Starving the market in I.C.
In a community starved for more housing, what sense does it make to stop giving out building permits?
Iowa City officials approved a plan last week to temporarily stop issuing building permits for projects that would enlarge rental units in and near student-heavy residential neighborhoods. The moratorium is a response to a new state law banning cities’ use of familial rental occupancy limits.
The Iowa City government has a series of “good neighbor” policies, meant to hold back student sprawl and protect the community from hordes of rowdy young people taking up parking and drinking beer outside. Until now, one of those policies limited the number of unrelated people who could inhabit a single rental unit.
With the familial occupancy limit now outlawed, city officials are worried they’ll see a boom of single-family homes being converted to high-density rentals. When the building permit moratorium expires, officials plan to put forth new rules that would somehow govern high-occupancy rental units to limit nuisances.
Iowa City’s occupancy limit has been one of my local government pet peeves for as long as I’ve been active in politics. I learned about the regulations when I came to college and entered the rental market. It’s one of the first times I can remember identifying the failure of central planning in my life.
Regulation limits the ability of developers and landlords to offer units that meet market demand. In general, restricting the supply of housing will drive up rent — there aren’t enough rooms to meet demand near campus, so landlords can set high prices.
Casey Cook, an Iowa City appraiser who tracks the local rental market, reported earlier this year that Iowa City’s rental vacancy rate has consistently been below 4 percent, while a balanced rental market has a 6 percent vacancy rate.
There are only two sustainable ways to contain housing costs — build more housing, or get rid of residents. To the contrary, however, city leaders say restrictions on occupancy actually help keep costs down — for some.
“I think what’s likely to happen is that market pressure would drive up the cost of property in our core neighborhoods significantly. I think we would see a shift toward single-family housing being filled with a much larger number of short-term renters,” Mayor Jim Throgmorton told me this week.
Throgmorton only singled out housing costs in so-called “core neighborhoods,” which I take to mean places where young adults don’t live. So the rules might keep prices down for some, at others’ expense.
Too often, policymakers in Iowa City build solutions to serve permanent residents alone, even though students vote, pay taxes, and are subject to laws the same as the rest of us.
To their credit, city and university leaders have taken serious steps toward increasing the housing supply. Another new dorm and several apartment buildings will add thousands of new bedrooms.
While the City Council and staff may not realize it, I think the legislature did them a favor by striking down occupancy limits. But city officials could hamper their own progress if they responds too aggressively to their latest perceived problem.
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