On September 17th, the mayor of Cincinnati, Ohio told his live audience of mostly college students that “climate, artificial intelligence and housing are the triple threat” his administration must address for the community. This is what some of our best young adults are being told by respected leaders in government and academia.
The location was the Cintas Center at Xavier University, the mayor is Aftab Pureval, the host was the Williams College of Business — and the program was titled The Affordable Housing Crisis Symposium. In addition to the mayor’s comments, there was a panel discussion with representatives from the city of Cincinnati, the Ohio Senate, the University of Cincinnati, and the LISC Housing non-profit.
Keynoting the event and bringing a rational perspective to Xavier’s students was a presentation from George Mason University economics professor Bryan Caplan. To that end, the last question of the Q & A session from the audience to Professor Caplan was:
You said that current prices for residential housing are above the break-even point for new development, but our mayor demonized institutional investors as predators. What should be the role of institutional investors?
To paraphrase Caplan’s reply: the mayor’s comment about developers slapping a coat of paint on houses and selling them for double or triple the original price is absurd. The mayor was making things up.
Caplan also reported that institutional investors are nearly irrelevant at less than 1% of residential housing, they are more interested in multi-family apartment projects, and large investment companies are best suited for large housing developments. Furthermore, it makes no sense to demand local-only builders. Big, out-of-state companies may be the most reliable and efficient. Amazon is a supreme example - and these companies have a lot more to gain or lose from reputational risks.
Cincinnati’s Mayor
However, Mayor Pureval is not so concerned with reputational risks. So long as he sticks to the PC catchphrases, he doesn’t need to be. The State has no bottom line. But one thing that rings true is his statement that there are zero developments in Cincinnati without subsidies. Housing development is “too expensive without subsidies.”
Yet, whether those subsidies be federal, state, local or a combination of them, the affordability hawks tacitly blame the private sector for the “the housing stock” not keeping up with demand.
At this point, it is reasonable to ask if the correlation between heavy government subsidies and the heavy expense of development is causal. Of course, the answer is yes. Look at education, medical care, childcare and high-speed rail.
It is also reasonable to conclude that the mayor and his cohort do not ask that question. Instead, he stated that the existing housing stock is not being well preserved, but that suggests the urban blight of government subsidies for father-free households. Does he not know that was also secretly caused by the Great Society and War on Poverty initiatives of the 1960s?
Then the mayor made up this whopper: “everyone deserves safe, quality housing.” Paid for by whom and earned according to what? That is also a secret.
Now is a good time to take a step back. In a free society, is it the morally defensible role of municipal governments to confiscate the property of its citizens to subsidize housing and “green energy” projects? Is it not the morally and practically defensible role of government to defend the property rights of its citizens and taxpayers so they can do all of this more efficiently? Emphatically, yes.
Yet nearly every municipality in America has an open-ended mission statement that conforms to Mayor Pureval’s “population growth is the #1 municipal goal.” Why do they say and believe that? More property tax, employment tax, and service fee payers help balance the books that will never be balanced - and the growth is a tacit endorsement of their utopian dreams.
Of course, Pureval has a plan. He actually said this: “create capital,” which really means coercing and confiscating capital. And he followed that up with: “There is not going to be a data center built in Cincinnati while I am here.” He means that too, by golly, and went on to say that Cincinnati doesn’t have the square footage, but it is “a threat and concern in rural areas.” Phew! But to the mayor, the housing crisis is real and not the fault of the city government:
The lack of housing is driving up property taxes. It is the lack of housing that is driving up rents.
Another whopper. The city cannot be held responsible for its chronic overspending and all of it is the fault of the private sector that did not keep up with demand. Never mind that nearly all of the higher residential prices were caused by lockdowns during the Covid virus government panic and the rest can be attributed to zoning regulations and subsidies.
Unfortunately, there was not a developer or institutional investor on the panel, but Mayor Pureval can thank me for the question to Professor Caplan that closed the symposium. Someone had to do it. But enough about him.
Panel of Experts
Fortunately, the panel discussion began with a definition for “affordable housing” from Kristen Baker, Executive Director of LISC Greater Cincinnati - a nonprofit intermediary between private capital, public funds and new housing ideas from local leadership. Voluntary, privately funded programming is always best. Generally speaking, housing expenses that do not exceed 30% of a household’s gross monthly income is considered affordable.
Naturally, that is a moving target depending on income - and there is an incentive to earn as little as possible to qualify for subsidized housing assistance. Therein lies the rub that has plagued redistribution schemes since the beginning of time. You will be penalized if you become more productive. Subsidies incentivize need.
And that was reinforced by State Senator Michele Reynolds who claimed: “Housing is not a political issue, it is a humanitarian issue.” But if it’s not a political issue, why is it one of the top political issues of the decade? If you don’t believe me, ask Mayor Pureval who, according to his bio for his conference, “has made equitable economic growth a top priority of his administration.”
If it were a humanitarian issue, everyone on the panel and the mayor would respect the humanity of each individual as a volitional being with amazing potential for productivity and pride. But that’s not the case, so let’s decipher that. Equitable means everyone deserves what everyone has earned - meaning the individual must submit to the herd and the State has free money.
A good part of the discussion concerned the stigma associated with “affordable housing” and the resistance its gets from the “not in my back yard” mentality of taxpayers living in neighborhoods zoned for single family houses. However, government housing has earned its bad rap and these regulations have been on the books for decades.
In addition, the recent spike in prices has nothing to do with that. It is the market telling us that the “American dream” of home ownership is about political power, not economic power.
Confirming this, Moderator Mack Mariani asked the panel to address “the socioeconomic and environmental challenges” that contribute to their housing affordability crisis. Bear in mind, “socioeconomic” and “environmental” can mean anything. To add to the ambiguity, University of Cincinnati Real Estate professor Gary Painter declared: “all of these departments seeking the public good can be enhanced.”
Notwithstanding the fact there is no such thing as “the public good,” enhancing these departments ignores their own unaffordability and irrelevance.
Doubling down on that, Painter asserted that “regulation must anticipate technological changes.” You cannot make this up. To anticipate and be prepared for innovation is the challenge of every entrepreneurial spirit with skin in the game, investors to reward, customers to please and talent to maintain - everywhere and always. If they don’t succeed, they fail. Yet, State university real estate professors have no such incentive or risk of failure.
Saving the best for last, Oliver Kroner, Director of Cincinnati’s Office of Environment and Sustainability said that “tax levies to support rapid transit are well intentioned.” Oh, good. And regarding environmental housing mandates, “I am a big fan of what’s happening in Minneapolis.” Oh, good
Radical Reality
Among Professor Caplan’s ideas grounded in evidence was the expensive symbolism of bicycle lanes and the expense of free parking mandated by building codes. But most of all, the huge expense of zoning regulations contributes to housing costs that would be much lower under free-market conditions.
And Caplan suggested that if these humanitarians were truly concerned with helping “the poor” there would be tolls charged for highway use that would reduce congestion during peak rush hour traffic for their “working class” constituents.
To the question about the importance of the “social capital of community” having greater value than new development, Caplan replied it is a myth. Most people prefer the company of their family, co-workers, and recreational friends than they do their neighbors. To quantify the true value of that “social capital” all you have to do is measure the value of what causes people to move out. The same is true for poorer people living in lower quality homes to save money as wealthier people paying up for the positive value of the urban center package.
In essence, markets don’t fail and money demands our best. But to fully understand Caplan’s ideas, his book titled Build, Baby, Build: The Science and Ethics of Housing Regulation is the best resource. Unfortunately, every bureaucrat on this “housing affordability crisis” bandwagon has little understanding of prices as information, free markets as efficient, or profits as justice. And driving that lack of awareness is the illusion of free money.
But for us, it is important to understand the true cause of these issues (intrusion), the true purpose of the political rhetoric (power), and the best trade-offs for your personal circumstances (independence). America is the greatest society with the brightest future the world has ever known.
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