On Wednesday, the White House introduced a four-point plan to “increase affordable housing supply” nationwide:
- Increase rental housing with various low-interest loan and tax credit programs;
- Increasing federal loan programs for manufactured housing and two- to four-unit homes;
- Focusing existing home loan programs on individual homebuyers rather than investors; and
- Encouraging state and local governments to use American Rescue Plan funds to build affordable housing and to reduce exclusionary zoning.
Most of these points do nothing to increase housing supply. The first two points mainly redeploy funds that are already being spent on housing into slightly different housing programs. The third point assumes that speculators are driving up housing prices and denying homeownership to families when in fact the “large investors” that Biden proposes to exclude from federal home loan programs are merely responding to rising prices. Almost no new homes would be built as a result of any of these three points.
Only the last point has the potential to increase housing supply, but will do it in the most expensive ways possible. Government construction of so-called “affordable housing” is usually anything but affordable, with cities and states often spending twice as much per square foot as private builders on new homes.
Similarly, those who want to eliminate so-called “exclusionary zoning,” meaning single-family zoning, are seeking to replace affordable housing with housing that is more expensive. Single-family homes cost less to build, per square foot, and are more desired by home seekers than multi-story, multifamily housing. Building more of the latter might appear to increase supply, but it increases supply of a high-cost form of housing that most people don’t want.
The biggest flaw in the Biden plan is that it treats housing as a nationwide issue when in fact it is really only an issue on the West Coast, East Coast states north of Virginia, Florida, and a couple of interior states, namely Colorado and Nevada. One problem with treating it as a national issue is that it would spend money in areas where housing prices aren’t excessive. A second problem is that it assumes the causes are national (such as the pandemic) when in reality they are local.
As I noted earlier this week, home prices are high in most of the states listed above due to restrictions on building new homes on vacant lands. Urban-growth boundaries restrict development on 95 to 98 percent of the land in West Coast states, and are also used in Colorado. Large-lot zoning and agricultural preservation rules restrict development of rural lands in north Atlantic states. Concurrency rules restrict development in Florida. Nevada simply has too much government land — 85 percent is federal — limiting the growth of its cities, especially Las Vegas.
All of these rules have created an artificial shortage of land for housing, making urban land artificially expensive. Limiting where developers can build homes also allows cities to impose expensive restrictions and lengthy approval processes on developers without worries that the developers will simply do their work outside of city limits.
If Biden truly wanted to make housing more affordable, he would direct the Bureau of Land Management to accelerate land sales in Nevada and ask Congress to stop spending the revenues from those sales on land preservation programs. In the other states, he would ask Congress to stop spending federal affordable housing funds in states and urban areas that have deliberately made housing expensive through the use of growth boundaries and similar policies. His smoke-and-mirror proposals instead show that he cares more about appearing to make housing affordable than actually doing it.
