Want lower prices? Open affordable housing problem to market solutions
Sounding Board Editorial #15 (May 11, 2008)
|While interviewing candidates for city offices as part of the Daily Sun editorial board, I heard the comment, on more than a couple of occasions, that "markets don't work." Of course, this is false. What is really meant is that we don't always like market outcomes and we wish we could just wave our magic wand and change everything. And, that's exactly what the lazy social activists keep doing, except that they substitute the government for the magic wand, and, in reality, the world doesn't change into a land of milk and honey. I was especially dismayed at how one of the city council candidates - Karla Brewster (who won a seat) - made this sentiment the [il]logical foundation for her proposals to deal with our "affordable housing" crisis. So, I took this opportunity to address the general issue and to explain how markets function. This comment ran on May 11.|
One of the
truly repulsive ideas that has been kicking around during this
election cycle is that “markets don’t work.” This
criticism has been especially in vogue insofar as
“affordable housing” is concerned. Nothing could be
further from the truth.
Markets are a
mechanism for directing resources to the production of goods
and services and the distribution of those goods and services
to consumers. The freer it is from arbitrary political
constraints, the more effective and efficient mechanism it is,
allowing us to enjoy the unparalleled standard of living that
we have today.
housing so expensive in Flagstaff? The reasons are
simple - a lot of people would like to live here, we face
unique physical constraints, and there are a host of political
restrictions that stifle supply. Prices are high because
of these three factors, not because of markets.
housing costs, we could focus on reducing demand. We
could work to shun new businesses from locating in Flagstaff,
we could ask the state to move NAU to Kingman, we can reduce
our amenities, and we can encourage the growth and development
of potholes. And, like magic, housing prices will fall.
Dennis Foster has a Ph.D. in economics, teaches at the university level, and is an avid Grand Canyon hiker.
What continues to amaze me is that so many people don't understand that the market is a reflection of our tastes and preferences. Instead, they seem to think that it is some kind of external mechanism, whose workings are mysterious, that control our lives. Hence, they come up with an endless list of government rules and regulations and subsidies to try and create an outcome they like. The effort will either be unsuccessful or will lead to a host of unintended consequences - keep lot density low, require that trees remain standing, institute an onerous permitting process and end up with high housing prices. Require builders to devote some of their developments to "affordable units" and that makes everything else more expensive. And, now you have to determine who is entitled to these subsidized units. It reminds me of a passage from John Kenneth Galbraith's The Affluent Society (I think it was that book) where he mused about whether a mouse running circles on a wheel might make for a good model of what we do. He used it to describe the pursuit of consumption, but I think it could be applied to public policy as well!