June 15, 2024
Why is a house not like a car?
Okay, this is not a funny riddle. I was in Florida this week and spent some time with Tobias Peter, Senior Fellow & Codirector at the AEI Housing Center, and put forth an interesting tale about cars, housing, and affordable housing, and how we shouldn’t jump to the conclusion that politicians should direct more money toward “affordable” housing.
“Before concluding, however, that we need to spend more money on ‘affordable’ housing, let’s first consider another version of a simplified, yet functioning market: the car market. Just like new and existing homes, there are new and used cars. Some people own cars or homes, others lease or rent them.
“In this market, the impact of regulations on car manufacturing is more limited (although with EV mandates that is certainly changing). Cars, unlike houses, are generally affordable to broad swaths of people.
“In this functioning car market, we build a few very expensive cars for upper income people, and a lot of moderately priced cars for middle-income people, and no cars for lower income people.
In such a functioning market, no one would propose a tax credit for car manufacturers to build cars for lower income people. It is preposterous because of filtering: the concept where older used goods are passed down the income ladder as newer and more technologically advanced goods become available.
“With cars, as middle-income people buy new cars, they sell their older, still serviceable cars to someone of lesser means, and so forth until everyone, including someone of low-income owns a serviceable, but not a new car.
“The difference between the housing and car market is that car manufacturers are still able to build new cars at moderate price points allowing them to meet demand. Therefore, the root cause of housing unaffordability is government regulatory failure that has made land scarce and home building expensive.” (Mr. Peter’s full testimony can be found here.)
