On his first day back in office, President Donald Trump ordered his departments “to deliver emergency price relief,” including action to “lower the cost of housing and expand housing supply.” That sounds simple enough. But following through will require a skillful political balancing act.
Housing costs put Trump and his congressional allies in a tough spot. Housing is too expensive because its development is overregulated. Yet the regulations that drive up housing costs—arcane local zoning and building codes—are not the kinds that congressional Republicans are best positioned to fight. Moreover, many of the local codes protect suburban single-family-home neighborhoods, a residential ideal that Trump has pointedly defended.
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In a new paper, we suggest one way out of this dilemma: target big, expensive cities for housing growth, while letting states decide for themselves what to do about the suburbs. Specifically, we propose to reallocate federal affordable-housing tax credits—a roughly $15 billion subsidy—away from the nation’s biggest, most expensive cities unless they adopt a basic set of pro-housing reforms.
Specifically, to retain their eligibility for the federal affordable-housing subsidy, these cities would have to allow development of apartment and condo buildings along major corridors and in commercial areas; cap development fees at $10,000 per new unit (roughly the national average); provide waivers from price controls that render a project infeasible; and approve projects that conform to applicable standards “ministerially”—that is, without discretionary reviews and associated conditions of approval that may change a project’s design or increase its cost. Congress should also task a federal agency with developing criteria for measuring cities’ housing performance, such as housing-stock growth relative to potential growth, given prices and parcel characteristics. Persistently poor performers should lose their eligibility for federal subsidies regardless of whether they have opted into the federal pro-housing reforms.
Our proposal is budget-neutral and state-neutral: if a city like New York chooses not to relax its regulations, the tax credits it forgoes would flow to affordable-housing projects elsewhere in the state. The new policy would put significant pressure on big-city governments to adopt pro-housing reforms, since progressive city councilmembers won’t want to be seen forfeiting affordable-housing funds. The suburbs would be unaffected, however, as the new policy would apply only to big, expensive cities.
It makes economic sense for Congress to target major cities for housing growth. When workers and firms cluster together, they become more productive. One study estimates that land-use deregulation in America’s seven most expensive cities would grow the U.S. economy by 7 percentage points. Moreover, because housing markets are all connected, building more housing in large cities would reduce housing costs for suburban voters, too.
The political logic to targeting big cities is equally clear: the voters living in them want more housing development, whereas suburban residents generally dislike density. Big blue cities like New York, Los Angeles, and San Francisco stymie development not because their voters detest new buildings but because local progressive interest groups block projects unless they get their pound of flesh. Labor unions demand that developers hire high-cost workers. “Equity” groups insist that new units be set aside as low-income housing. Tenant unions fight any project that might temporarily displace a renter or demolish a rent-controlled housing unit. All these forces raise building costs, resulting in a high-price, low-growth status quo that persists despite broadly pro-housing electorates.
Why don’t developers just say “No” to the groups’ demands? Because in many blue states, complex procedural rules, coupled with discretionary standards for approval, give opponents the ability to stall projects by filing appeals and suing. Such delays reduce a project’s rate of return, so developers must pay off anyone who credibly threatens legal action. Investors, in turn, demand a higher rate of return to compensate for the extra risk, raising developers’ capital costs.
The good news is that Congress would not be acting alone. In recent years, red, blue, and purple states have all taken bipartisan steps to curtail excessive local restrictions on housing development. Florida’s Live Local Act is one example. It requires cities to permit apartment and condo buildings in commercial districts and cuts taxes on these structures, while buffering single-family-home neighborhoods.
Nor does Congress have to go as far as Florida by preempting local restrictions on housing development. It can give cities a choice: either opt into a pro-housing regime like Florida’s or forgo federal support for something else they value, such as tax credits for affordable housing.
More than a generation ago, noted deregulator Jack Kemp convened a blue-ribbon commission on local barriers to housing development. The commission targeted the suburbs, only to see its recommendations ignored. The lesson for today’s congressional Republicans is to focus instead on misgoverned big cities. Federal incentives won’t move political mountains in places where voters firmly oppose regulatory changes—but they just might break the interest-group logjam in places where voters already want more housing.
Photo by Andrew Lichtenstein/Corbis via Getty Images
