Letting the Market Respond

Jerry Nickelsburg, an economist at UCLA, writes that cities such as San Francisco and Los Angeles have a shortage of affordable housing because of supply and demand. The demand for housing exceeds the supply, and so prices have risen. This is true, as far as it goes.

Just last week, the Chronicle reported that Harris county added only 56,600 new residents last year, the second most in the nation. This is noteworthy because it is the first time in eight years that the county hasn’t led the nation in population growth.

This means that, for nearly a decade, the demand for housing in Harris County has increased more than anywhere else in the country. Yet, Houston remains one of the most affordable major cities in America. Developers and builders in Houston have been able to keep up with the demand, while those in cities such as San Francisco and Los Angeles apparently haven’t. Why?

Nickelsburg implies that the affordable housing crisis in California is simply an operation of the market. He fails to address why the supply has failed to keep up with demand.

It is not a coincidence that the cities with an affordability housing crisis are also the cities with some of the nation’s most draconian land-use regulations. Zoning and similar regulations limit the use of land to that prescribed by government officials, rather than that determined by the market. When the availability of land for housing is limited, the cost of housing will necessarily increase.

When we factor in the costs of other controls and restrictions, such as building codes and environmental regulations, it is little wonder that housing costs have skyrocketed in California.

Sadly, city officials seem to be oblivious to the reasons housing costs in Houston have not followed the same track as other major cities. Instead, they want to emulate the policies of those cities. They talk about the need for more affordable housing, but the exact opposite will be the result.

Despite their pretentious talk, government officials can’t make housing more affordable. Letting the market respond can and will.

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