Opportunity Over Regulation
Some housing policies stifle efficiency because of misguided ideology.
The Terner Center for Housing Innovation at the University of California at Berkeley released a useful review of their recent report, “How States Are Incentivizing Local Housing Production: A Typology of State Pro-Housing Laws.” The center’s research is comprehensive but often academic, and I'm not going to review their typology in depth. Rather, I’m suggesting we review how we evaluate housing policy, specifically on questions of supply.
It is easy to find headlines touting “the end of single family zoning” or stories about legislation that boosts housing supply. The truth is more complicated, and to understand why, let’s consider how we know a given policy will lower rents and prices.
Consider, for example, California’s S.B. 35. That bill, originally made law in 2017, is now being reviewed again by the legislature. According to Terner, S.B. 250 “imposes a stick, or penalty, on localities that have failed to meet certain housing production targets by offering developers a streamlined approval process for zoning- and design-compliant projects that meet certain affordability, labor, and other goals.”
It's that last part—“a streamlined approval process for zoning- and design-compliant projects that meet certain affordability, labor, and other goals”—that should raise red flags. State policies that impose these kinds of requirements aren’t really solutions at all. How do we know? Let’s consider the questions we should ask of this or any other housing policy.
The first question we have to ask is about supply. Does the policy acknowledge that more housing, not more subsidies, is the answer? One of the best examples of a bill that does so comes from Ohio. The bill, which preempted local rent control laws, declared rent control would “distort the functioning of the market for residential premises.” The legislation recognized that housing is a commodity and subject to choices made by people in a market; sound policy reflects this reality.
Next, we need to ask whether the proposal directly regulates housing or rental prices. I wrote about another California proposal, S.B. 9, that was heralded as the “end of single-family zoning” in San Francisco. While I’ve argued segregation-of-use raises housing prices, a deeper look at S.B. 9 reveals San Francisco’s density initiative actually imposed mandatory rent control. I wrote that S.B. 9 “is simply a way lefty legislators can say they’ve ‘ended single family zoning,’ pat themselves on the back, and then sit back and watch as nothing happens.”
We should consider other questions about the regulatory dimension of housing policy. Will a given law result in fewer rules, fines, fees, and taxes? Often, bills eliminate some rules but add numerous others: Almost every policy reviewed by Terner imposed some additional requirements. A sound state housing policy would favor fewer, not more, rules at the local level.
Would the bill shorten production time? I’ve written about how regulatory foot-dragging is impacting the housing market in Nashville. States should demand that local reviews favor speed and transparency.
Will the bill impose “affordability” requirements? The granddaddy of all bad policy in housing is mandatory housing affordability, a policy that I have described as a legal bribery scheme, according to which additional square footage isn’t just sold to developers, but requires them to buy it. A red flag on any state policy is a mandated fee or payouts to nonprofits or other groups in exchange for more housing. Such schemes are inherently inflationary, passing on the cost of the fee paid out to interest groups on to consumers as higher prices.
If not affordability requirements, will the law impose labor or demographic requirements? Politicians like to pick winners, especially if those winners already vote for them. California’s S.B. 35 has both, first requiring prevailing wages and also requiring use of apprenticeships. California has the ambitious goal of “addressing gender and racial inequities in apprenticeships in traditional construction and firefighting trades:” a costly, if noble, goal.
Finally, we should ask whether the bill would lock out private developers and investors. There is no housing without private investment. None. Even nonprofit projects require private investment, often in the form of Low Income Housing Tax Credits (LIHTC), a form of private investment in publicly oriented housing projects. When California and Ohio vilify private investors, it’s a clear sign the policy objective isn’t more housing, but finding a political punching bag.
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Academic studies like Terner’s, which review state efforts to nudge local jurisdictions toward housing, are a welcome development. But unless and until there is a shift in public opinion away from punitive measures against housing providers and developers and toward deregulation and an opposition to federal subsidies, nothing will change.
Some states have shown promise. Montana, for example, published recommendations that would streamline permitting and condition state level subsidies on the effectiveness of that effort. It isn’t policy yet, but what I’ve mapped here should be our metric of success: Does the policy reduce the rules, regulations, fees, fines, and taxes that raise housing costs?