Building Consensus to Address Housing Challenges

By Vanessa Brown Calder of Cato. Excerpts:

"The number of “missing” housing units (that is, the number of units required to keep up with household formation minus existing units) grew from approximately 2.8 million in 2018 to 3.8 million at the end of 2020, though some scholars estimate that this figure is much higher.¹

Although a variety of factors are relevant, federal and local policy is unfortunately substantially to blame. State and local regulatory constraints on housing supply have limited supply in many places for many years. Zoning and land-use regulation continues to limit housing supply by increasing development costs, creating uncertainty, and producing delays.

These regulations limit nearly every aspect of development. They subject housing development to lengthy review processes with many veto points. Together, these regulations effectively freeze pre-existing development in place, which makes it difficult to build new homes or accommodate new residents. As a result, high regulation areas issue an abysmally low number of housing permits per new job each year.²

A large volume of academic research ties land-use regulations to high housing prices. A well-known paper finds that zoning regulations pushed up the cost of apartments by around 50 percent in Manhattan, San Francisco, and San Jose.³ A recent paper reviewing 24 metropolitan areas finds a massive “zoning tax” (up to $500,000 per quarter-acre) in cities with restrictive land-use regimes but much lower zoning taxes in less-regulated places.⁴

Parking minimums provide one example of a costly local regulation that limits supply. These regulations require that developers provide a predetermined number of parking spaces per square foot or developed unit, which reduces the available space for housing. Recent research finds that the cost of garage parking is approximately $1,700 per year or an additional 17% of rent for renters.⁵ Unfortunately, these costs, like zoning regulations more generally, fall hardest on low-income renters that are unable to readily absorb the costs of increased rents and often have no need for parking spaces in the first place.

The importance of housing supply becomes quickly evident when contrasting the outcomes of homeless policy initiatives across Utah, California, and Houston, Texas. All three locations have adopted Housing First policies which emphasize the need for permanent housing before tackling other issues, such as mental health problems or substance use disorder. Despite their commitment to providing the homeless with housing, only Houston, a place lacking a traditional zoning code, with a pro-development culture and responsive housing supply, has been able to significantly reduce homelessness under this policy. In Utah and California, chronic homelessness grew 95 and 93 percent following policy implementation. On the other hand, chronic homelessness in Houston declined by 68 percent.⁶

Although housing programs are often the focus of housing affordability conversations, underlying housing affordability problems will not be fixed through subsidies for rent and homeownership. 5.2 million households use federal rental assistance, but there are over 41 million cost-burdened or severely cost-burdened households and 62 million low-income renters in the United States.⁹

Even generously expanding existing programs or creating new ones would still only reach a fraction of renters and homeowners experiencing affordability issues. The Department of Housing and Urban Development spends about $70 billion per year, much of which is devoted to improving housing affordability, and the federal government spent around $90 billion on rental assistance in 2021.¹⁰ Despite this, the number of renters that are cost-burdened has stayed approximately stable over the past decade and grew during the pandemic.¹¹

Although housing subsidies will not solve widespread housing affordability issues, there are nonetheless opportunities to improve existing housing programs. These improvements should be made with an eye towards increasing effectiveness, innovation, and human flourishing. Senator Scott’s proposal to reward effective homeless initiatives, allow greater experimentation, reduce regulation, and allow the continuing conversion of public housing to voucher assistance, are common-sense reforms that should be seriously considered by both sides.

As one specific example of productive reform, the ROAD to Housing Act reduces the regulation of manufactured homes by striking the federal requirement that manufactured housing is attached to a permanent chassis, or a metal base frame. Research suggests that this requirement increases the cost of development and is used by local regulators to limit the use of manufactured housing.¹² This is unfortunate because manufactured housing provides an alternative to traditional stick-built homes, at a fraction of the price.

Furthermore, existing housing programs that are ineffective or poorly targeted to the poor, should be repurposed or eliminated. For instance, research indicates that the benefits of the Low-Income Housing Tax Credit (LIHTC) program primarily flow to developers, rather than low-income tenants.¹³ Moreover, supply-side subsidies including LIHTC, public housing, and project-based Section 8 programs concentrate poverty and limit mobility, with dire effects for low-income residents."