Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable

224 Pages·2008·1.57 MB·English

by  Edward L. Glaeser

Rethinking Federal
Housing Policy

Rethinking Federal
Housing Policy
How to Make Housing
Plentiful and Affordable
Edward L. Glaeser
Joseph Gyourko
The AEI Press
Publisher for the American Enterprise Institute
WASHINGTON, D.C.
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NRINATIONAL
RESEARCH
INITIATIVE
This publication is a project of the National Research Initiative, a program of the
American Enterprise Institute that is designed to support, publish, and disseminate
research by university-based scholars and other independent researchers who are
engaged in the exploration of important public policy issues.
Library of Congress Cataloging-in-Publication Data
Glaeser, Edward L. (Edward Ludwig), 1967-
Rethinking federal housing policy : how to make housing plentiful and
affordable / Edward L. Glaeser and Joseph Gyourko.
p. cm.
Includes bibliographical references and index.
ISBN-13: 978-0-8447-4273-1
ISBN-10: 0-8447-4273-2
1. Housing policy—United States. 2. Housing—Prices—United States.
I. Gyourko, Joseph E., 1956– II. Title.
HD7293.G5 2008
363.5'820973--dc22
2008040992
12 11 10 09 08 1 2 3 4 5
© 2008 by the American Enterprise Institute for Public Policy Research, Wash-
ington, D.C. All rights reserved. No part of this publication may be used or repro-
duced in any manner whatsoever without permission in writing from the
American Enterprise Institute except in the case of brief quotations embodied in
news articles, critical articles, or reviews. The views expressed in the publications
of the American Enterprise Institute are those of the authors and do not neces-
sarily reflect the views of the staff, advisory panels, officers, or trustees of AEI.
Printed in the United States of America
This book is dedicated to
Edmund Chaitman and Joseph Gyourko, Jr.,
our fathers, in gratitude for
their inspiration and guidance.

Contents
LIST OF ILLUSTRATIONS xi
ACKNOWLEDGMENTS xiii
AUTHORS’ NOTE xv
INTRODUCTION 1
The Plan of the Book 6
Our Proposal 12
1. HOW DO WE KNOW WHEN HOUSING IS “AFFORDABLE”? 16
Poverty and Housing Affordability 17
Affordability across Space 19
How Should Housing Affordability Be Measured? 21
2. THE STATE OF AMERICAN HOUSING 24
Housing Consumption over Time 25
House Prices, Income, Amenities 32
Housing Prices and Construction Costs 40
3. PUBLIC INTERVENTION IN U.S. HOUSING MARKETS—
A HISTORICAL PERSPECTIVE 48
Housing Regulation and Externalities 48
Correcting Market Failures 52
In-Kind Redistribution 54
Conclusion 56
vii
viii RETHINKING FEDERAL HOUSING POLICY
4. CURRENT POLICIES—PRICE AND QUANTITY CONTROLS 58
Price Controls 58
Quantity Regulations #1: Building Codes 62
Quantity Regulations #2: Land-Use Restrictions 64
Hybrid Price and Quantity Controls: Inclusionary Zoning 81
Massachusetts Chapter 40B 82
The Mount Laurel Decision 84
Conclusion 86
5. OTHER INTERVENTIONS IN HOUSING MARKETS—TAXES
AND SUBSIDIES 88
The Tax Code and Homeownership 88
Credit Market Interventions: The Rise of Fannie Mae
and Freddie Mac 99
Project-Based Subsidy Programs for the Development of
Affordable Housing: Public Housing and Low Income
Housing Tax Credit Programs 102
Tenant-Based Subsidies for the Consumption of Affordable
Housing: Section 8 Vouchers 115
CONCLUSION: TOWARD A NEW NATIONAL HOUSING POLICY 119
The Growing Affordability Problem in Markets with
High Land Costs 121
One Size Does Not Fit All 123
Can the Federal Government Induce Localities to Permit
More Construction? 126
Reforming the Home Mortgage Interest Deduction 131
Ensuring the Poor Can Consume Some Minimum
Housing Quality: Vouchers 132
Summary and Conclusion 135
APPENDIX 1: ECONOMIC INCIDENCE ANALYSIS OF A SUBSIDY 137
Per-Unit Subsidies to Demand 137
Limited Subsidies to Demand 139
Supply-Side Subsidies 140
CONTENTS ix
APPENDIX 2: IMPLEMENTATION OF OUR PROPOSED POLICY REFORM 142
Summary of Our Reform Proposal 142
Defining Elastic and Inelastic Regions of the Country 145
Funding the Program: Reforming the Home Mortgage
Interest Deduction 161
Reforming Supply-Side Policies: Administering the
New Home Mortgage Interest Deduction Program in
Counties with Inelastic Housing Supplies 168
NOTES 173
REFERENCES 187
ABOUT THE AUTHORS 193
INDEX 195