"Promoting housing affordability by combating exclusionary housing policies"

 

CFC # 41863 (Combined Federal Campaign) 

 

EHI responds to Wall Street Journal article on new exclusionary policies in Phoenix and Denver suburbs

 

On April 17, 2014, the Wall Street Journal published a feature story about current efforts by local government officials of certain suburbs of Phoenix (AZ) and Denver (CO) to stifle proposed private housing developments, because of perceived adverse effects on the local governments’ finances. Kris Hudson, An Unwelcome Development, Wall Street Journal , April 18, 2014, p. A3. (The online version is Kris Hudson, Towns Taxed by Shift to More Homes, Fewer Stores, Wall Street Journal, April 17, 2014. To access it, CLICK HERE.)   

EHI filed comments on the Journal’s website explaining that those officials’ perceived financial problem is due to their local governments’ abnormal and ill-advised reliance on sales taxes. EHI noted that zoning regulations prohibiting additional housing in order to maximize a locality’s fiscal gains have been declared illegal by numerous state supreme courts. EHI’s letter follows. 

 

The regulatory constraints on housing development in the Phoenix and Denver suburbs discussed in Towns Taxed by Shift to More Homes, Fewer Stores (April 17, 2014) hopefully will not become a model for others. Those suburban towns (Queen Creek and Gilbert, Arizona, and Louisville, Colorado) are resisting apparently solid residential development proposals—despite indications of strong, underlying housing demand—in order to accommodate the towns’ unusual tax structures. And there is no indication the towns are coordinating with nearby communities to meet the housing demand.

Increasing governmental restrictions on housing supply have caused housing prices in the Phoenix and Denver metropolitan areas—and many other major American metros—to rise much faster than construction costs for basic housing, since 1970. Leading housing economists Edward Glaeser and Joseph Gyourko, for example, found that in such metros “the evidence points toward a man-made scarcity of housing in the sense that the housing supply has been constrained by government regulation as opposed to fundamental geographic limitations.”

Glaeser and Gyourko concluded that regulatory problems definitely exist where factors other than building costs and intrinsic land values exceed 40 percent of the value of a basic, one-story house. They found that by 1999, housing prices in the Phoenix area were more than 40% above construction costs and that by 2000, housing prices in the Denver area were 100% above construction costs.

The unusual dependence in Arizona and Colorado on sales taxes for government revenue aggravates the fiscal challenges of their communities. The rise of online shopping and the decline of bricks-and-mortar retail stores suggest that that dependence is not advisable going forward.

In fact, Queen Creek’s consultants have concluded that, based on the city’s current revenue streams, any form of development other than retail would increase governmental expenses more than revenue. Thus, even profitable office and industrial development—fiscal cash cows in most states—would be a fiscal negative in Queen Creek!

Except for certain Western states like Arizona and Colorado that are abnormally sales-tax-dependent, new housing and residents generally produce little or no net drain on local government finances, when all taxes collected as a direct or indirect result are taken into account. . . .

The officials in Gilbert and Louisville indicated as much about the housing proposals reported on. In Gilbert, 110 homes on 55 acres would have cost the city an estimated net of about $57 per home per year by 2020 (a total of $6,258). In Louisville, building 190 apartments on the site of an obsolete shopping center would have been “a financial wash.”

Zoning to maximize fiscal gains by excluding additional housing has been prohibited by numerous state supreme courts (such as Virginia, Pennsylvania, New Jersey, New York, New Hampshire, and California) and by statute in several states (such as Massachusetts, Oregon, New Jersey, and Illinois). Local officials also should take into account the benefits of including families with children—which demonstrably add to the social capital of their communities and hence to the value of homes.

Reasonable housing opportunities for all citizens are more important than maintaining a local government’s flawed tax scheme. (For further information on the points raised here, please visit our website (http://www.equitablehousing.org).)

Thomas A. Loftus, President
Equitable Housing Institute
Vienna, Virginia