I like open space and affordable housing. How can we have more of both in the fastest growing county in Montana?

The good news is we don’t make all or nothing choices. However, we should remember two rules of public policy: not all good things go together and there are no cost-free solutions.

Bozeman’s high housing prices hurt many folks serving vital roles in our communities (e.g., teachers, firefighters, and nurses). One solution is to support the entrepreneurs at Habitat for Humanity (www.habitat.org). They mobilize volunteer labor and donations of money and materials to build modest and safe homes. (My family contributed windows, doors, and appliances from our remodeling project.)

What other polices might we pursue to increase the supply of affordable housing? Economic reasoning can help. Economists don’t know more about the world than artists or engineers. But good economists are especially sensitive to the unexamined consequences of well-intended policies. Here’s an analysis we can extend to housing.

Should parents be required to purchase a separate airline ticket so their infant can ride in a car seat? Buying an extra seat makes flying more expensive. As things become more expensive, people demand less. Hence, more families drive rather than fly. Since driving is statistically much more dangerous than flying, we’ll likely see an increase in the number of injuries to infants.

The selling price of a home reflects land prices, construction costs, and regulations. Controlling for land costs, the Federal Reserve Bank of New York found that in much of America the price of housing approximates the actual, physical costs of new construction. Only in a few areas, e.g., some major California cities, New York City, and Boston, is the price of housing higher than predicted. Highly restrictive zoning appears responsible for driving up prices, notably in the Bay Area.

Can public policies that cap the price of a few homes at below-market rates move more low-income folks into new homes? If housing prices are close to actual construction costs, this policy will only work if the other home buyers make up the difference, i.e., pay a higher price. This may be a worthy strategy, but let’s be honest about who pays for it.

Builders do not bring homes to market if they must sell them below cost. They will move their capital into activities that yield positive returns. Price controls, whether on gasoline, plywood, or homes, predictably create shortages or black markets. Here’s a telling example.

In 1990, Watsonville, California, passed a law requiring that 25 percent of all new homes be sold to low- and moderate-income buyers at below-market prices. Between 1990 and 1999 there was almost no new construction. When the law was revised in 1999, Mayor Judy Doering-Nielsen noted, “There was an incredible pent-up demand. Our housing ordinance was so onerous that developers wouldn’t come in.”

Here’s a simple, incontrovertible fact. Well-intended zoning and other land-use controls increase housing costs. For example, height restrictions require more land to house the same number of people. This means urban areas will expand outward instead of upward. And more people are going to drive their cars to get to work.

Those favoring height restrictions say they don’t want their communities to look like Chicago. But here’s the relevant question. What trade-offs are you willing to accept and what price are you willing to pay to prohibit high-rises in your community?

I’m not arguing to abolish zoning laws or building codes. Rather, I’m reminding our elected officials that there are no cost-free solutions, only trade-offs.

This economic logic is not based on money, but rather on the reality of choosing among competing values. If we remove land from development to protect open space, the price of the remaining land will rise. Part of the trade-off of open space protection is more expensive housing and longer commutes.

Those who pretend their values are exempt from this reality are either naïve or disingenuous. Lofty talk about “non-economic values” usually masks an ugly truth: some people do not want their values weighed against others. This denial thwarts the achievement of progressive outcomes such as increased home ownership.