# The Shortage in Housing: The Crisis that Government Built **URL:** **By** Bruce Cooley **Published:** August 1, 1981 --- “Thus, building codes have become a political weapon which is victimizing developers, individual homeowners, and the poor in different ways, but with the same result: increasing scarcity of housing.” Two years ago, American homebuilders heard a sobering prediction. The United States “faces a revolution of the unhoused masses” in the next decade, speaker W. Scott Biddle told a meeting of the Building Industry Association. “It comes down to the fact that there are a great many frustrated, angry people today, and there will be millions more by 1990. They cannot buy a home because they can’t afford one. They cannot rent a home because they can’t afford one, or because rental units simply aren’t available.” Biddle was not alone in his apocalyptic view of the situation. _U.S. News_ reported, “There is mounting \[political\] pressure from angry consumers who, because of soaring prices, are being denied one of the basic American Dreams.” (April 12, 1979) And a report prepared by The Association of American Geographers warned, “American cities will turn into battlegrounds in the 1980s, when suburbanites... return to the cities and displace the poor.” Frustration, anger, political pressure, battlegrounds—this is an ominous picture being projected of America in the 1980s. If it is not to be realized, sweeping changes in urban housing policy are needed, and they must be based on an understanding of how the housing crisis came about, and of the fact that it is the product of two developing conflicts, one political and one social. The political battle is in the arena of housing supply; the social struggle, in the arena of housing demand. The politicians on the one hand and the landlords and the building industry on the other are battling over building codes, zoning, rent control, and condominium conversion. The politicians, while claiming to act in the interests of the poor and elderly, are exploiting their condition to gain political power, exploiting it in ways which actually have an adverse effect on the very groups they say they want to help. The building industry and the landlords want to divest the politicians of some of their power over the market, in order to stay afloat financially, and ultimately to provide housing for everyone—at a profit. The battle between the two sides is further complicated by another legacy of government action—the results of urban renewal. The second conflict taking shape is a social struggle between the inner-city poor and the middle class that is moving into the city—primarily the members of the ‘baby-boom’ generation. It is a conflict without villains, with victims on both sides—victims of demographics and political power. In the period following World War II, large numbers of poor people and minorities migrated to urban areas. Black people, a major segment of this group, fled the racism and economic hardships of the rural South and the Midwest. They moved to Northeastern cities to take advantage of the burgeoning job opportunities caused by the industrial war economy of World War II. Racism, however, was not confined to the South. When blacks started pouring into the Northeastern cities, and when young blacks started going to the same schools and playing in the same neighborhoods as the children of the white inner-city dwellers, hundreds of thousands of white middle-class families fled the inner cities for the more expensive and less minority-populated suburbs. Ever since this flight, the poor have been struggling to find jobs and housing in the economically deteriorating cities. This struggle is now being intensified because the baby-boom generation is looking back toward the inner cities for housing opportunities. The baby-boom generation, the largest single generation in America’s history, has caused turmoil and radical change in each stage of life that they have gone through so far. Its members were born between 1946 and 1964, poured into schools and universities in the late 1960s and early 1970s, and transformed themselves from the flower children of the ‘60s to the ‘me generation’ of the 1970s. And now they’ve moved into the housing market and are competing with the poor for urban housing. ## The political battle: building codes Despite the relative wealth of the new generation of housing consumers, the building industry operates at a level far below its capacity. What could stop the building industry from supplying the needed quantity of housing in the 1980s? The answer is government: building codes, zoning, rent control, and urban renewal. Building codes first appeared in America in the late 1800s, legally controlling building materials and designs, ostensibly to maintain the “structural integrity” of buildings and to protect the consumer from faulty electrical wiring and construction practices. What they actually do is “protect” the consumer from _any_ construction practice, faulty or not, which differs from those spelled out in the codes. And in the process they make housing more expensive. One veteran builder, Sol Sylvan of Kennewick, Washington, put it this way: “\[The codes\] tend to become treated by the officials who enforce them as religious dogma.” This, he argues, limits the introduction of innovations in building materials and designs. One example Sylvan offers is the use of plastic wasteline in plumbing as a substitute for copper wasteline. Plastic tubing is not explicitly prohibited by the codes, but most codes describe the quality and type of _copper_ tubing that must be used in any building, thereby effectively excluding the use of any other type of tubing. Plastic tubing, in fact, offers an important potential advantage over copper tubing: lower cost. The material costs less and so does shipping it, because the plastic is much lighter than the copper. But even those who want to use the best grade of copper tubing are hampered by the codes. David Dawson, a New York sculptor, was told by a building inspector that the quality copper tubing he had installed in his studio had to be removed because it was of a higher quality than that called for in the building code specifications. It has been argued that a way to remedy this kind of situation is to give building inspectors the power to exempt a structure when techniques and materials being used are of a higher quality than that required by law. But such a discretionary power is rarely used, even when it exists. As Sylvan points out, “The building inspectors are reluctant to \[waive regulations\] because they’re afraid they’ll lose their job \[because they didn’t follow the codes\], or that ten years from now someone will say ‘Aha, you screwed up!’” Sylvan claims that many of today’s building codes are based on performance tests that are long outdated. “There are very, very few codes that are written from a performance point of view. They are written from rote.” Therefore, those codes that are supposed to ensure a minimum quality home —that is, a minimum “performance” in building techniques — effectively discourage the adoption of new and superior technologies for homes in all price ranges. Not only do codes inhibit innovation, they also are a contributor to the rising cost of housing. One estimate holds that building codes add at least 15 percent to the cost of new homes. Building codes also help to centralize the building industry, since many small companies cannot afford the construction delays and consequent loss of cash flow inherent in the present process. And building codes limit the amount of home improvements taking place as well as the amount of new construction, which means that existing housing deteriorates faster. Homeowners who want to refurbish their homes or to build new homes are often reluctant to tackle the permit process, and for good reason. Consider the case of Patrick Hazel of Santa Clara County, California. After buying a lot, Hazel went to the local authorities to get a permit to construct his own home. There he was told that he would have to fill out an application, pay various fees, and submit 12 copies of the lot plan, several copies of the deed of trust, and several copies of the survey map, before he could submit his house plans for approval. “I told him, ‘Forget it, Charlie. I’m not going to submit myself to 12 different agencies,’” Hazel says, and he proceeded to build his house without any permits—whereupon he was slapped with civil and criminal actions by Santa Clara County. Hazel insists that he is not only meeting but exceeding all health, safety, and construction standards that are required. All he is doing is bypassing a lengthy, expensive, and “unconstitutional process that is no ‘protection’ at all.” When we remember that building codes are supposedly designed to protect the consumer from rapacious builders, what can we say about cases like this, where they are used to prevent people from building their own homes to suit themselves? It is tempting to agree with another do-it-yourself home builder, Richard Russo, who was actually jailed for a short time because his remodeling projects did not conform to the local building codes. (He had refused to go through the normal channels of government approval because, on a previous occasion, a project he started in 1977 was delayed by red tape until 1980.) Russo believes that building codes were designed to curb do-it-yourself home improvement, by limiting home improvement to those who can afford a contractor and, in the process, excluding the low and moderate income homeowners from home improvement. Whether Russo is right about this or not, it is obvious that building codes aggravate the scarcity of housing for the poor in yet another way. They have become one of the favorite techniques used to displace the poor to make room for the middle class in urban areas. As James David Besser described the process in the January 1979 _Progressive_, “Building code enforcement, notoriously lax in deteriorating neighborhoods, suddenly becomes strict, and many lower and fixed-income homeowners cannot afford the required repairs. They sell out for a profit, but the prices they receive are usually not enough to offset the high cost of replacement housing.” Thus, building codes have become a political weapon which is victimizing developers, individual homeowners, and the poor in different ways, but with the same result: increasing scarcity of housing. ## Zoning There is not yet much political opposition to building codes. Possible alternatives have rarely been explored, and too few people as yet recognize the additional costs they impose on home buyers and renters. But zoning regulations are the subject of an increasingly active political battle. These regulations have been developed in various cities primarily to separate businesses and residential districts, attempting to divide land into residential, business, and industrial districts. This division is usually done by a local zoning board, often with disastrous effects. Zoning boards have long been prone to political corruption. To illustrate, the president of an Illinois development company was once asked whether he thought that his local zoning board would prevent him from developing an executive park as he wanted. He replied, “No problem… it’s simply a matter of ‘influencing’ enough board members… if you catch the drift.” Zoning ordinances have contributed to increasing housing costs, both in land and in buildings. Residential land prices rose 62 per cent between 1975 and 1979, and as much as 35 per cent of that increase has been attributed to zoning requirements which specify the minimum square footage of land or building permissible per unit. The number of available lots has been reduced, tending to bid prices up. Multiple-unit buildings, too, are often subject to restrictions specifying the number of individual units which can be built. In the suburbs especially, zoning has been used as a weapon against low-income and minority people, instituting high-cost minimum-area requirements and effectively forcing these “unwanted” groups to remain in the densely populated inner cities. Even the federal government recognizes this. One recent study by the Department of Housing and Urban Development (HUD) concluded, for example, that “zoning regulations have constricted land supply severely, particularly for low and moderate-income housing.” This intensifies the resentment of the poor toward the middle class, since the upward mobility of the poor is limited by the absence of areas open to relocation at an affordable cost. The underlying argument for zoning, as Michael Goldberg and Peter Harwood have pointed out in a Fraser Institute study on zoning, is almost pure fallacy: “Market mechanisms exist naturally to eliminate such externalities that would arise from the proverbial glue factory on the corner of Portage and Main.” They go on to say, > In a system based on the inviolability of private property rights, the laws of nuisance would prevent the dispersion of invasive odors or dust particles. But the market mechanism functions even without this protection. Quite simply, land prices in the residential or business neighborhoods are too expensive for the glue factories. They effectively prohibit any but the most valuable, concentrated uses — such as office buildings or high-rise residential dwellings. \[_Zoning: Its Costs and Relevance for the 80s_\] Roscoe Jones, Director of City Planning in Houston, Texas, has added his voice to those opposed to zoning (Houston has never implemented zoning restrictions), and has said, “\[The market\] has tended to create a reasonably well-ordered pattern. Because of private ‘marketplace zoning,’ we find no filling stations at the end of the cul-de-sac....” Of course, of what _real_ value are zoning ordinances if they can be rescinded at any time by a political decision? With no body of nuisance laws or strict legal respect for property rights, members of a community could end up with a glue factory as a neighbor. A new trend is called “inclusionary zoning,” designed to vent the frustration and anger of the poor who, largely because of past zoning practices, are hard-pressed to find newly-constructed low-income housing. Inclusionary zoning requires that a certain percentage of any development project must be sold or rented at some price which is arbitrarily lower than the other units. The problem with this is illustrated by a question asked in the real estate pages of the _Los Angeles Times_: “How can a builder build X houses at his normal profit margin, and Y houses at a loss, without either (a) reducing his overall margin profit to such a low level that he would be better off investing in Treasury Bills, or (b) maintaining his normal percentage of profit by virtue of marking up the price of conventional units to offset the loss he is taking on the affordable units?” (August 17, 1980) So it is that inclusionary zoning drives housing prices upward. If inclusionary zoning is the wave of the future, then it is a dim future indeed, for the building industry, home buyers, and renters. No “correction” in zoning laws will help to solve the housing crisis, for adjustments made to help one group of housing consumers inevitably hurt other groups. ## Urban renewal Perhaps the most spectacular failure of any government involvement in housing was the federal urban renewal program. Hailed at its inception as “the fountainhead of the revival of our inner cities,” the program became an embarrassment even to its administrators and ultimately collapsed in a pile of rubble of its own creation. The urban renewal process followed a few simple steps. First, city governments used federal money and the power of eminent domain to buy vast tracts of inner-city property. They would then demolish the existing structures (usually apartment buildings for low-income tenants) and prepare the land for development. The land was sold to the highest private bidder who erected a new structure according to a federally approved development plan. Sometimes office buildings were erected, sometimes apartment buildings. But a high percentage of the apartments constructed were expensive luxury apartments; very few were within the price range of the displaced tenants, unless, that is, they asked for and received government subsidies. In their book _Free to Choose_, Milton and Rose Friedman say this about urban renewal: > More dwelling units were destroyed than were built \[400,000 more\]. Those families who got apartments at subsidized rents benefitted. Those families who were forced to move to poorer housing because their homes were destroyed and not replaced were worse off. The worse aspect of urban renewal, however, is the composition of its victims. In fact, urban renewal was, in terms of results, one of the most racist federal programs ever conceived. An estimated 65 per cent of displaced residents were black or Hispanic, and were replaced by residents or office workers who were predominantly white. What harm urban renewal has done is in the past; the program receives no more appropriations. But this program and similar, smaller-scale government ventures were an integral part of the stage set for the political and social struggles coming in the 1980s. ## Rent control and “condomania” Which brings us to the hottest political battle and the prime villain in the coming housing crisis—rent control. A legacy from World War II, rent control was originally an attempt to stabilize the rental market in Eastern cities when millions flocked from the depressed rural areas to the boom of wartime opportunities in urban areas. As the rampant inflation of the 1970s destroyed the economic stability of America’s tenants, rent controls appeared to be a natural panacea. The major effect of rent control is to turn formerly profitable rental units into financial losses for landlords—the ownership of rent-controlled units has in fact become the bane of many landlords’ financial existence. Because of this primary effect, many side effects result, especially discouraging investment in the construction of new apartment buildings. Most cities with rent control experience a stagnant or even shrinking supply of rental units. Banks and insurance companies often refuse to make loans on rental unit construction that will be subject to rent controls. Rent control also encourages landlords to abandon their rental property. In New York City, a longtime bastion of rent control, 20,000 landlords went bankrupt between 1967 and 1970. Some 30,000 rental units are abandoned by owners annually. Even worse is the emergence of a new trend called “arson for profit.” This occurs when a landlord who is losing heavily on rent-controlled property hires arsonists to “torch” the building. The landlord then receives insurance money and makes up for his losses—and leaves displaced tenants and devastated areas such as New York City’s South Bronx. If not destroyed, rent-controlled buildings are allowed to deteriorate. In some California cities, for instance, suppliers of maintenance equipment for landlords have suffered a 30 to 70 per cent loss in business since rent control was imposed. Many cities under rent control—Santa Monica, California is a recent example—have apartment vacancy rates of 1 or 2 per cent, compared to the national average of 5 per cent. Among other things, rent control encourages tenants to stay in their apartments longer than they ordinarily might. They sometimes don’t get to stay as long as they would like, however, because rent control induces landlords to convert their rental units into condominiums, almost always requiring substantial cash down payments and high monthly payments, both beyond the capacity of most renters to handle. Horror stories of the impact of condominium conversion on individual renters are common. Notified that they must come up with several thousand dollars in a few weeks or move, they feel victimized; their most often heard complaint is, “We have nowhere else to go.” And they don’t, for in a rent-controlled city, vacancies in affordable rental housing have virtually disappeared. The displaced renters have become what the _New York Times_ called “urban nomads—primarily elderly, on fixed incomes and poor and young, black and white.” Their frustration and anger is rising. They see a life’s worth of work trying to find a stable home going down the drain. And they feel they are victims of the free market. The cruel fact, however, is that they are victims of something quite the opposite of free-market processes: government intervention. Yet they turn for help to the rent-controlling bureaucrats whom they should in fact be calling, as they often call landlords and developers, “greedy,” “power-hungry,” and “insensitive to the problems of the poor.” Condominium conversions, therefore, may suffer during the 1980s as the political battle intensifies, and politicians exploit the frustration of the displaced to reclaim their power over the housing market. Many cities have started to curb condo conversions by measures ranging from limiting the number of units converted each year to banning conversions outright. In Los Angeles, an ordinance has been passed which provides that a request for conversion can be denied if the vacancy rate in the area is less than 5 percent (as it is in most of Los Angeles), and if it can be shown that the conversion would contribute to the shortage of rental housing in the area. The ordinance provides further that owners allowed to convert must help displaced tenants find new apartments and must pay part of their moving costs and subsidize higher rents for a full year. Those who convert must also “contribute” $500 per converted unit to a government fund set up to help rental housing. By decreasing the freedom of landlords and converters, measures like these will discourage investment in any housing developments at all and will aggravate the housing crisis further. ## The social struggle If the political battle among tenants, landlords, developers, bureaucrats, and elected officials has become emotionally charged, the social struggle among economic classes in the cities could turn the 1980s into a replay of the urban violence of the 1960s. Again, the statistics of the baby boom tell the story, for an estimated 42 million people will reach what is regarded as the “prime” home-buying age of 30 during the next decade. Even the Department of Housing and Urban Development estimates a shortfall of 2 million housing units in the 1980s. And the shortfall will be felt primarily by the poor and racial minorities in the inner cities. The most important housing trend of the 1980s may be the surge in the purchase and rehabilitation of older houses in urban areas—a process called “gentrification.” The trend began in the 1970s, appearing in cities from Washington, D.C. to San Francisco to Houston to Philadelphia. In a sense, gentrification is a free market version of urban renewal —but it has resulted in massive displacement of poor, largely minority residents who face a serious housing shortage already created by housing codes, zoning, rent control, and government-sponsored urban renewal. Some relocate to housing projects in the suburbs, while others search for urban housing as best they can. Why are the young middle class moving back to the inner cities? In part because of new social trends. They have fewer children than the previous generation, spend more time away from home, and want to be “close to the action.” They may even be motivated by concern for inner-city problems, which television brought forcefully to their attention when they were teenagers in the 1960s. Of at least equal importance are economic considerations. Often, it is quite simply cheaper to buy and renovate a dilapidated inner-city house than to buy a home in the suburbs — thanks in part to the same suburban zoning restrictions which have kept low income people in the cities. Costs associated with commuting, such as gasoline, have skyrocketed, making a “close in” residence that much more attractive. For the new urban gentry, the benefits of this trend have been significant and immediate. Entire sections of older cities, formerly thought of as dangerous ghettos, have taken on a new, trendy character, both residentially and commercially, as merchants flock in to serve the new demand for luxury items. But for the displaced poor and minorities, the trend is bitterly resented. As a former resident of “Old Town” Alexandria, Virginia (a gentrified community near Washington, D. C.) put it, “The white folks want the neighborhood and they don’t want us around any more.” In Washington, D. C. itself, many leaders of the black community view the new housing trend in explicitly racial terms, charging a white conspiracy to drive black people out of the city into suburban housing projects. White newcomers, for their part — even those whose political outlook can be described as “liberal chic” — talk openly of the not-so-distant day when the rehabilitation of their neighborhoods will drive the “undesirables” out of their immediate line of sight. With these racial attitudes clashing, what will prevent a return to the open conflict of the 1960s? ## Dismantling the barriers In fact, there should be no reason for the poor and minorities in Washington, D.C. — or in any other city experiencing similar housing trends — to feel they are the mistreated, displaced losers in a racially-motivated battle in which developers and entrepreneurs have the upper hand. The reasons shouldn’t exist, but they presently do exist in the array of regulations governing urban housing. Cities should have low-income housing in abundance — except that governments at various levels have seen to it that a critical shortage of affordable housing has developed and remains. They’ve seen to it through their insistence on complex and fossilized building codes, which increase costs while at the same time discouraging less expensive innovations and substitutes in building materials, which are interpreted and enforced selectively on the basis of political clout, and which favor large, established construction firms which can afford to wait out lengthy permit procedures. Building codes should be replaced with private, legally enforceable homeowner warrantees which would hold builders liable for defects, and builders in turn could insure themselves in the same way that doctors and attorneys presently carry malpractice insurance. They’ve seen to it through a maze of zoning regulations which has constricted the supply of residential land and prohibited the construction of high-density, low-cost housing — not to mention making city governments a play-ground for corruption. Zoning laws should be replaced with private land use covenants, thus removing such decisions from the political arena — and in densely populated cities which have little or no vacant, developable land, zoning laws needn’t be replaced with anything at all. They’ve seen to it through the disastrous federal program of urban renewal which, as noted previously, destroyed many more housing units than it created and discriminated heavily against the poor and minorities — but which nevertheless was welcomed by city governments, some of which continue to implement localized versions. As a government program, urban renewal is essentially dead; may its coffin be nailed shut permanently. They’ve seen to it through perhaps the most wrongheaded of all housing regulations, rent control, which has not only dried up new investment in the rental housing market but also has hastened the deterioration and construction of existing rental housing, encouraged condominium conversion, and artificially stimulated the inner city gentrification trend. Rent control should be abolished; the only way to create a supply of decent, affordable rental housing is to allow people an incentive to build it, maintain it, and rent it. Like inert chemicals which, when combined, set off an explosion, the combination of these housing market regulations with national demographic trends add up to social dynamite for the 1980s. The dynamite can be defused—but only by removing the power of political decision making from the issue of housing. Bruce Douglas Cooley is serving a Summer internship in _LR’s_ West Coast office. In September he plans to return to his studies at Oberlin College in Ohio.