Henderson’s Workforce Marxism

Soon if you buy a new home in Henderson, you will have the pleasure of subsidizing your neighbor. “From each according to his ability, to each according to his needs,” wrote Karl Marx. And for the new home market, that’s just what the Henderson City Council has in mind.

Henderson calls it an “Affordable Housing Policy Plan,” and it’s supposed to address the fact that home prices in the city are currently appreciating at an annual rate of 9.1 percent, while wages only increase at a 3.12 percent rate. Thus by 2010 the median home value supposedly will be $372,711 and median income will be $72,602—pricing working people out of the new home market. The city believes the way to fix the problem is government intervention with “inclusionary housing” ordinances.

However, prices don’t increase forever. Once homes are priced out of the reach of most buyers, prices stabilize. But the City of Henderson is not interested in letting the marketplace work—much less decreasing the city requirements and lowering fees that add thousands to the cost of a house and months of delay to project development.

Going forward, builders who develop projects in Henderson will be forced to set aside 10 to 25 percent of any project they develop for “workforce housing.” Workforce housing is defined as homes priced to be affordable for individuals earning 60 to 120 percent of the median income. Thus—assuming the $58,542 median income listed in the city’s policy plan—that means homes affordable for people making from $35,125 to $70,250 per year. Plus, these workforce-housing units must be “dispersed and indistinguishable from market rate units.”

So you could buy a new home in Henderson for say $300,000, and your next-door neighbor—because he or she has an income that falls within the workforce housing guidelines—could buy the same-type home as yours for $200,000.

The workforce-housing plan is to be executed through a “City of Henderson Inclusionary Housing Program,” which calls for “the reservation of specified units of affordable housing for targeted populations within new ownership and rental housing developments.”

According to Henderson’s Community Briefing materials, inclusionary housing programs “respect the profit motive while providing much-needed affordable housing in a socially and economically appropriate way.”

Not quite. If a developer intends to build 100 homes, the builder must determine if the project will yield an appropriate rate of return given the risk, based upon sales projections. If 20 of those homes must be sold for prices that are below market, the other 80 homes must generate enough of a return to make the project economically feasible, or the project will be scrapped.

The city also notes that inclusionary housing has been implemented in “over 100 cities and more than a dozen counties in California alone.” If they are doing it California it must work, right?

Maybe not; a paper entitled “Inclusionary Housing in San Diego: An Economic Analysis” authored by Andrew T. Allen, professor of economics at the University of San Diego lists a number of findings that question the effectiveness of inclusionary housing programs, including; “Inclusionary housing programs may make housing less affordable,” and “may not result in any additional low-income housing [being built].”

Bay area architect Michael Pyatok is a critic of inclusionary housing because low-income buyers “would be a 20 percent minority presence in someone else’s culture and economy.”

The Home Builders Association of the Central Coast (of California) sites a number of problems with inclusionary housing programs. The HBA report points out that these programs “raise the price of a project’s market rate housing since those homes must subsidize the affordable units. The subsidy becomes taxation without representation on new homeowners and punishes middle class families.” Ultimately, builders will avoid these projects, the HBA points out, “so affordable housing doesn’t get built.”

Ironically, this has already happened in Henderson—even before the city’s new policy is an official ordinance. The November 6 BLM land auction included a 1,940-acre parcel where the minimum bid was under $130,000 per acre. Unfortunately, the city’s requirement for workforce housing within the project, plus elaborate infrastructure demands, made even the minimum bid uneconomic. Consequently there were no bids, and—at least for now—no housing will be built on the 1,940 acres.

The no-bid auction should remind local municipalities that the wisdom of the marketplace is superior to that of the political class—and that attempts to manipulate the sociology of neighborhood housing are bound to be self-defeating.

Doug French, executive vice president of a Southern Nevada bank, is a policy fellow of the Nevada Policy Research Institute.