Affordable housing stays, while banana splits

October 24, 2004|by Tom Firey

We've all seen the bit: A man stands on the street corner holding a banana to his ear. Someone asks why he's doing that, and the man replies, "To keep alligators away." When told that's crazy, the man asks, "Have you seen any alligators around?"

Not too many people use bananas to fend off alligators. But politicians and pundits often do something similar: Champion policies that have no meaningful effect on the problems they're supposed to solve.

In my Sept. 12 column, I described one such policy, the Moderately Priced Dwelling Unit (MPDU) program. The program requires any large, new residential subdivision to set aside a portion of its units for sale at below-market prices to qualified, low-income purchasers. Montgomery County originated MPDUs 30 years ago, and both Hagerstown and Washington County are studying the idea for possible adoption locally.

As my earlier column explained, the MPDU program sounds wonderful, but its results are disillusioning. In its three-decade experience, Montgomery generated only 11,400 MPDUs, the majority of which have since reverted to market-rate housing; only 3,000 units are still in the program.


Montgomery's overall housing market is about 350,000 units, which means the ratio of MPDUs to market-rate housing is too small to even begin to address that county's housing affordability woes. That's evidenced by the D.C. region's 56.7 percent increase in housing prices over the past five years.

To be sure, Montgomery's program is a boon for the very small portion of families who are poor enough to qualify for and then lucky enough to win the biannual drawing for the right to buy an MPDU. But, for the many, many more low-income families who don't win and for the middle-class families who don't even qualify, the program does nothing for affordable housing.

In fact, MPDUs may do worse than nothing. In essence, the buyer purchases the unit at the cost of the structure, while the lot underneath is paid for by the subdivision's developer and residents. During a housing boom when demand is high, the lot's cost mainly falls on the other residents, who get less property than they pay for in order to subsidize the MPDUs. In other words, the rest of the residents - who mainly are working-class families, too - shoulder additional cost so as to provide the MPDUs.

Perhaps that is a worthwhile result - a one-time wealth transfer from many working-class families to a fortunate few MPDU winners. But as a solution to general housing affordability woes, the program may literally be worse than nothing.

It has been subsequently claimed that my criticism of the MPDU program is nit-picking. As one respondent put it, MPDUs may not "work perfectly," but the program should still be implemented locally because it "has two virtues": It's been judged legal by the court system and it has a 30-year history in Montgomery County.

Of course, it's good to adopt policies that are acceptable to the courts. However, when a program has a 30-year history of doing about as much to improve housing affordability as holding a banana to one's ear, it is more than a little imperfect. Responsible policymaking would require that Washington County investigate the MPDU idea carefully, weigh whether the benefits of MPDUs are worth their cost and consider whether other policy responses - or no response at all - might be better.

Fortunately, there's a way to improve local housing affordability without implementing a questionable program. Washington County's housing woes, like those elsewhere in the country, are mainly attributable to the high price of building lots, which have been made artificially scarce by local zoning and other land-use regulations. Scarcity, of course, results in dramatically higher prices.

As federal data show, the ongoing spike in local housing prices began when the previous board of county commissioners adopted the rural-area building moratorium two years ago and accelerated when the current board extended the moratorium last year. As a result, building lots have become significantly scarcer - a scarcity that will continue in slightly less onerous form under the soon-to-be-adopted countywide rezoning.

The best way to lower housing prices is to lessen that scarcity. If Washington County wants to downzone and have affordable housing, then it needs to adjust the size, location and allowable density of the rezoning's proposed development zones so as to alleviate the scarcity of building lots that will occur when more than 80 percent of the county is downzoned.

Like MPDUs, that policy response would be judged acceptable by the court system and has a lengthy track record of success. More importantly, "upzoning" in the development areas would effectively address the root cause of housing unaffordability. Indeed, Montgomery's County Council is considering loosening its zoning and land-use restrictions in order to do something meaningful to lower that county's housing costs.

Increased allowable densities would certainly have a more positive effect than a token MPDU program - or a mandate that county residents put bananas to their ears.

Thomas A. Firey, a Washington County native, is managing editor of the Cato Institute's Regulation magazine and a senior fellow of The Maryland Public Policy Institute.

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