America’s Housing Crisis will lead to Class Warfare

America’s housing’s crisis has gotten so bad that it is generating intense political warfare. That warfare threatens to split political parties apart along class lines and turn neighbor against neighbor.

A preview of this warfare played out in the California state capitol when a very limited piece of legislation ignited an all-out brawl among Democrats. Senate Bill (SB) 827 would have loosened land use regulations around transit hubs to allow the construction of higher-density housing.

The bill generated vocal opponents that ranged from the Sierra Club to the Vice Mayor of Beverly Hills, The American Conservative’s James B. Pinkerton noted. Opponents first succeeded in getting high-rise buildings stripped from SB 827, then defeating it completely.

The debate over the bill ended up pitting working-class Democrats against wealthy Democrats, Pinkerton pointed out. The issues it raised were so divisive that Republicans refused to join the debate, probably out fear of exposing their own fault lines.

Why the Housing Crisis is not being solved

The saga of SB 287 introduced by State Senator Scott Wiener (D-San Francisco) exposes both the cause of the housing crisis and reveals why politicians refuse to touch the problem.

The cause of the housing shortage is simple supply and demand. The economy is not producing enough housing to meet the demands, which drives up the prices. This situation benefits certain groups; including existing homeowners, realtors, mortgage brokers, Baby Boomers, senior citizens, professionals, and the rich.

Those people benefit from higher property values; which increases their potential wealth and their ability to borrow against the real estate. To add icing to the cake, property owners get huge tax advantages because mortgage interest can be tax deductible.

It is in the economic interest of those groups to keep the supply of housing low. That is why they strongly favor restrictive zoning laws such as limits on density; bans on high-rise and multistory buildings, rent control and bans on the construction of apartment houses.

Other groups including the young, the working-class, college students, single people, renters, and landlords get hurt. The supply of housing is limited so such people end up paying higher rents or sharing housing.

Those lacking properties are at a disadvantage because they tend to be less politically active, less affluent, and younger. There are few twentysomethings in the state legislature but lots of older professionals that own homes or rental units under the capitol dome.

This is why even limited reform; like Wiener’s SB 287 which would have only affected lots within a mile of a train or light rail stations, goes nowhere. It is also why seven out of 10 San Francisco residents cannot afford to buy a home in that city. The average home in the City by the Bay costs $1.7 million a year.

How Zoning Causes Housing Shortages

SB 287 did address one of the main causes of America’s housing crisis; restrictive zoning.

Rental units are in short supply in many cities because of zoning. Many neighborhoods are zoned for single-family homes only; that prevents the historic solution for housing shortages; bulldozing houses to make way for apartments or townhomes.

Bans on high-rise and multistory buildings limit the number of apartments that can be built in an area. Other restrictions include lots zoned for commercial or industrial use only. That prevents the historic solution of putting apartments on top of stores, restaurants, parking garages, or office space.

Such restrictions remain in place because city councils and county boards are usually under the control of homeowners or real-estate interests. SB 287 tried to fix that by taking zoning powers away from city governments.

Opponents were more afraid of the precedent SB 287 would have set; taking land-use regulation away from local governments and turning it over the state, than the law itself. Despite that, SB 287 was a very responsible law because it was an attempt to address an issue that local governments refuse to tackle.

What Can Be Done about the Housing Crisis?

There are a number of steps that the state and federal governments can take to alleviate the housing crisis.

Some of the most obvious solutions include:

• Eliminate the mortgage-interest income tax deduction which provides a powerful incentive to purchase expensive housing. To their credit, Republicans took a huge step in the right direction by lowering the mortgage-interest deduction to $500,000 with last year’s tax reform. Congress needs to follow up by killing the deduction or limiting it to $100,000.

 

• Place federal and state taxes on expensive homes. An example might be 5% annually on homes valued at more than $1 million and 10% a year on homes valued over $10 million.

• Tax rents and home mortgages that exceed $5,000 a month tax rate of 5% or 10%. Proceeds can be used to finance affordable housing.

 

• Congress should approve large affordable housing developments on federal lands in or near cities with housing shortages. Properties it can use include Bureau of Land Management (BLM) properties, unused military bases, and Indian reservations. There are several old military bases in the San Francisco Bay Area that can be used for this purpose.

 

• State legislatures can consider using state-owned properties such as school lands.

• Create housing bonds to finance the construction of affordable housing.

 

• Pass uniform national or statewide zoning regulations that override restrictive local laws. One way to achieve this in California would be with a statewide ballot initiative.

 

• Create a national affording housing voucher or tax credit for households with incomes under $50,000 a year.

 

• Develop Vienna-style social housing in which government builds large numbers of housing units, then rents them out to everybody at low rates with no income restrictions. This lowers housing prices by increasing the supply.

 

• Ban rent control. It only makes the situation worse by making it unprofitable for private companies and individuals to become landlords.

• Create tax breaks or credits for landlords that charge affordable rents. For example, make all income from units that rent for less than $1,000 a month tax-exempt.

 

The Housing Crisis is Just Beginning

There is one certainty the housing crisis will grow and the battles over it will get far worse. The SB 287 debate only laid bare the class fault lines and did not touch on racial divisions, which are likely to be nastier.

The housing crisis will not go away because everybody needs a place to live. Since most people will refuse to live under a bridge; or in their cars, the housing crisis is about to become one of America’s biggest political issues