You can’t legislate “affordability”

Downtowngal, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons

Remember “Cash for Clunkers?” It lasted less than three months, but the fallout was immense.

It was a 2009 government program designed to make new cars “affordable” by giving $3 billion of your money to people to trade in their used cars and buy new ones.

The stated goals were multi-fold: get people to trade in perfectly good older used cars by offering a trade-in value far higher than market rate. By doing so, it would make buying a new car more affordable — of course, “affordable” comes from diverting money from taxpayers to car buyers. It’s a classic example of the public choice theory of concentrated benefits and dispersed costs. It was also pitched as an environmental program by getting gas guzzlers off the street and replacing them with newer, more fuel-efficient models.

But did it make cars more affordable? Not really. The bill required any car traded in to be destroyed, and it thus took more than 650,000 running cars off the road. As a result, the most affordable cars on the road — used cars, especially older used cars — became more scarce. The average price of used cars, which had been steadily declining for eight years, rose 23% in the two and a half years after Cash For Clunkers was enacted, with the greatest increase in the six months after.

Basically, all it did was use government grants to funnel money to auto workers, to pay back a key constituency that helped deliver President Obama the White House in the previous year. And it made a few people feel good about getting a newer car at a far lower price than they should have. But in turn, it wrecked the used car market, and in the long run, thus made cars more expensive.

That’s what happens when central planners believe they can provide “affordability” with central planning and government programs.

We’re seeing it now in the champions of the “affordability agenda,” who are basically prattling off a bunch of socialist talking points. There are some good nuggets, such as relaxing zoning rules (but tucked inside that is an implicit assumption that will be to produce more urban high-density housing, not the suburban single-family housing the majority of Americans prefer), but most of it is warmed-over central planning.

The “affordability agenda” pushed by the socialist “Congressional Progressive Caucus” is nothing more than a mishmash of price controls, demand subsidies, state takeovers and threats to private businesses. In practice, like in places like New York under Zohran Mamdani, it’s government-run grocery stores and government using onerous rent controls to try to squeeze landlords to eventually seize and take over their properties.

Like Cash For Clunkers, it won’t create more affordability, but will reduce supply, create black markets and make things more expensive. The CPC’s agenda includes government selling medicines “at a discount” — which would crowd out private pharmacies, and likely lead to shortages while taxpayers cover the difference in cost — and price caps on child care. Again, who’s going to cover the difference, especially given the demands from the same people of high wages. In New York, Zohran Mamdani is proposing free child care, while paying child care workers $85,000 — about triple what they currently make. “Free,” of course, means “paid for by others.” But eventually, as Mamdani is realizing, you run out of other people’s money.

The rest of the laundry list? Taxing oil company profits (forgetting all taxes are passed on to the consumer), jawboning private grocers and utilities — one of which sells at very thin margins, the other of which is heavily regulated by each state’s government — and $20,000 in down payment assistance for new homebuyers.

Going after grocers, whether it’s attacking them for perceived high prices when they are already often selling at extremely thin margins or trying to compete with them with government-run stores as Mamdani wants to do in New York and Kansas City spectacularly failed at doing, won’t lead to more affordable groceries. It will instead lead to fewer grocery stores and less competition. And the solution then will likely be FDR-style price fixing to “protect” neighborhood markets, or subsidies. Meanwhile, one way to make food more affordable in New York is to allow low-price retailers like Walmart to operate, which NYC famously refuses to do.

And subsidizing demand in housing is a fool’s errand. The problem with housing is not enough supply, and that lack of supply is exacerbated in places like coastal cities where urban growth boundaries are used to try to force people to live in high-density areas and effectively ban new single-family developments. Land inside the growth boundary is often 10 times more expensive than land outside — where building a home on less than five acres is often not allowed — thus creating artificial scarcity and driving up the price. Creating more demand in a world of limited supply only makes things more expensive. The $20,000 may feel good, but it doesn’t do a lot of good when it increases the number of people bidding for a fixed supply of homes in the short run due to government red tape, and thus makes a single-family home cost $450,000 instead of $350,000. It is government that makes housing more expensive. A recent National Association for Home Builders study showed that regulations add $137,734 to the price of a new home, which stifles construction and makes things less affordable.

Meanwhile, rent controls and the desires for government to take over privately-run housing are making the housing market worse, by creating a chilling effect on badly-needed new construction. If the government will try to squeeze me out through price caps and then take my property, why would I build an apartment building? In turn, because fewer apartments are built, the quantity demanded greatly exceeds the quantity supplied at the controlled price, creating shortages. While propsective tenants don’t spend more in money, they spend more in time and search costs to find a rare vacant apartment — and as a result, prices rise for substitutes such as non-rent-controlled apartments, condominiums or single-family homes. In Minneapolis-St. Paul, one city tried deregulation. The other tried rent control. Almost overnight, St. Paul — which tried rent control — saw new apartment construction collapse by 80%, while new building continued in Minneapolis.

The only way to get to housing affordability is to get government out of the way. Loosen regulations, especially those that are not necessary for safety (which any reputable homebuilder would be taking care of anyway, if that builder wants to stay in business), loosen zoning requirements, eliminate all urban growth boundaries and impediments to building the types of homes people actually want, and see housing become more affordable.

And that’s also the path to affordability in other areas. One blind spot socialists have is they have a central planning bias — they perceive central planning as the solution to all problems, and believe any societal issues are due to a lack of such planning. But the reality is, free markets are always the solution to the problem.

High housing costs? Get government out of the way and let builders build. High health care costs? Get government out of the way, require hospitals to post their prices and compete on price, and decouple health insurance from employment and government and use an actual “insurance” model. High day care costs? That would incentivize more day cares to open, which would thus bring prices down. High costs for cars? Again, reduce the onerous government standards that make new cars expensive and drive people to used cars, driving up their prices as well.

The reality is, market prices help govern the world. A high price isn’t some evidence of collusion or price-fixing, it’s evidence of a shortage. And those high prices thus incentivize others to redirect resources to where the shortage is happening, which increases supplies and brings prices down. Prices serve as signals, and one thing they do is tell us to conserve when things are expensive or buy up when things are cheap.

But what’s often happening is those who are crying “affordability” are the ones who are standing in the way of affordability with onerous regulations, threats to seize property and using taxpayer dollars to create needless competition with already-existing businesses, which ends up leading to less supply and higher costs.

If you truly want affordability and abundance, get government out of the way. Try market prices.