The City of Bozeman, which is home to FREE, is now considering revamping its workforce housing ordinance. The current law, enacted in 2007, requires that developers set aside ten percent of units in new housing developments to be sold for less than $200,000 to families with incomes of less than $70,000 per year. According to the Bozeman Daily Chronicle, the ordinance doesn’t work, since it was enacted just before construction plummeted at the end of the housing boom.

However, digging deeper, the Chronicle editorial of July 24, 2011 pointed out that affordable housing requirements never have worked in Bozeman. The Chronicle noted that it’s hard to force developers to do what they don’t want to do, and that many thorny issues are unresolved. These include purchases by qualified families whose financial situation quickly improves, and quick resales at market rates by buyers who benefited from subsidized low prices.

While those advocating for affordable housing stress the nuts and bolts of implementation, I want to raise some fundamental questions. The first is how “affordable housing” should be defined. Next, who does, or should, pay for the benefit conferred upon others. Finally, does public or mandated private provision of affordable housing make for sound public policy.

One reason why the term “affordable housing” has been in vogue is that it’s difficult to argue that housing is not a fundamental need, and that people should be able to afford that necessity. However, beneath the agreeable phrase, “affordable housing” means three different things and carries additional suppositions.

The most basic meaning of “affordable housing” is shelter for those who otherwise would be destitute. In this sense, it is synonymous with the public housing or similar shelter for those on welfare. Most advocates of “affordable housing” know that its popular association with shelter for the underclass is not politically popular. For that reason, advocates in Bozeman and other cities stress “workforce housing,” which, at its heart, is rental housing for those working in service industries or blue-collar fields.

Workforce rental housing appeals to people with higher incomes, who are more ready to support housing subsidies for those who work where they shop and look after their children. However, as in Bozeman, workforce housing also means access to home purchase by those who aspire to a middle-class lifestyle but who can’t readily afford to move from home rental to homeownership.

Thus, “affordable housing” includes entitlement of everything from basic shelter to middle-class homeownership. But, it’s hard to see why those moderate-income families who are prudent and industrious should pay to provide similar rental housing for their less careful peers. In the world of those who carefully plan to get by and to raise their children, there is a definite status distinction that separates them from those who are fleckless and who think they can adopt the same dissolute lifestyles as movie stars who can buy their way out of trouble.

It’s easy for affluent professionals to think of those with high school educations and non-career jobs as all alike, and to treat them as an undifferentiated social class. However, that’s insulting and demeaning to families who work hard to keep up their families and their self-respect. Likewise, it’s difficult to explain to hard-working middle-class homeowners why they should subsidize others to obtain equal housing satisfaction. I doubt anyone even tries to convince hard-working blue-collar families who rent why they should subsidize homeownership for those in the aspiring middle class.

The predictable response from affordable housing advocates is that so-called workforce housing programs don’t cost members of the community anything. The entire tab, they might say, is paid by the developers who build new subdivisions. Basic economics, however, tells us differently.

In our society where people continually bargain with each other, costs typically are passed backwards to suppliers and employees, and forward to customers. Developers naturally treat requirements to sell units below cost as taxes. They could not stay in business if they could not spread this cost of production to suppliers of materials, construction workers, and the buyers of units in new subdivisions who pay full market prices. The exact proportion of the cost of “affordable housing” must be distributed among these groups based on supply and demand in the particular housing market—but pay they must.

This gets us to the second question I posed. If workforce housing is valuable and important, who should pay for it? Is it fair, as in the Bozeman plan, for the cost to be borne not by the general public, but only by the few who build new housing, their employees, and their customers?

There aren’t many developers, and public officials love to impose burdens on those moving into the community, since it will be a while before they settle in, learn about community politics, and vote. Do those who build or buy new housing create housing shortages? It might make it easier to answer that question by turning it around. Would housing be more affordable if developers were prohibited or discouraged from building?

Is affordable housing good public policy? An answer to that question has to start from the premise that government officials have only limited resources to deal with public needs, and that there is a limit on the support that they could expect on new taxes. It’s important to remember that the requirement for below-market sales prices is a tax on developers, their employees, and homebuyers.

From the prospective of potential recipients, getting an affordable housing unit is like winning the lottery. Only a fortunate few from among the many eligible will benefit. Sometimes beneficiaries are selected by chance, sometimes through connections and favoritism, and sometimes because self-created distress makes their need acute. If one is disposed to greater public support for housing, is providing windfalls to the few better than assisting with the housing needs of a much larger group of people far more in need?

Furthermore, it also isn’t clear why Bozeman, or another municipality, has a need to provide housing that might be available elsewhere in the general area. For instance, should landlords in Belgrade lose tenants because they are induced to become subsidized home purchasers in Bozeman?

Finally, housing opportunities, like other types of opportunity, are best facilitated by economic growth and by removal of artificial constraints on housing. Keeping score of “fairness” in terms of who deserves to have subsidized apartments or private homes is daunting. Devising formulas to take into account family composition, changing incomes, and splitting gains on resale are almost impossible to administer in ways fair to all.

Maybe the best answer is for cities like Bozeman to provide help to those that really need it, to provide honest and transparent government and competent basic municipal services, and to avoid micro-management. Long experience suggests that when cities undertake more ambitious tasks, neither they nor their residents flourish.