by Evelyn Pyburn
A frank discussion about why housing is unaffordable was quite welcome at the Montana Economic Outlook Seminar. It’s a subject seldom discussed so honestly.
The conclusion that regulations stand in the way of affordable housing and innovation in the industry shouldn’t be a surprise, and studious, deliberate efforts to avoid that conclusion in all the other forums I have ever witnessed, says that it really isn’t a surprise. Many have always known it. And, they know it now.
Regulations are pretty much always the reason that markets fail to function and that’s what we have here — a demand for housing that exceeds supply, which pushes up prices, and the market has failed to respond.
In unfettered markets producers would rush to increase supply. It is the law of supply and demand at work. It takes an inexorable force to prevent that from happening, and there is only one such force, and that is government – in the form of rules, regulations, codes, exactions, fees, permits, and waiting periods.
What regulations would and could do to the housing industry was demonstrated clearly to me as a reporter back in about 1970 when I did a story about four college architectural students who had invented a new kind of house and built a prototype. It was versatile, very inexpensive, easy to build, efficient and unique. I figured that they had their fortunes made. But they scoffed at me and said there was no way that the house was marketable.
“We would have to change every city’s building codes in the country. This doesn’t comply with any of them. Do you have any idea how much that would cost?” Then and there, I could foresee the great tragedy of it all. The prototype they built, with special dispensation from the city of course, went on to be used for a place of business for many years.
So it wasn’t that innovation couldn’t happen, didn’t happen, and continues to be a goal, as TV programs about little houses demonstrate. Be assured, there are people with ideas out there that will never be pursued or developed into marketable solutions because we have a government that doesn’t want to change the status quo, no matter how many people wander homeless in the streets.
Regulations stop innovation dead. Each code and rule nails the status quo into place for decades on end.
Every code, regulation, fee and permit adds to the cost of a house, and you pay it in your monthly mortgage payment. How much? A lot. Many years ago, a local developer said he calculated all the interest he had to pay on his subdivision development for the days he had to wait for government approvals. That interest cost alone added almost $40 to the monthly premium that homeowners would eventually have to pay.
Author Randall O’Toole later wrote a book about the cost of regulations on the housing industry and said that it adds tens of thousands of dollars to the price of the average home, and Montana – at the time – was one of the worst.
And, it’s not just residential building that is so impacted. It is these same regulations, codes and utopian visions that leave downtowns everywhere with dark, empty buildings that owners cannot afford to bring back into use because the cost of requirements imposed to refurbish them exceed what the rental market will bear.
Another example of potential economic impacts, was the development of the coffee kiosk business in Billings. The company that built the kiosks offered the service of going to whatever city the entrepreneur who bought a kiosk planned to operate in, to persuade the city to change their building codes to allow their operation. The cost for that service was more than the cost of the kiosk, and of course the owners knew what they had to do, because they had had to fight for those same changes right here in Billings before they could launch the business of coffee kiosks – before that market segment could unleash the entrepreneurial spirit of so many.
And, the story of the McCalls regarding Josephine Crossing (front page article). They had to rewrite the zoning laws before being able to respond to consumers. How much is every home owner in that subdivision having to pay in their monthly mortgage payment for costs incurred in that regulatory struggle?
The question was recently posed to me by a former city councilman, “How does a city council know what regulations we should have?” The answer is THEY DON’T KNOW, so why are they making such decisions? The fact is the bureaucrats don’t know either. What makes them think they are qualified to dictate to the building trades?
Truth be told, no one person, even an experienced builder or engineer, would know all the best solutions to all the different situations that arise within the construction world, any more than one would have one set of codes about how to raise vegetables or crops, or how to cure a patient. The absurdity of it all is mind boggling, and yet here we have all across the nation an unchallenged belief that government bodies should dictate how to build buildings. Who needs architects and engineers?
The reality is if the market place were allowed to function, innovators would probably come up with solutions that incorporate all the things that consumers want – low cost, safety, beauty, efficiency, functionality. That is what happens in all other realms of consumerism where markets freely function. That is what markets do – deliver the very best and the most- possible, for the least possible cost.
The solution for affordable housing will absolutely never come from bureaucrats enforcing codes, “experts” writing codes or politicians seeking re-election.
If only people believed in markets. Markets Work!!! They work, and the housing affordability solution lies in bringing markets back into the home building industry.