The Do's and Dont's of Housing Policy

"Governments contemplating large increases in public housing production, especially public rental housing, should carefully study the cautionary experiences of countries that have found such programs to be extremely costly and less effective than initially planned."

"Regarding trunk infrastructure such as major roads, water mains, sewerage collection and treatment, an improved electricity grid, and so on, remember that both existing patterns of settlement and land prices provide important signals regarding where and what to invest in.  When marginal investments in such infrastructure lead to increases in the value of newly serviced land greatly in excess of the costs of such infrastructure, the market is signaling that these services are seriously underprovided."

"Make subsidies transparent and on-budget, rather than through the financial system or rent control as these distort the financial system and resource allocation; and are usually less progressive than imagined.  Target subsidies to low-income households and others at risk such as the disabled and infirm elderly.  Careful administration requires we devise practical means of identifying eligible beneficiaries and minimizing leakage of benefits to ineligible households.
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A wide range of international experience suggests that demand side subsidies (housing allowances or vouchers) often work better than supply side subsidies (public housing, construction subsidies).  In countries where the housing supply system is not keeping up, it’s usually the case that addressing supply constraints directly is more effective than subsidizing some favored segment of a poorly performing development system."

"Look for regulatory overdesigns such as codes that specify large lots, that require curbs and gutters for all streets, and inappropriately wide roads.  Are construction codes linked to local conditions?  For example, are foundation and footing requirements linked to soil type?  Are infrastructure standards linked to density and income?  For example, low cost sanitation alternatives like Ventilated Improved Pit (VIP) Latrines may work well in a range of conditions, but not in the densest areas of, say, Shanghai."

"When housing supply is unresponsive – “inelastic” – the solution is not a one-time increase in approvals or production.  Don’t just shift an inelastic supply curve to the right.  More fundamental reforms flatten the supply curve – make the market more responsive to demand."