Housing policy and affordable housing

Lack of affordable housing is a growing and often primary policy concern in cities around the world. The main underlying cause for the 'affordability crisis', which has been mounting for decades, is a combination of strong and growing demand for housing in desirable areas in conjunction with tight long-run supply constraints, both physical and man-made regulatory ones. Key policies to tackle affordability issues include rent control, social or public housing, housing vouchers, low-income tax credits, inclusionary zoning, mortgage subsidies, or government equity loans. Existing evidence reveals that the effectiveness and the social welfare and distributional effects of these policies depend not only on policy design, but also on local market conditions, and general equilibrium adjustments. While many housing policies are ineffective, cost-inefficient, or have undesirable distributional effects, they tend to be politically popular. This is partly because targeted households poorly understand adverse indirect effects. Partly, it is because the true beneficiaries are often politically powerful existing property owners, who are not targeted but nevertheless benefit via house price and rent capitalization effects. Designing policies that tackle the root causes of the affordability crisis and help those in need, yet are palatable to a voter majority, is a major challenge for benevolent policy makers.