Dumb Government Intervention in the Housing Market of the Day

Posted: Feb 19, 2012 12:01 AM

With the continuing bailout of Fannie Mae and Freddie Mac, along with the impending bailout of the Federal Housing Administration, it is easy to think that the federal government has a near monopoly on misguided and harmful housing policies.  Sadly local governments manage, on regular basis, to give the federal government some real competition in terms of just plain dumb.

The last entry is this category comes from Winona, Minnesota.  The great folks at the Institute for Justice summarize Winona’s recent actions pretty well:

“In Winona, only 30 percent of homes on a given block may receive a government-issued license entitling the owner to rent them out.  As soon as 30 percent of the properties on a block obtain rental licenses, no other property on that block may receive a rental license.”

There are just so many reasons why this policy is harmful.  First, if you happen to care about the poor and needy, this policy directly reduces the stock of available rental housing.  It benefits existing landlords at the expense of renters and potential landlords, a policy that is likely to be very regressive.

Second the policy reduces the value of homes that don’t get the license.  By reducing what you can do with a property, you reduce its value.  You also end up leaving foreclosures vacant that could otherwise be rented out.  That may also depress the value of near-by homes.  Not to mention you may increase foreclosures, because absent owners, such as IJ’s client Ethan Dean who owns a home in Winona and is currently serving in Afghanistan, may not be able to cover the mortgage without renting out the property.

The good news is that the Institute for Justice is litigating to have this misguided policy overturned.  Best of luck to them.