The discussion around Austin’s ‘affordability’ was perhaps the most interesting policy theme from the recent municipal election.
Unfortunately, the discussion seemed to focus on economic development subsidies. These subsidies – while they might contribute to reducing Austin’s affordability in some cases – are a tiny part of local public sector budgets and none of the projects is sizable enough to act as a significant driver in the Austin economy.
If a local policymaker is genuinely interested in making Austin more affordable, they should ask themselves two questions: first, how can I reduce the costs of the main expenditures of Austinites? And second, how can I help Austinites grow their incomes faster than their expenditures?
To answer the first question, let’s examine what Austinites might spend their money on. Below is a summary of the latest data from the Bureau of Labor statistics on American consumer expenditures. The major categories are housing, tax expenditures (this includes federal taxes but not local sales taxes), and transportation.
The market-driven approach to reduce housing costs is to boost housing supply and to encourage policies that allow extremely affordable housing. Subsidizing the development of low cost housing is another approach. Finally, there are more statist options such as rent control.
The bulk of tax expenditures experienced by the average American consumer unit (i.e. household) are federal taxes and hence are beyond the scope of what local policymakers can impact. However, for the limited portion of municipal fees and rates that impact affordability, policymakers can create affordability by reducing expenditures (though this might prove short-sighted if the public goods are highly needed or indirectly impact workforce demand). A more promising alternative might be to boost the affordability of Austin government for the median (as opposed to average) resident by adopting more progressive revenue schemes. This is different from having low average rates. In some areas, such as water rates, we might want relatively high average water rates to induce conservation, but a steeply progressive rate schedule to increase affordability amongst the lowest-income Austinites.
For transportation, the major policy contribution local policymakers can make is to reduce the number of cars a consumer unit seeks to own by developing compelling transportation alternatives to automobiles.
There are three main approaches to boosting income. One straightforward approach is to adopt policies that support a tight labor market. Or put a different way, to avoid adopting policies that discourage workforce demand. A second approach to boosting income is helping Austinites develop skills that command a premium in the market. A third approach is to foster effective unions that provide labor collective bargaining power.
Towards a Better Affordability Conversation
The affordability discussion in the last municipal race seemed to focus on policy areas that are ultimately not that meaningful in actually making the city more affordable, especially to the working poor.
As a matter of fact, some of the themes espoused by several candidates (e.g. attacking a dense core, conformity on a car-focused transportation culture) will keep making affordability problems worse.
And I didn’t get a sense of a real discussion on boosting workforce demand area in the last set of municipal races outside of the incentives discussion. I have previously pointed out, Austin’s economic development incentives are a very tiny part of the local policies that affect workforce demand. I didn’t detect any real discussion about strengthening the city’s human capital and obviously there was no real discussion of supporting, say, private service sector unionism.
Interestingly, the best solutions do not always conform to a typical right-left ideology. On housing, we probably needs less regulation so that the market can build supply where it is needed as well as allow developers to provide extremely low-cost options. On human capital we don’t necessarily need substantially more spending per student (thought that would help in some cases) as much as a drastic change to the delivery mechanism. In transportation, we need more aggressive pricing of the actual externalities of car use as well as more ambitious spending and use of eminent domain power to make alternatives to car use appealing.
If we want our policymakers to be serious about Austin affordability, then we need to ask them to focus on the correct policy areas and discourage symbolism.