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Benjamin Franklin Quote

When the people find that they can vote themselves money, that will herald the end of the republic.

ideas > Affordable Housing... It Doesn't Work

Affordable Housing... It Doesn't Work
Today, as I was coming into work, I drove past Kukui Gardens on Vineyard Street. I couldn't help but be reminded that recently our State Legislature here in Hawaii set aside $25 million dollars for the lucky residents of this affordable housing project to help them purchase the property so they could keep it affordable housing. I couldn't help but notice a couple things about this complex. First, it is located in a very nice location to downtown. Second, the property is only 3 stories tall. Third, it takes up a lot of land. And fourth, there were some nice cars located in those parking lots.

I thought to myself, why is the government interested in spending $25 million dollars on this property that benefits a very small portion of the population? When the state first allowed this property to be built, they told those who built it that they could build it, but that it had to remain affordable housing until 2012. After that, the builder could do whatever they wanted. And wasn't it fascinating to hear our government leaders complain about what the owners of the property wanted to do when they were only doing what the government said they could. It was rather humorous to hear leaders such as City Councilman Rod Tam calling business men carpet baggers for doing only what their contract with the State gave them the right to do. What does that say about this City and State? It says that this City and State can't be expected to keep their word; that they will take advantage of what businesses will do for them, but when the business tries to do what they can do, the State or City will renege, cry carpetbagger, and ultimately force the business owner to acquiesce and give in to their demands. It was so pathetic.

Now letís move to the concept of affordable housing and why it doesnít work. Affordable housing does not work for simple economic reasons. Let's look at Kukui Gardens. It occupies a disproportionately large piece of land close to downtown where many people have to work. That piece of land could fit many nice size high rise condo buildings, allowing many more people to live on that land. Now letís talk about the economic reasons why affordable housing doesnít work.

We can all agree that land in Hawaii is a limited resource. High prices either signify that the supply or land or housing is limited or that there is a great demand for land or housing. Prices reflect this supply or demand. So land/housing is limited and prices tell people how scarce the supply of land/housing is. Prices help people know how much of one thing they should have. Now let's present an example that anyone can understand. Let's say I have 100 people who have $50,000 a piece. Each person wants to buy one acre of land. Let's say there is 100 acres of land available. So the price per acre of land would be $50,000. Now let's say that the government steps in and says that 25 of these people have some kind of disability, handicap, or such and that these people should only have to pay $25,000 per acre of land. So these people can now buy 2 acres of land or they can buy land below the market price of land. What does this do to the other 75 people? If 25 people take 2 acres a piece, then that leave only 50 acres of land for the other 75 people. So now, these people must $75,000 per acre of land. Each person only has $50,000 per acre, so now each person can only get .67 acres of land. So now you have given a larger portion of land to a smaller group of people based on some criteria that has been devised by a politician or bureaucrat somewhere. What is fair?

When the government says that they will solve the homeless crisis by building affordable housing, or housing below market value, it will never work for the basic economic principles that I explained above. Affordable housing only creates a housing shortage because you have given too much land and housing to a smaller percentage of people, leaving the rest to fight for a smaller portion of land.

I would say if the government would like to solve the housing crisis they need to accept a few basic principles. First, let the market ration the supply of land and housing. It does a better job than any government can. More people will be able to get land and housing than under this scheme of affordable housing. Second, sell much of this government land that many of these old state buildings are on (see the space at Keaumooku and King) and let developers develop this into condos/apartments. The State has so much land and they waste so much land downtown. Third, let builders build. The government should be focused on building quality infrastructure. Fourth, some people just can't afford to live here because they don't have the skills or education to get a job that pays them enough to afford it here. So they need to move away to get more skills so they can come back when they make enough money. Keeping unskilled, uneducated people who cannot afford it here by giving them housing at below market values means that people that could have afforded it here no longer can.

In summary, the government needs to stay out of the housing shortage. Let builders build. Let those can't afford to live here, leave. And most importantly, spend our tax dollars on building infrastructure, not trying to defy basic economic laws. You will always lose and citizens will always pay for your meddling.
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