Real estate prices continue to go
through the roof. Even with the recent, quite welcome collapse
of the real estate bubble, they are still higher than ever. Some
might consider high real estate prices as an indicator of
economic prosperity. These high prices are in fact a sign of a
deep underlying malaise: the inability for most hard-working
Americans to obtain one of the most basic human necessities –
shelter.
Here are the facts; an American
earns about $40,000 per year. Let us assume, quite
conservatively, that his take-home pay is about $30,000 per
year, and he is frugal enough to live on half of that and put
the rest aside in a savings account that earns an extremely
generous 5% per year. In 2005, the median home price in the
United States was $213,900. This is a low price by comparison to
the median price in certain regions of the country. California,
for example, had a median home price of $548,000 in 2005. With
yearly deposits of $15,000 in a 5%-interest-earning account, it
would take the average American a little over 11 years to
purchase the median U. S. home
if he spent his entire savings
on the home and on nothing else. It would take the
same person more than 21 years to purchase the median home in
California.
Assuming, that most people want
some kind of monetary reserves on hand in the event of emergency
or illness or as sources of passive income, in reality it would
take most people much longer to amass the money needed to own
their own home. Moreover, real estate prices over the long term
tend to increase much faster
than wages, implying that by the time one has saved
enough money to buy a home, that particular home will likely
have become much more expensive. In addition, the above
calculations don’t take considerable long-term monetary
inflation into account. As a result, heavy mortgage debt is
among the only option available to most Americans who wish to
live in houses anytime soon. Astronomical real estate prices
turn America into a nation of debtors, with the prospect of
foreclosure and financial ruin looming over them in the event of
unforeseen job losses or other unfortunate occurrences. The only
other option is renting a home, which also places one on
precarious footing anytime income suddenly drops or dries up.
Unaffordable housing is not an
outcome of the free market. The free-market solution to high
prices of a good is for profit-seeking producers to seek ways to
increase the supply of the good in question, thereby eventually
bringing the prices back down to an affordable level for most.
The chronically high real estate prices are a sign that some
force is preventing
this natural market mechanism from taking place. This is the
result of numerous burdensome and damaging government
interventions that greatly diminish the supply of housing,
thereby artificially raising its price.
Zoning restrictions dictate where
various kinds of housing can and cannot be built. Separating a
community into residential, commercial, and industrial zones
implies that even if one wanted or needed to, one could not
build a house next to a factory or a shopping mall, or a factory
next to a series of houses, or a shopping mall next to a
factory. These laws inanely restrict what people may do
with their own property
and thus inhibit a huge number of individuals from following
their dreams. The quite wealthy authors of these laws might have
esthetic objections to living near a factory, and they ought to
be free to personally act on those sentiments and pay higher
home prices accordingly. But they have no business imposing
these preferences on lower-income individuals, whose only
realistic choice might be a less expensive home near a factory
or no home at all.
Furthermore, environmental
regulations place much of the land on which housing can be built
off-limits to development. The United States Federal Government
and various state governments already own over 90 percent of the
land in some western states, and considerable swaths of land
elsewhere in the country. Unlike the U. S. government of earlier
times – which would sell land to private developers as a source
of revenue or even allow it to be homesteaded by ambitious
pioneers – the current government policy is to disallow human
development there for the
purpose of disallowing human development. It seems
that the effort to conserve endangered slugs and the “pristine”
chaos of the wilderness – which fails to bring about any actual
meaningful environmental improvement – is more important than
allowing good, hard-working
humans the opportunity to find an affordable
place to live.
Eminent domain regulations,
especially as fortified by the disastrous 2005 Supreme Court
Kelo v. New London
decision, make it possible for local, state, and federal
governments to expropriate any piece of private property if this
suits any manner of “public” purpose – including raising the tax
revenues of the expropriating government. What kind of incentive
does this policy give to prospective builders of new homes?
Common sense suggests that they would be greatly discouraged
from building when faced with the prospect that the fruit of
their labor would be confiscated and they would in return
receive some ridiculously low amount of money that the
government deems “just compensation.”
To add to the amassing array of
regulations, building codes apply even where the government
does decide to allow
residential housing to be built. Everything from the height,
style, coloration, and materials of a home to the layout of its
rooms, the number of smoke detectors, and the kinds of piping
and appliances that may (or must) be installed is regulated at a
prohibitive cost to taxpayers and homebuilders. Not only does
this pose a tremendous obstacle for anybody who
can comply with the
codes – since even those individuals would need to spend
considerable time and money just
learning what the
regulations are. It also excludes lower-income individuals from
building or owning a home.
Americans who earn less than the
average or are just starting out often don’t care if their home
has the latest or fanciest amenities, or even if it looks
particularly attractive. They simply desire a decent place to
live – and their definition of “decent” does not correspond to
the government officials’, who often equate decency with an
unrealistically high standard of near-perfection. If the free
market were given a chance to operate, numerous producers would
emerge to meet the demands of this consumer demographic. Some
organizations might put out mass-produced housing from
inexpensive material and sell either pre-built homes or parts
for self-assembly at prices in the low tens of thousands of
dollars.
A similar state of affairs
actually existed
in the early 20th century, when one could still
mail-order an inexpensive home from the Sears catalog and would
receive all the blueprints and parts needed for assembly.
Imagine how much more abundant and accessible housing would be
to Americans if these kinds of ingenious arrangements were
permitted today. Not all of these homes would look pretty, but
they would be livable,
and this is a far more basic and crucial
consideration.
Government
controls are making housing very scarce and Americans’ lives
dramatically harder. We urgently need to repeal these
regulations and allow the free market to give people a chance to
own their own homes and their own lives.
The
Three Big Expenses: Real Estate