Free market will not solve housing crisis

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The COVID-19 pandemic now appears destined to displace large swaths of the U.S. population. With unemployment rates still at record highs and pandemic unemployment assistance expired, some analysts think as many as 30 or 40 million people could be at risk of eviction or experience homelessness by the end of 2020.

But the issue of housing in the United States dates far before — and extends far beyond — the pandemic. Availability of housing was already a problem, especially in places such as the Bay Area, before anyone had even heard of the novel coronavirus. 

According to a count done in 2017, about 1,000 people in Berkeley were experiencing homelessness — almost 1% of the city’s population and almost five times higher than the national average. Meanwhile, average rent in Berkeley is almost $3,800 per month, which at the city’s minimum wage of $16.07 per hour, would require about 60 hours of work per week to pay. 

I would contend this chronic lack of affordable housing exists because housing is often directed by the free market, and the basic function of a free market prevents the construction of an adequate amount of affordable housing. 

Our country’s preoccupation with capitalism has led us to leave most of the responsibility for supplying people with housing in the hands of businesspeople and corporations. In addition, a common desire to maintain a suburban “feel” in many neighborhoods has dissuaded governments from interfering with the free market. But today, with millions facing homelessness or housing insecurity — the United States is home to the largest number of people experiencing homelessness of any developed country — it has become obvious that this is not a sustainable model.

In a free market system, the primary driver of decision-making is profit, and that applies to housing just as much as anything. Housing, in order to be built under our current system, must generally be profitable. But this has become increasingly difficult. 

In 2010, more than 80% of Americans lived in urban areas, according to the U.S. census, and that number is only projected to increase. This means that the demand for housing in the United States is growing concentrated in smaller urban areas. But just because the populations are growing doesn’t mean the supply of housing and land can rise to match the increase in demand. And whether or not the supply of housing goes up, the supply of land stays the same.

When more people live in a smaller area, the demand for the same amount of land skyrockets, and so the price of that land increases accordingly. 

This makes it hard, if not impossible, for developers to make a profit building housing in a city if they build anything but expensive, high-end housing. Without intervention by state actors, the timeline to make back your investment on affordable housing would grow to be so long as to dissuade all but a few developers. 

The only way to ensure that affordable housing is built despite these economic forces is for our government to step in to offset them.

Governments have a number of tools at their disposal to support affordable housing. Land use is a big one. The city of Berkeley, for instance, could easily rezone large areas to allow a greater density of housing. The majority of the city is currently zoned as either an R-1 (single-family residential) or R-1A/R-2 (two-family residential) area. This severely restricts the availability of affordable housing by forcing developers to pay for the entire cost of a project with one or two units. By upgrading much of central Berkeley from R-2 to R-3 or multifamily residential zoning and much of northern Berkeley from R-1 to R-2 — which could still maintain a quiet suburban feel — Berkeley could increase effective land supply in the city and make affordable housing much more practical. If more units are allowed on a plot of land, developers are more likely to develop because they will be able to make a profit more easily.

Government subsidies and tax incentives for the construction of high-density or affordable housing could also decrease the cost of construction for the developer. The construction of more widespread, cheap and effective public transportation networks could make it more practical for people to live farther from the city center. This would make land outside the city a more viable housing option for commuters and others traveling to cities. Even simple regulation changes such as controlling the proliferation of short-term rentals, from companies such as Airbnb and others, and limiting the amount of land dedicated to parking lots could increase the supply of land available for affordable housing units.

The government doesn’t have to make a profit. Not being driven by profit is exactly what we need to solve the housing crisis because it will not be profitable to build millions of affordable homes. Whether it’s by subsidy, public housing, regulation or some other means, it’s time for our government to recognize that the free market has failed us and to step in.

Ian Stephens is a progressive activist, independent writer and content creator whose work can be found at LucretiaReport.com.