Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable PDF
Preview Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable
Rethinking Federal Housing Policy Rethinking Federal Housing Policy How to Make Housing Plentiful and Affordable Edward L. Glaeser Joseph Gyourko The AEI Press Publisher for the American Enterprise Institute WASHINGTON, D.C. Distributed to the Trade by National Book Network, 15200 NBN Way, Blue Ridge Summit, PA 17214. To order call toll free 1-800-462-6420 or 1-717-794-3800. For all other inquiries please contact the AEI Press, 1150 Seventeenth Street, N.W., Washington, D.C. 20036 or call 1-800-862-5801. NRINATIONAL RESEARCH INITIATIVE This publication is a project of the National Research Initiative, a program of the American Enterprise Institute that is designed to support, publish, and disseminate research by university-based scholars and other independent researchers who are engaged in the exploration of important public policy issues. Library of Congress Cataloging-in-Publication Data Glaeser, Edward L. (Edward Ludwig), 1967- Rethinking federal housing policy : how to make housing plentiful and affordable / Edward L. Glaeser and Joseph Gyourko. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-8447-4273-1 ISBN-10: 0-8447-4273-2 1. Housing policy—United States. 2. Housing—Prices—United States. I. Gyourko, Joseph E., 1956– II. Title. HD7293.G5 2008 363.5'820973--dc22 2008040992 12 11 10 09 08 1 2 3 4 5 © 2008 by the American Enterprise Institute for Public Policy Research, Wash- ington, D.C. All rights reserved. No part of this publication may be used or repro- duced in any manner whatsoever without permission in writing from the American Enterprise Institute except in the case of brief quotations embodied in news articles, critical articles, or reviews. The views expressed in the publications of the American Enterprise Institute are those of the authors and do not neces- sarily reflect the views of the staff, advisory panels, officers, or trustees of AEI. Printed in the United States of America This book is dedicated to Edmund Chaitman and Joseph Gyourko, Jr., our fathers, in gratitude for their inspiration and guidance. Contents LIST OF ILLUSTRATIONS xi ACKNOWLEDGMENTS xiii AUTHORS’ NOTE xv INTRODUCTION 1 The Plan of the Book 6 Our Proposal 12 1. HOW DO WE KNOW WHEN HOUSING IS “AFFORDABLE”? 16 Poverty and Housing Affordability 17 Affordability across Space 19 How Should Housing Affordability Be Measured? 21 2. THE STATE OF AMERICAN HOUSING 24 Housing Consumption over Time 25 House Prices, Income, Amenities 32 Housing Prices and Construction Costs 40 3. PUBLIC INTERVENTION IN U.S. HOUSING MARKETS— A HISTORICAL PERSPECTIVE 48 Housing Regulation and Externalities 48 Correcting Market Failures 52 In-Kind Redistribution 54 Conclusion 56 vii viii RETHINKING FEDERAL HOUSING POLICY 4. CURRENT POLICIES—PRICE AND QUANTITY CONTROLS 58 Price Controls 58 Quantity Regulations #1: Building Codes 62 Quantity Regulations #2: Land-Use Restrictions 64 Hybrid Price and Quantity Controls: Inclusionary Zoning 81 Massachusetts Chapter 40B 82 The Mount Laurel Decision 84 Conclusion 86 5. OTHER INTERVENTIONS IN HOUSING MARKETS—TAXES AND SUBSIDIES 88 The Tax Code and Homeownership 88 Credit Market Interventions: The Rise of Fannie Mae and Freddie Mac 99 Project-Based Subsidy Programs for the Development of Affordable Housing: Public Housing and Low Income Housing Tax Credit Programs 102 Tenant-Based Subsidies for the Consumption of Affordable Housing: Section 8 Vouchers 115 CONCLUSION: TOWARD A NEW NATIONAL HOUSING POLICY 119 The Growing Affordability Problem in Markets with High Land Costs 121 One Size Does Not Fit All 123 Can the Federal Government Induce Localities to Permit More Construction? 126 Reforming the Home Mortgage Interest Deduction 131 Ensuring the Poor Can Consume Some Minimum Housing Quality: Vouchers 132 Summary and Conclusion 135 APPENDIX 1: ECONOMIC INCIDENCE ANALYSIS OF A SUBSIDY 137 Per-Unit Subsidies to Demand 137 Limited Subsidies to Demand 139 Supply-Side Subsidies 140 CONTENTS ix APPENDIX 2: IMPLEMENTATION OF OUR PROPOSED POLICY REFORM 142 Summary of Our Reform Proposal 142 Defining Elastic and Inelastic Regions of the Country 145 Funding the Program: Reforming the Home Mortgage Interest Deduction 161 Reforming Supply-Side Policies: Administering the New Home Mortgage Interest Deduction Program in Counties with Inelastic Housing Supplies 168 NOTES 173 REFERENCES 187 ABOUT THE AUTHORS 193 INDEX 195
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