WE HAVE heard a continuous drumbeat from every quadrant that New Hampshire is in the midst of a housing crisis. Like a myriad of other crises said to be afflicting our state, those utilizing the term hope to instill enough concern and fear to bring about bureaucratic and legislative actions.
Many politicians succumb to this fear with an inevitable “we must do something” solution. I have a two-word solution to the supposed housing crisis: laissez-faire. More on that later.
To understand how we got here, we must look at a few of the underlying causes. Nearly everything in the world operates in a cyclical fashion, and the price of real estate and rentals are no exception.
Let’s begin with the economic principle of “supply and demand” and their affect in New Hampshire. Since the COVID epidemic began, we’ve seen a large influx of out-of-staters looking to escape lockdowns, emergency measures and other perceived problems elsewhere.
During normal times, builders are able to readily meet the slowly increasing demand, keeping prices relatively stable. During COVID, not only did demand outpace the ability of contractors to build new homes, it increased the cost of building materials as more people chased fewer goods.
Higher demand, higher material prices and a stagnant construction workforce (likely decreased by lockdowns), sent home prices skyrocketing. Rental prices for homes and apartments also spiked as demand outstripped supply.
During a recent public hearing, one of our committee members asked the question: “Why are contractors building $450,000 and higher priced homes rather than less expensive ones that are more affordable?”
Builders will construct high-end houses until the demand diminishes, as they will build whatever housing yields the highest returns on investment. When there are no more buyers for expensive properties, they will build whatever the current demand warrants.
We’ve been in this situation before. Twice in the last 35 years, New Hampshire witnessed deep swings in the price and availability of housing. In the late 1980s and early 1990s, we saw dramatic price drops following a bubble, creating a buyer’s market for nearly a decade. In 2008, we saw similar decreases in prices, although the duration of that decline was shorter. In each of these downturns, prices of many classes of real estate were more than halved from their highs.
Let’s explore why the interference of government creates market distortions as well as potential inflationary effects.
Some in the Legislature and executive branch believe one solution is to “incentivize” contractors to “invest” in programs, and force zoning mandates on towns. Incentives and investments are simply political-speak that in reality mean taking taxpayer money and redistributing it to select businesses and favored individuals. This past year, as much as $60 million was requested in the current biennial state budget for this purpose.
But pumping $60 million dollars into the housing construction economy only increases the costs of building materials for everyone in our state. And just because additional money is available, the number of electricians, plumbers, carpenters and concrete workers doesn’t magically increase.
Another solution promulgated in Concord is the idea of forcing municipalities into “one-size-fits-all” zoning regulations similar to central planning models used by socialist countries. In this current term, we have already sent three such attempts to the trash heap in a large, bi-partisan fashion.
Two bills looked to apply overreaching state mandates onto municipalities in direct opposition to their current local zoning regulations. Another wanted to apply rent control, a tactic tried and found consistently to be a failure elsewhere.
Municipalities want local control of their zoning and despise the state forcing them to do otherwise. Each municipality knows their town or city best. And they will either thrive or suffer the consequences as a result of their particular zoning laws.
Back to that term I mentioned earlier: laissez-faire. Here are a couple of superb definitions: a doctrine opposing governmental interference in economic affairs beyond the minimum necessary for the maintenance of peace and property rights; and, a philosophy or practice characterized by a usually deliberate abstention from direction or interference especially with individual freedom of choice and action. In simpler terms, laissez-faire suggests we need to allow the economic principles of supply and demand and the free market to right the ship keeping government hands out of the equation.
Where we find ourselves now is not, in fact, a crisis, but rather a normal economic cycle where supply is short and demand is high. There are no overnight solutions that politicians can utilize as real estate cycles can be decades long. Ultimately, a combination of free-market principles and laissez-faire policies will drive the supply-demand model to its equilibrium point. Political and bureaucratic interference will solve nothing. It would only negatively distort our markets.
Representative Len Turcotte, R-Barrington, is chairman of the Municipal and County Government Committee.