Steven Greenhut Sr. editorial writer and columnist The Orange County Register sgreenhut@ocregister.com

It was only a matter of time, perhaps, before the most laudable effort by a city nationwide to promote free markets would yield to the temptations of regulation, subsidy and central planning. While not surprised, I am disappointed.

In the past couple years, the city of Anaheim has taken a governing approach that has been shocking not only for its good sense, but for its rarity in a world dominated by city councils run by wannabe dictators.

Instead of increasing its control over every development and looking for ways to tax everything, Anaheim has loosened zoning restrictions, cut back regulations and reduced taxes. Everyone has benefited, not just some favored corporations.

The results can already be seen. Big companies are building stunning new projects, and small businesses are reviving older neighborhoods.

Unfortunately, the coalition that ushered in what I have termed "Anaheim's Velvet Revolution," seems to have gone off track, at least in one area. The City Council last week passed a troubling, government-heavy approach toward housing, thanks largely to the efforts of the council members Richard Chavez and Lorri Galloway, both of whom work full-time for the same housing charity.

The third vote in favor of the "Anaheim Affordable Housing Strategic Plan" was Republican Mayor Curt Pringle, who may have thrown a bone to his two more liberal colleagues as a way to keep them on board for his broader pro-market agenda.

Councilman Harry Sidhu, who also has supported many of the council's free-market reforms, is adamantly opposed to the housing plan, accusing the council majority of enacting a "socialist agenda." What's next, he asks, a plan by the council to provide jobs for those who don't have them, or to provide food for those who are lacking it? "Subsidy," Sidhu says, "does not work."

The same principles that apply to other markets apply to the housing market. Regulations, "incentives" for developers and tax subsidies distort the market, reward bad behavior, undermine neighborhoods and limit freedom.

A key reason for high housing prices throughout Orange County is that governments impose enormous costs on developers, making it unreasonably difficult for them to respond to demand. More regulation, subsidies and government involvement will only compound the problem. Anaheim has generally understood that and has made it easier for developers to build new housing units. That's good, but the new housing plan is not.

By the way, it's unreasonable to expect that poor people will live in brand new houses or apartments. Typically, wealthier people buy new houses, and middle-income people move into the houses they sell, and lower-income people move into the houses those middle-income people sell, and on down the line. That's how markets work, although advocates for "affordable housing" often view it as a "right" for everyone to live in a new place.

You get more of whatever you subsidize, so expect Anaheim to become a magnet for low-income housing, and all the problems that surround housing projects. You cannot build enough subsidized houses for the people that want them because, by definition, housing offered belowmarket prices will lure an endless stream of takers.

In fairness, the Pringle/Chavez/Galloway plan has some market-oriented elements, such as a rule allowing developers to convert old motels into permanent low-income apartments. Pringle refused to join in Chavez's and Galloway's demand for "inclusionary zoning" - a requirement that private developers set aside certain numbers of low-income housing in exchange for approvals to build their project.

Anaheim has now established a goal of subsidizing the construction of 1,200 affordable family rental units. Developers will be given tax dollars to build such projects, with a third of the units for "low income" people, and another third for "very low income" people. Those definitions are based on government salary standards.

In recent years, the velvet revolutionaries have imposed overlay zones on existing neighborhoods, a fancy way of saying that they are allowing landowners to do more things with their property than they previously were allowed to do, thus promoting new investment.

Now, the city will be creating new overlay zones, but with a catch: You want more freedom to do what you want with your land? Then you must agree to less freedom, also. You must also agree to build affordable housing as part of the deal. The new overlay zones will be designed to promote "transit-oriented development" - i.e., apartments near bus lines - and the city will provide regulations that encourage developers to increase density.

That's raw social engineering.

The city will also negotiate with the county for more housing dollars, and will hire a "motel family/homeless housing coordinator."

Mayor Pringle reminded me that Anaheim has permitted the building of more market-based housing units than any other city in the county, and that state law mandates the construction of certain numbers of affordable housing units. True enough, but the city seems to be going too far in the subsidized-housing direction.

Councilman Sidhu complains that already 48 percent of the city's housing units are apartments, and that building market-rate, for-sale, owner-occupied dwellings should be the priority, rather than permanent low-income rental housing.

Harvard University Professor Howard Husock has written extensively about the "housing ladder," and the importance of people climbing up that ladder without government aid, lest they tear the delicate social fabric that exists in neighborhoods. He write that subsidized housing has "destructive unintended consequences."

Like other welfare programs, subsidized housing rewards people based on need, thereby taking away the incentive to work harder and make wise life decisions that allow self-sufficiency. It creates an entitlement and lottery mentality, giving special privileges to those who are on government waiting lists rather than those who are independent-minded. And building low-income subsidized housing in middle-class neighborhoods undermines the social fabric of those neighborhoods.

I saw the devastation when I lived in Ohio, when the government subsidized new homes for the poor, then dropped them in the middle of established working-class neighborhoods. The new, welfare-dependent residents didn't have the same social skills and concern for the neighborhood as the existing residents, and the resentment (those who worked hard and saved to buy or rent a house vs. recipients of government aid, who got newer houses for far less cost) tore the city asunder.

The real solution is deregulation, and unleashing the same kind of market forces that are working wonders throughout the city. The Anaheim council majority is laudable in many ways, and has understood that concept with regard to many issues. Why has it had a sudden memory lapse?

TRAVELING TO THE BELLY OF THE BEAST:I'll be in Sacramento next week, covering the end of the legislative session, watching both sides gear up for the governor's special election, and seeing what sorts of gut-and-amend bills the Democrats are trying to sneak through without proper oversight.