Can the Governments ever provide affordable housing?

Human beings are social animals. Human beings all over the world want to own their homes. All governments worldwide try to attract their voters by promising affordable housing.

Governments worldwide, from the United States and India to Europe, are attempting to implement policies that will create affordable housing. In reality, the best way for the government to make housing affordable is not by creating policies but by letting the market function. Politicians who interfere in economic affairs often produce less than satisfactory results.

How Does the Government make property expensive?

All over the world, governments pass legislation on different levels that increase the price of property. The policies include:

  • Inflation at the Central Level Inflation in the economy is a significant factor that affects property prices. Property prices would remain affordable in the absence of inflation.
  • One of the main reasons to buy property is as a hedge from inflation. The problem is the central banks decide how much money is available in a nation. The money supply in a country is then controlled by changing the interest rate.
  • In the past, central banks and governments have adopted inflationary policies. They create more money, and a significant part of it goes into the housing markets, raising prices. Stop creating money would be the solution! The government should acknowledge that it is the cause of the problem. Governments continue to make empty promises about reducing inflation while taking no action.
  • Rent Control Laws Rentable housing is a critical component of affordable housing. To flourish the rental market, however, homeowners must be allowed to charge a fair rent. This is prohibited in most provinces.
  • Rent control laws are implemented by many governments, especially in countries that have advanced. These acts cover some housing units while others are not.
  • Owners of rent-controlled apartments prefer not to let their houses out. This artificially limits the supply of rental housing, increasing the price. Again, the market is better off without government intervention than with it.
  • Zoning Laws The housing market is a function of both supply and demand. Demand in cities is on the rise due to an increasing population. The collection of housing units is growing at a different pace. The reason for this is the archaic zoning regulations in many cities. These laws prohibit the use of large parcels of land. This results in a lengthy and expensive process for builders to get building approvals.
  • These approvals can be granted or denied. Even if the government gives permission, it is still a process rife with bureaucracy and corruption. The government increases prices for two reasons.
  • First, there is a limited supply of large plots of land.
  • Second, to build on land allowed for construction, you must factor in bribes and other costs.
  • The government isn’t the real solution. The government is the problem.
  • Transactional costs Local governments around the world charge a transaction cost whenever a property is sold. These transaction costs are often as high as 6 to 7 percent of the property’s price.
  • These costs add to the price of the home, making it more costly. The government should reduce transaction costs to make housing more affordable.
  • The government always keeps transaction costs the same as they are a significant source of revenue. Most of the time, governments only pretend to support affordable housing.

In the United States, the government implemented a policy for creating more affordable housing. Through this policy, the government began giving loans to everyone regardless of their credit rating. The government created agencies tasked with buying these loans and then transferring cash to banks to make new loans.

Strangely, the government believed that injecting excessive cash into a market could help lower prices. The outcome was predictable. Housing prices in the United States skyrocketed between 2000 and 2008.

History is clear. Only by avoiding the housing market can any government help to reduce housing prices. Each government attempts to interfere in the housing market to gain political advantage. It’s time voters understood that efficient markets, not political promises, provide affordable housing.

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