sclerotic permitting regimes. We don’t need it. Today, zoning does nothing but drive up costs, slow production, and make housing more expensive. Zoning also creates commutes from living to work to shopping to play, and that means traffic and higher public transportation costs. What about health and safety? The building code can ensure that buildings are seismically sound and won’t trap people in burning buildings. Getting rid of zoning would lengthen the building boom in growing cities even if job and economic growth slow.
  • Abolish design standards — Design is luxury we can’t afford during a recession. Fussing in lengthy public meetings about fenestration, relationships between bricks and Juliet balconies, and demanding frosted glass on windows is a silly and costly at time when people face income loss and need to see lower housing costs. Ugly buildings are cheaper buildings and as long as they are safe, cash strapped consumers will benefit from additional and cheaper supply without all the pointless debate from neighbors worried about how hardy panel makes them feel.
  • Tax inefficient land use — Your parking lot and strip mall are making life hell for people. You’re retired, and you get lost in that 5,000 SF house you and your partner live in is an extravagance. Sure, you can keep that parking lot a parking lot and keep living in that giant house, but we’re going to make you pay! During a recession housing prices might fall, but so will investment in new housing and that’s a job killer. Turning that parking lot into an apartment will employ people and the luxury tax on single-family homes can subsidize housing production. That leads to. .
  • Use that tax revenue to stoke building  — We should tax land used for storing cars and people at low densities to make public investment in private development. I’ve said before, developers don’t worry about profit as much as they crave certainty. When a recession hits, and investment dries up, local cities can be the big investor plowing equity into marginal projects — and adding floors and units that private sector investors won’t fund. What will happen? Lots of supply. That means excess units and landlords and developers competing to attract tenants with lower prices. Maybe some of them will go bankrupt! Wouldn’t that be lovely? Imagine big west coast cities with $300 dollar apartments owned by the city that took possession of them when the recession was its deepest ebb. And just imagine those greedy developers and landlords with cardboard signs at freeway exits: "Will build housing for food!"
  • Abolish all sales and excise taxes on the production of new housing — Sales taxes and other taxes on transactions like those on the sale of new homes always get passed on to consumers. Get rid of them. This would stoke private investment in housing that would help overbuild the market and lead to lower priced units because of lower production costs and greater supply and competition.

A recession is the perfect time for local governments to keep the housing sector booming with reduced costs and subsidies. Think of these five things as adding more rail to the climb of a rollercoaster. Each of these acts is an incentive to keep building even as incomes and rent potential fall. That means more jobs and lower rents. And here’s something that should make socialists smile; when the artificial high created by these interventions wears off, the market will be hugely over supplied, probably wiping out some builders and land lords who will be holding on to properties with rents too low to cover costs.

However, and most importantly, when the economy recovers and starts its rollercoaster climb out of recession, the saturated housing market will lag behind in terms of rents; vacancy rates will stay high, prices low, and even while inflation in other sectors climb, all that excess supply will absorb demand for many quarters of growth.

Now’s the time for cities to act. Here’s the good news: even if all the red lights are just false alarms, these actions will still stoke supply, lower costs, and create savings for people who are struggling to find and pay for housing.

Miles Kimball
Miles Kimball is Professor of Economics and Survey Research at the University of Michigan. Politically, Miles is an independent who grew up in an apolitical family. He holds many strong opinions—open to revision in response to cogent arguments—that do not line up neatly with either the Republican or Democratic Party.

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