Tiny Houses on Indian Land Show Why Our Cities Cost Too Much
Altruism isn't the way to build new homes. Less government is.
Last week, the New York Times published a heartwarming story about Americans coming together to do something good. “On the Cheyenne River Reservation in South Dakota, finding enough affordable housing for all the Lakota people who need it is a constant challenge,” the Times’s Tim McKeough writes. The local housing authority has a waiting list with more than 700 people on it—not surprising, given that more than a third of residents are below the poverty line. “As people fail to find places of their own, many of them crowd together with family members in homes that were never designed to support so many people,” writes McKeough. 10 to 15 people are now cramming into two-bedroom houses.
Like much of the rest of America, the Cheyenne River Reservation has a housing crisis. Luckily, the local YMCA has come up with a solution: tiny homes. Meant to minimize costs and maximize efficiency, tiny homes are dwellings below 400 square feet. They incorporate clever design elements to maximize the use of space. They’re cheap, too: a commonly cited estimate is between $30,000 and $60,000 per unit.
Which is perhaps why it raised Mrs. Lehman’s eyebrows (she being the one who told me about this article) when she noticed the price tag on the Cheyenne River tiny homes: $200,000 each. That’s in spite of the volunteer labor putting them up, cheap materials (prefab walls and metal roofs), and even cheaper furniture (“IKEA and Article and light fixtures from Dutton Brown, RBW and Astro Lighting”). The units are a bit bigger than most tiny homes—460 square feet—but that’s not enough to explain a three- to sixfold increase in cost.
The heartwarming coverage of overpriced tiny homes is, however, a great example of how we often judge policy by its motivations, rather than its results. Progressive NIMBYs (or their cousins, the PHIMBYs) for similar reasons often look askance at private development, which they see as greed-driven and therefore unlikely to produce “affordable” housing for the poor. The common idea is that noble intentions—which doubtless drove the YMCA—are all that’s needed to solve our housing crisis.
Yet “affordable housing” policies driven by noble intentions often go astray, failing to help those they’re aimed at, and hurting others in the process. And a focus on good intentions masks the underlying cause of our housing shortage: government regulation that makes it illegal to build.
Strictly speaking, “affordable housing” refers to any housing where costs are less than 30 percent of the occupants’ gross income. (Nearly half of renters exceed this threshold, according to the Census Bureau.) But the term also means policies designed to increase the availability of below-market-rate housing, or to protect low-income tenants from being priced out.
Such policies are advanced by those wary of too much greed in the production of something all humans need, i.e. shelter. Yet they tend to make the housing situation worse, not better.
Take, for example, “inclusionary zoning.” In the name of affordability, IZ mandates require or incentivize developers to rent or sell part of their housing stock at below-market rates. As of 2021, my former colleague Connor Harris notes in a Manhattan Institute brief on the topic, more than 800 cities had IZ programs. That’s not a surprise: who could object to making developers be inclusive?
However, Harris writes, “by reducing developers’ revenue from new buildings, mandatory inclusionary zoning ordinances are essentially taxes on new development.” Depending on the demand for units in the IZ-affected area, developers can respond by raising rents for non-IZ units, driving up costs. Alternatively, IZ can make the deal not “pencil,” killing the project at the conceptualization or financing stage. That results in a lower supply of housing and, perversely, higher housing costs.
The empirical literature is consistent with this theory. A 2012 study by Means and Stringham, for example, found that California cities that imposed affordability mandates “end up with 9 percent higher prices and 8 percent fewer homes overall.” A 2019 analysis from the free-market Mercatus Center found that mandatory IZ in the Baltimore–Washington area increased home prices by about 1 percent per year (although it didn’t reduce housing starts).
For another example, consider rent-control policies, which place a cap on how much landlords can hike rents in a given year. Such policies reduce rents for incumbent tenants. And it’s easy to paint them as a blow to the nasty landlords, who are soaking the poor for all their money.
The problem is that while rent control can make things better for tenants, it also keeps those units off the market longer. To offset the lost profit, landlords must either hike rents on other units or forego repairs. That increases everyone else’s housing costs or degrades the quality of the housing stock.
In New York City, for example, 40 percent of the housing stock is rent stabilized, equivalent to nearly a million units. That’s nice for tenants who don’t want to shell out. But it’s led to serious degradation of controlled units, as landlords can’t cover costs, and have kept many units off the market—driving up everyone else’s rent. More robust research examines the 1994 expansion of rent control in San Francisco, finding that it reduced housing supply by 15 percent and increased rents citywide.
Sometimes altruism is just a band-aid on top of underlying problems caused by policy. Neither IZ mandates nor rent control explain the lack of housing on the Cheyenne River Reservation. There, the story is much simpler: because the federal government controls most of the land, it’s more or less impossible to build new housing.
“Most reservation land is held in trust by the federal government, which means it can’t easily be bought, sold, or mortgaged without approval from the Bureau of Indian Affairs,” Shawn Regan, vice president of research at the Property and Environment Research Center, told me. “That system, a legacy of the 19th century allotment era, leaves tribes and individual tribal members navigating a thicket of overlapping ownerships and red tape before a single home can be built or leased.”
As Regan explained it, while some reservation land is privately owned, much of it is essentially under the control of the federal Bureau of Indian Affairs. The BIA needs to sign off on even the most basic of construction tasks: “lease agreements, residential construction, individual energy leases.”
If you think your local planning board is bad, imagine having to go to a sub-department of the federal government to get your lease approved. That’s why there’s little building, Regan said: “Even when financing is available, the bureaucratic delays and title complexities on trust land make lenders and developers hesitant to engage.”
To be sure, being subject to the complexities of Indian reservation governance is not the same as an affordability mandate or rent stabilization. But the people who decided to build tiny houses for $200,000 a pop evince the same theory as those who think that affordable housing should be imposed by policymaker fiat: that the source of our housing crisis is people not being nice enough.
I can’t speak for the YMCA, but advocates of such policies often want to avoid the obvious culprit: laws prohibiting building. Whether in New York or on the reservation, a patchwork of regulations, zoning rules, affordability mandates and, yes, straight-up government ownership stop the market from producing the amount of housing people want at the prices they’d be willing to pay.
Conversely, the residents of both don’t need more altruism or charitable construction to paper over their problems. They need more housing, and they need government to get out of the way of those houses being built.
Great post. It’s also a problem that so many people consider developers and landlords for wanting/needing to make money from their investments and work.