Why the Housing Scandals?

Dr. Gary M. Galles

A Journal for Western Man-- Issue XXXI-- February 11, 2005

Especially in California, where I live, each day seems to bring a new story about housing problems, particularly those facing low-income families. There are complaints about housing being not only hard to find, but unaffordable, whether for rent or purchase.

There are exposes about deplorable housing conditions, code violations, and overcrowding. There are apocalyptic warnings about earthquake risks if structures aren't made stronger, fire risks if more sprinklers and smoke detectors aren't required, and health risks if new, tougher inspection standards aren't imposed. And as ubiquitous as the problems trumpeted are the calls for the government to fix it through taxing, subsidizing, regulating, mandating, outlawing, or building.

Unfortunately, seldom does anyone notice that those housing "scandals" are primarily the consequence of past and present government interventions in the housing market. Still fewer dare suggest the real solution: fewer government restrictions. 

The constant drumbeat of housing "investigative reports," cut from their common mold, would be almost farcical, if the problems were not so serious. But the fact that those problems exist today is deplorable, because they are the result of willful ignorance of what has long been understood about the housing market.

For instance, in the 19th century, Herbert Spencer, in works including Social Statics (1851) and The Man Versus The State (1884), had already accurately analyzed the problems in today's headlines as examples of "that increasing need for administrative compulsions and restraints, which results from the unforeseen evils and shortcomings of preceding compulsions and restraints. Moreover, every additional State-interference strengthens the tacit assumption that it is the duty of the State to deal with all evils and secure all benefits."

As can be seen in the following quotes, Spencer's understanding of housing problems stands in sharp contrast to the simplistic arguments and shrill demands for the government to fix the latest housing crisis, which now often passes for analysis.   

"...in the case...of the supply of houses for the poor--it needs but to ask what laws have been doing for a long time past, to see that the terrible evils complained of are mostly law made." If that wasn't enough, "The State's misdoings become, as in the case of industrial dwellings, reasons for praying it to do more!"

"...houses built in accordance with the present [more costly] regulations, and let at this established rate, bring in nothing like a reasonable return. Builders have consequently confined themselves to erecting houses in better districts, and have ceased to erect dwellings for the masses....Meanwhile, in the inferior districts above described, has resulted an increase in overcrowding....Nay, more than this has resulted.  That state of miserable dilapidation into which these abodes of the poor are allowed to fall, is due to the absence of competition from new houses. Landlords do not find their tenants tempted away by the offer of better accommodation. Repairs, being unnecessary for securing the largest amount of profit, are not made....In fact, for a large percentage of the very horrors which our sanitary agitators are trying to cure by law, we have to thank previous agitators of the same school!"

"...by prescribing the structure of the housing to be built, and the extent of yard or garden to be allotted to each, has rendered it impossible to build working-class dwellings at such moderate rents as to compete with existing ones. As a consequence...the population are debarred from the new homes they would otherwise have, and are forced to live crowded together in miserable places unfit for human habitation; and so, in its anxiety to insure healthy accommodations for artisans, the law has entailed on them still worse accommodations than before."

"...a further penalty on the building of small houses is inflicted by additions to local burdens...to the cost of each new house has to be added the cost of pavement, roadway, and sewerage, which is charged according to length of frontage, and which, consequently, bears a far larger ratio to the value of a small house than to the value of a large one.

"...The misery...made continually worse by artificial impediments to fourth-rate houses, and by the necessitated greater crowding of those which existed, having become a scandal, Government was invoked to remove the scandal....What have been the results?...[people] artificially made homeless, who have had to find corners for themselves in miserable places that were already overflowing!"

"See then what legislation has done. By ill imposed taxes...it added to the costs of houses...it established regulations which, in medieval fashion, dictated the quality of the commodity produced: there being no perception that by insisting on a higher quality and therefore higher price, it would limit the demand and eventually diminish the supply. By additional local burdens, legislation has of late still further hindered the building of small houses.  Finally, having, by successive measures, first bad houses and then a deficiency of better ones, it has at length provided for the artificially-increased overflow of poor people by diminishing the house-capacity which already could not contain them!"

"Where municipal bodies turn house builders, they inevitably lower the values of houses otherwise built, and check the supply of more. Every dictation respecting modes of building and conveniences to be provided diminishes the builder's profit, and prompts him to use his capital where the profit is not thus diminished. So, too, the owner...already subject to troubles of inspection and interference, and to subsequent costs, and having his property daily rendered a more undesirable investment, is prompted to sell...at a loss. And now these still-multiplying regulations...must further prompt sales and further deter purchases: so necessitating greater depreciation. What must happen? The multiplication of houses, and especially small houses, being increasingly checked, there must come an increasing demand upon the local authority to make up for the deficient supply.  More and more of the municipal or kindred body will have to build houses, or to purchase houses rendered unsaleable to private persons in the way shown...this process will work must work in a double way; since every entailed increase of local taxation still further depreciates property."

The extent of government involvement in our housing markets has been mind-boggling. Slum clearance, urban renewal and redevelopment programs, rent controls, permit fees, development limits, density requirements, low-income housing mandates, open space and green belt set-asides, zoning, regulations for everything from earthquake standards to low-flow toilet mandates, to bans on using PVC pipe for plumbing, indecipherable and interminable environmental rules, not to mention a massive and intrusive Housing and Urban Development department. 

And the list goes on and on. But none of these of the many failures seems to undermine the faith that doing even more of the same or doing it in a "new and improved way" will work. This, too, reflects Spencer's insight that "The advocates of such may claim credit for philanthropy, but not for wisdom; unless wisdom is shown by disregarding experience."

"As the alchemist attributed his successive disappointments to some disproportion in the ingredients, some impurity, or some too great temperature, and never to the futility of his process of the impossibility of his aim; so every failure of State-regulations the law-worshipper explains away as being caused by this trifling oversight, or that little mistake: all which oversights and mistakes he assures you will in future be avoided. Eluding the facts as he does after this fashion, volley after volley of them produce no effect."

Herbert Spencer long ago correctly understood many of the failures of government intervention in the housing market that are still with us today, and we ignore that understanding at our peril. But he also showed that those failures are just the tip of the iceberg when it comes to harming those whom legislation and regulation are intended to help. In innumerable ways, he demonstrated that the results were no different in kind than that found by the Corn Law Commissioners in evaluating the poverty programs of his day:

"We find, on the one hand, that there is scarcely one statute connected with the administration of public relief which has produced the effect designed by the legislature, and that the majority of them have created new evils, and aggravated those which they were intended to prevent."

Gary M. Galles is a professor of economics at Pepperdine University. Send him MAIL, and see his Mises.org Daily Articles Archive.

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