Affordable housing was a big issue in the recent Kansas City mayoral race, and there may be more legislation coming to address the issue. As Kansas City figures out how to increase the stock of affordable housing, many—including this author—have bemoaned the focus Kansas City has placed on subsidizing luxury market-rate high rises downtown. Some recent research, however, suggests that building market-rate units, even luxury ones, helps increase housing stock at all levels.
A new paper by Evan Mast of the W. E. Upjohn Institute for Employment Research concludes:
The short-run effect of new market-rate housing on the market for middle- and low-income housing is crucial to the current policy debate, where government intervention and market-based strategies are often pitted against each other. My results suggest that new market-rate construction loosens the housing market in such areas and, moreover, could do so in less than five years. This implies that market-based strategies can play an important role in improving housing affordability for middle- and low-income households.
In other words, building housing of all types helps those seeking middle- and low-income housing. This is a promising conclusion and largely intuitive. If there is more of a thing available, prices go down. Perhaps Kansas City and St. Louis really need to focus on building housing of all kinds, knowing that this alone will increase the availability of affordable housing.
Still, there will be advocates for more government subsidies to try to direct the housing market to provide for so-called affordable housing, such as a state low-income housing tax credit (LIHTC) to match the federal program of the same name. Despite the lofty intentions, research shows the state version of the program is largely ineffective.
To borrow from a common phrase regarding energy, Missouri governments ought to encourage people to “build, baby, build!” Governments don’t need to offer subsidies, but they ought to review their building codes and permitting processes with an eye towards reducing the burden on builders. Government has demonstrated it cannot solve the housing shortage; it ought to get out of the way and let the private market do what it does best: meet demand.
