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Do we need affordable housing programs?

October 23, 2005|By Tom Firey

This week, a Washington County task force will formally release its report on combating the local crisis in housing affordability. A preliminary draft of the report includes several sound recommendations, such as reforming the building code (building codes are often criticized for raising contractors' profits more than they enhance public safety), rationalizing zoning laws and relaxing "snob laws" that restrict house trailers.

Other recommendations are disappointing, such as the call for a local version of Montgomery County's ineffective "Moderately Priced Dwelling Unit" program. A few recommendations call for new government programs that likely would have costly unintended consequences, like county provision of residential land in exchange for land-rent. (The Blairton saga in neighboring Berkeley County exemplifies the problem with such arrangements.) But whatever criticisms may be raised against specific recommendations, the task force members' thoughtful and difficult work deserves praise - especially given their short deadline and minimal budget and staff support.

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In the coming weeks, county leaders will consider the recommendations. Hopefully, they will also consider an alternative: Adopt no new programs - at least for now.

Earlier this month, on the very day a Herald-Mail editorial previewed the task force recommendations, the New York Times ran two articles on the most recent signs that several regional housing bubbles are beginning to deflate. The articles gave special attention to the D.C. region, noting that the number of homes for sale is up considerably, the time they spend on the market is growing, and their asking prices are falling.

People often claim that house prices do not go down, but history proves them wrong. A review of real median house values in the Virginia and Maryland halves of the D.C. housing market over the past quarter-century indicates that, just as house prices can go up for extended periods, so they can go down for extended periods. If, as many observers predict, the D.C. region has experienced a housing bubble that will soon deflate, Washington County house prices will fall along with it.

Why would area house prices fall? One reason is that potential homebuyers are souring on the use of risky financing like adjustable-rate mortgages and interest-only loans. Another is that rising energy prices are discouraging commuters from living so far from their jobs. A third reason is that real estate speculators are growing uneasy about tying up so much of their money in an undiversified asset. A fourth reason is that, in this era when house prices have increased dramatically faster than rental rates, some people are seeing through the myth that buying is always preferable to renting.

If Washington County's run-up in house prices is part of a regional real estate bubble that is about to deflate, then there is little need to adopt a slew of cumbersome and costly government interventions. And there is compelling reason not to: Crisis-mode governance often yields policies that have painful unintended consequences. History provides many examples: the Smoot-Hawley Act of 1930 was supposed to pull the United States out of recession but it prolonged the downturn that became the Great Depression; the Glass-Steagall Act of 1933 was intended to shore up financial institutions but it led to the banking and savings-and-loan collapses in the 1980s; the Securities and Exchange Act of 1934 was supposed to protect investors but it inflated stockbrokers' profits; Nixon's oil and gas controls were intended to help motorists but they created chronic shortages and long gas lines. The recent US Patriot Act and Sarbanes-Oxley Act will one day join this list of disastrous crisis policymaking.

Of course, Washington County's house prices will never be as low as they were, say, 10 years ago. The county's recent building moratorium and rezoning have pushed up the price of building lots, while the new excise tax has added $13,000 to $26,000 to the cost of a new home. The proposed Adequate Public Facilities Ordinance will further inflate that cost. The new-house price increases have, in turn, enabled prices to rise on existing homes, pushing overall housing costs upward substantially.

But even with the government-imposed supply shocks, it is unlikely the local housing market will maintain its current high prices because demand intensity doesn't appear sustainable. County leaders would thus be wise not to rush to enact a bunch of cumbersome housing policies. Instead, they should undo some of the damage that their recent policymaking has inflicted on the local market.

Housing is far too important for "Don't just stand there, pass something" governance-especially when time and more rational policies would solve the problem.




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

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