November 26, 2022 Reading Time: 4 minutes

Earlier this year, Shawnee, Kansas, banned “co-living,” meaning “renting to four or more people who are all unrelated.” It reminded me of David T. Beito and Linda Royster Beito’s 2016 study of “the lodger evil” and Progressive Era housing policy. They define the “lodger evil” as “the practice of many urban families, especially in the Northeast and Midwest, to double up through subletting” so they could “save on rent and earn extra income.” Naturally, this meant cramped living conditions that most people today would find intolerable. Nevertheless, the lodgers (mostly unmarried males, many of whom were immigrants) were willing to give up creature comforts to save as much money as possible. The Beitos explain that just over a third of households in cities with populations greater than 50,000 had lodgers in 1850. While this fell gradually, it was still around a fifth in the late nineteenth and early twentieth centuries.

During my second year of graduate school, some friends from church bought a house and rented it out to a group that included two medical students, a law student, a social work grad student, and me. We got kicked out of the neighborhood; I forget exactly how it went down, but we were “co-living,” and a few neighbors were upset about it. The article linked above points to a restriction on “co-living” in Lawrence, Kansas (home of the University of Kansas), and I’m familiar with similar rules in other college towns.

As the Beitos explain, “Although the restrictions [tenement reform] imposed may have increased the quality of housing, the side effects were to reduce affordability and availability.” There’s a trade-off between price and quality. Holding everything else constant, better housing is going to be more expensive. Restricting “co-living” is a surefire way to keep housing more expensive, albeit in a way that solidifies the coalitions of NIMBY activists looking to protect their property values.

Some activists have accused the politicians involved of racism, classism, and perhaps a few other -isms. Shawnee City Council members object to the claim that the move is racially or socioeconomically motivated. I don’t doubt it. As the Shawnee Mission Post reports, one council member said that racial or socioeconomic exclusion “is not what we would intend or want to see happen within our community.” As we know, however, good intentions and $2.50 $4 will buy you a cup of coffee. Rules like co-living restrictions reduce the housing supply and make housing harder to find.

Furthermore, they (and others) object to investors who, they say, can outbid families and then rent out houses to various unrelated people. In one person’s words, “This is not housing, this is a commercial enterprise.” HL Mencken allegedly defined “Puritanism” as “the haunting fear that someone, somewhere, may be happy.” Mencken’s definition has an anti-commercial corollary: the haunting fear that someone, somewhere may make money. Investors and developers, of course, are the bad guys. Few things are as rhetorically effective as the image of a faceless outsider just looking to make money. If investors can outbid families, though, that’s a crucial signal that the highest-value use of a house is as a co-living space, not as a single-family home.

We can have at least a little bit of sympathy here. One member of the Shawnee Council noted that people bought in areas zoned for single-family housing and reasonably expected not to be surrounded by apartments and multifamily dwellings. Zoning presents a knotty problem because it’s unclear whether people have a right to what they’ve done, which in this case, is to form a housing cartel to restrict supply and increase prices. These are contracts in restraint of trade that are unenforceable at common law (Russ Roberts and Mike Munger discussed this on a recent episode of EconTalk). And, of course, politicians trade policies and privileges in exchange for votes and campaign contributions, and non-residents don’t vote in municipal elections. It’s predictable, but an explanation is not a justification. It is an example of a transitional gains trap: getting people to agree to better public policies is hard because some people have already invested in projects contingent on the existing rules. The mortgage interest tax deduction is a perfect example. Just about every economist hates it because it screws up the housing market and, if anything, redistributes wealth upward. It’s probably here to stay, though, because eliminating it would mean a sudden and substantial drop in property values. The sale price already reflects anticipated tax savings when someone buys a house. I doubt I will get elected to Congress on a platform that says, “if you elect me, you’ll take a big hit to your property value, but at least economic growth will be a bit higher, and the housing market will be less screwed up.”

But what about externalities? As Russell Sobel and Randall Holcombe argue, pecuniary externalities don’t reduce efficiency. There might be some public health issues, however, it is easy to turn rules, intended to protect valid concerns, into weapons. In one example, activists used parking requirement regulations to thwart a crisis pregnancy center.

Housing restrictions might be politically inevitable, but they are almost always economically silly. To top it off, they reinforce the privilege and power of the already privileged and powerful who, I’m sure, advocate “affordable housing” as long as it’s somewhere else. If we’re serious about more affordable housing, we will cut the red tape by doing away with building restrictions and parking requirements. Until then, chatter about “affordable housing” is just a lot of words.

I thank Paul Wiget for bringing the Shawnee “co-living” case to my attention.

Art Carden

Art Carden

Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.

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