Mama I'm coming home...

Back in the good old days of this blog, an editorial like the one in today's Examiner was pure gold.

Seriously, it has more holes than a donut shop and my previous, more antagonistic self would have loved the opportunity to point out every single one.

In today's climate, however, I should probably take a more conservative tack.

Bor-ing!

Alas, this is the path I've chosen and the price I must pay for the wealth fame power…uh, benefits of my job.

Anyway, the editorial in question attacks Howard County's inclusionary zoning policy, also known as the Moderate Income Housing Unit program. This program is nearly identical to many others around the country, so in reality, the editorial's target seems to be inclusionary zoning itself.

The Examiner's problem with inclusionary zoning seems to be that "it discriminates against everyone else as it drives prices up on other homes."

In Howard County, a family of four with a household income of $75,408 qualifies to apply for the moderate-income housing program. Once approved, that family can purchase a condo or town home for a discounted rate in area developments.

At Ryan Homes' Elkridge Crossing, the moderate-income housing condos sell for $178,067 and town homes for $204,044. Regularly, those properties sell for about $260,000 to $330,000. Any way you slice it, that is a huge discount on a luxury home. Condos at Elkridge include a sun room, two full baths, an open kitchen and patio.

This is patently unfair to other county residents. How would you feel If you were a family of four with a household income of $94,260 — the median household income in the county? Why should the extra $18,852 you make each year force you to sometimes pay more than $100,000 more for the same property?

The program has other repercussions. A number of studies, including one from the California-based Reason Foundation, find that inclusionary housing policies, like rent control policies, reduce the supply of housing — driving demand up with prices.

(Huh. No mention of the patently unfair nature of the biggest housing boondoggle of them all and a bigger cause of increased home prices, the mortgage interest deduction?)

Rather than untangle the arguments from the outrage in this editorial, I'm going to focus on the source of its claims. In this case, the Reason Foundation and its free market dogma.

Reason has long been an opponent of affordable housing policies. The study mentioned by the Examiner is one of several produced by the libertarian think tank criticizing inclusionary zoning because, mainly, it distorts the "free market." These studies throw around numbers detailing the supposed costs of inclusionary zoning, which are always -- surprise! -- frighteningly high.

But what, then do you do when the market is clearly failing to provide the optimal outcome -- in this case an adequate mix of housing for people of all incomes  -- like the textbook says it always does? 

Thankfully, Reason has a bunch of recommendations in their handy report New Approaches to Affordable Housing: Overview of the Housing Affordability Problem (PDF). Here they are:

• Modify explicit and implicit land use and growth controls to allow homebuilders and developers the opportunity to meet demand quicker.
  
• Increase civil service compensa tion in select areas where incomes do not reflect high housing costs.
  
• Encourage the use of market innovations such as location-efficient mortgages.
  
• Assist and leverage grassroot, volun teer organizations such as Habitat for Humanity (HFH).
  
• Use local flexible housing vouch ers to EITC (Earned Income Tax Credit) eligible households.
  

I don't know whether to laugh or cry: Several of those recommendations demonstrate a stunningly poor understanding of economics, markets and development.

For instance, while the basis for the first – that land use and growth controls raise the cost of housing – is true, removing such controls would then cause another, perhaps worse market distortion.

Why?

Because growth imposes costs on existing communities, and as everyone who has ever taken Econ 101 knows, actions that impose costs on others are known as "negative externalities." In order for markets to work as wonderfully as they do in theory, the costs of these externalities need to be paid for both those who create them. The report singles out "impact fees" as a problem, but such fees are perhaps the perfect example of compensation for negative externalities, yet Reason doesn't like them because they screw up the market. I don't get it.

But why don't we just raise civil service pay to bring it in line with housing prices? That's a solution I can get behind, but it probably won't help the affordable housing situation because…because…throwing more money into the economy causes inflation ( i.e. increase in prices). Oh, well.

There is also the location-efficient mortgages idea, which would allow higher income-to-debt-payment ratios in certain high cost areas. Right, because screwing with mortgage practices hasn't contributed to any housing bubbles or problems in the credit market.

As for leveraging volunteer groups like Habitat to build more affordable housing, I'm all for it. Habitat does great work – 50,000 houses in 30 years across the U.S. I'm not sure how much of an impact it can have on prices, however, when for-profit residential builders knock out just shy of 2 million houses…each year.

I'm not even going to comment on the last one, because, well, I didn't really bother reading about it. But I think I've made a point in here somewhere…

Hmm…

Oh, yeah…This affordable housing stuff is hard. Drawing supply and demand curves helps illustrate basic points, but in our complex reality, "X" rarely marks the spot.