Costly Mistakes: How Bad Policies Raise the Cost of Living
www.heritage.org November 23, 2015
Government policy mistakes raise the prices of the things that Americans buy. An average American household can expect to pay an extra $4,440 each year thanks to just 12 such policy mistakes that have large costs and few benefits.
Local, state, and federal governments are all guilty of enforcing costly laws and regulations. At the federal level, the biggest costs come from vehicle fuel-efficiency standards, which cost consumers $55 billion a year, and the requirement to use corn-based ethanol in gasoline, which costs $31 billion per year. Occupational licensure at the state level costs consumers $127 billion per year. Local land-use restrictions drive up the cost of housing by $209 billion per year.
The Verdict Is In: Land Use Regulations Increase Housing Costs
How the Government Hides Inflation, as Housing Costs Soar
by Wolf Richter •
Causes of the United States housing bubble
Observers and analysts have attributed the reasons for the 2001–2006 housing bubble and its 2007–10 collapse in the United States to “everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan“. Other factors that are named include “Mortgage underwriters, investment banks, rating agencies, and investors”, “low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans, and irrational exuberance“ Politicians in both the Democratic and Republican political parties have been cited for “pushing to keep derivatives unregulated” and “with rare exceptions” giving Fannie Mae and Freddie Mac “unwavering support”.
How Housing Policy Is Failing America’s PoorCreated by Congress in 1974, the “Section 8” Housing Choice Voucher Program was supposed to help families move out of broken urban neighborhoods to places where they could live without the constant threat of violence and their kids could attend good schools. But somewhere along the way, “Section 8” became a colloquialism for housing that is, to many, indistinguishable from the public-housing properties the program was designed to help families escape.
How Affordable Housing Policies Backfire
Affordable housing policies have a long history of hurting the very people they are said to help. Past decades’ practices of building Corbusian public housing that concentrates low-income people in environments that support crime or pursuing “slum clearance” to eliminate housing deemed to be substandard have largely been abandoned by housing affordability advocates for the obvious harm that they cause stated beneficiaries. While rent control remains an important feature of the housing market in New York and San Francisco, even Bill de Blasio’s deputy mayor acknowledges the negative consequences of strong rent control policies. In the U.S. and abroad, politicians and pundits are beginning to vocalize the fact that maintaining and improving housing affordability requires housing supply to increase in response to demand increases.
While support for older housing affordability policies has dissipated, the same isn’t true of inclusionary zoning. From New York to California, housing affordability advocates tout IZ as a cornerstone of successful housing policy. IZ has emerged as the affordable housing policy of choice because it has the benefit of supporting socioeconomic diversity, and its costs are opaque and dispersed over many people. However, IZ has several key downsides including these hidden costs and a failure to meaningfully address housing affordability for a significant number of people. Shaila Dewan of the New York Times captures the strangeness of IZ’s popularity
The Hidden Cost of Regulation
The Federal Register is the document that compiles all the federal rules and regulations that businesses are required to comply with. As of 2010 the Federal Register was 81,405 pages long. Federal regulations serve as a hidden tax on the economy. Costs imposed by regulation do not end up on any Federal budget, nor do they add to the national deficit. However, 81,405 pages of regulations strain the economy by creating huge costs that business are obligated to meet.
It is not just large corporations but the entire economy that ends up bearing the cost of regulation. Complying with regulations is not cheap. The cost of complying with federal regulation increases businesses’ expenses by billions of dollars every year. Some of the compliance cost associated with federal regulation comes out of businesses’ profits, but much of the costs are passed down to consumers in form of higher prices. Compliance costs associated with regulations cut into businesses’ profits, while higher prices increase the day to day expenses of all consumers. Because regulations create artificial costs that must be paid by both producers and consumers, they cost the economy money and act as a drag on economic growth.