Government Regulation and Changes in the Affordable Housing Stock

n terms of housing issues, the primary public policy focus of economists has been the affordability of homes, mortgage availability, land-use regulation, and rent control. Studies of land-use regulation focus on the effects of regulation on the price of owner-occupied housing. Work on low-income housing has concerned itself more with issues of measurement and the debate over supply-side versus demand-side subsidies. In this paper, we look at the relationship between these two issues to examine how government regulation affects the dynamics of the low-income housing stock. We find that, consistent with theoretical models of housing, restrictions on the supply of new units lower the supply of affordable units. This occurs because increases in the demand for higher quality units raise the returns to maintenance, repairs, and renovations of lower quality units, as landlords have a stronger incentive to upgrade them to a higher quality, higher return housing submarket. This result is disturbing because it highlights how policies targeted toward new, higher income owner-occupied suburban housing can have unintended negative consequences for lower income renters. Our research differs from most studies of affordable housing in that we are not concerned with identifying the size of the affordable stock or matching it to the number of lowincome households. The gap between the housing needs of low-income households and the stock of units deemed affordable has been demonstrated in a considerable amount of other research.1 Here, we build on the Somerville and Holmes (2001) study of the effects of the unit, neighborhood, and market characteristics on the probability that a unit will stay in the stock of rental units affordable to low-income households; we do so by looking at how government regulations affect this probability. Our approach is to look at individual units in successive waves of the American Housing Survey (AHS) metropolitan area sample. In doing so, we follow Nelson and Vandenbroucke (1996) and Somerville and Holmes (2001), who use the panel nature of the AHS metropolitan area survey data to chart the movements of individual units in and out of the low-income housing stock. The remainder of the paper is structured as follows. First, we lay out the theoretical framework for our analysis. We follow with a discussion of our data. Finally, we present our empirical results, both for measures of constraints on the supply of new residential units and for the pervasiveness of rent control in an area.