Unable to deny the obvious, President Biden acknowledged in his State of the Union address that housing prices have hit a crisis point for too many Americans. Yet, almost all his proposed solutions to the problem—most of which amount to throwing taxpayer money at it—will only make it worse.
Buried in the pile of bad housing policy reforms is one good idea, however: eliminating government “actions” that create “unnecessary barriers to housing development.” In other words, if we get government out of the way and let developers do what they do best, the housing supply will grow and costs will fall. This is an idea worth backing.
Over the past 50 years, elected officials in far too many cities have done the opposite, erecting barriers to new housing construction. The result, as author and housing policy expert M. Nolan Gray has observed, is that “median housing prices have dramatically outpaced median incomes.”
While many government policy decisions have contributed to the housing crisis, three stand out: land-use restrictions through heavy-handed zoning, exorbitant permitting fees, and land-use restrictions driven by environmental concerns.
Much of the land throughout the United States is subject to overly restrictive zoning codes. Communities are divided into zones, with commercial, industrial, residential, and public spaces separated from one another. This frequently has disastrous consequences for housing. When the government restricts where and what developers can build, it limits a community’s housing supply. Moreover, these zoning restrictions often prohibit the building of apartments, or duplexes, or mother-in-law suites in the same zone as single-family homes, which further constrains the kinds of housing available. The resulting reduction in housing supply raises prices for all.
As we have seen in the recent Supreme Court case Sheetz v. County of El Dorado, local governments often demand excessive fees in exchange for building permits. Sometimes, albeit rarely, the fee is rationally tied to the impact that the development will have on local roads and schools. But all too often governments levy these permitting fees to cover other purposes that have nothing to do with the owner’s plan for his property.
In Sheetz, the local government demanded a more than $23,000 traffic-impact fee in exchange for a permit to build a modest, manufactured home in a rural area of Northern California. The county imposed the fee without any evidence that the home would have a public impact.
Justice Antonin Scalia memorably called such an approach to permitting an “out and out plan of extortion.” Extortionate fees drive up the price of housing, sometimes by tens of thousands of dollars.
State and federal governments also routinely prevent housing development by enforcing burdensome environmental laws. Mike and Chantell Sackett found this out the hard way, after they tried to build a home on their residential lot in Priest Lake, Idaho. The Environmental Protection Agency claimed that their small, inexpensive lot in a built-out neighborhood was a “wetland” under the Clean Water Act, requiring tens if not hundreds of thousands of dollars in permitting costs. The case dragged out to nearly two decades of litigation, including two visits to the Supreme Court. Finally, the justices rejected once and for all the EPA’s efforts to block the Sacketts’ plan to build a family home, since the property wasn’t on a wetland.
The Sacketts aren’t alone. Countless property owners have faced similar battles. Usually, the government is successful in thwarting or slowing down development until it has obtained thousands of dollars in permit fees in the name of protecting the environment, without regard to the costs imposed on taxpayers. Developers must recover the costs of heavy environmental regulation somehow. They bake those costs into the price of homes and pass them on to consumers.
Whether through restrictive zoning, excessive permit fees, or aggressive environmental regulation, government intervention has inflated the cost of housing for decades. As President Ronald Reagan once said during a talk at Moscow State University in Russia: “It’s hard for government planners, no matter how sophisticated, to ever substitute for millions of individuals working night and day to make their dreams come true.”
It’s past time to tear down the government-built walls that make it so expensive to build housing in the United States. If President Biden wanted to do some real good in this area, he would throw out all his proposed solutions to the housing-supply problem except one: get the government out of the way and let Americans do the rest.
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