The price of market freedom

I’ve found that many people conflate supply and demand, or price-based resource allocation, with the pseudo-ideal of a libertarian “free market”.

Supply and demand is an explanation for how the world works, not a value statement. If the number of people who want X and don’t have it exceeds the number of people who have X and don’t want it, then there is scarcity. Somehow, X will be allocated, and not everyone will get it.

Broadly speaking, there are three ways that you can allocate scarce resources. You can use pricing (whoever pays the most wins), queueing (whoever waits the longest, or exerts the most effort, wins), or lotteries (totally random). Each of these schemes can be modified by giving “bonus points” to certain people, which could make the system more or less fair, depending on how points are awarded. For example, you could give cash to people who don’t have much (welfare), or you could give cash to people who have a lot (the stock market). You can let disabled people cut in line (reserved parking spaces), or you can let rich people cut in line (business class security bypass at the airport). You can give extra lottery tickets to disadvantaged people (can’t think of an example), or you can give extra lottery tickets to advantaged people (think Charlie and the Chocolate Factory).

There are two advantages that pricing has over the other two forms of allocation. Queueing involves truly wasted time/money/effort that could otherwise be put to more productive (or enjoyable) use. Lotteries do a poor job of allocating resources efficiently; the person who wins may not be the person who wants the item the most, or who will make the best use of it. Pricing — *assuming that every person has equal resources* [1] — avoids any wasted effort, and ensures that the scarce resources are allocated to the people who will make the best use of them.

However, if you commit to pricing-based allocation, and you don’t restrict prices, then any government regulations that influence supply or demand will also influence the market-clearing price. There is simply no way around this. Artificial supply restrictions will raise prices; artificial supply increases will lower prices. Artificial demand restrictions (like taxes) will lower prices; artificial demand subsidies (like tax deductions) will raise prices.

You can try to work around this problem by restricting prices, too, like with rent control. But if you’re artificially restricting supply, *and* you’re artificially restricting price, then you’re going to end up with shortages — which means that you aren’t really using price-based allocation at all, and you have all the disadvantages of queueing or lotteries. (Seattle Housing Authority and Capitol Hill Housing have multi-year wait lists for most properties, which isn’t exactly an ideal situation for homeless people.)

Alternatively, you can work *with* the system. For example, if the government builds huge piles of market-rate housing, then it will lower the market price for housing. (If you don’t believe that this would work, here’s another example: if the government builds huge piles of parking, then it will lower the market price for parking. This has actually happened in Seattle, and in almost every other American city.)

So we have two different model. In one of them (we’ll call it the San Francisco model), most housing is built and/or operated by private parties, but the government restricts pricing and building, leading to chronic shortages, and to overpricing of the subset of housing that is not price-contrlled. In another (we’ll call it the Singapore model), most housing is built and/or operated by the government, which purposely tries to build enough housing for everyone who needs it.

Does the Singapore example sound more like “the free market” to you? To me, they both sound like markets that are heavily affected by a single actor (the government). The difference is that Singapore’s intervention works *with* supply and demand, while San Francisco’s model works *against* it. It hopefully won’t come as a surprise that Singapore does a much better job at providing affordable housing.

[1] When inequality is very high (like in the US), the efficiency of pricing breaks down somewhat, since rich people who weakly want something can outbid poor people who desperately need it. This is only one of many problems with inequality. The solution is not to abandon pricing, but to abandon inequality, by enacting a set of policies designed to bolster the income and wealth of disadvantaged people, and to limit the income and wealth of those at the very top. This is yet another example of how a libertarian “free market” actually disregards the laws of economics.

Aleksandra Culver lives and works in Seattle and writes about about programming, economics, and urban policy. This article was originally posted at Medium on January 1st. You can find her profile and other writing at her Medium profile page.

God Pods: Builders Give Back

Here’s an example of how builders get engaged with community using their skills, know how, and resources to support community endeavors. One of Smart Growth Seattle’s founders, Dan Duffus, was instrumental in putting together a microhousing project for Seattle’s Union Gospel Mission. The Union Gospel Mission is a faith based organization working to prevent homelessness. Here’s their mission statement:

We provide emergency care and long-term recovery services to hurting and homeless people in Seattle. We’ll serve, rescue and transform those in need until we’ve solved the root causes of poverty and homelessness.

Now some might take issue with the Christian orientation of the organization, but many faith based organizations of different kinds focus on reducing the impacts of homelessness and strive to eliminate it. These organizations are an important part of trying to solve the problems of homelessness and poverty.

Take a look at the video. It’s an example of how together builders and organizations working on homelessness can collaborate to make progress toward housing all levels of income in our city.

 

2015: Year of the City Builder

Sixty-five percent of Seattle is zoned for single-family homes. But in advocating for mircohousing and small-lot development, Roger Valdez has challenged this sacrosanct notion. With Smart Growth Seattle, his lobbying group for developers–Seattle’s traditional bogeymen–he’s emerged as a leader in the conversation about city growth. And he isn’t afraid to call the discussion what it is–a battle. To Valdez, the obvious opponent is the Seattle City Council, whom he believes is “about to make a 100-year mistake.” The council’s emphasis on taxing and limiting new development, he says, will create a crisis as more and more people move here. He successfully lobbied to postpone legislation that would have reduced housing capacity in Capitol Hill and Ballard. And while he lost his fight for microhousing, including aPodments, his noisy testimony nearly convinced the mayor to veto the council’s restrictive bill. Just as important, but far more personal, Valdez aspires to change the antideveloper narrative. In five years he hopes “we can look back and say we finally got to a place where developers are not the target of abuse, ridicule and derision, but are seen as the builders of the future that they are.

The story really isn’t about me, but it is about our broader efforts as a community to stand up and together for more housing supply for all levels of income in Seattle. We know that if we build more housing we will create more housing choice and opportunity for all people that want to live and work in Seattle. I said we’d make 2014 the year of supply in Seattle, shifting the conversation to asking, “how do we get more housing.” Together, I think we succeeded in doing that.

Seattle Met: Highlights Smart Growth Seattle

On Christmas Eve the latest edition of Seattle Met magazine hit news stands. In it, in a feature called, “The 15 People Who Should Really Run This Town,” our efforts over the last year were called out. The story is ostensibly about me, but really it is about all of you who have supported our work over the last year. As I said in January, we were going to do what we could to make this year the one when increasing housing supply would take center stage. Have we done that? Here’s the text of the article:

Sixty-five percent of Seattle is zoned for single-family homes. But in advocating for mircohousing and small-lot development, Roger Valdez has challenged this sacrosanct notion. With Smart Growth Seattle, his lobbying group for developers–Seattle’s traditional bogeymen–he’s emerged as a leader in the conversation about city growth. And he isn’t afraid to call the discussion what it is–a battle. To Valdez, the obvious opponent is the Seattle City Council, whom he believes is “about to make a 100-year mistake.” The council’s emphasis on taxing and limiting new development, he says, will create a crisis as more and more people move here. He successfully lobbied to postpone legislation that would have reduced housing capacity in Capitol Hill and Ballard. And while he lost his fight for microhousing, including aPodments, his noisy testimony nearly convinced the mayor to veto the council’s restrictive bill. Just as important, but far more personal, Valdez aspires to change the antideveloper narrative. In five years he hopes “we can look back and say we finally got to a place where developers are not the target of abuse, ridicule and derision, but are seen as the builders of the future that they are.

Again, this isn’t about me, but the broader effort we’re all engaged in to make room for more people in our city. The new year will bring more work but more opportunities to make our case; and with effort, even some more wins.

Housing Voucher Program Provides Second Chances

It’s Christmas Eve, and the central and orienting narrative of the Christian faith is the story of a savior, born as a human being in a humble manger, offering forgiveness and redemption. Much can be made of the fact that story finds the protagonists with no proper housing situation in light of the fact that Bethlehem was full; there was “no room in the inn.” So on this Christmas Eve it seems like a good time to share, as a holiday post, about an important program that provides housing options for people who might otherwise find themselves homeless. But this program isn’t a housing option for expectant mothers, but a very hard to house group: people emerging from our prison system.

Each year, thousands of people in jails and prisons in Washington State find themselves with what is called an Earned Release Date or ERD. That means the prisoner has behaved well, made progress on their program, or met their requirements for being released ahead of their scheduled release date. These prisoners have to figure out where they are going to go after release, something that presents a challenge for those behind bars. According to the Department of Corrections,

Most offenders sentenced to prison in Washington State are required to provide a reasonable and safe release plan, including a residential address, to the Department of Corrections, which must be investigated and approved before the offender can be released. Some offenders find themselves without release options due to a lack of family or community support, lack of suitable housing options or simply lack of funds to pay for housing. Offenders in this circumstance remain in custody at an average cost of $3,000⁄month until a release plan is approved, which can take months or, in some cases, years.

It’s hard enough to find a place to live with ready access to the Internet, a car, and a cellphone to follow up; but how does a prisoner still behind bars set up adequate housing, especially when most housing requires a criminal background check and good credit. What happens, then, is that prisoners can’t be released and they end up finishing their full sentence. That means the State of Washington has to continue to pay, essentially, for their housing with scarce taxpayer dollars. In addition to the cost, a prisoner who wants to get started with recovery or finding employment has to wait in jail.

This is why in 2009 the Washington State Legislature passed SB 5525, creating the Earned Release Housing Voucher Program that finds transitional housing options and pays for a former prisoner’s housing costs with a voucher for three months. Why do this? Research conducted by Zachary Hamilton, Alex Kigerl & Zachary Hays and published in an article titled, Removing Release Impediments and Reducing Correctional Costs: Evaluation of Washington State’s Housing Voucher Program (Justice Quarterly) found that the program saves money, prevents return visits to prison, and reduces homelessness.

It’s worth quoting the article at length:

Securing stable housing in a safe and healthy environment is a necessary first step for recently released offenders in the long process of maintaining employment, meeting supervision conditions, and adhering to treatment (Lutze & Kigerl, 2013). Failure to acquire a suitable place of residence can interfere with these other conditions of reintegration and may make desisting from crime more difficult. For example, it is possible that offenders may get stuck in a negative feedback loop between homelessness and incarceration, as a disproportionate number of offenders do not have stable housing prior to their incarceration (Harding & Harding, 2006), and therefore have no place to return when they are released into community supervision (Petersilia, 2001).

This “negative feedback loop” means more money apprehending and locking up people when they reoffend, having more crime victims, and the loss of potential in a human being who could have given back to the community. The study found that the Housing Voucher Program saved money.

The total weighted costs of rent expenses paid out to voucher recipients and administrative and supervision costs of the program for the duration of the study were $2,198,254.80. However, paying such expenses was associated with lower initial incarceration costs via earlier release to the community, amounting to $2,640,875.53 for the [Housing Voucher Program] HVP group and $9,218,643.44 for the comparison group (difference of $6,577,587.91). In addition, recidivism costs were also lower amongst the voucher sample, resulting in $21,296,793.00 worth of new crimes for the HVP group, and $30,248,975.28 worth of new crimes for the comparison group (difference of $8,952,182.28). The amount spent on the voucher program relative to the sum of the two cost differences (early release and recidivism) equates to a cost benefit ratio of 1:7.06, where every dollar invested in paying for an offender’s voucher expenses saved over 7 dollars in other costs through HVP (emphasis is mine).

Huge savings, fewer crimes, more recovery and hope for people trying to break the cycle of crime and homelessness. This is a housing program that works. Smart Growth Seattle will be working with the Rental Housing Association, the Department of Corrections, and the Committee to End Homelessness in 2015 to figure out how the program can be expanded and enriched so released prisoners can find a home and future in Seattle. This Christmas and holiday season we can remember that the story of Christianity is one of forgiveness and redemption; the HVP is a significant step toward getting more of both.