Blackcap Blog

Published at 09:50 on 7 January 2023

With much fanfare, the White House this week released a new housing plan.

It is unlikely to make much of a difference. Explaining why is going to leave me feeling a lot like Captain Obvious, but ignoring what should be obvious is what got us here in the first place, so here goes.

The reason is quite simple, it fails to prioritize the number one reason why so many are homeless: because they can’t afford to pay the rent. Why can’t people afford to pay the rent? It’s obvious, isn’t it?

And why are prices too high? The same reason prices of anything get too high: because demand is outstripping supply. And why has demand outstripped supply?

To answer that one, talk to those whose job it is to increase housing supply: builders and developers. Ask them why they are not building more, when there is such a need for more. In places like Seattle and San Francisco, where the homelessness problem (and high rents) are the worst, the answer you get will always feature regulations.

It typically takes years for new housing to be approved. During these years, developers are holding a parcel of land (at a loss because they have to pay taxes on it), and paying legal experts (again, at a loss) to shepherd the permitting and approval processes through. All these are costs that must be reimbursed for a project to pan out. The easiest way to get them back is to ignore the crisis in affordable housing and build luxury units which have a higher return.

What can get approved, is often subject to extreme restrictions on how dense it can be, i.e. how many units you can create on a given parcel of land. Since urban land is expensive, the easiest way to hold down cost per unit is to minimize land per unit, i.e. build denser. Yet builders can’t do that. Yet another incentive to build only luxury housing that goes for a high price per unit.

This all makes me sound like a Libertarian Party member, blaming it all on government for getting in the way of private enterprise solving a problem. Well, in this particular case, I’ve thought a lot about it, and looked a lot into it, and it mostly is the government getting in the way of private enterprise solving a problem.

To see how much better it could be if only local governments stopped actively being part of the problem, you only have to look to Japan, where the national government has a big role in setting zoning policies, and one of its principles is to prevent local governments (who still have an important role to play there) from being able to restrict the creation of housing supply.

And, surprise surprise, not getting in the way of supply matching demand works. The world’s largest city, Tokyo, has rents comparable to Miami and way less expensive than US cities like San Francisco and New York. Also note that, within Japan, Tokyo is known for being an expensive city.

Now, the USA can’t simply import housing policy from Japan, which has a significantly different government structure. But there is still plenty of room for the Feds to do significantly more strong-arming of state and local governments: “Oh, you would like the top level of Federal aid for your highway and transit projects? Sorry, we find your housing policies too restrictive to qualify. Fix those and get back to us.”

Now, to be fair, the Biden plan does make some mention of this:

Encourage states and cities to review and update their zoning laws and policies to include more land for multiple units (like multifamily housing), offer density bonuses to developers, ease height and density restrictions, create land banks and streamline the permitting and approval process for missing-middle housing types, such as Accessory Dwelling Units.

The problem is, that is buried in the middle of a list on page 44, and the wording is weak sauce. Local governments restricting the creation of housing supply is such a huge part of the problem as to warrant its own section or at least subsection, and to use terminology stronger than encourage (strongly encourage, mandate, or even compel would be better).

And yes, there is certainly room for most of the other stuff that plan mentions. I said above that the housing crisis mostly is a result of government regulations restricting the creation of supply. Mostly is not entirely. The homeless will still need specific, targeted help.

But focusing almost exclusively on that sort of help while almost completely ignoring the primary cause is a bit like worrying a lot about the chipped paint in a room while your home’s foundation is crumbling.