Government Limits Affordable Housing
July 24, 2003
Government-imposed land-use regulations reduce the availability of affordable housing, concludes a recent study published in the Federal Reserve Bank of New York Economic Policy Review.
Some regulations, such as impact fees and land use controls, restrict the supply of new units. Other regulations, particularly rent control policies, indirectly affect new construction, but more directly increase the probability that units will be demolished or upgraded to become owner-occupied housing.
Both kinds of regulations reduce the stock of affordable housing:
- An increase in demand for higher quality houses is unmet due to restrictions on new construction.
- Demand for higher quality units raises the returns to maintenance, repairs and renovations of lower quality units.
- Landlords have a stronger incentive to upgrade these lower quality housing units in order to gain a higher return in the housing market.
- Prices for these previously affordable units are more likely to rise and become unaffordable, relative to remaining in the affordable stock.
The effects of land-use regulations shown in this study offer an important lesson to policymakers: The negative effects of land-use regulation are not limited to raising the price of owner-occupied housing and reducing access to homeownership; they also have a clear negative impact on the least well-off.
Source: C. Tsuriel Somerville and Christopher J. Mayer, "Government Regulation and Changes in the Affordable Housing Stock," FRBNY Economic Policy Review, June 2003, Federal Reserve Bank of New York.
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