If you live in a middle-class household, you generally expect your needs to be met through the marketplace. You buy or rent housing in the real estate market. When you aren't driving your own car, you catch a taxicab or maybe even hire a limo. You or your employer buy health insurance, and you choose your doctor in the medical marketplace.
For most poor families, the experience is very different. Regulations designed to protect entrenched special interests have succeeded in raising the costs of basic services so much that low-income families have been priced out of the market for many essential services. Middle-class and poor communities differ not just by income. For the middle class, basic needs are met by markets and they benefit from the customer-pleasing innovations that competition produces. All too often, the poor must turn to public programs with all of the customer-pleasing attributes of the Department of Motor Vehicles.
Take housing, for example. The cheapest form of housing is small, prefabricated homes for zero-lot developments. However, zoning regulations in most cities outlaw them — an act that effectively doubles the price of the cheapest housing. There are also other expensive restrictions on new housing, such as forcing builders to build on bigger lots and mandating specific types of materials and construction methods. Regulations vary widely across the United States. In Houston, a less restrictive city, regulatory costs add about $13,200 to the price of an average home. In San Diego, a multitude of regulations add $240,000. These cost-increasing regulations have essentially priced many low-income residents out of the market for a private home, forcing them to turn to public housing instead.
Then there is transportation. Did you know that people in the bottom fifth of income distribution take more taxicab rides than middle-income families? The reason: a lot of poor people don’t own automobiles. Taxi fares are far higher than they need to be, however, because local governments tightly control entry into the taxi market. There is no reason in principle why someone with a van couldn’t pick up workers in a low-income neighborhood and transport them to a jobsite, charging each passenger a few bucks. The problem: Most cities make this activity against the law.
When low-income families are priced out of the market for private transportation, they must turn to public transportation. Since only a few cities have subways, that means turning to buses. Yet, even a simple trip to work or a supermarket can be a logistical nightmare if you have to follow city bus schedules.