Micawber Was Right

In reaction to President Trump’s remarks on improving the affordability of housing by getting corporate landlords out of the market the editors of the Washington Post declaim:

One of the most common types of small business in the United States is to own rental property. The median landlord owns two properties. It’s a side gig where people can make some money in addition to their full-time job by providing someone else a place to live.

Large investors, those with over 100 properties, own 1 percent of U.S. homes. Yet, detractors on the left and right have made them into villains who are scooping up houses from hard-working families.

concluding:

The problem with housing is that there isn’t enough of it. Government shouldn’t care who buys it. It should be looking for ways to make it easier to build more of it, which will mean getting out of the way. Scapegoating investment bankers is always politically popular, especially in an election year, but it won’t do anything to make housing more affordable.

I concur with the editors but I would go one step farther. They are pretending this is a purely market problem, when in fact it is a governance coordination problem. Repurposing the “Micawber Principle“:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Construction permits an increase of .5% of housing stock, annual “natural increase” .5%,—result happiness; construction permits an increase of .5% of housing stock, total population increase including “natural increase” and immigration 2%—result misery.

In any market, when supply is locally constrained and demand is nationally determined, the locus of political control becomes the problem. That is precisely the structure of U.S. housing. Construction permits impose a hard ceiling on the pace of housing supply. When construction permits are scarce, markets do not equilibrate through building they equilibrate through price.

If housing completions grow at roughly the rate of natural household formation, but population growth is driven materially higher by immigration, the arithmetic guarantees rising prices. This is further complicated by the reality that increases in the demand for housing are not uniform throughout the country. It may increase by .5% in Cook County but increase by 5% in Dallas Texas’s Main County. Even a national immigration policy that is statistically manageable becomes locally catastrophic when its effects concentrate in a handful of metros.

Even aggressive housing reform operates on a 5–10 year horizon. Immigration policy operates on a 6–12 month horizon. When those are misaligned, shortages are guaranteed. Yes, some immigrants work in construction. That does not negate the arithmetic of net demand, nor does it eliminate zoning, land, and infrastructure constraints. This is not an argument about who should be allowed into the country. It is an argument about whether the federal government should impose demand shocks on local systems it does not control.

My preferred solution is for state and local governments to streamline and increase the number of construction permits issued while the federal government constrains the increase in the immigrant population to something we can support. A nation that nationalizes demand while localizing supply has chosen permanent scarcity. That is not compassion. It is policy malpractice.