Subsidized Growth or Subsidized Housing?

The Colorado Freedom Report:  A libertarian journal of politics and culture.

The Colorado Freedom Report--www.FreeColorado.com

Independence Institute
Feature Syndicate Opinion-Editorial

For Immediate Release January 4, 2001

SUBSIDIZED GROWTH OR SUBSIDIZED HOUSING:
WHAT'S IT GOING TO BE?

By Mike Krause

The City of Denver is showing a great deal of concern for those who are priced out of Denver's housing market. So why does the City of Denver continue to subsidize growth that has helped push housing prices up?

In October, the Webb administration floated two proposals: first was a law requiring developers to set aside a percentage of new homes for sale below market value. This is touted as a measure of last resort to provide housing opportunities for those priced out of Denver's housing market.

This was followed closely with the bright idea of the city spending $95 million in DIA bond issue money -- the $4 billion in existing debt be damned -- to build a 500-room hotel at DIA, since no hotel chain seemed interested without a welfare incentive.

Does anyone else see the contradiction here?

City government has of late been quite aggressive in the low-income housing arena. There's the ripping down and proposed re-development of eight blocks of Curtis Park public housing, and there's also the threat of an eminent domain land grab of the East Village apartments.

But while city government has a long tradition of assisting those most in need, the latest housing scheme is geared toward those with solid incomes. Shockingly, the proposed ordinance includes families earning up to $50,000 annually. In effect, creating a new class of needy. While these folks may not be spending their off time yachting the Caribbean, they probably won't garner much sympathy from the truly poverty stricken.

There is little doubt that a hot housing market in Denver has left some behind. The year 2000 ends with an average home price in the metro area of over $250,000 and a median price over $200,000. For a first-time home buyer with no equity and traditional financing, it is a tough time to be house hunting.

But Denver's concern for those priced out of this market would carry more weight were it not for the fact that the city government has been one of the biggest cheerleaders of the rapid economic growth of late -- the same expansion they bemoan as the culprit for pricing people out of homes -- including the subsidizing of private sector businesses with taxpayer-backed financing.

The city offers an abundance of taxpayer-backed goodies for businesses seeking to start up, expand or re-locate, from site selection to bridge loans to bond financing for construction and equipment, and a fine selection of tax credits (read special breaks to some at the expense of others). All, of course, on the condition that you build, hire, train and expand as the government, rather than supply and demand or any of those other pesky economic rules, determines.

All of which begs the question: is the City of Denver a municipality, competently providing the proper functions of government? Or a bank with the power to tax and make law, serving some private business interests at the expense of everyone else?

While economic growth is a good thing, when government gets into the business of corporate welfare, such as financing a hotel to be run by a hotel chain, they mangle the element of risk that is such an important aspect of sound economic expansion.

Municipal bonds are supposed to be for public goods -- such as building parks or roads. They are not supposed to pay for private goods, such as hotels. When government bonds are used for private investments, the investment risk is borne by Denver taxpayers rather than investors.

And when home prices get driven up as in the case of Denver, governments then get to turn around and blame greedy developers or the inequity of free markets.

This is a piece of trickery by which government -- in this case the Webb administration -- gets involved in the business of subsidizing private growth, then points to a problem stemming from the growth (higher home prices) and uses that as a basis for further government restrictions on freedom, all the while blaming the private sector that they in part subsidize.

This is known as having your cake and eating it too.

If the City of Denver is going to propose laws forcing developers to sell homes at below-market prices, the least they can do is stop subsidizing the growth that helps drive up prices in the first place.


Mike Krause is a Research Associate who wrote this article for the Independence Institute, a free market think tank in Golden, Colorado.

This article, from the Independence Institute staff, fellows and research network, is offered for your use at no charge. Independence Feature Syndicate articles are published for educational purposes only, and the authors speak for themselves. Nothing written here is to be construed as necessarily representing the views of the Independence Institute or as an attempt to influence any election or legislative action. Please send comments to: Editorial Coordinator, Independence Institute, 14142 Denver West Parkway, Suite 185, Golden, CO 80401. Phone (303) 279-6536 or FAX to (303) 279-4176; e-mail is webmngr@i2i.org.

The Colorado Freedom Report--www.FreeColorado.com