Free Market Solutions to the Housing Crisis

by | Nov 3, 2023

The political, economic, and moral case for a free market in housing.

Across the nation, low-income families face a severe shortage of affordable housing. (Housing is considered affordable if it consumes 30 percent of less of a family’s income.) While there is widespread agreement that a problem exists, there is little agreement on the proper solution. Indeed, many of the proposed solutions conflict with one another and contribute to a worsening of the crisis.

The cause of this conflict and confusion is a flawed method for thinking about the problem. If we follow the wrong method in addressing any problem, the decisions that we make are unlikely to achieve the results we desire, and those decisions often lead to undesirable results. If we choose the wrong standard by which to judge alternative policies, or if we do not consider all of the relevant facts—the full context—we are unlikely to make the best decisions.

If we want to make the best decisions possible, then our thinking must be guided by a method that is founded on the proper standard of value and considers the full context. We must begin with the proper goal in mind, and then we must consider all of the relevant facts, including the pros and cons of the alternatives in light of that goal.

Most discussions of housing policy begin with the wrong standard of value. With few exceptions, some group—such as low-income families or the working class—serves as the standard of value. When the interests of the group are the standard, then the interests of the individual are subordinate to that group. The individual is regarded as relevant only to the extent that he sacrificially serves the group. Further, most discussions of housing policy focus on one particular aspect—such as “voucher discrimination”—and ignore the broader context. The resulting policies attempt to address one issue while ignoring the consequences of those policies on other aspects of housing.

Because the wrong standard is used, the proposed policies attempt to benefit the members of one group at the expense of individuals—non-members of that group. Because the full context is not considered, the proposed policies inevitably create new problems.

If we want to avoid these flaws, we must reject collectivism—the idea that the group is the standard of value. In its place, we must embrace individualism—the idea that each individual is a sovereign being with an inalienable right to live for his own sake. Then we must consider all of the facts that are relevant to promoting and protecting the individual’s freedom to live the life of his choosing. Finally, we must consider the pros and cons of alternative policies.

Affordable housing is a multi-faceted issue. Many factors contribute to the cost of housing, as well as its affordability to a particular individual or family. If we want to implement the best policies, then we must consider all of these factors, as well as their interrelationship.

We will examine six different issues pertaining to the affordable housing crisis, the policies proposed by many housing advocates, and free market alternatives. This series of posts is founded on the premise that each individual has a moral right to live for his own personal happiness. In examining these issues, we will see how they relate to one another and the overall impact on housing affordability—we will consider the full context. To solve the affordable housing crisis, we need an integrated policy.


Relaxing Zoning

For a century, zoning has been used to segregate “incompatible” land uses. In most cities, each area of the city mandates that land be used for residential, commercial, or industrial purposes. And in most cities, much of the land (often over 60 percent) is zoned for single-family homes.

Defenders of segregating land uses have long claimed that zoning is necessary to protect the community’s values and interests—i.e., the values and interests of the group. Under zoning, individual land owners cannot use their property as they think best. The property owner’s values and interests are subordinate to those of the group—the community. This defense of zoning has long dropped the context and ignored the role that zoning plays in the cost of housing.

Over the past two decades, a growing number of economists and researchers have shown that zoning and similar land-use regulations, along with the associated permitting process, stifle the construction of housing and add to its cost. In response, cities and states across the nation have been changing, or considering changes to, their zoning regulations. And the Biden administration has suggested that municipalities will be required to revise their zoning laws as a condition of receiving federal money for housing.

The most common revision is to relax single-family zoning to allow other types of housing, such as duplexes and “granny flats.”  Because the cost of land is a major factor in the price of housing, greater housing density enables builders and developers to spread the land cost over more housing units. In many jurisdictions, the permitting process is also being simplified, and thus less expensive. The result is a lower cost per housing unit.

Another common revision is to allow for mixed-use communities. Mixed use allows for restaurants, retail stores, offices, houses, and apartments to exist in close proximity to one another. These are precisely the types of land uses that zoning was designed to prohibit. But as more individuals want to live in “walkable communities,” revisions to zoning regulations are necessary.

Many are opposed to these zoning changes. Opponents argue that allowing different land uses will change the character of their neighborhood. These claims are founded on the premise that the individual should sacrifice for the group—the neighborhood or community. That premise must be rejected if we truly want to produce more affordable housing.

Numerous studies have found that zoning and similar land-use regulations can add more than 40 percent to the cost of housing. Many of the jurisdictions that are revising their zoning laws and the associated permitting process are aiming to reduce the costs by 50 percent. If they are successful, that will result in a significant reduction in the cost per housing unit. However, the remaining restrictions and permitting will still add 20 percent or more to the cost of housing. Ideally, all zoning would be abolished and the full cost of land-use regulations could be eliminated.

The premise underlying the relaxing of zoning regulations is that fewer restrictions will encourage developers to build a greater variety of housing. This is a market-oriented solution, and it should be supported.


Protecting Freedom of Choice

Housing vouchers are a subsidy provided by the federal government and administered by local government housing officials. Vouchers allow low-income families to obtain better rental housing than they could otherwise afford. However, many landlords do not accept vouchers. Housing advocates say that “source of income” discrimination should be outlawed and landlords should be required to accept vouchers.

Requiring landlords, the advocates argue, will give voucher uses more housing choices. But this argument is founded on the wrong standard of value and it drops context.

The movement to outlaw “source of income” discrimination holds that the interests of a group—voucher users—supersede the interests of individual landlords. The movement wants to force landlords to subordinate their interests to those of voucher users.

In claiming that they are trying to give voucher users more choices, housing advocates ignore the fact that they are seeking to deny choices to landlords. They are claiming that tenants should have the freedom to choose, but landlords should not enjoy that same freedom. This type of contradiction is what results when one starts with the wrong standard of value and then drops context.

If freedom of choice applies only to the members of the favored group, then the members of that group can lose their freedom to choose when another group attains favored status. The result is a perpetual battle to attain that favored status. Instead of promoting the idea that freedom of choice only applies to the members of a particular group, we must protect and defend the freedom of choice of all individuals, tenants and landlords alike.

In practice, this means that each individual is free to act as he thinks best, so long as he respects the freedom of others to do the same. Morally, if an individual wishes to trade or interact with others, he must obtain their voluntary consent. Morally, he cannot force them to act contrary to their own judgment. To do so is to violate their freedom to choose.

If housing advocates want more landlords to accept housing vouchers, then they should seek to persuade rather than coerce. They should advocate policies that protect the freedom of choice of all individuals, including tenants and landlords. And they should advocate for government policies that would encourage landlords to accept vouchers.

As one example, a property must be subjected to periodic inspections in order to be accepted for a voucher program. Many landlords find the inspection process and the paperwork involved to be more hassle than it is worth. If housing advocates want more landlords to accept vouchers, then they should seek simplify the process and make it easier and more enticing to property owners.

Similarly, tax credits or tax exemptions for properties that accept vouchers would also provide a motivation to landlords. If a property owner can save a substantial amount on his taxes by accepting vouchers, he will be more inclined to do so. But each landlord would be free to choose and act as he thinks best.

This is a market-oriented solution to the use of vouchers, in that it protects the freedom of choice of landlords and tenants alike. It encourages acceptance of vouchers without mandating it.


Clearing the Market

As rents soar in many parts of the country, government officials and housing advocates are increasingly looking to rent control—caps on what landlords may charge—to moderate prices. However, rent control ignores a basic principle of economics.

One of the fundamental principles of economics is the law of supply and demand. This principle holds that if the demand for a value increases while the supply remains the same, prices for that value will increase. Conversely, if the supply increases relative to the demand, prices will decrease. When the supply and demand are in equilibrium, the market is said to have cleared.

The housing crisis is one of supply. The demand for affordable housing far exceeds the supply, particularly for low- and moderate-income families. The rising demand causes rents to increase. However, if the supply were dramatically increased, rents would ultimately decline.

Many housing advocates complain that very little new housing construction is for low- and moderate-income families. However, because they do not consider the full context, they generally fail to identify why this is the case.

Despite the immense demand for affordable housing, it simply isn’t profitable to build. And the primary cause is zoning and similar land-use regulations. By limiting land uses, these regulations drive up the cost of the land necessary to build housing, and this is particularly true in popular neighborhoods. In addition, the permitting process associated with zoning adds significant costs to new construction.

We have already seen that many jurisdictions are revising their zoning regulations to remove some of the restrictions. While this is certainly a step in the right direction, the remaining regulations still add substantially to the cost of building new housing. So long as those regulations and the associated costs remain, it will be difficult, if not impossible, for developers to build less expensive housing.

Increasing the supply of housing relative to demand ultimately drives down prices for all levels of housing as the market clears. This is true even if that housing is primarily for high-income families. This is a process known as filtering.

To illustrate the process of filtering, let us assume that a developer builds a luxury apartment building a block away from a moderately priced apartment building. Let us also assume that all of the residents of the lower priced building move into the new building. The owner of the moderately price building would have a supply that greatly exceeds the demand. To clear the market, he would lower his rents to attract tenants.

Admittedly, filtering doesn’t occur this cleanly or dramatically. Filtering often requires several years to occur, but it does occur. And we can see this in regard to automobiles. When an automobile is new, it might be unaffordable for low- and moderate-income families. However, as that vehicle ages, its value decreases and it slowly becomes more affordable to lower income families.

For decades, the demand for affordable housing has grown far faster than the supply—some estimate a gap of 100,000 units per year. The only way to close that gap is to dramatically increase the supply. And that means removing the restrictions and regulations that make affordable housing unprofitable.


Restoring Economic Freedom

If we truly want to solve the affordable housing crisis, then we cannot look at each issue in isolation. We must consider the full context. The affordability of housing involves more than simply the cost of housing. It also includes an individual’s income. And, just as there are many restrictions on housing producers to build or provide housing, there are many restrictions on the economic freedom of individuals to earn higher incomes. The two primary restrictions are minimum wage laws and occupational licensing.

It may seem counterintuitive that minimum wage laws restrict an individual’s earning potential. After all, such laws provide individuals with a higher income than they might otherwise earn. However, because minimum wage laws are founded on the group—low-income workers—as the standard of value, those laws are ultimately harmful to individuals.

Minimum wage laws force businesses to pay employees more than the owner believes a job is worth. If the owner thinks that a job is worth $15 an hour, he will voluntarily pay that wage. But if the owner must pay that wage for a job that is only worth $7.50, he will reduce the number of available jobs, often through automation. With fewer jobs available, low-skilled workers have a lower supply of jobs available. Many will simply be unable to find work. Minimum wage laws benefit those low-skilled workers who are fortunate to have a job, but they harm those who don’t. Individuals suffer when the group is the standard of value.

Low paying jobs certainly make it difficult to obtain affordable housing. However, low paying jobs provide experience and help an individual develop skills that will enable him to earn a higher wage in the future. But he will not gain experience or develop skills if he cannot obtain a job. Similarly, occupational licensing restricts the earning potential of individuals.

Licensing requires individuals to obtain government permission before entering certain professions. Such laws allegedly protect the group—consumers—from unscrupulous and incompetent practitioners. But those laws do harm to those individuals who desire to start a business but lack the resources to obtain a license, as well and the individuals who would like to hire them.

When the group is the standard of value, the individual is subordinate to that group. The individual’s own choices are irrelevant. He must sacrifice his judgment and values to those of the group. Zoning and similar regulations prevent an individual from using his property as he thinks best in deference to the interests of the group—the community. Minimum wage laws prevent some low-skilled workers from obtaining a job so that other low-skilled workers can benefit. Occupational licensing prevents ambitious individuals from starting a business for the alleged benefit of the group—consumers.

The restrictions on housing producers and housing consumers make housing less affordable for many individuals and families. Controls and regulations drive up the cost of housing, and make it more difficult for individuals to obtain job skills or start a business to earn more money.

If we want to solve the affordable housing crisis, we must look at all of the factors involved. A growing number of individuals are calling for cities to relax their zoning regulations—provide more economic freedom for housing producers. We must do the same for housing consumers.


Supporting Non-profit Housing

Much of the discussion of housing policies for low-income families involves expanding government policies and programs. Expanding policies such as inclusionary zoning and rent control, along with increasing funds for housing vouchers, are among the policies most commonly advocated by housing activists.

These policies are funded by taxpayers, and many individuals disagree with these types of expenditures. These individuals would prefer for their money to be spent on such things as the military, highways, and bridges. Or they might prefer to retain their money to spend as they choose. But government housing programs prevent this freedom of choice. Such programs force individuals to financially support programs that they may or may not agree with. And they are forced to supply that support whether the programs are effective or not.

Unlike government programs, when individuals donate to private charities, they can monitor that charity and withdraw their support if they believe the charity isn’t being effective. Unlike government programs, individuals have the freedom to donate to the causes that they support, and they can choose the amount to donate. Unlike government, which can raise taxes or print money to pay for its housing programs, private charities must rely on the voluntary donations of individuals. If those charities don’t use that money wisely, they will lose donors.

Rather than continuing to dump hundreds of millions of dollars into a variety of government housing schemes, we should be encouraging and supporting private, non-profit housing programs, such as Habitat for Humanity. Habitat’s website describes how the organization helps individuals attain better housing:

Habitat for Humanity partners with people in your community, and all over the world, to help them build or improve a place they can call home. Habitat homeowners help build their own homes alongside volunteers and pay an affordable mortgage. With your support, Habitat homeowners achieve the strength, stability and independence they need to build a better life for themselves and for their families.
When we rely on private charities rather than government, to address the needs of low-income families, those who are concerned about such issues are free to support charity programs, and those who are not concerned are free to abstain. When we rely on private charity rather than government, we protect each individual’s freedom of choice.

Freedom of choice is an essential characteristic of a free market. In a free market, individuals are enabled to choose their values and the means for attaining those values. They are free to choose the values that they will produce without government restrictions. They are free to choose the profession they will pursue without government restrictions. In a free market, individuals are free to produce and trade values as they think best. And this includes the freedom to donate to a charity or not.


The Moral Case

In this essay, we have examined many of the practical issues regarding the housing crisis. We have seen how market-oriented solutions can address many of the problems associated with that crisis. And while the free market is eminently practical when it comes to producing the values that humans want and need, the free market is also moral.

Morally, each individual is responsible for sustaining his own life. He must produce the values that his life requires. If he doesn’t produce those values and he chooses to continue living, he must obtain values produced by others. He can depend on charity or he can resort to crime. He can rely on the voluntary donations of others, or he can forcibly seize the values produced by others. This is true of every value that life requires, including housing.

When individuals disagree on a course of action, they have two alternatives. They can use persuasion to try to convince others to change their mind, or they can resort to force. They can use reason, or they can use a gun. They can respect others’ freedom of choice, or they can render the choices of others irrelevant.

In a free market, each individual is free to produce and trade the values of his choosing without government restrictions and controls. Developers are free to build a luxury apartment complex, a block of townhomes, or a single-family home. Individuals are free to accept a job at any wage they find acceptable. Individuals are free to enter the profession of their choosing. In respecting and protecting an individual’s freedom to act as he thinks best, a free market enables an individual to take responsibility for his own life. A free market protects an individual’s freedom to be moral.

Each of the solutions proposed in this series are founded on the premise that an individual should be free to choose the values he desires and the means for attaining those values, so long as he respects the freedom of others to do the same. The individual, not the group, is the standard of value.

The topics that we have examined are not isolated issues. They are a part of a broader context. Consequently, the proposed solutions are integrated—they take into account the full context.

Housing advocates place the group as the standard of value. The individual is subordinate to the group, and he must sacrifice his values and desires to the group. And those who do not do so willingly are forced to do so. Every proposal put forth by housing advocates ultimately resorts to forcing individuals to act contrary to their own judgment and choices.

If we truly want to help low-income families attain decent and affordable housing, then we must identify and promote policies that protect the freedom of individuals to pursue their own personal happiness. Only when this serves as our standard of value can individuals pursue and attain the values that they need and desire, including housing.


No solution to the housing crisis is without pros and cons. This is true of the myriad schemes proposed by government officials as well as free market solutions.

Government programs do help some low-income families, but the demand for that assistance far exceeds the supply. As an example, over 20 million families are cost burdened (paying more than 30 percent of their income for housing). The government’s Section 8 housing voucher program serves about 3.4 million families. To serve all of the cost burdened families, the voucher program would need to be expanded six-fold. Paying for this largesse would require a substantial tax increase, which would add to the burdens faced by other struggling families.

The same is true no matter what scheme the government attempts. Because values, including housing, must be produced, those who not produce those values themselves must obtain them from others. Government does not produce anything; for government to provide housing assistance, it must take the money from taxpaying individuals and businesses.

The government’s attempts to build and operate public housing projects have been a failure. Those projects quickly fell into disrepair and were ultimately abandoned. Zoning and similar land-use regulations restrict new construction and drive up the cost of housing. Rent control has motivated many owners to withdraw their rental properties from the market and reduced the supply of housing. Eviction moratoriums in response to the pandemic have forced many landlords to sell their properties because they can no longer afford to pay the expenses.

In short, everything the government has attempted to solve some housing issue has been a failure and made the problem worse. Certainly, some individuals have benefited, but the costs have been substantial and the problem has not been resolved.

This does not mean that a free market is like the Garden of Eden—an endless bounty of values available for the taking. A free market protects the individual’s freedom to produce and trade values, but it does not guarantee success in doing so. Even when supply equals demand, some individuals will not be able to obtain the housing they desire in the location they want. This isn’t a flaw in the free market. It is simply recognition of the fact that we can’t always get what we want. However, the free market does provide the freedom to try to get what we want.

Because the free market protects the individual’s freedom of choice, we will make decisions that others do not like. In such situations, in a free market, those who disagree cannot use force to compel actions that they desire. They must respect and accept our freedom to choose or attempt to change our mind through persuasion.

The market for affordable housing is huge. Developers and housing innovators can meet the demand and be profitable. But for that to occur, we must remove the controls and regulations that stifle the production of housing. We must restore freedom to housing producers.

Brian Phillips is the founder of the Texas Institute for Property Rights. Brian has been defending property rights for nearly thirty years. He played a key role in defeating zoning in Houston, Texas, and in Hobbs, New Mexico. He is the author of three books: Individual Rights and Government Wrongs, The Innovator Versus the Collective, and Principles and Property Rights. Visit his website at

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

Have a comment?

Post your response in our Capitalism Community on X.

Related articles

No spam. Unsubscribe anytime.

Pin It on Pinterest