The Affordable Housing Myth

Weekly Blog #10

“There is no such thing as a free house.” Milton Friedman paraphrase 

“There’s no such thing as a free house; someone always pays the mortgage.” Milton Friedman’s warning may pre-date our current housing debates, but the lesson is timeless. Lately the rallying cry has been, “eliminate greedy developers and let government build the homes.” This sounds noble: remove the profit layer, erect neat, low-cost units, and hand the keys to families in need. Strip away the profit and you strip away the problem … right?

Follow the invoices instead of the slogans and the picture changes fast. Government-sponsored “affordable” projects always cost more and deliver less than their profit-seeking counterparts. We are not talking about granite countertops or rooftop pools; we are talking about bureaucracy, red tape, and the slow bleed of incentives. Los Angeles offers the poster child: an audit of Proposition HHH supportive-housing developments logged construction budgets around $600,000 per apartment—more than a market-rate condo down the street. Statewide numbers are even starker. California now sports half-a-dozen “affordable” complexes topping $1 million per unit—a price tag that would buy a hillside view in Malibu.

These aren’t statistical outliers; they are what happens when a project carries not just lumber and labor but political mandates, trade-union requirements, environmental reviews, public-art quotas, and years of carrying costs while permits creep through city hall.

Yes, the tenant pays below-market rent, but that’s only because the real bill is handed to the taxpayers. Direct subsidies flow in via federal low-income housing tax credits, state bonds, and local sales-tax levies. Cities layer on soft loans and “forgivable” grants that never appear on the builder’s profit-and-loss statement but do appear on yours every April 15. Land set aside for public housing usually comes off the property-tax roll, shifting the burden onto remaining taxpayers. Factor everything in and the public frequently shoulders $300,000 to $500,000 of hidden cost per door—well above what a private developer needs to break even on a comparable unit.

Why the price gap? Start with incentives. Private builders live in mortal fear of cost overruns; every dollar spent is a dollar off the bottom line, whereas agencies operate on “use-it-or-lose-it” budget—if a change order fattens the bill, it becomes justification for a larger appropriation. Add Davis-Bacon prevailing-wage rules and local project-labor agreements, and labor costs jump 20–30% before the first shovel hits dirt. Add “layer-cake” financing—often six or more funding sources, each with its own paperwork and compliance clock—and legal fees snowball while the interest meters ticks. Political add-ons round out the package: public-art installations, ground-floor community centers, on-site social-service offices. Worthy ideas, none of them free.

Even if Uncle Sam never built another unit, he still dictates the price of every home through regulation. According to the National Association of Home Builders, impact and utility fees now average nearly $100,000 per new single-family home. Regulation—zoning limits, design mandates, energy codes—now accounts for roughly a quarter of the final price of a house and about a third of a multifamily project. In New England, the typical permit-to-completion timeline currently exceeds a year, and every month of delay adds interest, insurance, and risk that must be recouped in the sale price. Economists Edward Glaeser and Joseph Gyourko call the resulting gap between market value and physical cost the “zoning tax”; in supply-constrained metros it can swell to fifty, one-hundred, even three-hundred percent of replacement cost.

Strip away those frictional expenses and “affordable” stops being a subsidy program and starts being a market outcome. Examples already exist. Modular construction can slash labor hours and weather delays, but only if local codes welcome innovation instead of treating it like a science experiment. Three-D-printed concrete shells can frame a house in a day, yet languish under nineteenth-century building regulations. Land-light zoning—think backyard ADUs, duplex conversions, or micro-lots—allow small builders to turn a postage-stamp parcel into two starter homes instead of one McMansion. Every breakthrough mentioned above was hatched by entrepreneurs chasing a return on capital, not City Hall bureaucrats.

So, what should policymakers do? Here are five reforms that would cost taxpayers nothing:

1. Permit-speed guarantees—decisions in 90 days or less, or the application auto-approves.
2. By-right zoning—especially near transit corridors where demand already exists.
3. Impact fee waivers—for entry-level units under 1,200 sq ft or below HUD affordability limits.
4. Competitive bidding—ditch blanket union mandates on publicly funded jobs.
5. Sunset clauses—require every housing regulation to justify itself every five years or expire.

None of these eliminate profit. They just let capital flow to the places it’s most needed.

Calling profit greed makes for good political grandstanding, but it’s naïve if not stupid. Profit is a compass needle; it attracts resources to places of scarcity. Clamp a magnet of regulation around that compass and you do not eliminate greed—you eliminate direction. Capital wanders off to self-storage REITs, data centers, or even crypto-mines—anywhere with fewer zoning meetings and faster, higher return on investment.

Economic freedom creates abundance from scarcity because builders are rewarded for solving problems. Take away the payday, and you take away the people who know how to pour concrete on time and under budget.

Public housing advocates are right about the symptom—high rents and low vacancy—but wrong about the cure. Banning profit doesn’t lower housing costs; it just hides them, bloats them, and sticks someone else with the bill. The fastest path to affordability isn’t to social-engineer supply. It’s to unleash it.

Cut the red tape. Unlock the zoning map. Let builders chase margins. Prices won’t fall because the government declared them affordable. They’ll fall because the market finally made them plentiful.

Mark Lazar, MBA
CERTIFIED FINANCIAL PLANNER™