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Blue state/red state and the high cost of housing

In the late 1960s, my parents bought a three bedroom house in Staten Island, New York. My mother was a “housewife” and my father didn’t have a college degree. There is no way today that the salary of a single non-college degreed wage earner would be able to pay for that house. In fact, it’s likely that such a person would look at the price and think, “even if my salary triples I would not be able to afford that house.”

So why is residential real estate so expensive today? It all boils down to supply and demand. Demand has increased faster than supply, causing the prices to increase. Although there are some interesting things to write about on the demand side, this essay focuses on supply. Supply is not increasing as fast as it should.

There are some who have argued that there is simply no room to build new residential units in most urban areas. They have just grown too big. But this is not true. There is always room to build something new. If there’s no room to build out, there’s always room to build up. Multi-story apartments and condominiums could add a large number of housing units to a region very quickly.

If housing were a free market, builders would quickly build more of it when prices went up bringing the market back into equilibrium. The problem is that housing is not a free market when it comes to construction. Builders are not allowed to build unless given permission by the local government, and in places with high housing costs, local governments are not letting the builders build anything.

There is a series of articles in the Washington Post about this problem in the DC area. Counties don’t want people to move there to live, because they have to educate the home owners’ little brats and that costs the county money. Instead, they let commercial office space go up, creating new jobs in the area without new people living there. This explains why the traffic is so bad around DC. People have to drive longer and longer distances to get to the new office buildings. The local governments simply forbid builders from building adequate housing near the office buildings.

The housing problem seems to me to be a red state/blue state issue. If you recall, the “red states” voted Republican and the “blue states” voted Democratic. In a red state where I used to live, Arizona, houses were cheap. Single wage earners without a college degree can afford to buy their own townhouse in Phoenix, in a safe neighborhood.

I visited an apartment complex here in Arlington Virginia and discovered that it was earmarked as “affordable housing” for low wage earners. I didn’t qualify. But I was amazed that the special “affordable housing” in Arlington was more expensive than regular apartments in the Phoenix area that anyone could move into.

I imagine the following two scenarios taking place (all imagined because I have no idea how the process really works):

(1) A builder walks into the zoning office in Phoenix, Arizona. He says, “I want to build a complex of 1000 condominium homes.” The zoning officer says, “great idea! Go ahead and start building them right away! I hope you make a lot of money.” A year and a half later, there are 1000 new housing units in Phoenix.

(2) A builder walks into the zoning office in Fairfax County, Virginia. He says, “I want to build a complex of 1000 condominium homes.” The zoning officer says, “hold it right there you greedy evil capitalist. Not so fast. First you have to fill out these four hundred forms and do an environmental impact study, a traffic impact study, and a quality of life impact study.” So the builder hires a bunch of lawyers and other experts, and he pays a million dollars in fees, and a year later he brings back all the required documentation to the zoning office. He says, “now can I build my project?” The zoning officer says, “not so fast you greedy evil capitalist. We need to study these things.” Well the story is getting boring really fast, so I’ll get to the point; five years later the builder is finally approved to build only 500 units instead of 1000, and 100 of the units have to be ‘affordable units.’” Meanwhile the builder in Phoenix has completed three projects of 1000 units each, and all of his 3000 units are more affordable than the 100 “affordable” units that the builder in Fairfax County built.

This is a blue state/red state issue because the Democrats are hostile to new construction. They think that builders are evil capitalists. They say it’s unfair that “luxury” housing is being build and not housing for the poor or the middle class. They say that the new housing will hurt the wetlands. They say that the new housing will cause more traffic. So nothing gets built, and housing prices go up.

The Democrats are supposed to be the party that “cares” about the average wage earner while the Republicans are supposed to be the party of the rich. Yet in the Democratic cities, the average wage earner can barely afford to live. In Republican places like Arizona and Texas, despite the huge influx of new people, housing remains affordable.

For most people, their single largest expense is housing. If a political party truly cared about lower income people, they would enact policies that bring down the cost of housing. It’s clear that the Democrats don’t care.

UPDATE 12/28/04

More evidence that I am right. Blue state, red state, and housing. I told you so.

posted Saturday, August 14, 2004