The Congressional Budget Office’s (CBO) latest 30-year budget projections forecast rising debt, deficits, and interest costs. Rising spending on old-age entitlement programs, primarily Medicare and Social Security, is mostly to blame. Legislators should act now to make gradual changes to achieve a sustainable budget policy and avert a future fiscal catastrophe.

The Fiscal Responsibility Act (FRA), which suspended the debt limit until 2025, has been championed by President Biden and House Speaker McCarthy as a major success. Its primary achievement is a far cry from adopting a sustainable fiscal policy. The deal averted a self-imposed debt limit crisis but did so with a budget sleight of hand, as side deals and loose spending caps will undermine the FRA’s modest deficit reduction. Even assuming CBO’s charitable score of $1.5 trillion in deficit reduction from full implementation of the FRA, federal debt is still projected to exceed historic highs within this decade.

CBO warns that “high and rising debt would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook.” Lawmakers should heed CBO’s warnings and adopt a credible fiscal plan that will keep U.S. publicly held debt below the size of the economy. Annual spending is projected to grow from more than $6 trillion to $23 trillion (before adjusting for inflation) over the next 30 years. Without fiscal reforms, the government will accumulate $119 trillion in additional deficits and end 2053 with debt at 181 percent of GDP. To avoid more painful and likely more chaotic austerity in the future, policymakers should correct course by restraining entitlement spending growth today.

Here are key highlights from CBO’s 30-year forecast report:

Debt grows to 181 percent of GDP by 2053

As a percentage of the country’s yearly economic output, federal public debt (the debt borrowed from credit markets) is currently 98 percent of GDP—about $96,000 for every person in America. In just six years, public debt is projected to surpass its all-time World War II high of 106 percent. By 2033 (ten years from now), public debt will reach 115 percent of GDP. By 2053 (30 years from now), public debt is projected to surpass 180 percent of GDP. Such high debt levels have never before been recorded in U.S. history.

Interest costs triple to 6.7 percent of GDP by 2053

Between 2023 and 2053, interest costs are projected to grow from 2.5 percent to 6.7 percent of GDP. Interest costs are projected to grow more rapidly than most other budget categories. By 2047, net interest payments will be larger than all discretionary spending combined. In other words, interest costs will exceed combined government spending on defense, education, transportation, agriculture, energy, and more. For these projections, CBO assumes an average 4 percent interest rate on 10-year Treasury notes—the projected rate for 2023 is 3.9 percent. Were interest rates just one point higher than projected in 2053, interest costs that year would rise to 8.4 percent of GDP—an increase of $1.4 trillion for that year.

Entitlement spending drives unsustainable growth in federal debt

Between 2023 and 2053, total federal spending will increase from 24.2 percent to 29.1 percent of GDP. That’s nearly one-third higher than the 30-year historical spending average (21 percent of GDP), spanning 1992–2022. Major entitlements, like Social Security and Medicare, are almost entirely responsible for non-interest spending growth. In 2023, Social Security’s and Medicare’s combined contribution to the deficit was 2.1 percent of GDP. By 2053, their annual deficit contribution will be 5.4 percent of GDP. That’s more than half or 54 percent of the total deficit in 2053 due to spending on Social Security and Medicare (assuming additional borrowing past trust fund exhaustion and no other policy changes).

Obvious solutions to restrain excess entitlement spending growth include reducing retirement and health care subsidies for wealthier individuals, adjusting eligibility ages for old-age entitlements with improvements in health and life span, and preserving current benefits by adjusting for inflation while stopping excess benefit growth.

Social Security’s Old-Age and Survivors Insurance (OASI) and Medicare’s Part A Hospital Insurance (HI) trust funds—which are more akin to financial ledgers than funds with real assets—are both projected to exhaust their borrowing authority in less than 10 years. Medicare’s HI trust fund will be depleted by 2035 (other estimates place the exhaustion date at 2031). For Social Security’s OASI, scheduled benefits can continue uninterrupted up to 2033. After borrowing authority is exhausted, Medicare and Social Security benefits would be indiscriminately cut by 11 and 23 percent, respectively, if Congress fails to act. Waiting until the 11^th hour will leave legislators with few options to avoid steep benefit cuts and harmful tax increases.

Congress and the President must work together to stabilize spending and debt

Given that debt is projected to grow by 85% (nearly doubling) over the next 30 years as a percentage of GDP, the savings from the 2023 debt limit deal are a drop in the bucket. The FRA adopted spending limits governing less than 30 percent of the federal budget. As Rep. Womack (R‑AR) points out, “70% of this whole federal budget is on autopilot right now.”

More than $8 trillion in savings will be necessary to stabilize the debt over the next 10 years. Political considerations over entitlement changes and how these will play out electorally have delayed inevitable reforms for far too long. Americans in and near retirement age are the most active at the voting booth, and they also stand to be hurt the most should Congress allow indiscriminate benefit cuts to take place over the next 10 years.

One promising proposal is to establish a BRAC-like fiscal commission to empower an independent body of experts to put forth policies to stabilize the federal debt. A well-designed commission will be composed of independent experts with diverse viewpoints, who are tasked with a clear goal, such as stabilizing the public debt at no more than 100% of GDP over the next 10 years, and whose recommendations will be self-executing in Congress through a similar fast-track mechanism that allowed the Base Realignment and Closure (BRAC) commission to be successful. A BRAC process can overcome political gridlock by providing legislators with cover from delegating entitlement reform to outside experts.

If policymakers continue to put serious fiscal reform on the back burner, the severity and scope of necessary reforms will grow. High and rising debt causes a significant drag on the economy and threatens America’s fiscal and economic future. Delay is costly and risky. Congress and the President should act soon.

In June, the Federal Trade Commission has taken a number of actions against America’s leading tech companies. The agency is tasked with protecting consumers from actions that might manipulate the benefits of a free market, such as fraud or illegal monopolization behavior. But these latest actions appear to focus on something other than consumers.

FTC v. Amazon Prime

The FTC recently filed a case against Amazon, claiming it was using manipulative practices, or “dark patterns,” to mislead consumers into joining its Prime service. Amazon then made it more difficult to unsubscribe. The company’s Prime service has over 200 million subscribers worldwide (including over 160 million in the US) and retains high levels of consumer satisfaction.

Earlier this year, when the FTC announced a new rule targeting services that lock consumers in their subscriptions by making it easy to sign up and more difficult to cancel, it initially seemed like a return to a consumer-focused priority for the agency. Many consumers probably welcomed such an announcement, having been annoyed by fitness programs or newspapers that provide easy ways to sign up for a subscription online, only to find that they require in-person visits or calls to cancel.

Regardless of whether consumers feel this behavior amounts to personal manipulation and therefore in need of free market regulation, or if they feel it to be merely a disliked practice that may turn out bad for business in the future, Amazon’s Prime service does not fit this model. Amazon goes above and beyond in the ease it provides customers if they decide to stop their Prime service: the ability to unsubscribe only takes a few clicks, and the company will even provide a refund if the user didn’t utilize the service since their last membership charge.

Beyond the alleged “difficulty” in unsubscribing, the FTC also alleges Amazon uses “dark patterns” to keep consumers from unsubscribing to Prime. Originally, the term “dark patterns” was meant to apply to deliberately deceptive practices designed to trick consumers. Now, it is misapplied to either any practice that might attempt to persuade consumers or the results of a choice to end a subscription or opt out of a feature may have. This is why the term has been used as a critique of Prime’s unsubscribe process.

Any business would want to make sure consumers are aware of the services they are losing or could gain access to via the product they are canceling in order to allow them to make an informed decision. Calling this a “dark pattern” is yet another attempt by the FTC to vilify standard business practices. Demonizing such information could result in less information for consumers to make thoughtful choices.

FTC Challenges Microsoft-Activision

The FTC has continued to challenge several mergers and acquisitions and seems to apply particular scrutiny to those within the technology industry. The latest example of this is the FTC’s request for a preliminary injunction to prevent Microsoft’s acquisition of video game company Activision. As with some of its previous challenges, this action focuses on a market that does not accurately reflect the consumer experience so the FTC can make a case that there is anti-competitive behavior.

The Microsoft-Activision deal has already been approved by European competition authorities. The gaming market is incredibly competitive and evolving, with options for traditional consoles, PCs, mobile, and even virtual reality gaming. But the FTC, as well as the United Kingdom’s competition authority, have chosen to focus their case on “cloud gaming,” a new form of gaming that relies on remote services to stream games over the internet.

The problem with this approach is that cloud gaming has struggled to gain traction with both consumers and game developers. Microsoft is an early actor in this space, but cloud gaming itself has not emerged as a unique marketplace. Notably, however, in highly popular fields like mobile gaming, Microsoft is far from the largest player. In fact, their acquisition of Activision may lead to more sizable competition with rival Sony.

FTC and Meta

Finally, two concerning revelations about the FTC’s actions towards Meta have emerged. These actions should give pause around the agency and administrative state at large to abuse its power.

In May, the FTC announced that it was modifying its 2020 settlement with Meta to include new requirements and restrictions that would blanket ban the use of data on users under the age of 18. This stems from concerns related to a flaw in the Messenger Kids app that predated the original agreement and was identified in an independent assessment. While all three commissioners voted to support the proposal, Commissioner Alvaro Bedoya expressed concerns about whether the agency had the legal authority to impose such limits on data use based on the evidence. Commissioner Bedoya’s concerns are legitimate, and Meta has challenged the action in court.

Not long after this action, it was made public that FTC Chair Lina Khan had refused to follow internal ethics recommendations to recuse herself from the Meta-Within case, a recent FTC action to block a merger that the agency lost in court. In the memo addressed to then Commissioner Christine Wilson, the agency’s ethics official expressed concerns about how Chair Khan’s prior statements on Meta acquisitions might raise questions about the Chair’s ability to be impartial in this matter.

Khan’s refusal to follow this advice did not amount to an ethics violation but highlights concerns that these actions are not based on a sound policy belief, but rather on personal politics against certain companies. It should certainly be concerning to those beyond tech companies that recommendations are not being followed. Such a trend could impact the perceived legitimacy of future FTC action even well beyond Khan’s tenure as chair.

Conclusion

The FTC’s increased scrutiny of America’s leading tech companies shows no sign of slowing down, but these latest cases only further highlight the concerns that such actions are not focused on the consumer. An FTC run amok without an objective focus on consumer welfare, and unchecked by courts or Congress, risks harming rather than protecting its customers.

Federal and state governments paid over $60 billion for nursing home care through the Medicaid program in 2019. While nursing home care is costly, its quality varies and can often be quite poor. Through policy change, it should be possible to both improve outcomes for seniors and disabled individuals who require long-term care, while reducing the cost to taxpayers.

According to a MACPAC analysis, Medicaid paid an average of $244 per resident per day for nursing facility care in 2019. For patients that must reside in a nursing home permanently, this works out to over $89,000 per year. It does not include costs for therapy and other ancillary services, nor does it include the patient’s share of nursing home fees which are deducted from their Social Security benefits and other source of income.

But the high cost of Medicaid-funded nursing home stays does not guarantee comfortable, compassionate care for vulnerable residents. Indeed, nursing homes often neglect or mistreat residents, while retaining government funding.

For example, an Oswego, NY facility retained its certification, and thus its ability to receive Medicaid reimbursements, despite allowing a repeat sex offender to abuse a resident, failing to call 911 during patient medical emergencies, not fixing a leaky roof, and maintaining unsanitary conditions. The facility was eventually placed on a Centers for Medicare & Medicaid Services (CMS) watchlist, but remained eligible to accept new Medicaid patients.

An El Cajon, CA facility placed a 90-year-old resident in the same room with a severely mentally ill individual who then strangled the elderly man to death. The facility continues to operate despite instances of sexual and physical abuse by staff and additional deaths related to staff neglect.

And these cases do not appear to be isolated. According to data collected by ProPublica, 30% or more of certified nursing homes in fifteen states have severe deficiencies identified by regulators. And, of course, COVID deaths were widespread in the nursing home industry due to poor infection control practices.

Varying Costs and Opportunities for Savings

While high on average, the cost of nursing home care varies widely across the country. It is especially expensive in Alaska and Hawaii, where interstate competition is necessarily limited. But in the continental US, states with relatively high nursing home costs are adjacent to states with much lower costs. In 2021, the average cost of a shared room in North Dakota was $394, but it was only $234 in South Dakota. Other state pairs with large contrasts were Minnesota ($381) and Wisconsin ($297), and West Virginia ($382) and Kentucky ($236).

This pattern suggests that states could save money by placing residents in out-of-state nursing homes. Remote placements should require the beneficiary’s informed consent (not possible for those suffering from advanced dementia) and perhaps some financial incentive.

One objection to out-of-state placements is that friends and family would have to travel further to visit residents. But one older government study found that 60% of nursing home residents do not receive visitors. A large proportion of residents in nursing homes did not have children, while, in other cases, their children may have pre-deceased them or become estranged.

Some prospective nursing home residents without family ties may even prefer facilities outside the US which may not only be far less costly but would also provide residents with a higher standard of care. Facilities in Mexico, for example, can take advantage of lower personnel and real estate costs. It has already become common for Americans to retire to Mexico and obtain medical services there. The country also has assisted living facilities, some of which provide a continuum of care up to and including nursing facilities. One challenge of housing Medicaid beneficiaries in Mexico is that Medicare coverage is not available outside the United States.

Savings Without Relocation

An alternative to nursing homes, common in California, is the “board and care home”. As explained on the website A Place for Mom:

Board and care homes are houses in residential neighborhoods that are equipped and staffed to care for a small number of residents, usually between two and 10. These homes provide comparable care to what’s offered at assisted living communities, but it’s usually less than what a nursing home provides. This means board and care homes can help with daily routines but typically don’t provide 24-hour skilled nursing assistance.

Nurses also visit board and care homes to provide more specialized services. So, for most individuals that might otherwise reside in a nursing facility, a board and care home is a viable, lower-cost option. These facilities operate with lower overheads and do not have to pay on-site registered nurses or physicians. Because the setting is in a home rather than a large institution, both residents and visitors may find the prospect of an extended stay less upsetting.

In most of the US, this type of facility is either unavailable or ineligible for Medicaid reimbursement. But California has obtained an Assisted Living Waiver (ALW) from the Center for Medicare and Medicaid Services (CMS) to include some of these facilities in Medi-Cal, the state’s Medicaid program. Although not available everywhere in California, ALW is offered in most of the state’s high-population counties.

Under the waiver, Medi-Cal can compensate board and care homes for services they provide patients aside from the cost of the room and meals, which are instead funded by the resident’s social security benefits. Medi-Cal covered services include assisting residents perform Activities of Daily Living (ADLs) such as “bathing or showering, dressing, getting in and out of bed or a chair, walking, using the toilet, and eating.” Depending on the level of assistance residents need, the state’s daily reimbursement rates range from $89 to $250. By contrast, Medi-Cal skilled nursing facility reimbursement rates averaged $283 last year.

Although the ALW appears to be unique to California, it is part of a larger CMS waiver program called Home and Community-Based Services (HCBS) which funds various nursing home alternatives in sixteen states.

US nursing homes are often quite expensive and do not necessarily provide a high level of service. Alternative facilities, whether located nearby, in another state, or even over the border, may be able to provide a higher quality of life for those needing long-term care at a lower cost.

This week, the International Monetary Fund published a blog post and a working paper that show the contributions of profits, wages, and import prices to the recent inflationary spiral in the Euro area. While the authors note that their analysis represents an “accounting identity [which] does not allow for causal interpretation,” it has nevertheless reopened media debate on the “greedflation” theory – the idea that corporate profiteering is responsible for the post-Covid inflation spike across the world. At least four mainstream media outlets have published articles that attribute causal interpretation to the greedflation hypothesis, using the IMF’s materials as their basis (see these articles from MarketWatch, Huffington Post, Guardian, and Telegraph).

The problem with the greedflation theory is that it is not an explanation for inflation. It is the result of an accounting exercise that simply breaks down inflation into its constituent components. It does not, and cannot, offer an explanation as to why these components are above or below their normal thresholds. Inflation is a short-run macroeconomic variable; in that sense it is caused by shocks to the economic system that move prices away from their equilibrium values. By definition, these shocks are exogenous to the economic system and cannot be the result of greedy CEOs, scheming to take advantage of economic turmoil. Inflation has been stable for decades in most advanced economies – from the mid-1980s till the pandemic, inflation was close to its 2% target rate. Is it reasonable to assume that corporations were greedy since Covid but were disinterested in profits at any time between 1985 and 2020?

Corporate profits are determined by price markups – the degree to which firms can charge a price that is higher than their costs. Firms cannot charge arbitrary prices. Optimal prices are set based on several market factors including demand, supply, costs, expectations, etc. As such, both cases – price increases and price decreases – may result in lost profits for a firm. Increased price markups are simply evidence of firms responding to economic conditions and reoptimizing prices.

To further understand the dangers of drawing causal inference from accounting exercises, look at Figure 1 below which is a reprint, from page 9 of the IMF paper itself, of the breakdown of Euro area inflation from 1971 onwards. While corporate profits have recently become a majority factor, labor costs have historically dominated the accounting of inflation, especially during the massive inflationary spikes of the 1970s. Attributing current inflation to corporate greed is just as strange as attributing those inflation episodes to greedy workers that demand over-inflated wages. During both cases, workers and firms were responding to shocks in the economy that temporarily increased their bargaining power in the market.

Back to current Euro inflation – the key task of an empirical economist is identifying which shocks contributed to both price markups by firms and inflation overall. To that end, the economist should use a structural framework that allows for interactions between various economic variables and shocks so that there may be some causal implications. A seminal paper from 2003 already provides a benchmark analysis that researchers could replicate or extend (I employed a similar method when breaking down inflation in the US). Drawing causal inference from accounting identities only serves to obfuscate the true story of inflation and will not allow policy makers to accurately identify the facets of the economy that will contribute the most to a full recovery.

America’s culture wars are sometimes perceived as conflict between “conservatives,” who defend the values of white Christians, and “progressives,” who defend the rights of minorities. But there is something new these days complicating this always too-simple dichotomy: Some minorities are also quite conservative in their moral standards, and they are raising their voices against impositions from the progressive side.

This is evident in ongoing protests by Muslim and Christian families, among others, from Maryland to Los Angeles, against public schools pushing lessons about gender and sexuality that contradict religious values. “Protect our children” these families have called together, adding, “Protect religious freedom.”

On June 24, in National Review, we highlighted this new development in a co-authored article: “Defuse the Culture War with Liberated Education.”

First, we argued that the newly emerging Muslim-Christian alliance for traditional values offers interesting lessons:

There are lessons for both political camps. America’s assertive progressives should realize that theirs is a counterproductive campaign. By advancing their ideals through assertion and coercion, instead of persuasion, they are alienating many people, including some minorities they claim to defend. Among Muslims, they are also giving ammunition to hardliners, who preach that Western freedom is a lie, that it only means freedom from religion and tradition, and thus Muslims should reject it everywhere.

On the other hand, America’s conservatives should reconsider their distance from minorities, including a rigid stance against immigration, symbolized by Donald Trump’s famous “Build the Wall” campaign. Those on the political right should realize that they may well share values with some of the people that they want to push behind that wall.

Then, we also proposed a solution to these increasingly intense culture wars in American education:

We believe that the best strategy is to keep government out of decisions about values and culture whenever possible, including — perhaps especially — in education, which is about nothing less than shaping human minds. This requires allowing more choice, so families can decide for themselves what their kids will learn. Instead of diverse people being forced to fight, they can freely pursue what they think is right.

The solution, in other words, was in going back to the classical liberal foundations of America:

Government should not discriminate against LGBTQ individuals, nor should it discriminate against people with traditional values. The only way to treat all equally, while advancing genuine tolerance, is the good old American value of limited government.

Read the whole article here in National Review. Read more about School Choice here. And see our catalogue of culture war in public schools – the Public Schooling Battle Map – here.

This article appeared on Substack on June 29, 2023.

Later today, or next week at the latest, the Supreme Court will announce its decision in two cases that challenge the Biden administration’s cancellation of $400 billion in federal student loan debt.

The legal issues are beyond my expertise. Regardless of the Court’s decision, however, loan forgiveness is deeply misguided as a matter of policy.

Those who took out loans did so willingly. Presidential cancellation, at taxpayer expense, undermines the rule of law and makes a mockery of people who honor their commitments, or accept the consequences of failing to do so, even when that is difficult.

If this forgiveness stands, future borrowers will take out even more debt, believing that future presidents will likely cancel some of it. They will probably be right.

This moral hazard increases the cost of the loan program; more and more is paid out, and less and less is re-paid.

Worse, subsidizing education loans, and especially forgiving them ex post, discourages potential borrowers from using common sense to decide how much education to acquire and whether borrowing to pay for it is sensible.

Some amount of, and certain kinds of, education are beneficial for almost anyone.

Yet more and more education is almost never the right choice. Any decision to acquire education should balance the benefits against the costs (including explicit costs, like tuition, and the opportunity costs of foregone income). By making costs artificially low, loan forgiveness encourages excessive or poorly chosen kinds of education.

Students loan forgiveness, moreover, mainly helps higher income borrowers, since they take out disproportionately larger loans. Thus Biden’s proposal is regressive.

Last, loan forgiveness by executive action is ripe for political abuse; politicians will do so in ways that benefit voters they can “bribe” into staying or becoming their supporters.

In Libertarian Land, governments would not subsidize student loans. Such a policy, however, at least has good intentions. Presidential loan forgiveness is just politically motivated theft.

Housing prices remain high throughout the country, and policymakers in many places have acknowledged the need to expand housing supply to reduce prices and even combat homelessness. Accessory Dwelling Units (ADUs) provide one option for increasing housing supply without noticeably changing neighborhood aesthetics, since ADUs are typically secondary units that discreetly share a lot with a primary residence.

Fortunately, some states have relaxed regulation to make it easier for homeowners to construct ADUs. A few years have passed since California and Seattle, Washington have made reforms, so it possible to examine the impacts of reforms on units permitted and/​or constructed. Early results from Portland, Oregon’s ADU reform are also worth reviewing.

California

California’s history with ADU reform began decades ago. In 1982, the state banned localities from explicitly outlawing ADU development, with some exceptions. However, localities were able to circumvent the law’s intent by enacting tough approval procedures. Though this was addressed in a 2002 bill that required non-discretionary approval processes for ADUs, localities still managed to limit the number of ADUs permitted and built by implementing regulations that increased the cost of building an ADU. The result was an environment that technically allowed for ADU development but practically discouraged it.

The state addressed these issues in 2019 when the legislature passed a handful of bills meant to make it easier for people to build ADUs. For example, SB 9 authorized ADUs on land zoned for single or multi-family housing and mandated that ADU projects be approved ministerially (non-discretionarily) within 60 days. AB 671 required cities and counties to develop plans to increase the construction of ADUs as part of their overall housing plans. AB 68 barred localities from implementing minimum lot sizes, a common tool used to prevent the construction of ADUs. SB 13 eliminated impact fees for ADUs that are smaller than 750 square feet and barred localities from implementing owner-occupancy rules for 5 years after implementation. These constitute just a few examples of the sweeping ADU-related legislation passed by the state in 2019.

The number of ADU permits granted in California increased greatly following the 2019 reforms. After staying relatively stable between 2019 and 2020, permits increased 61% between 2020 and 2021 (Figure 2). Between 2019 and 2022 the number of ADUs permitted grew 88%. Constructed ADUs follow the same general trend, rising from 5,852 in 2019 to 17,460 by 2022 (an almost 200% increase).

Seattle

Housing affordability has been on the mind of Seattle officials for some time. In 2015, Mayor Ed Murray set a goal of creating 50,000 new homes in 10 years, 20,000 of which would be affordably priced. To aid in this effort, the Housing Affordability and Livability Agenda Advisory Committee was charged with studying the issue of housing and submitting policy recommendations that could help bolster supply. One of their recommendations was to “[b]oost production of accessory dwelling units and detached accessory dwelling units by removing specific code barriers that make it difficult to build ADUs and DADUs [detached accessory dwelling units].” It took several years, but the city eventually acted on this suggestion.

In 2019, the Seattle City Council approved CB 119544. Among other things, the bill authorized up to two ADUs per lot, eliminated the existing owner-occupancy rule, reduced minimum lot sizes, and eliminated ADU parking space requirements. These changes officially went into effect in August of 2019.

City data shows that the number of ADU permits requested boomed after 2019. While permits stayed relatively consistent between 2016 and 2019, permits increased 75% in 2020 (Figure 1). By 2022, numbers were up 253% from 2019. The rise in ADU construction rose so fast that, by 2022, ADU construction outpaced single-family home construction. 

Portland

Like California, Portland, Oregon has a long history of pro-ADU reforms. Parking requirements for ADUs were eliminated, and in 1998, Portland eliminated requirements that owners must live on site or that primary residences be more than five years old prior to an ADU addition. In 2010, the city suspended system development fees, a one-time payment assessed to owners of new units for access to city services and infrastructure. The city continued to suspend these payments until they permanently eliminated them for ADUs in 2018.

Portland further implemented ADU-related reforms in 2020 as part of the Residential Infill Project, a comprehensive city project meant to create “more housing options in Portland’s neighborhoods.” Among other things, the city legalized up to two ADUs in many zones and eliminated off-street parking requirements for ADUs.

Based on data provided by the city, ADU permitting and construction shot up after the 2010 suspension of system development fees. Before the reform, homeowners were forced to pay up to $12,000 in fees when they built an ADU, a sum large enough to discourage ADU development. The number of ADU permits issued grew from just 1 in 2010 to 112 by 2014 and further to 334 by 2018. After 2018, permits and builds began to drop.

However, preliminary evidence suggests that the 2020 reform allowing two ADUs per lot—which went into effect in 2021—may be boosting ADU permitting once again. Permits increased 34% the year after implementation, the first increase since 2018. While it is too early to know for sure what the reform’s long-term impact will be, early results look promising.

Conclusion

Recent estimates suggest that there are 20 million plus “missing” housing units in the U.S. ADUs alone will be unable to make up the difference, and any massive increase in supply will require comprehensive reform, particularly comprehensive zoning reform. However, results in California, Seattle, and Portland indicate that when state and local governments remove barriers to ADU development, housing production increases. Notably, each of these successful locations took a multi-pronged approach to reform, rather than narrowly reforming ADU rules in a way that could be offset or circumvented by other regulations. 

Other states like Connecticut have recently passed similar ADU reforms, and states including North Carolina and New York are considering reforms of their own. As further reforms are implemented, it is worth continuing to review housing outcomes to determine whether and which reforms are most effective.