Municipal governments across the country are paying for increasingly expensive social services by jacking up building fees, cutting off the supply of entry-level homes and forcing upwardly-mobile working families to pay more to enter market. The Wall Street Journal reports:
The housing market has recovered, but sluggish entry-level construction is putting a squeeze on families that would like to buy their first home. A new report pins the blame on City Hall.
The culprit: Impact fees that builders have to pay municipalities when they get permits for new construction, says the report from Zelman & Associates, a housing research firm. These fees fund the local infrastructure needed to support a growing population—schools, transportation, environmental mitigation and utilities. […]
It’s a bigger issue at the entry level because builders face tighter margins to begin with. It is easier for them to pass along these fees on luxury homes that have fatter margins because the fees represent a smaller share of the sales price, and builders have focused heavily on the luxury market in recent years.
Impact fees are just one of the ways that local government regulations have artificially raised the cost of housing in recent years. Such restrictions have benefitted the wealthy—suppressing new construction enhances the property value of people who already own real estate—while making it harder for young people and working families to start building home equity. They have also probably dulled the (sluggish) economic recovery by swallowing up a big chunk of wage growth that has taken place since the Great Recession.
It’s becoming increasingly clear that ill-advised housing policies are a serious impediment not only to economic growth but to social mobility. Progressive policy is to try to make housing affordable by subsidizing it, instead of addressing the tax and regulatory burden that drives up prices for low-income people in the first place. And while Republicans have very little power in big cities, few GOP mayors have shown much interest in tackling housing costs, either.
Unlike many other public policy areas, our failed housing policy doesn’t reflect what we have called the “drought of ideas.” It represents the triumph of bad ideas over good ones. Politicians in both parties need to urgently address the overregulation of home building to sustain the health of our economy and the promise of upward mobility in America.