Georgia Public Policy Foundation: Three Ways Government Hurts Housing Affordability

Benita M. Dodd

Tuesday, May 14th, 2019

Georgia’s thriving economy is drawing more people into the state. A visible effect is the increase in traffic and congestion. Less visible is the soaring demand for housing, especially in metro Atlanta.

As housing demand grows, so does the cost of buying and renting. With more people competing for the available homes in the metro area, homeowners can afford to price them higher and landlords can ask higher rents. Lower-income hopefuls are forced to move farther away from jobs, increasing their commutes and raising the cost of transportation.

Government bureaucrats feel obliged to step in as teachers, first responders and service-industry workers struggle to find homes they can afford near their jobs. The inclination is to implement “affordable housing” ordinances.

Unfortunately, they fail to see how these regulations and mandates influence the cost of housing (and consequently, property taxes) for everyone while choking the housing market further.

How does this happen?

1) Regulation: Minimum lot sizes, setbacks, greenspace requirements and architectural ordinances all increase the cost of development and housing. Setbacks and minimum lot sizes, which require a property to be above a certain size and buildings to be placed a certain distance from the street, restrict innovation and reduce the ability of a developer to maximize the use of the property. The fewer the number of units he can place on a property, the higher the per-unit price must be to provide a profit.

Aesthetics mandates (architectural ordinances), environmental regulations and onerous permitting processes also raise the cost of construction. Tree ordinances in Atlanta give tree preservation precedence over private property rights. In California, the requirement that new homes have rooftop solar panels is expected to increase upfront costs by at least $10,000. The more mandates for roof pitches or windows, the more complicated the cost and higher the price. Prohibiting certain materials – for example, vinyl siding – raises construction costs and home prices.

2) Focusing on affordable housing: As Randal O’Toole of the Cato Institute explains, “Affordable housing is meant to help low-income people who can’t afford housing in a free-market environment, not to bring down the price of housing for everyone.”

People move to Atlanta because of its affordable cost of living, yet “affordable housing” mandates hurt housing affordability. The city of Atlanta, for example, plans to have “more than 20,000 new, affordable apartment units in the city within the next seven years,” according to The Atlanta Business Chronicle.

Developers who provide affordable housing units, whether in a high-rise building or another development, must charge less for those units. To make a profit while covering the costs of land and construction, then, they raise prices on the other units. This reduces housing affordability for neighbors. When nearby home sellers see the comparative market prices for those higher prices, they raise their selling prices accordingly, and housing affordability suffers in the area.

Those in “affordable housing” units may receive vouchers or other subsidies as assistance. The money comes from other taxpayers, who pay through higher taxes and fees. It’s a circular process.

3) Taxation: The two-edged sword of gentrification improves many low-income neighborhoods but also hurts longtime residents. In many areas, property tax breaks help existing homeowners so they are not taxed out of their homes. Once they leave, however, the grandfathered exemptions end and higher taxes kick in on the higher home values. Meanwhile, newer homeowners make up for the lost property tax value with even higher taxes on higher home values. Home sales are based on the market value of surrounding homes – as they should be – and lower-income newcomers are unable to afford the area.

There is indeed a place for affordable housing assistance. But there is even more need for elected officials to realize the harm done to housing affordability through mandates and taxes that price people out of a community, and to realize that reducing those can increase homeownership.