Is regulation strangling affordable housing?

by Ryan Smith25 Mar 2016
Are government regulations on affordable housing actually making it more difficult to construct affordable housing? That seems to be the conclusion reached by the House Financial Services Committee’s Subcommittee on Housing and Insurance.

“Government has inserted itself into the business of housing by mandating affordable housing and community reinvestment while simultaneously stifling creation of affordable housing and community reinvestment,” said subcommittee Chairman Blaine Luetkemeyer at a hearing this week. “It’s time to promote the development and availability of housing for low- to mid-income Americans, not restrict it.

“So today we ask ourselves: where do people go when they reach self-sufficiency? Is the stock of affordable market-rate housing plentiful enough to support the people seeking it?” he added. “The unfortunate answer is no.”

Several witnesses called by the committee said that regulatory barriers made the creation and maintenance of affordable housing difficult. MacDonald Companies President Granger MacDonald, representing the National Association of Home Builders, said that meeting regulatory burdens currently adds significantly to the cost of building a house.

“Housing is an important source of economic growth and job creation, and regulations are limiting home builders’ ability to grow and contribute positively to the economy,” McDonald said. “NAHB survey data of builders has demonstrated that, on average, regulation imposed during development accounts for 16.4 percent of the price of a home built for sale; regulation imposed during construction accounts for 8.6 percent of the price. Thus, in total, 25 percent of the price of an average single-family home built for sale is attributable to regulation imposed by all units of government at various points along the development/construction process.”

And Mechele Dickerson, professor at the University of Texas at Austin School of Law, said affordable rental units were also becoming increasingly difficult to find.

“While overall homeownership rates have dropped, rental rates have been rising. Since the recession, the number of renters in the U.S. increased by double digits,” Dickerson said. “In fact, recent survey results show that renters are now the majority in nine of the 11 largest U.S. metropolitan areas. While there is a robust market for high-end, luxury apartments, affordable rental units are not being built at a rate that is keeping pace with the heightened demand for those units. It is especially difficult for middle-income families to find affordable rental units in large U.S. cities.”