Inclusionary housing plans won't die
Inside Liberty Watch Today - March 20, 2006

Local politicians have kicked around the idea of "workforce" or "inclusionary" housing ordinances since 2003, when the City of Henderson called for "the reservation of specified units of affordable housing for targeted populations within new ownership and rental housing developments."

A year later Las Vegas mayor Oscar Goodman proposed the same thing. Goodman told the U.S. Conference of Mayors, "instead of living in houses worth $125,000, Las Vegas nurses, teachers and police officers should be able to live in homes worth up to $500,000."

Inclusionary housing rules require developers to sell a certain percentage of the homes in their projects not at the market prices, but at below-market prices. Yet the designated inclusionary units must blend in with, and cannot be segregated from, the market-rate units. Thus, instead of letting price determine who buys which home, local politicians would like to decide who gets on the list.

This housing Marxism idea has not gone away. Recently the local chapter of the Urban Land Institute (ULI) held a seminar entitled: "Workforce Housing: Taking the next steps." As the title implies, the merits of having the ham hand of government intervene in the local housing market is not up for debate.

UNLV's Debra March led off the event by asking "how do we get over the barriers to make workforce housing happen?" And despite ULI's local Chairman Brad Nelson continually telling the seminar crowd that the program was "balanced" it was anything but.

Keynote speaker John McIlwain, a Senior Resident Fellow with URI, lamented that the "federal government has walked away from the housing problem." McIlwain said he is a strong advocate of mandatory inclusionary housing ordinances, despite the fact that by his own admission land sellers are forced to subsidize housing because land is less valuable with inclusionary housing ordinances. In referring to Washington D.C.'s recent adoption of inclusionary housing, the keynote speaker called it "rough justice."

Despite being a private sector developer, speaker Ehud Mouchly, VP with UniDev, LLC, extolled the virtues of workforce housing because UniDev makes its living developing such projects in California. Mouchly believes the future of cities depends on middle class residents. He, like Oscar Goodman, believes "first response job holders like policemen, firemen, nurses and teachers must live close to where they work." Mouchly, an adjunct professor at UCLA, also feels that higher education faculty must be provided affordable housing.

Workforce housing is defined as homes priced to be affordable for individuals earning 60 to 120 percent of the median income. This definition also assumes that 30 percent of a household income is paid for housing. The median income in Las Vegas last year was $47,741 according to real estate consultant John Restrepo. Therefore, the people Mayor Goodman and other workforce housing advocates are so worried about are government employees making $28,644 to $57,289 that can't afford to buy homes. Very few government workers fall in that category, especially considering most households are supported by two incomes. Also, the standard that less than a third of household income is the maximum that should be spent on housing is outdated and unrealistic.

It is government intervention that actually increases the cost of housing, but removing those impediments was not mentioned during the seminar. Restrepo did stress that the Bureau of Land Management (BLM) must release its immense land holdings to the private sector, but McIlwain believes that focusing on the BLM is "following a false trail." "You have lots of land," McIlwain said. Zoning restrictions also constrict supply and force up prices, as do local building codes and elongated entitlement processes. Economists Edward Glaser of Harvard and Joseph Gyourko of the University of Pennsylvania have studied the effect government restrictions have on housing prices in a number of markets around the country. They found that 90 percent of the difference between physical construction cost and the price of new homes could be attributed to government restrictions on building.

In fact, according Ehud Mouchly, one of his company's primary strategies to provide workforce housing is to negotiate with municipalities to relax their arbitrary requirements. If these requirements increase home prices, but don't add value, then why not do away with them all together?

Absent from the ULI seminar were dissenting views like those of San Jose State Economics professors Benjamin Powell and Roger Nils Folsom who have studied the affects of inclusionary housing ordinances in San Francisco Bay Area cities. New construction fell by a third when an inclusionary policy was adopted, a huge drop, given that in most of these policies, price controls were placed on only 10-15 percent of new housing. When the city of Watsonville adopted a 25 percent requirement in the early 1990's it resulted in no for-profit development for 10 years.

Demographic trends point to more housing demand with the United States adding three million residents a year through the year 2030. And as John McIlwain points out, these potential homebuyers aren't spreading out all over the country; they are converging on job centers, especially in the Sun Belt, requiring Las Vegas to do, in his words, "long-term planning." But is that really what should be done? As Ludwig von Mises wrote: "Every step which leads from capitalism toward planning is necessarily a step nearer to absolutism and dictatorship."

Instead of politicians and government bureaucrats deciding who can buy a home and at what price, government should step out of the way and let homebuilders provide the supply and types of housing the market demands.

Doug French, Liberty Watch Columnist

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