Wednesday, October 27, 2021

Housing price controls don’t produce affordable housing

| October 13, 2021 1:00 AM

Due to state law changes in 2021, the Whitefish Strategic Housing Plan now depends on incentives to builders of affordable housing. It should have been no surprise that the city’s previous mandatory program of “inclusionary zoning” did not produce significant gains in affordable housing units. The current incentive program is not likely to do so either.

The Whitefish Legacy Homes Program creates multiple requirements for affordable units within a development. Ownership and rental units must be in the same proportion as “market rate” units. Affordable units must be “architecturally compatible” with surrounding unregulated units and must be “distributed evenly” throughout a development to avoid “segregation” of the affordable households. Even the timing of construction and marketing of affordable units is regulated — these must be conducted “concurrently with or prior to” construction and marketing of the market rate units. The builder must then charge more to its free-market buyers or tenants to make up for its loss on regulated units.

Government control of rental rates is not a new idea, though deed restrictions on sale prices (along with multiple design, location, scheduling, and marketing regulations) is a more recent strategy. But decades of experience demonstrate that neither idea is likely to attract additional private investment in workforce housing. When the government limits the rate of return on private investment to less than what the investor would expect to receive in a free market, the investor will understandably look for free-market alternatives.

Price controls and regulations such as the Whitefish ordinances create strong disincentives to the construction of affordable housing. In study after study, housing economists have identified consequences just the opposite of what the price controls intended. Owners convert rent-controlled apartments to condominiums and sell them at market rates. Empty-nest tenants remain in units that are larger than they need because the rent is low, while families can afford only smaller units. Owners are reluctant to properly maintain units when the cost of maintenance cannot be recouped in market rate rents.

The Whitefish requirement of deed restrictions creates a still greater disincentive to the construction of affordable housing. Even if an owner wishes to sell a deed-restricted unit, the sale price will be determined by the city rather than by prevailing market prices.

The consequence of inclusionary zoning price controls coupled with Legacy Homes regulations is predictable. The more the city regulates the housing market, the fewer affordable housing units that market will create.

Giuseppe “GMan” Caltabiano, who is running for Whitefish City Council, and Jim Ramlow