House Hunting? Look in the Shadows

"The Shadow Market for Housing: It consists of the processes that provide housing by means other than new construction. If state and local laws gave this activity more scope, many affordable dwelling units would be available."

Just when you thought it was safe to cancel your Scientific American subscription, the venerable journal discovers the free market. In a recent article, author William C. Baer argues that one of the most important sources of low-cost housing in America has been not only ignored by planners but also discouraged by government regulations. Housing statistics generated by counting building permits and other signs of red tape, he says, ignore housing units created by expanding or subdividing existing dwellings or by converting nonresidential buildings. This "shadow market" includes partitioned houses and apartments, but also former school buildings, industrial lofts, and churches now transformed into apartments or condos.

The shadow market, the article reports, accounted for 21 percent of the housing units added between 1973 and 1980, compared to about 10 percent in the 1950s and '60s. More importantly, argues Baer, it encompassed half of new low-cost rental units and a third of low-cost units occupied by owners-all without subsidies and often without government approval.

Instead of calling for more federal subsidies to deal with the perceived shortage of affordable housing, Baer says local governments should loosen supposed land-use regulations, which actually dramatically influence the supply of housing. "All too often the local regulations thwart or impede [shadow market] modifications. In so doing they unnecessarily bar a fraction of the population from a ready-made source of low-cost housing."

He particularly criticizes zoning codes that haven't kept up with demographic changes and try to force people into single-family homes. For example, such codes prohibit elderly homeowners with extra room and no extra money from converting their single-family homes to two-family houses or from simply renting out part of the house. Fewer regulations, says Baer, "could also encourage the use of older and currently vacant or underutilized commercial and industrial space."

Now if they'd just go after rent control...

Come on Baby, Fight My Fire

"The people have spoken," political prankster Dick Tuck once observed after a campaign of his went down to defeat. "The bastards!" Those who pump for the privatization of local-government functions are more sanguine about the vox populi these days, thanks to a victory for privatization at the polls in Fort Walton Beach, Florida.

The referendum was placed on last November's ballot by the town's firefighters, who became worried when city officials visited the Scottsdale, Arizona, headquarters of the maverick private fire-fighting company, Rural/Metro. The subject of a May 1976 Reason feature and later a CBS "60 Minutes" segment, the company currently provides firefighting services equivalent to "about 25 fire departments," primarily in the Golden Agers State, according to Rural/Metro spokesman John Turner.

The Fort Walton Beach referendum, in the form of an amendment to the city charter, required that police and fire departments be "manned by city employees," thus precluding privatization. A heated, often rancorous campaign was carried on through most of 1986. Rural /Metro, which hopes to bid on a Fort Walton Beach contract, turned to radio, TV, and newspaper advertising, as well as interviews and speaking appearances, "to raise public awareness of the differences between public and private fire departments." Pointing out the private sector's cost effectiveness and higher productivity, the company claimed it could provide service comparable to the city firefighters' for $300,000 less per year. Opponents of private-enterprise service issued ominous warnings of corruption and unaccountability should blaze busters no longer be government workers.

When the votes were counted, the wise and good citizens of Fort Walton Beach affirmed the city's right to privatize by defeating the referendum, 3,634 to 2,537. "To our knowledge," says Rural / Metro's Turner, this popular vote on privatization "is the first ever."

City officials have not yet announced if and when they'll privatize. If experience is any indicator, they'll be in for another fight from the firefighters' union if they move in that direction (see "Blazing Battles," REASON, Nov. 1983). But the voice of the people has at least cleared the way.

Deregulation? You Can Bank On More

The naysayers are saying nay and even invoking the ever-so-irrelevant name of Ivan Boesky. But the Reagan administration still says it plans to take on the biggest remaining restriction on banks' economic freedom-the depression-era Glass-Steagall Act, which prohibits banks from engaging in commerce.

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