Liddick: Connecting the Colorado real estate market boom and affordable housing crisis (column)
January 22, 2018
The patient was dying slowly, painfully. Tests were made. Experts consulted. Doctors gathered, those acclaimed as the most compassionate, the most concerned. They studied the situation while the patient continued to decline. They made a unanimous diagnosis: arsenic poisoning, and without immediate intervention death was imminent. Then the most compassionate among the physicians called for large doses of arsenic to be administered until the patient recovered.
If that remedy seems a bit loopy, it's because you aren't "progressive" enough.
The cost of housing in Colorado's Front Range — indeed throughout the state — is headed for the stratosphere, and the rate of climb is accelerating. In part this is due to immigration from other parts of the country.
But this is a longstanding trend, and modern growth is not unprecedented. Between 1960 and 1970, Colorado's population grew by 21 percent; the following decade saw 24 percent growth. By contrast, 2007-17 saw a 14 percent increase.
“We need immigrants to continue to build a strong workforce and strong country.”Kari Kronborg
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Growth in previous decades was accommodated without much fuss. People moved in as others built more houses, ranging from one-bedroom downtown condos to suburban sprawlazoid McMansions in Highlands Ranch.
But now, it seems, Colorado building trades have struck a reef. Specifically, it struck Colorado Statute 13-20-801, the Colorado Construction Defect Action Reform Act, which was passed in an orgy of chest-thumping and howling about protecting the little guy from those creeps in the building trades who were foisting shoddy construction off on Coloradans. Written as a trial lawyers' full employment act, the law was essentially a license to go fishing for defects real and imagined, witting or not, forever.
As a consequence, work on low-profit housing stopped virtually overnight. In April of 2001 alone, 484 building permits for buildings of 5 or more units were issued by the city of Denver. Between 2007 and 2017, the average was nine.
Yes, some jackanapes, cut-corner builders were forced out of business in Colorado. But construction of modest, entry-level housing ground to a halt. And there we remained until the Colorado Legislature, in a rare fit of common sense, began to modify the law to limit builder liability last year.
Will it have the desired effect, returning Colorado builders to the red-hot pace of the late 1990s – something Colorado seems to need? We must wait and see.
We do not, however, have to wait on a more general conclusion: while they are political catnip, efforts by government to "fix" economic or commercial difficulties often create as many problems as they solve. Or more.
This is true principally because they interfere with the operation of free markets, which, left to themselves, are the most efficient means of allocating resources and transmitting economic information ever encountered. Markets are not perfect; they rely on human actors and are only frictionless in theory. But the alternatives — commands by bureaucrats with imperfect knowledge and inherent limitations on their ability to calculate a multiplicity of variables, or interference by well-intentioned but maladroit officials out to save citizens from themselves regardless of cost — are far worse. Proofs reside in the wreckage of over-administered economies throughout the world; the former Workers' Paradise is a good place to start a review.
So is the answer to a crisis precipitated by politicians' urge to appear to be "doing something" about a crisis best solved by the application of more of the same sort of public-relations-oriented benevolence?
If we decide that the poison of government interference in markets is best solved by the application of additional poison in the form of subsidies or price controls, we are only half done. Now the question is, from where will the money come?
Will it be a sharp increase in filing fees for real estate transactions, thus punishing those Coloradans who are able to purchase properties on their own?
Possibly: after all, these are an affront to the argument that all citizens would drown in their own saliva were government apparatchiks not around to tell them to swallow. And a dramatic cost increase in real estate transactions probably won't cool this economic sector too much. Probably.
Or, as suggested by Rep. Paul Rosenthal, consumers could pay a 25-cent-per-plastic-bag fee while shopping. One might note the differential effect this would have on the cherished poor, for whom an additional cost of $1.50 or so at the grocery store might really pinch.
And a cynic might ask how it could be assured that all revenues so raised would go for "affordable housing." Remember: in government all money is fungible.
Or, one might simply lift existing restrictions on housing construction, streamline the permit application process, waive fees for certain classes of buildings and allow the market to fix the situation, as it has done so many times in the past. But this would deny the political class its opportunity to grandstand, so…
Morgan Liddick writes a weekly column for the Summit Daily.
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