Affordable Housing: Of Inefficiency, Market Distortion, and Government Failure

Michael Diamond*

In this essay, I examine the types of costs that are imposed on society as a whole due to the absence of a sufficient number of decent housing units that are affordable to the low-income population. These costs present themselves in relation to health care, education, employment, productivity, homelessness, and incarceration. Some of the costs are direct expenditures while others are the result of lost opportunities.

My hypothesis is that these costs are significant and offer, at the very least, a substantial offset to the cost of creating and subsidizing the operation of the necessary number of affordable housing units that are currently missing. I suggest a series of reasons why, in the face of this potentially inefficient outcome, the market/society does not produce the required units.

The essay is conceptual in nature, not empirical. I recognize the issues associated with the quantification of often opaque costs and with their causal relationship to the lack of affordable housing. It is clear, however, that the costs are sizable and the correlations are strong and therefore, I believe, the hypothesis requires empirical study.

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Professor of Law, Georgetown University Law Center. I would like to acknowledge the generous contributions of Josh Teitelbaum, David Hyman, and Gregg Bloche who, through several discussions with each, helped me to refine ideas presented here. I would also like to acknowledge the valuable research assistance of Gabriel Angelo Quevedo and the tremen- dous editing support of Betsy Kuhn.

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