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What Affordable Housing Problem?
By Walter Rybeck
    To CGO Conference,
Albuquerque, New Mexico, July 2004

Let me say emphatically that America has NO AFFORDABLE HOUSING PROBLEM. By the time I finish my talk, I hope this startling remark (to help you wake up this early in the morning) will not appear as ridiculous as it may seem to you at first glance.

Squatters All

Like all creatures -- goldfinches, squirrels, butterflies, cicadas -- we humans are squatters on this planet. We all need a part of earth for shelter, nourishment, a work site and a place to raise the next generation. Otherwise we perish.

Villages in "primitive" societies accommodated everyone's need for a place to reside and live in dignity. Compare "civilized" society. Some people squat on thousand-acre ranches and at different places each season -- penthouses in Manhattan, the French Riviera, castles in Scotland. We heard Allen Ridley tell us a mere 40 families squat on 7 percent of New Mexico's land.

While a select few squat in luxury, those at the bottom of the heap haven't a square inch of space to call their own. Carrying bags of everything they possess, the homeless squat on sidewalks, under bridges, in condemned buildings, and in public parks (unless police chase them away), often sitting ducks for predators.

The bulk of Americans, meanwhile, are so well-housed that they barely see the homeless. They easily avoid looking across the Grand Canyon-sized chasm that exists between them and those suffering from literally no place to squat. Those few who cater to the homeless deserve society's inestimable praise and gratitude.

There are three main categories of street people.
  • Some are druggies and alcoholics. We need to pay more attention to what drives so many into addictive behavior.
  • Many are mental cases. With the advent of new medicines to treat mental disorders, America deinstitutionalized most patients. Without safe houses to insure that they stay on their medicines, however, they can't cope. We freed them from the nightmare of "snake pit" asylums but left them to face the nightmare of scary streets.
  • Most scandalously homeless, in my view, are the working poor. They don't earn living wages. They lose their savings to disease, fire, marital problems and from being downsized from better jobs. (Not to over-romanticize, some clearly live beyond their means and make stupid life-style choices.) Isn't it intolerable that so many men, women and children in this 21st century are denied safe and decent places to sleep, wash, eat and find cover from rain, smothering heat and freezing cold? Homelessness, once a hot topic, has almost faded from the public screen. Too few reporters and elected officials address this embarrassing blot on our social landscape.
In the 1980s, Washington, D.C., was concerned about its growing army of homeless. At that time I found there were 8,000 boarded-up dwelling units in our Nation's Capital -- more than enough to accommodate some 5,000 street people. I also found there were 11,500 privately owned vacant lots in the District of Columbia, mostly zoned for and suitable for homes or apartments. Decent housing on these sites held in cold storage would have provided an alternative for the many low-income families squatting in places that were overcrowded, overpriced, overrun with vermin and overloaded with safety hazards.

These issues spurred my research described in a 1988 report, "Affordable Housing -- A Missing Link." Evidence from the Census Bureau, Bureau of Labor Statistics and other sources over a 30-year period revealed the following average cost increases of items that go into the building and maintenance of housing:
  • Wages of general building construction workers rose 14 percent a year.
  • Wages of special trade construction workers rose 11 percent a year.
  • Construction material costs rose 11.5 percent a year.
  • Combined wage-materials-managerial costs for residential building rose 12.5 percent a year.
  • Fuel and utility costs for housing rose 13.8 percent a year. All of these costs closely tracked the Consumer Price Index which, over these same 30 years, rose by 12 percent a year. According to those figures, housing prices and housing rents apparently were held in check
Why do those statistics not seem to jibe with what you have been told, seen with your own eyes, and felt in your own pocketbooks?
  • How to explain that, during the last decade of my research period, U.S. households with serious housing problems increased from 19 to 24 millions?
  • What caused the portion of renters paying more than 35 percent of their income for housing doubled from 21 to 41 percent during the last two decades of the study period?
  • Why were over 2.4 million renters paying 60 percent or more of their income for rent?
Look Out Below

The answers would be obvious except that, so far, I have not mentioned what happened to the price of the land that housing sits on. Many of those who talk and write about housing conveniently overlook the fact that housing does not exist in mid air but is attached to the land, and that the price of this land has gone through the stratosphere.

In contrast to those 11- to 14-percent annual increases in housing-related costs, residential land values nationwide rose almost 80 percent a year, or almost 2000 percent over those three decades. To cite a few state examples, residential land prices in 30 years rose 1501 percent in Maryland, 1737 percent in Texas, 2806 percent in New Hampshire. [1]
[1] It's been suggested that this study of housing and land prices be updated, but it would be almost impossible to duplicate now. It relied in large part on the data- rich Census of Government studies begun in the 1950s and continued every five years, showing taxable property values of land and buildings nationwide and in every state. The administration of President Reagan (his funeral oratory might almost excuse one for calling him Saint Reagan) killed this Census Bureau series. Reagan's team also erased years of my own work under Congressman Henry S. Reuss of Milwaukee to create a national land price index. Certain landholding interests apparently want to keep the public in the dark about the behavior of land and housing markets.

A close friend in Bethesda bought a house and lot there 40 years ago for $20,000. Two months ago he sold the property for a cool half million. That 2400 percent increase was entirely land value. The buyer immediately demolished the house to put up a larger one, so he clearly paid half a million for the location value -- the land value -- alone.

Strange Signals from Housing 'Experts'

Officials, civic leaders and commentators who bemoan the lack of affordable housing nevertheless applaud each rise in real estate values as a sign of prosperity. Seeing their own assets multiply through no effort of their own apparently makes them forget the teachers, firemen, police and low-income people who are boxed out of a place to squat in their cities and neighborhoods.

A Question and an Answer

How did America once have so many livable cities -- compact, easy walking, pleasant streetscapes and a housing mix for a wide range of income levels -- in short, like Albuquerque is trying to recreate in a central neighborhood? Did they have charrettes? Federal, state and local subsidies? Housing vouchers? Minimum low-income housing requirements?

No. From the time of America's founding into the early 1900s, the federal government had almost no presence in cities. There were no income taxes or sales taxes. Guess what? States and localities in that dynamic era relied almost wholly on the property tax. This curbed extreme land speculation. Many of our Founding Fathers, George Washington included, had amassed huge estates. But the property tax induced them to sell off excess lands they were not using. When immigrants like my grandfather came here penniless, they could, after a few years' work, save enough to buy or rent space in a city -- even Manhattan -- for their own candy store, tailor shop and the like. Naturally and almost automatically, this easy access to affordable land spawned the kind of neighborhood variety that we learned Albuquerque is trying to recreate.

Albuquerque would be well advised to reduce its taxes on income and sales, to get rid of New Mexico's onerous gross receipts tax, and shift to a tax that fosters progress -- a tax on location values.

To get big results and get them fast, the city might be tempted to do this quickly. But attempting a rapid change from the present regressive system could arouse such opposition that it would never fly. One of the many virtues of a tax on land values is that it can be introduced gradually. Cities that take this incremental approach report that homeowners-voters-taxpayers hardly notice the change. What's important in modernizing your taxation is not the speed of change but the direction you choose. If you keep the present tax system with its disincentives for compact and wholesome growth, you will experience the treadmill effect that has been so familiar in so-called urban and housing "solutions." You will have to keep running faster and faster with patchwork remedies to keep from sliding backward.

A caution. Revising taxes as proposed here will not end the need for housing subsidies, at least not in the short run, but it will do three things that should greatly reduce subsidies.
  • One, by deflating land costs it will enable the private market to offer homes and sites at lower costs.
  • Two, this will shrink the number of families needing subsidies.
  • Three, it will stretch subsidy dollars farther because sites for publicly assisted housing can be acquired far more cheaply.
In conclusion, I have tried to show that America has a housing land problem, not an affordable housing problem. This problem can be substantially alleviated by freeing the market of anti-enterprise taxes and by turning the property tax right side up -- that is, by dropping tax rates on housing and by raising them on publicly-created land values.

Thank you.

The author, Founder-Director of the Center for Public Dialogue, was formerly Washington Bureau Chief of Cox Newspapers; Assistant Director, National Commission on Urban Problems; Editorial Director, the Urban Institute, a D.C. think tank; and special assistant on urban affairs to two Congressmen, Rep. Henry S. Reuss of Milwaukee and Rep. William J. Coyne of Pittsburgh.


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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper