The ridiculous idea that new fees don’t raise housing prices

Any political movement has its shibboleths and sacred cows. There are beliefs that must not be deviated from to be a member in good standing, and “truths” that aren’t really true.

It’s good to see stale ideas get challenged, regardless of where on the political spectrum the debate is happening. In this age of social media-driven ideological silos and geographic sorting, it’s increasingly up to like-minded compatriots to challenge untruths on their own side.

On that front, a piece from last month on Sightline caught my eye, not least because of where it ran. The title might strike you as obviously true: “Yes, red tape and fees do raise the price of housing.”

Duh, you might be thinking.

Incredibly enough, this is an argument that’s necessary to make. You might think it’s self-evident that raising fees and adding delays and mandates to anything, including housing, will raise prices. Not everybody sees it that way.

Writer Dan Bertolet explains their thinking:

“Why? Because, goes the refrain, developers charge as much as the ‘market will bear’ anyway. Any savings from streamlined regulations or reduced fees just yield more profit for the developer, not lower prices or rents.”

Not only is that wrong, it fuels backward thinking. When policymakers believe that the market price of homes is somehow immutable and not effected by fees and red tape, they’re not apt to put any thought into how their actions negatively impact homebuyers.

As the author notes, “Why bother fixing ill-conceived regulations that boost the expense of homebuilding if you believe doing so won’t help affordability?”

But extra costs and delays absolutely raise the price of housing and hurt affordability.

Supply, supply, supply
There are several reasons for this, but the biggest is supply at any given moment. When it comes to housing, available inventory is a big factor in price gains. In a booming city like Seattle, new housing – a lot of it – is critical for keeping prices reasonable.

The wrong-headed thinking about fees and red tape ignores what’s needed to add to a city’s housing supply. Even if it were true that additional imposed costs don’t increase an individual property’s price (it’s not), that wouldn’t mean affordability isn’t impacted.

New housing is not going to be developed if there’s little to no profit incentive to do so. In a growing region, that’s a recipe for soaring prices. As Bertolet points out in his Sightline piece, “most urban property already generates revenue, and owners always have the choice to keep collecting rents until offered a price high enough to make it worth selling.”

If the return on investment isn’t worth it, property owners will keep their properties as-is, sales and redevelopment won’t take place, and new housing won’t be added.

The root of this wrong thinking is the demonization of profit. When activists support raising fees under the theory that it only hurts developers anyway, they’re working to prevent redevelopment, maintain low density, and raise prices.

Then they complain about the lack of affordability. No surprise, those same activists and Seattle’s city council have some ideas on how to deal with that: more fees!
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.