Lee Friday – October 11, 2018
After the votes are counted on October 22nd, Paul Cheng, Ed Holder, Paul Paolatto, or Tanya Park will be the new mayor in London, Ontario. All of them express concern about the lack of affordable housing, and all of them propose solutions which fail to address the root causes of the problem. Their concerns may be genuine, but this does not excuse their proposals to throw more tax dollars at a problem created by the government itself.
Government Caused the Problem
At the federal level, the inflationary monetary policies of the banking system, approved by the government, causes price inflation. Thus, whether you are buying or renting, rising prices make housing less affordable.
At the provincial level, the government responds to this price inflation by imposing rent controls, which reduces the incentive of entrepreneurs to construct new rental units. Thus, we have an insufficient supply of affordable housing.
At the municipal level, zoning bylaws force entrepreneurs to endure a lengthy process of seeking permission from the government before they construct new housing. Ultimately, permission is sometimes granted, sometimes denied, and sometimes conditional on entrepreneurs modifying or scaling back their plans. Thus, the supply of affordable housing is further reduced.
Cheng, Holder, Park, and Paolatto are all recommending further government intervention to increase the supply of affordable housing, while none of them are recommending the repeal of any of the above mentioned government policies, especially those at the municipal level.
Municipal Meddling
Zoning laws are a violation of private property rights, and should be repealed on that basis alone. However, it is also helpful to take note of the fact that when the government denies people the freedom of choice about how to use their own property, the unavoidable result is that consumers will have fewer options and pay higher prices. The government deserves to be criticized for imposing zoning laws, but so do citizens who request these laws. As economist Thomas Sowell wrote in Knowledge and Decisions (p 201 – 202):
… strong class bias is evident in such things as … strong working-class voter opposition to zoning and strong upper-class support for it …
Zoning law proponents likewise invoke fears of factories and gas stations in residential neighborhoods. But in cities without zoning – notably Houston – no such dire things happen. Middle-class neighborhoods there look like middle-class neighborhoods elsewhere. In lower income neighborhoods, there are sometimes auto repair shops and other such local conveniences – but it is precisely in these neighborhoods with automobile repair shops that zoning is overwhelmingly rejected by the voters. Apparently, the trade-off between convenience and aesthetics is different for those with less money and older cars. Looked at another way, zoning allows some people to impose their values and lifestyle on others who may not share the values or be able to afford the lifestyle.
Economist Walter Block wrote in The Case for Discrimination (pp 114 – 15):
… for many of the poor, prohibiting commercial development in their neighborhoods has meant greater unemployment, or a longer journey to work, and greater difficulties and inconvenience in purchasing amenities.
Less noble sounding are the aspects of the law which have come to be known as “exclusionary zoning.” These are the clauses which specify minimum lot size of dwellings, which demand high quality structures, which, for example, disallow mobile and prefabricated homes. Although they also scrupulously avoid mention of the poor or minorities, it does not take a long chain of reasoning to see that these groups actually bear the brunt of this law. Leon Louw says in this regard:
Zoning laws usually limit the number of people who may occupy, or the amount of housing which may be built on, a given piece of land. The effect is that the poor, who could compete with the rich for prime land by pooling their money and living in higher densities, are precluded from doing so.
Heritage Designation Prevents Affordable Housing
The municipal government’s meddlesome activities also include heritage designations, which prevent property owners from demolishing their own property in order to construct a new property which they believe will satisfy consumer preferences. For example, this London builder has been denied permission by City Hall to demolish his property and replace it with twelve affordable micro suites (bachelor apartments). Demolition refusal, according to Councillor Stephen Turner,
… is based on the building’s history … Heritage designation is not based on esthetics. It’s based on historical value. That is what we have to consider …
“The property at 467-469 Dufferin Avenue has layers of significant cultural heritage value [emphasis added] or interest,” states the city staff report.
Let’s think about this logically. Lansink (the builder) bought the property in 2014, and it would seem that his assessment of value is based on what he believes the housing market will bear, as expressed in Canadian dollars. Let’s assume he earns a profit through the process of demolition, new construction, and the acquisition of tenants, thus justifying the price he paid for the property. This is the key point. Profits indicate that he has created value. He has taken various resources (land, labour, materials) and combined them in such a fashion that they are worth more than the sum of their parts. Thus, benefits accrue to Lansink and the tenants who would enjoy this new supply of affordable housing.
Lansink could be dead wrong. His venture could fail. However, he has put his own money on the line, and this is what sets him apart from the busybodies at City Hall who coercively deny him the right to demolish his own property. It is arbitrary and nebulous for the government to claim that Lansink’s property has heritage value. There can be no objective economic justification for this assessment. All values are subjective, and they can change from year to year, or on a daily basis.
The best way to determine how property should be used is to leave this decision in the hands of the owners, and allow anyone who wishes to bid on a property to make an offer, thereby expressing their own subjective valuation of the property. But this is not what the politicians or the heritage committee are doing. None of them seem willing to use their own money to make an offer to Lansink to purchase his property. Nor do they appear willing to pool their resources to make such an offer. Instead, they feel completely justified in using the force of government to impose their will.
The government’s coercive mechanism of overruling the rights of a private citizen tells us that no one believes the subjective heritage value of the property, as expressed in Canadian dollars, is superior to Lansink’s subjective valuation of the property.
This economic analysis would also apply if the government decided to purchase the property from Lansink in order to preserve its supposed heritage value. Such arbitrary decisions by politicians, because they are using taxpayers’ dollars, would not reflect anyone’s subjective valuation of the property. Subjective valuations occur only when individuals voluntarily invest their own money. Therefore, we can be certain that whenever the government purchases property, the property will not be allocated to its most highly valued use, which limits the choices available to consumers.
Simply put, Lansink is using his own money, which means he is highly incentivized to satisfy consumer preferences, which is a foreign concept within government.
Conclusion
When economic activities are directed by those with political skills, instead of those with business skills, overall prosperity declines. Individuals who want to build houses and apartments must first seek permission from politicians and bureaucrats who produce nothing. When entrepreneurs must bear the consequences not only of their own decisions, but also the decisions of politicians, there will be fewer entrepreneurs, fewer jobs, and fewer housing options.
If they really want to increase the supply of affordable housing, the four leading mayoral candidates in London, Ontario should be calling on the federal and provincial governments to repeal all policies that make housing more expensive. And they should favour the elimination of all municipal roadblocks to housing construction, including zoning laws and heritage designations. The fact that none of the four candidates are doing this means they either do not care about the supply of affordable housing, or their economic ignorance prevents them from seeing that governments outlaw affordable housing.
