Introduction
Americans are being forced to pay billions of dollars extra for
housing each year. Examples:
--In Bridgehampton, Long Island, a 102-acre residential
construction project that included low-cost dwellings was halted
when New York State environmental officials happened to sight in a
pond on the property a tiger salamander, a species classified as
"endangered." The project was halted over a year until the
developer agreed not to build within 100 feet of the pond. To
compensate for delay and compliance costs, the developer reduced
the number of affordable units within the project by almost
one-half. The result: less housing that working Americans could
afford.
--In King County, Washington, which includes Seattle and many
surrounding suburbs, there was in 1989-1990 the largest one-year
increase in housing prices among major American metropolitan areas.
A major cause of this increase was the county's zoning of more than
1,500 square miles of land for only one house per five acres.
--In Sacramento, California, a developer faced civil and
criminal charges if he began to build housing on a dry tract of
land that federal officials insisted included 18 acres of
"wetlands." The developer had to spend nearly $3.5 million in extra
legal and consulting costs to gain final approval for the project.
This, naturally, drove up the cost of the housing.
-- In New Jersey, land use regulations have increased the cost
of a new home by up to 25 percent.
These are just four of the hundreds of findings by the federal
Advisory Commission on Regulatory Barriers to Affordable Housing,
which released its report last month. Entitled, Not In My Back
Yard: Removing Barriers to Affordable Housing, (Advisory Commission
on Regulatory Barriers to Affordable Housing, "Not In My Back
Yard": Removing Barriers to Affordable Housing (Washington, D.C.:
U.S. Department of Housing and Urban Development), July 1991.) the
report culminates a year-long study funded by the United States
Department of Housing and Urban Development (HUD) Secretary Jack
Kemp. The aim of the study was to investigate the extent to which
regulation and other government policies drive up the cost of new
and existing housing.
Yes is the answer that the Commission gives to this question,
especially in the most expensive metropolitan areas of the country.
Growth control measures, zoning ordinances, subdivision ordinances,
impact fees, rent control, property taxes, building codes, and
environmental regulations all can boost housing costs. The greatest
factor in making housing unaffordable, finds the Commission, is
open hostility toward new construction by local residents.
These findings are based on 116 written and oral testimonies at
hearings in Chicago, Trenton (New Jersey), San Francisco, and
Washington, D.C. and hundreds of pages of documents. Chaired by
former New Jersey Governor Thomas Kean, a Republican, with former-
Representative Thomas Ashley, an Ohio Democrat, serving as Vice
Chairman, the 22-member Commission consisted of mayors,
construction experts, economists, state housing officials, and
heads of nonprofit organizations. ( Heritage Foundation Director of
Domestic Policy Studies Stuart Butler was a Commission member. As
such, he has not contributed to nor reviewed this study.)
"Not In My Back Yard!" recommends 31 measures for government at
all levels to make housing more affordable. Among the
recommendations:
1) Change federal law and tie federal housing assistance to
states and localities that remove regulatory barriers to housing.
The report cites numerous state and local laws and regulations that
reduce the availability of affordable housing.
2) Monitor performance of states in promoting affordable
housing. The federal government should establish standards for
evaluating progress of states in deregulating the housing
market.
3) Insist that local governments give a high priority to
protecting individual property rights. When property rights are
compromised, the economic value of property declines. The result is
less investment in property, reduced supply, and higher prices. If
property is taken or devalued because of government regulation, the
property owner is to be compensated for the loss.
While the Commission did not define "affordable housing," it did
draw upon highly reliable data indicating that prices and rents
increased during the 1970s and 1980s, especially in California
metropolitan areas and along the Northeastern seaboard. Analyzing
data from the National Association of Realtors (NAR) Housing
Affordability Index, the report indicates that although prices
increased, prospects for home ownership have improved for Americans
generally, and for first-time buyers since the early-1980s, when
home mortgage interest rates were at record highs. (See National
Association of Realtors, Home Sales (Washington, D.C.: National
Association of Realtors, monthly).)
During the 1970s and 1980s, increases in home prices were most
evident in fast-growing areas in California and the Northeast.
(Homes Sales data cited in "Not In My Back Yard", pp. 1-2 through
1-5.) San Francisco, Los Angeles, New York City, Boston, and
Washington areas combined contain roughly 50 million people. It is
in these regions that regulations have been most extensive. Their
effects have been to raise rents as well as purchase prices. The
Commission reported that the Boston, Los Angeles/Long Beach, and
San Francisco/Oakland areas-- all with a sizable portion of their
rental stock under rent control -- saw real rents rise at least 20
percent during the 1980s.
While claims of a crisis in affordable housing are exaggerated,
housing costs notwithstanding, are too high, even in reasonably
priced areas. In many instances this is because government
regulations and policies interfere with market forces. These
include exclusionary zoning, ordinances, impact fees on
construction, excessive property taxes, rent control, and overly
restrictive building codes. Some government regulation of course is
necessary to protect the health and safety of a community. Yet
governments too often use such concerns, especially environmental
protection, as a pretext for keeping prices of existing properties
high at the expense of those who might wish to buy or rent them.
(Jack Kemp, "Free Housing from Environmental Snobs," Wall Street
Journal, July 8, 1991. Note comments of Chairman Kean.) Increasing
the public's access to housing is not achieved by massive infusion
of federal cash.
"NIMBY": Definition, Rationales, and Costs
"Not in my back yard!" -- or NIMBY -- frequently is the cry of
many well-off residents determined to block new real estate
development in their neighborhoods. They press local officials to
enact a broad array of anti-growth measures which often take the
forms of restrictive land use and environmental regulations. Big
apartment complexes for low- and middle-income families receive the
most hostile reception. (This is the political reality confronting
advocates of greater deregulation. I. Donald Terner, President of
the San Francisco-based nonprofit BRIDGE Housing Corporation,
builder of several thousand low-cost dwellings, asked in Commission
testimony: "How many times have you seen in an evening here, the
developer, his attorney, and architect go in and there are three of
them against 500 people sitting in the audience screaming for
blood, who basically tell every one of the elected officials up in
front of them that there will be recall petitions circulated in the
morning if this thing is passed tonight?")
Echoing the cry "NIMBY!" is "NIMTOO!" by local officials: "Not
in my term of office!" City council members, mayors, and other
officials fear being branded as rubber stamps for developers
building "undesirable" housing complexes, and being made scapegoats
for added automobile congestion. ( A 1990 survey of San Francisco
Bay area residents reveals that 38 percent see traffic congestion
and mass transit service quality as by far the two most important
problems facing the area. See "Poll Reveals Gaps Between Renters,
Owners," Housing and Development Report, San Francisco: Bay Area
Council, Vol. 4, No. 1, January 1991, p. 3. This view was
especially prevalent among home owners.) Elections in the past few
years in fast-growing Fairfax County, Virginia, and Montgomery
County, Maryland, both in the Washington, D.C. area, demonstrate
how politically risky it is for local officials to be so tainted.
In both instances, voters replaced pro-growth county board members
with anti-growth members.
The Kemp Commission identifies five understandable, if not
necessarily justifiable, reasons for the NIMBY syndrome. Each is
rooted in "fear of change in either the physical environmental or
population composition of a community." ("Not In My Back Yard," p.
1- 5.)
NIMBY Reason #1: Residents fear declining property values. Home
owners fear that certain forms of housing -- small detached houses,
town homes, and certain types of apartments -- erode home
values.
NIMBY Reason #2: Development may change community
characteristics. Even when development could raise property values,
residents may oppose them because they fear added traffic,
commercial development, and destruction of the natural beauty or
historic character of the surrounding area.
NIMBY Reason #3: New housing may compromise the quality of
public services. An increasing number of residents could require
wider streets or a new highway, place excessive demands on water,
sewer, and waste treatment capacities and bring new children into
already crowded public schools.
NIMBY Reason # 4: New development may raise taxes. Residents
especially worry about paying for new schools, boulevards, and
sewer systems.
NIMBY Reason #5: Although hesitant to articulate such fears,
established residents are often concerned that development may
bring in new neighbors who are racially or ethnically
"undesirable." Housing proposals prefaced with terms like
"subsidized," "low-cost," or "affordable" particularly are viewed
as threats to the continued homogeneity of the neighborhood.
These NIMBY concerns lead to new regulation or litigation, which
then raises the cost of housing:
First, they reduce the potential local housing supply by forcing
developers to drop or scale down housing proposals. They also can
do this by prompting developers to substitute expensive for
moderately- priced dwellings. ( See Carl F. Horowitz, "Why New
Homes Are Unaffordable," Richmond Times-Dispatch, August 22,
1990.)
Second, to receive government approval to build new housing,
developers often must agree to provide public services or fees to
pay for such services. These costs are passed on to new residents.
California communities now charge up to $20,000 in "impact fees"
for each new house.
Third, regulation can put land off-limits to development. This,
predictably, raises the price of parcels where development is
permitted. Higher land costs are then reflected in higher housing
costs.
Fourth, a hostile regulatory climate delays approval for
building. Local hearings and negotiations can drag on for months,
even years, before construction commences. Delays force developers
to pay more for labor and materials, interest on construction
loans, property taxes, and legal and other consulting fees to help
them jump through the paperwork hoop. The nonprofit New York City
Housing Partnership tried to build 50 reasonably priced houses in
Brooklyn. The Partnership underwent a mandatory environmental
review of 21 months before being allowed to begin construction. The
delay drove up the cost of the houses so much that $500,000 extra
in public subsidies were needed to keep houses affordable.
(Testimony by Kathryn Wylde, President, New York City Housing
Partnership, to Advisory Commission on Regulatory Barriers to
Affordable Housing, July 11, 1990.)
Fifth, limiting new housing adds to commuting times and costs
throughout a metropolitan area. When housing is expensive near
office, commercial, or industrial workplaces, employees often can
afford housing only a long distance from their workplace. This adds
to their transportation costs. (For evidence, see Robert Cervero,
Suburban Gridlock, New Brunswick, N.J.: Center for Urban Policy
Research, 1986.)
Forms of Overregulation
Laws, ordinances, and regulations at all levels of government
can thwart housing opportunity, especially in areas on the fringes
of growth in the metropolis. The most common regulations are growth
controls, exclusionary zoning and subdivision ordinances, impact
fees, real property taxes, rent controls, building codes, the
Davis-Bacon Act, and environmental legislation, including wetlands
and species protection. Based on written and oral testimony at the
Kemp Commission hearings, and in research and reporting elsewhere,
the evidence is overwhelming that regulation and needlessly raise
housing costs. Growth Control Ordinances
To control growth, local governments, among other things, impose
an annual or multi-year ceiling (or even a ban) on the number of
residential building permits granted, the number of new residents,
the number of permits allowing developers to tap into a sewer
system, and on housing construction in designated "green"
areas.
Since the early-1970s, state and local governments, especially
in fast-growing California, Florida, New Jersey, and Oregon have
put the brakes on long-term growth, driving up land prices in the
process. Environmental protection and prevention of traffic
congestion are the main reasons for these laws. The Kemp Commission
report focuses especially on California, where 907 local growth
control or management ordinances had been passed by the end of
1988, by far the most in the nation. ("Not In My Back Yard", p.
2-2.)
Growth controls raise prices of existing housing and of the
vacant lots on which development is allowed. (For strong evidence,
see William A. Fischel, Do Growth Controls Matter? A Review of
Empirical Evidence on the Effectiveness and Efficiency of Local
Government Land Use Regulation (Cambridge, Massachusetts: Lincoln
Institute of Land Policy, May 1990).) Under the pretext of
addressing problems associated with rapidly increasing population,
such controls merely shift the problems elsewhere. A study of
limitation on building permits in Davis, California concludes that
house prices jumped 9 percent because of the ordinance. ( Seymour
I. Schwartz, Peter M. Zorn, and David E. Hansen, "Research Design
Issue and Pitfalls in Growth Control Studies," Land Economics, Vol.
62, No. 3, August 1986, pp. 223-33. This result was observed
despite the fact that builders in Davis who receive residential
building permits must set aside some units for low-income persons.
)
Exclusionary Zoning Ordinances
A zoning ordinance prohibits certain types of housing. These
include: apartments and factory-assembled homes; dwellings with
certain design modification, residential per-acre densities above a
certain maximum; and lot frontages shorter than a certain minimum.
When intentionally used for reasons beyond the protection of health
and safety, this zoning becomes what experts refer to as
"exclusionary."
When zoning became increasingly popular in the early part of
this century, localities used it to prevent incompatible uses of
nearby or contiguous land. The justification for zoning is to
protect property values from noise, congestion, pollution, and
grime from industrial and other land uses that interfere with
normal residential neighborhood life. This, however, is also the
basis for exclusion. The Kemp Commission finds, however, that what
localities often label as "incompatible" uses are multifamily
housing, manufactured and modular housing, and accessory
apartments, precisely the kind housing most experts consider among
the most affordable. Exclusionary zoning restricts the choices open
to developers of vacant land. It raises the cost of housing within
a community and surrounding area. (Henry Pollakowski and Susan
Wachter, "The Effects of Land-Use Constraints on Housing Prices,"
Land Economics, Vol. 66, August 1990, No. 3, pp. 315- 24.)
Subdivision Ordinances
The subdivision ordinance sets standards for the
configuration of private lots and streets, and the location of
public lights and signs. These ordinances can be costly and,
intentionally or otherwise, exclude reasonably-priced housing. If
ordinances force builders to provide services well beyond those
demanded by new homeowners, the ordinance becomes a free lunch for
existing residents. This is especially true of ordinances requiring
improvement of land beyond the immediate location of the building
site -- what technically is known as "offsite" land. One New Jersey
developer told the Commission that as part of approval for a
residential development, he had to build a 100-unit senior citizen
complex, a 7-acre commuter parking lot, a 200- acre park, and 5
miles of water lines. (Cited in "Not In My Back Yard", p.
2-10.)
In Orlando, Florida, ordinances require builders to place
manhole covers for sewer systems no more than 200 feet apart, even
though such spacing is unnecessary given current technology
governing sewer flow. ("Not In My Back Yard", p. 2-9.) Ordinances
mandating offsite improvements are even less justifiable.
Boston-area developer William Stetsen reported in Commission
hearings that he had to build a six- mile water main as a condition
of approval to build a multifamily housing complex. The new main,
in essence, was a bribe to be paid to the community. The extra
water capacity was not required by Stetsen's new housing
development. (Ibid, p. 2-10.)
Impact Fees
Since the late-1970s, local governments have used impact fees to
make new residents pay for growth. By this, the locality imposes a
fee upon the developer at a flat rate per unit, ostensibly
representing the locality's cost of extending public services to
new residents.
Constrained by state spending and tax ceilings, local
governments cannot easily raise property taxes for the services.
This makes the impact fee a politically painless way of making new
residents pay for the benefits of growth. Says the Kemp Commission
report: "Newer residents are pitted against older ones in the
struggle over who pays for infrastructure, and some potential new
residents are simply priced out of the housing market." (Ibid, p.
2-12.) Consumers of the least expensive new homes are the most
penalized by these fees. The impact fee then amounts to a
regressive tax that provides incentives for builders to construct
housing for consumers able to buy the most expensive homes. (For
evidence, see Fischel, Do Growth Controls Matter?; Charles L.
Delaney, "Impact Fees, Housing Costs, and Housing Affordability:
Who Bears the Impact of Impact Fees? University of Florida Journal
of Law and Public Policy, Vol. 1, No. 1, 1987, pp. 87- 101; Thomas
P. Snyder and Michael A. Stegman, Paying for Growth: Using
Development Fees to Finance Infrastructure (Washington, D.C.: Urban
Land Institute, 1986). )
Impact fees are now a large and growing component of the cost of
housing. The San Francisco case is instructive. According to the
Bay Area Council, the median impact fee in the San Francisco Bay
area jumped 126 percent during 1981-1987 to $9,110. The Commission
finds the fee to have doubled in some California communities. ("Not
In My Back Yard", p. 2-11.) Small, nominal fees have become major
nuisances. Example: In the early-1980s, the City of San Jose raised
the fee for a sewer plant treatment connection from $23 to $780 per
dwelling. (Mark P. Barnebey, Tom MacRostie, Gary J. Schoennauer,
George T. Simpson, and Jan Winters, "Paying for Growth: Community
Development Approaches to Development Impact Fees," Journal of the
American Planning Association, Vol. 54, No. 1, Winter 1988, p.
19.)
Real Property Taxes
When they must pay high real property taxes, home owners and
landlords have less money left for property improvements or
additions. In older neighborhoods, high tax rates can lead to decay
and even abandonment. This in turn reduces the stock of a
community's affordable housing, raising the area's cost of housing
even higher.
The rapidly rising costs of public services and large budget
deficits have encouraged local governments to raise property taxes.
But these tax increases often make matters worse, driving jobs out
of the city and reducing private funds available for housing
investment.
High property taxes also discourage investment. This is most
evident in New York City. Its property tax on single-family
residences is among the nation's highest, while its tax on
apartment buildings, in which live two-thirds of the city's
households, is the nation's highest. Property taxes, moreover, are
a growing portion of the costs of running an apartment complex.
During 1985-1990, the portion of the City's rental building
operating costs that went to pay property taxes rose from 18
percent to 23 percent. ( Gerard C. S. Mildner, "New York's Most
Unjust Tax," NY: The City Journal, Vol. 1, No. 4, Summer 1991, p.
26.)
The rash of abandoned rental properties in New York since the
mid-1970s is partly the result of the city's property tax. It has
led to the foreclosure and seizure of some 8,000 apartment
buildings, now costing the city $180 million annually to operate or
maintain. Half of these buildings are totally vacant, yet the city
is reluctant to give them away despite their having very little
value. (Ibid. p. 24. The total of buildings seized to date is
actually higher than 8,000, some of them already having been sold,
donated, or razed. For evidence that the City is reluctant to
return these properties to the private market, see Peter Weber,
"Scenes from the Squatting Life," National Review, February 27,
1987, p. 31. )
Rent Control
Rent control is a ceiling on rental increases. The goal is to
protect the least well-off tenants from an inflated rental housing
market. The outcome is just the opposite: Rent control reduces the
stock of affordable housing.
During the late-1960s and throughout the 1970s, rent control
became a way to keep rents "affordable." Following the lead of New
York City, the cities of Boston, Los Angeles, San Francisco,
Washington, D.C., and dozens of smaller communities all enacted
rent control. By the early-1980s, over 200 local jurisdictions,
containing some 10 percent of the nation's rental housing mainly in
California and the Northeastern seaboard states -- had some system
of rent control.
Rent control makes it hard for investors to build, renovate, and
operate rental housing profitably. Worse, it encourages landlords
to remove existing apartments from the market by deliberately
keeping them vacant, by converting them to condominiums and
cooperatives, or even by abandoning them. (These practices, and why
rent control led to them in New York City, are discussed
extensively in William Tucker, The Excluded Americans: Homelessness
and Housing Policies (Washington, D.C.: Regnery Gateway, 1990), pp.
241-308.) Rent control thus creates rental shortages.
According to a 1987 study for New York City, Michael Stegman, of
the University of North Carolina City and Regional Planning
Department, found that if all of New York City's apartments held
deliberately empty because of rent control were put back on the
market, the city's 2.5 percent rental vacancy rate would rise to a
little over 5 percent. (Michael A. Stegman, Housing and Vacancy
Report: New York City, 1987 (New York: New York City, Department of
Housing Preservation and Development, 1987).) A higher vacancy rate
would mean lower rents. In Berkeley and Santa Monica, California,
rigid rent control ordinances enacted in 1979 resulted in the
rental vacancy rate declining by about one-half in less than a
decade. (R.S. Radford, "The Evils of Rent Control," Background
Paper, Sacramento: Pacific Legal Foundation, November 15, 1988, p.
2. )
Rent control typically benefits the well off and well connected.
A 1986 study published by Arthur D. Little and Associates, a
Cambridge, Massachusetts-based consulting firm, reveals that 45
percent of tenants in New York City's rent controlled apartments
had incomes of at least $40,000. (Arthur D. Little, Inc., A Tale of
Two Cities: Rent Regulation in New York City (Cambridge,
Massachusetts: Arthur D. Little, Inc., May 1986). )
The Kemp Commission recommends that rent controls be lifted "at
least for upper-income tenants," implicitly accepting the rationale
that such controls protect middle- and lower-income tenants. Yet
since such controls do not protect them, the federal government
should withhold housing aid to communities with rent control of any
kind.
Building Codes
A building code sets standards for materials and design
techniques used in construction. The code aims at protecting the
public against structural collapse, fire, or other calamity. State,
county, and local governments have been using various model
building codes since early in this century.
Political pressures for strict building codes are different from
those for exclusionary zoning or rent control. Political conflict
over such codes occurs mainly among builders, trade unions, and
state and local building officials, and in cities, where space is
limited, and pressure to build stress-resistant elevator buildings
is greater.
Over the past several decades, states have used model building
codes for their localities. While these model codes permit local
builders to use new technologies, or synthetic and prefabricated
materials, officials may ban such innovations anyway. For example,
the newer plastic plumbing fixtures are as efficient as more
expensive cast iron and copper pipes. Building trade unions,
however, fearing a decline in the need for labor, often
successfully pressure localities to ban them.
Building codes thus increase costs. The Kemp Commission cites
the well-publicized example of Bethel New Life, a nonprofit
neighborhood group building low-cost housing in Chicago. The
organization compared prices on its new town homes on Chicago's
West Side with identical town homes in local suburbs. The
difference between the $60,000 price in Chicago and the $48,000
price in the suburbs was traceable to the city's insistence that
Bethel New Life use expensive and often outdated materials and
construction methods. ("Not In My Back Yard", p. 3-7.)
Environmental Legislation
The Kemp Commission sees the effects of overzealous
environmental regulation on housing costs as so serious that it
devotes an entire chapter to the subject. The Commission indicates
that much of this legislation has an underlying exclusionary
purpose. Says the report: "The impact of environmental regulation
on the availability of affordable housing is substantially
amplified by the widespread use of environmental protection as a
stalking-horse for NIMBY groups bent on opposing unwanted
development." (Ibid, p. 4-1.)
The federal government is heavily involved in erecting
environmental barriers to affordable housing, as are many states
and localities. Two significant obstacles to housing affordability
are wetlands and endangered species protection.
Wetlands Protection
During the 1980s, the federal government Clean Water Act of 1977
to begin what now amounts to a national zoning program. The federal
legislation limits the discharge of pollutants into bodies of
water. While Section 404 of the Act makes no mention of "wetlands,"
federal agencies, especially the Army Corps of Engineers and the
Environmental Protection Agency (EPA), have steadily expanded
regulatory authority to interpret and enforce Section 404 as if it
mandated wetlands preservation.
Environmental groups often prevent any new housing development
through wetlands regulation. These organizations have convinced the
Bush Administration to institute a "no net loss of wetlands"
policy, expanding the definition of a wetland to include soil wet
as few as seven days a year. Some 104 million acres of privately
owned land that is dry nearly year round are now subject to federal
denial of a building permit, even for small developments. ( Betsy
Carpenter, "In a Murky Quagmire," U.S. News and World-Report, June
3, 1991, p. 45. ) President Bush and the White House Council on
Competitiveness recently have recommended that this amount be
reduced by about one-third.
Complicating the federal review process is state involvement,
including states where the cost of housing is already high, such as
California, Massachusetts, and New Jersey.
This federal regulation inhibits the supply of housing in
several ways. By enforcing a policy of "no net loss of wetlands,"
EPA and the Army Corps of Engineers have made approval for
construction of new housing in certain instances contingent upon a
developer's willingness to create new wetlands. The acreage created
must equal that lost to construction. Creating new wetlands costs
from $50,000 to $250,000 per acre, with ongoing and maintenance
charges amounting to as much as $150,000 annually. ("Not In My Back
Yard", p. 4-6.) With these high costs borne by consumers,
developers may have an incentive to build only for the very
well-off.
Arbitrary federal decision making compounds this problem.
Example: In Sacramento, a developer's consultant identified a six
and one-half-acre tract of wetlands in preparing a proposal to
build new homes. However, EPA and the Army Corps of Engineers
insisted, with no discernible justification, that there were
eighteen acres of "wetlands." Faced with civil and criminal court
action from the federal government, plus the costs of delay, the
developer signed a consent decree accepting the regulators'
estimate. The result was a $3.5 million addition to the total
project cost. ( Ronald A. Zumbrun, Robin L. Rivett, Charles A.
Klinge, "Comments of Pacific Legal Foundation to the Advisory
Commission on Regulatory Barriers to Affordable Housing"
(Sacramento: Pacific Legal Foundation, September 12, 1990) p.
12.)
Builders also face arbitrary and contradictory state policies.
For example, the New York State Department of Environmental
Conservation revoked permits granted by both New York City and the
federal government for constructing a 200-unit single-family
housing proposal in Staten Island. The Department retroactively
declared the project site to be a freshwater wetland. The result:
The original builder defaulted on the construction loan and went
bankrupt. The new builder, the nonprofit New York City Housing
Partnership, had to redesign the project and raise sale prices by
50 percent. ( Testimony of Kathryn Wylde, p. 2.)
The Kemp Commission rightly condemns such unchecked abuses of
regulatory power and calls for compensation for property owners.
The Senate took a large step in this direction this June by passing
the Private Property Rights Act as an amendment to the 1991 Surface
Transportation Act. The new legislation, co-sponsored by Senators
David Boren, the Oklahoma Democrat, and Steve Symms, the Idaho
Republican, requires that compensation be made to property owners
for federal action that reduces the value of their land. (See
Warren Brookes, "War on Property Rights," Washington Times, July
18, 1991.)
Endangered Species Protection
The 1973 Endangered Species Act (ESA) is designed to ensure the
survival and well-being of plants and animals. The Act makes it
illegal to eliminate or modify the habitat of a plant or animal
federally designated as "threatened" or "endangered." The U.S. Fish
and Wildlife Service is authorized to curtail human intrusion into
areas deemed essential to the species' breeding. Many states have
enacted similar legislation. The federal government is using the
ESA to deny building permits. Federal determination of a species'
endangered status, moreover, is often time consuming and sometimes
inaccurate. EPA, discovering that a little known species might be
endangered single-handedly can reduce an area's housing supply. If
the rare California gnatcatcher, a bird found mainly in Orange and
adjacent counties, is declared endangered, it could prevent
construction of several large housing developments. ( Frank
Mickadelt, "Rare Bird Threatens Projects," Orange County Register,
February 5, 1991.)
The wetlands issue often surfaces in disputes over species
protection. This is because almost one-third of the animals
currently on the endangered species list live in or depend upon
wetlands. (Richard Miniter, "Muddy Waters: The Quagmire of Wetlands
Regulation," Policy Review, Number 56, Spring 1991, p. 73.) As a
result, environmental activists often use the wetlands issue to
stop housing construction.
The ESA authorizes the U.S. Fish and Wildlife Service to work
with developers in creating a Habitat Conservation Plan to ensure
the survival of these species while improving the land. Lack of
clearly- defined criteria for a Habitat Conservation Plan, however,
greatly lengthens the approval process, imposing extra costs. A
developer's expenses can be enormous. Example: A recent study of an
Orange County wildlife habitat cost $300,000. ("Not In My Back
Yard", p. 4-9.)
Stopping development raises the cost of vacant land and housing.
The federal government recently declared a moratorium on home
building on 20,000 acres in the western area of Riverside County,
California, one of the best areas in southern California to
purchase moderately priced housing. The rationale was protection of
the Stephens' kangaroo rat. To protect the rat, the Fish and
Wildlife Service proposed a conservation plan costing the developer
$1,950 per acre extra as the price for construction. (Zumbrun,
Rivett, and Klinge, "Comments," pp. 15-16.) This cost did not
reflect increased vacant land in nearby tracts.
Overzealous environmental protection also raises the cost of
materials for construction and thus housing costs. An order issued
this June 24 in Seattle by U.S. District Judge William L. Dwyer to
give the U.S. Forest Service until next March to develop a
protection plan for the endangered northern spotted owl could
remove up to 8 million acres of forest from timber harvesting,
substantially raising the cost of lumber, and thus the cost of
housing. ("Not In My Back Yard", p. 4-11. Wood products account for
about 15 percent of the average construction cost of a new
single-family home. For the damage that this listing has had on the
logging industry and the general economy in the Pacific Northwest
region, see Lou Cannon, "Saw-Toothed Despair Leaves Mark on
Northwestern Loggers," Washington Post, July 27, 1991. )
Davis-Bacon Act
The 1931 Davis-Bacon Act requires that prevailing wages be paid
to workers on all federally-owned and contracted construction
projects costing at least $2,000. "Prevailing wages" typically mean
union wages, which are usually two to three times nonunion levels.
Many states and localities have their own versions of Davis-Bacon,
some even more stringent than the federal law. (San Francisco's
law, for example, requires prevailing wages on most private
construction projects. Fortunately, that law was recently struck
down by a federal District Court in San Francisco in Associated
Builders and Contractors v. Baca. See "Prevailing Wage Laws on
Private Construction Projects Struck Down," At Issue, Sacramento:
Pacific Legal Foundation, June 28, 1991.)
Davis-Bacon raises the cost of housing, especially in cities,
and is a major obstacle to tenant ownership of public housing
projects. One St. Louis tenant leader complained that complying
with the Act adds approximately 25 percent to the cost of
converting public housing to tenant ownership. This is because
under this six-decade-old labor law, it is nearly impossible to
hire readily available unskilled labor among project residents and
other low-income persons. (Cited in John Scanlon, "People Power in
the Projects: How Tenant Management Can Save Public Housing,"
Heritage Foundation Backgrounder No. 758, April 20, 1990, p.
14.)
The Kemp Commission recommends raising the minimum of covered
projects from $2,000 to $250,000, and classifying low-income
housing as residential rather than commercial property. ("Not In My
Back Yard", p. 6-9.) Such a recommendation is commendable. Yet,
since many housing projects cost more than $250,000, a better
solution would be the repeal of the Davis-Bacon Act altogether.
A Political Strategy for Deregulation
The Kemp Commission is not the first federal panel that has
looked extensively into land use, environmental, and other
regulatory barriers to the creation of more affordable housing. (
The number of federal commissions and panels is impressive. It
includes: the President's Committee on Urban Housing (Kaiser
Commission), National Commission on Urban Problems (Douglas
Commission), U.S. Department of Housing and Urban Development, and
the National Housing Task Force.) The most noteworthy study was the
1982 President's Commission on Housing. Over the years there has
also been some thorough private research on the effects of housing
regulation. (See Stephen R. Seidel, Housing Costs and Government
Regulations: Confronting the Regulatory Maze, New Brunswick, N.J.:
Center for Urban Policy Research, 1978.) Both government and
private sector studies made recommendations similar to those in the
Kemp Commission report.
Among the things setting apart "Not In My Back Yard" from its
predecessors is recommendations that Washington promote
deregulation by withholding federal housing aid to states and
localities not removing exclusionary policies, and that state and
local governments must carry a large load of any deregulatory
agenda. The key elements of the Kemp Commission's battle plan
are:
1) States should bear the major responsibility for deregulating
the housing market.
"[Housing] markets are simply too diverse to be regulated at the
federal level. Likewise, although most regulation of land use and
development occurs at the local level, many local governments are
unlikely...to undertake the kinds of regulatory reform that would
create a meaningful number of affordable-housing opportunities."
("Not In My Back Yard", p. 7-1.)
The states have the constitutional authority to pressure
localities without necessarily creating new government
bureaucracies. States are also more sensitive than the federal
government to local political and economic conditions. States can
reduce barriers to affordability by reviewing local regulation and
judicial intervention, as well as by offering inducements for
localities to reduce unnecessary regulation over the housing
market.
2) Change federal law to tie the availability of federal housing
assistance to states and localities to removal of regulatory
barriers.
The National Affordable Housing Act of 1990 created the
Comprehensive Housing Affordability Strategy (CHAS), a process
requiring recipients of certain kinds of federal housing assistance
to, among other things, identify and remove barriers to affordable
housing. The law, however, explicitly forbids HUD from allocating
or denying assistance based upon local policies. It also forbids
judicial review of the process. The Commission, therefore, urges
Congress to amend the 1990 Act to allow HUD to withhold aid based
on a state's inaction or refusal to remove regulatory barriers to
affordable housing.
3) Give technical assistance to the states and require the
federal government to remove its own regulatory barriers.
Some twenty federal Cabinet departments and independent agencies
have overlapping jurisdiction on housing issues. To avoid needless
duplication of enforcement, the Commission recommends that Congress
give the Office of Management and Budget power to review and revoke
unnecessary federal rules that compromise the supply of
housing.
The Commission also recommends that the federal government
develop reasonable model codes, ordinances, and standards for
localities to emulate, and calls for strengthening HUD's Office of
Regulatory Reform; this would be the key federal agency to execute
the recommendation of the Commission report. The agency would also
supply valuable information on the impact of certain types of
regulation to state and local governments, as well as to the
general public.
With federal encouragement, localities can be convinced of the
value of greater regulatory flexibility. Some states and
communities already have begun promoting affordability. Example:
Many communities have for years adopted greater flexibility in
zoning and other land use control. ( See Welford Sanders,
Affordable Single-Family Housing: A Review of Development Standards
(Chicago: American Planning Association, 1984).) Some communities
have instituted "flexible zoning," doing away with the traditional
zoning map in all but name, and instead giving developers a broader
latitude as long as they meet certain performance criteria. (See
Douglas R. Porter, Patrick L. Phillips, and Terry J. Lassar,
Flexible Zoning: How It Works (Washington, D.C.: Urban Land
Institute, 1988).) Eighteen states have made it illegal for
localities to enact rent control ordinances. San Diego has changed
its building code to allow construction and renovation of
inexpensive single room hotel apartments, valued between $220 and
$390 a month, greatly reducing homelessness in the process. ("Not
In My Back Yard", p. 3-4.)
The NIMBY syndrome ultimately can be eliminated when local
governments are convinced that it is in their interest to change.
This means that Washington should supply evidence countering the
erroneous claims that moderately priced housing normally lowers
neighboring property values. (A literature survey of fourteen out
of fifteen studies on the issue found that subsidized, special
purpose, or manufactured housing had "no significant negative
effects" upon the values of nearby market-rate developments. See
Department of Housing and Community Development, The Effects of
Subsidized and Affordable Housing on Property Values: A Survey of
Research, Sacramento: State of California, Department of Housing
and Community Development, 1990, cited in "Not In My Back Yard", p.
8-11.)
Conclusion
The Kemp Commission Report can bring quality housing within
reach of a greater number of Americans. High property taxes, rent
controls, growth controls, impact fees, overzealous environmental
rules and other regulatory barriers to affordable housing can all
be mitigated. More than simply documenting evidence of government
overregulation of housing construction and rehabilitation, the Kemp
Commission proposes a sensible political strategy to combat it. The
keys to the strategy are expanding the role of the states, and
employing the federal government as a source of information and
technical assistance.
Massive and costly large-scale new federal housing programs are
not necessary. Encouraging cooperation among all levels of
governments and between the government and the housing industry
should be the key federal role. Using information and persuasion,
federal agencies can help states and localities remove barriers to
affordable housing. Playing the role of an honest broker rather
than that of a spending specialist, the federal government will be
best able to improve housing opportunities for Americans at all
income levels.
Carl F. Horowitz, Ph.D., Former Policy Analyst