A few comments on this Spencer Soper interview with Alan Jennings. First, here’s Alan:
Q: How has the Great Recession changed demand for affordable housing?
A: Families still need housing. However, those who have lost their homes to foreclosure have not only depressed home sales and, therefore, prices; they will also drive up rents by being added to the rental market. In a “normal” recession, pressure on rentals subsides at least a little. Not this one.
Q: What can be done to address the supply/demand imbalance for affordable housing? Do any of those options have any traction given the efforts to curb government spending?
A: The mortgage interest deduction can be a good stimulant but it goes too far: Houses are too big, big lawns cause sprawl, super-rich people are getting subsidies they don’t need and we even subsidize their vacation homes. The only housing subsidy that is an entitlement is this deduction. Poor people, on the other hand, wait in line for years, entitled to nothing. I’m not optimistic that this Congress is going to fix this.
On the first topic, I’ll note that Alan is endorsing the point I’ve been making that the fundamentals are putting upward pressure on rents.
On the second point, Spencer is asking the right question, but I don’t think Alan is giving the best answer (even though he’s 100% correct on the mortgage interest deduction).
Spencer’s assumption is correct that relative affordability depends on supply and demand. Cities only have a few effective options for making housing affordable:
1) Make the city a terrible place to live so that residents leave
2) Build more housing
3) Give people cash money to bridge the difference between market prices and what they can afford to pay
I don’t think any city officials are going to be game for the first option, so we’re left with the second two.
Alan suggests a demand side fix, changing how the subsidies are distributed, but I think it’s more important, especially over the long term, to attack the problem from the supply side. If rents start increasing in the city cores, you can push them down by building more housing. If you uncap building height and let developers build taller residential buildings, you increase the supply of rentals and the price drops. What matters most is the constraints on building more housing, which are coming from local government.
By all means, convert the mortgage interest deduction to a progressive cash transfer, but you can make a lot more progress on affordable housing and jobs for low-skill, low-income individuals if you can roll back local restrictions on density. No need to get progressive transfers through a Republican House – just logroll the city zoning boards.