Mulvaney: More government intervention won’t ‘fix’ housing prices

As is so often the case, Washington is good at identifying problems, and really lousy at fixing them. Today’s example: the affordability of housing. 

In 1980, the average price of a home in this country was just over $76,000. That was just over three times the average household income, which was around $21,000 at the time.

Today, that ratio is nearly seven-to-one. The average home price is almost $500,000, whereas average income is around $74,500.

That’s a big reason why in 1980, the typical first-time home buyer was around 30 years old; today he or she is almost 45.

The inability of younger people to own their own homes has dramatic cultural, societal and public policy implications. This is why so many in Congress are now looking for ways to “fix” things.

But Washington tends to try to fix things that it doesn’t understand. And government is especially prolific at using bad policies to compensate for other bad government policies.

A quick look at the current problems shows that government policy is already part of the problem. In the 1980s and 1990s, for example, in many fast-growing cities, denser “attached” housing was actively discouraged. Putting eight condos on one acre of land, instead of one single-family house, tended to lead to cheaper housing, which led to “poorer” people moving in, which supposedly stressed social services.  So, local governments, which make nearly all land-use decisions, wanted more expensive housing, not more affordable.   

In this century, the local government bias flipped. Denser land-use was encouraged. Single-family housing fell out of favor. That led to a jump in things like apartments and condos, but it also dramatically restricted the supply of single-family homes.

In both cases, then, local governments caused the problem by trying to dictate what the market for housing would look like. In doing so, they distorted prices and they continue to do so. Indeed, the “drawbridge” or NIMBY philosophy is bemoaned by left and right alike as a primary driver of higher housing costs.

Local governments are also to blame for one of the most insidious drivers of housing costs: the impact fee. These aren’t fees for things like building inspections (which can also run into the thousands of dollars per home). These are one-time fees that builders must pay to build a home. The fees are usually “earmarked” for public amenities such as schools, roads, police, libraries, etc. Those costs get passed on to the buyer in the price of the house.

Impact fees are elected officials’ favorite kind of tax — a tax that is paid by people who haven’t moved into the community yet, and thus don’t vote. As a result, they have gotten out of control.

In Orange County, Fla., for example, the combined charges for fire protection, law enforcement, parks and recreation, schools and transportation total nearly $30,000 per house before a single brick is laid, which drives up the price of homes there. 

Alameda County, Calif. is one of several jurisdictions that includes an “affordable housing fee,” an oxymoron. Builders (read: buyers) must pay nearly $30,000 in order to help provide for affordable housing elsewhere in the county. Housing in Alameda County would immediately be $30,000 less if the county would simply rescind that fee. But that isn’t how government works, especially in California.

The federal government is not to be outdone when it comes to meddling in the housing markets. Just this week, for example, the Biden administration announced that it is mandating new energy efficiency standards in new homes. As always, there is a heart-warming justification for this added burden. “Many people have been caught by surprise when utility costs spike,” a Housing and Urban Development official commented in explaining the new rules.

But one is left to wonder whether home buyers will be caught equally by surprise by the $31,000 price spike that the new rules are expected to add to the cost of their home purchase. Even if builders max out on the boatload of government subsidies dangled as an incentive for compliance, HUD itself admits that new house prices will increase by an average of at least $7,000, which is nearly $650 per year on an 8 percent mortgage.

There are actually some things the federal government could do to help. The feds send billions of dollars per year to states and localities for various programs. That money could be conditioned to some extent on better land-use policies or restrictions on runaway impact fees.  

Instead of doing that, some Democrats have decided the key to affordability is to ban hedge funds from buying houses. This is based on a very popular conspiracy theory that large financial institutions are the ones driving up home prices by buying up millions of homes, outbidding ordinary homebuyers. 

It isn’t true, of course. Institutions with more than 100 homes own significantly less than 1 percent of the nation’s single-family homes, according to recent research by the liberal Urban Institute. But even if it were true, a ban on institutional purchases would be just another example of trying to make a right with two wrongs. 

If housing prices had risen in line with household incomes since 1980, the average home price today would be roughly $270,000, or just over half what the current number is. Government intervention in the markets has created much of the added expense. Experience should have taught us by now that more government “fixes” at the local and federal levels will only make the problem worse. 

Mick Mulvaney, a former congressman from South Carolina, is a contributor to NewsNation. He served as director of the Office of Management and Budget, acting director of the Consumer Financial Protection Bureau and White House chief of staff under President Donald Trump.