How Governments Break Markets: 1. Restrict Supply 2. Subsidize Demand 3. Declare Market Failure When Prices Soar

Restrict supply, subsidize demand, and then declare a market failure.  That is how the government has jacked prices through the ceiling in higher education, health care, and housing:

Oregon is responding to its housing affordability crisis by doing all the wrong things. The crisis is due to a shortage in supply which in turn is due to urban-growth boundaries.

So the legislature legalized inclusionary zoning ordinances and Portland passed one. Such ordinances require developers to provide a certain percent of the homes they build to low-income people at below-market rates. In response, developers are building fewer homes, exacerbating the supply problem. City officials “hope the slowdown is temporary,” but that hasn’t proven to be the case in other cities that passed inclusionary zoning ordinances.

Now the state legislature is considering a bill to provide $5 million to help first-time home buyers make down payments on homes. This will have the effect of increasing demand, which will only drive up prices even more.


  1. Maddog:

    Living in Portlandia, I took a bit different tact over at my blog, but you are entirely correct. And worse, the people in Portland believe the problem is not enough Urban Growth Boundary. Sigh!

    The statewide urban growth boundary is driving housing prices to San Francisco Bay Area heights. But Oregon has a solution, increase demand! This so utterly misunderstands the problem, which is a supply side issue. The urban growth boundary reduces the supply of housing that people want. The result is lots of people living in conditions they do not like, and quickly rising housing prices. ​

    The state has decided the solution to high housing prices is first time home buyer assistance, meaning an increase in demand.

    But since demand is already high, and is the driver behind the highly inflated home prices, This will only increase prices.

    This is mental illness. The problem is supply, if the desire is affordable housing, meaning lower prices, the way to achieve that goal is to increase supply. Let more land be used for real estate development. But this is not sufficient, only the elimination of the urban growth boundary will resolve this problem. If left in place, it will eventually cause problems.

    The authoritarian progressives love "solutions" like urban growth boundaries, and other land use planning rules, because it removes individual liberty and decision making and places it in the hands of a government elite. They believe this will create a social Utopia where everything will be wonderful, traffic will be light, and controlled, people will want to ride transit, the cities will be small, and compact, the birds will sing, and the animals frolic.

    The reality is the opposite. Portland has terrible traffic, some of the worst in the nation, and our transit system for all of its accolades continues to decline in quality, and ridership on a per capita basis. Our housing affordability is terrible, and worsening. Rents are sky high, and people are increasingly unable to afford them. We have an endemic homeless problem.

    But we do have an urban growth boundary, which protects 96.5% of the land in the state which has never been developed. And, which corrals Oregonians onto 3.5% of the total land area of the state. The supporters of this nonsense then act as if opening any more land for development would have apocalyptic consequences. Sheesh. 3.5% of the land!

    Mental illness.

    Mark Sherman

  2. joe:

    "Now the state legislature is considering a bill to provide $5 million to help first-time home buyers make down payments on homes. This will have the effect of increasing demand, which will only drive up prices even more."

    This one is even funnier - for all practical purposes - the mojority of this money goes to the developer, in the form of higher housing prices, (same with the tax rebates for renewable energy, tuition tax credits, etc -)

  3. SamWah:

    Oregon, and especially Portland, are run by idiots and insane progressives. But I repeat myself.

  4. james:

    Here's the easy way to become one of those fat cat capitalists the left always excoriates.
    Buy property with a "Green Belt" around it. Sit back and get rich.
    Who invented this obvious scam, the left or the right?

  5. irandom419:

    I remember sitting in traffic and seeing one light rail train on tracks empty for about a mile.

    These guys don't help:

  6. sean2829:

    Isn't it funny when the government acts to help the newcomers, it's always the incumbents who benefit the most.

  7. CC:

    Government restricts the supply of doctors. Anyone can go to med school but to practice you need to do an internship (a paid position) which has a limited supply of slots paid for by the feds. Even foreign doctors who have been practicing need to do an internship again. Limited supply, high prices. This is exacerbated by the fact that insurance will pay specialists twice what GPs make, so more docs go into specialties, causing a further shortage of internal med or GPs.

  8. J_W_W:

    Missing step

    4. Repeat

  9. CC:

    The demand that developers "set aside" (sounds free when you say it that way) some of their housing for the poor at lower prices is simply extortion. This is very popular in Cali. These places also mandate all sorts of other things that drive up prices for housing, such as environmental impact studies. Places like LA actively discourage more housing because they think it will drive up traffic, but if the only affordable housing is way out of town, their policies actually create more traffic--that is what LA and San Fran are suffering from. In San Fran for example the black population has plummeted due to housing costs--they had to move out and if still working there have a longer commute.

  10. Curious Guest:

    What's your source for the limited slots claim?

  11. CC:

    I used the wrong term--it is the residency funding that is a fixed pool of federal money, with a small addition from places like Harvard and some endowments

  12. MJ:

    LA will be forced to accommodate more housing. Under CA's climate change bill (AB32), cities are mandated not only to reduce GHG emissions, but to do so by encouraging more dense housing near transit lines -- which incidentally is one of the least cost-effective methods of reducing emissions.

  13. MJ:

    This is just part of Portland's insane quest to re-create San Francisco on the Columbia. With unaffordable housing prices and economically backward policies to exacerbate them, they're already half way there.

  14. GoneWithTheWind:

    It does make you wonder if the left/progressive/liberals are just stupid or intend to create havoc. One apartment building I am familiar with in Oregon was required to create a number of "cheap housing" units in order to get their project approved. The very definition of extortion. Building permits were once intended to assure that buildings were safe and compliant but now the process is used as an income source and as extortion to force the builder to do "good things". This particular apartment had about 48 units I believe and 4 (or perhaps more) had to be given to the city to manage as low income "cheap housing". But it wasn't cheap of course with 10% of the units stolen from them they were forced to make paying tenants pay 10% more for their units. So they were tenant subsidized housing. As fate would have it I knew one of the people who won the lottery and got a unit. I don't know them well, mostly by their actions. There is indeed something mentally wrong with this person and she has been sucking on the government teat since she turned 18 and left her parents house. She does have a child but no father in sight and she does get welfare and drives a very nice car but on paper she has zero income. She is set for life now, Unless she commits a terrible crime she cannot be evicted and can live there for life.

  15. Maddog:

    The point of 1000 Friends of Oregon is to impost strict land use rules, which drive up home prices, and make housing unaffordable, then seek donations to solve the problem of housing unaffordability through more land use regulations, and regulations on construction.

    They are the quintessential progressive group, lying to gain donations, speaking with forked tongues, and making matter worse not better.

    The cure is to accept that this is the state of Oregon or move. This mental illness will likely remain until the collapse, I am not convinced it will be washed away even then.


  16. Brandon Lee:

    How is the government restricting higher education supply?