Housing as Economic Development Policy

By Robert Pittman, Executive Director, Janus Institute

In post-war America, perhaps no image illustrated economic progress more than a comfortable single-family house on a tree-lined street – complete with a car (or two) in every driveway and a chicken in every pot. The Federal Government made every effort to encourage this American Dream through favorable mortgage and tax policies. But things sure have changed in today’s world. Because of high land and infrastructure costs, some cities across the country are actively discouraging single-family housing development, and tremendous resources are being put into finding new alternative modes of transportation. A chicken in every pot, however, still remains a desirable goal, as long as it was not fed any GMO products.

Reports on the lack of available and affordable housing in places like the San Francisco Bay area and the Northeast are common. In these markets, extremely high-income buyers can bid the price of older 1,500 square foot ranch houses into the millions of dollars. Housing availability and affordability is a problem in many less-affluent urban and rural areas as well. A recent article in the National Real Estate Investor points out that the housing needs of two subsets of the population have been addressed in the US.¹ The private sector has provided housing for those earning more than 100 percent of the Area Median Income (AMI) and government programs such as Low-Income Housing Tax Credits and Section 8 have helped provide housing for those earning less than 60 percent of the AMI.

But what about the population in the middle – those earning between 60 and 100 percent of the AMI where so many production workers, healthcare workers, teachers, etc. fall? Private developers and government programs are not necessarily addressing their needs. This is clearly a community development problem, but it is also an economic development problem. High housing prices can discourage workers from living in an area and cause upward wage pressure for employers. As pointed out in the Chicken vs. Egg Redux blog, in today’s strong economy the location decisions of many companies can be more strongly driven by availability of labor. Increasing the quantity and quality of the local labor force has become a priority economic development strategy for many communities. If housing helps accomplish that result, then housing also becomes a priority economic development strategy.

Skeptics of government involvement in any market might say that if there is a need for more affordable housing in an area the private sector will respond. While a private-sector solution may be preferred, in many areas there are issues of building trades capabilities, available land, zoning, permitting and other potential impediments to housing development. Furthermore, since affordable housing can influence the supply and cost of labor in an area, it should be considered part of a community “development ready” strategy. Subsidized industrial land and buildings, labor training, financial incentives and the like are common practice, so why shouldn’t housing policy be in the economic development tool kit as well?

Teton County, Wyoming provides an example of a community addressing the issue of available and affordable housing impacting the local labor supply.² A survey of local employees showed that 21 percent of respondents were actively considering leaving their jobs and moving because of the lack of viable housing options. The County created an Affordable Housing Department to address any government policies such as zoning and permitting that might be negatively influencing housing cost and development. The Department also works with private developers to identify available and reasonably priced land for housing. In some cases, this land may be publicly owned which allows the option of government subsidies to stimulate supply.

What is the housing situation in your community? Do you believe that the lack of readily available and affordable housing for low to moderate earners or perhaps even higher earners is an economic development liability? If so, an assessment of the problem and a plan to address it should be a high priority. If you don’t perceive a problem now, then perhaps the modification of an old adage applies to your community: “If it ain’t broke, sooner or later it will be so you’d better figure out how you’re going fix it now.” Put another way, to help ensure that local residents can afford the chicken and the pot, communities should help ensure an adequate supply of affordable housing.