Want to reduce home prices in Maine? Build more houses.

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Markets work.

Take housing. By most accounts, there is a huge housing shortage in Maine. During COVID, Maine has seen significant immigration of people fleeing more densely populated areas.

It’s economics 101. With limited supply and growing demand, prices are rising. And increase they have. Last November, the median home price in Maine rose 11% from a year earlier. The same dynamic plays out with rents.

For those selling homes, whether by deed or lease, the market is in their favor. For many older Mainers, sharp increases in house prices mean a more comfortable nest egg as they approach retirement. So trying to push forward a policy that takes money out of pocket is a challenge.

To lower prices, you need to do one of two things; decrease demand or increase supply. That’s it. All the government aid around the world—housing vouchers, rural loans or whatever—doesn’t change that. These programs only make high prices more palatable to potential buyers.

Decreasing housing demand in Maine seems like a bad idea. We are the oldest state in the union and we already have a labor shortage. If we want prosperity, it will not come from a decrease in population.

Which brings us to door number two: increase supply.

It was one of the big debates in Augusta last week. Democratic House Speaker Ryan Fecteau introduced his bill that would bring significant changes to Maine for housing development. It’s not partisan; it has Democrats as opponents and Republican co-sponsors.

The proposal would do a number of things, such as creating a state-level appeal board for certain municipal licensing decisions. It requires that “secondary suites” – in-laws’ apartments – be allowed in every single-family home. It gives homeowners the right to build four housing units on any land in the state where housing is permitted, as long as water and sewer requirements are met.

Fecteau’s effort was attacked by the Maine Municipalities lobbying organization. They presented it as an upheaval in our state’s tradition of “local control”. And it absolutely is.

This is where we come back to the markets.

Local decisions can disrupt the economy. Portland is a prime case study. Former mayor Ethan Strimling and his Democratic Socialist allies helped pass an “inclusive zoning” ordinance that requires 25% of units in new housing projects to be “affordable” under a government formula. Caution ; it only applied to subdivisions of 10 or more units.

Portland has seen new housing permit applications fall off a cliff, with multi-family proposals clustered around a maximum of 9 units. So, with less online supply, prices will stay high until demand drops.

The pending proposal in Augusta circumvents some of these constraints in major cities in Maine. While opponents oppose it on home rule grounds, those of a more libertarian bent support it through the prism of property rights. If someone owns land, they should be allowed to do what they want with it.

What if they can make a lot of money by building four units on one property? More power for them. Will this reduce housing costs in Maine? Probably, possibly. Will those who rely on home appreciation to fund their retirement suffer somewhat? May be.

But that’s the market. Some will succeed better than others, whether through talent, capital, hard work, or just luck. But in recent decades, our standard of living has increased. Global poverty has dropped dramatically.

President Fecteau’s bill is a good step towards reforming the housing market. It’s not perfect, and some things can be changed, especially not to overlook smaller municipalities that don’t face the same housing challenges as other parts of the state.

But if we want house prices to come down, we have to build more houses. Let the market work.

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