Addressing the Housing Crisis
Published March 10, 2020
Well-intentioned housing policies have made it expensive and often impossible to build enough homes to meet rising demand. Zoning laws, environmental rules, and other land-use restrictions have been implemented too broadly, making it difficult to add new housing. Changes to these policies could add trillions of dollars to the US economy and raise standards of living for low- and middle-income Americans.
- What is your preferred way to promote affordable housing?
- Is it possible to protect the environment while rapidly increasing the housing supply?
- Read “Housing Policy Reform: Economic Policy Challenges Facing California’s Next Governor” by Lee Ohanian and Jesús Fernández-Villaverde, available here.
- Read “So You Want to Move to California and Buy a Decent Home? Here Is How Much You Need, and Why” by Lee Ohanian, available here.
- Read “How Long Does It Take to Build a New Community in California? 25 Years and Still Counting” by Lee Ohanian, available here.
Many communities in the United States are struggling with a housing crisis. Home prices and rent payments are growing much faster than incomes. In California, for instance, over a quarter of renters devote half their household income to rent. In expensive areas, people are living in garages, vans, or on the streets.
The reason for the crisis is simple: well-intentioned housing policies have made it expensive and often impossible to build enough homes to meet rising demand.
Many of these regulations were created for perfectly good reasons. Zoning laws were written to maintain nice-looking neighborhoods, limit congestion, and prevent public nuisances. Environmental rules were written to protect wildlife habitats; preserve open spaces and public access to nature; and protect against flooding and soil erosion.
But unfortunately, these policies have been implemented too broadly. Strict zoning rules no longer promote safe and appropriate constructions projects. Instead, the regulations are used to stop all new construction. Environmental laws have resulted in long procedural delays and have given lawyers the power to file countless frivolous lawsuits that stifle development.
The result is that in some states and communities few construction projects are initiated, and even fewer are completed. In California, there are examples of zoning laws and environmental lawsuits forcing developers to wait 25 years or longer before beginning construction.
The beneficiaries of these prohibitive rules are current homeowners: their property values rise dramatically as housing demand outpaces new housing supply. But these rules hurt low and middle-income families who are priced out of the housing market. They cannot afford to buy a home or, in some cases, even rent one.
Beyond the impact these policies have on families, these rules weaken the nation’s economy. By artificially constraining the housing stock, we have discouraged workers from seeking better opportunities in other geographical areas. When we look at the data, we see a declining share of Americans moving from states with few job openings to states with many available positions. That weakens the economy by keeping workers from jobs where they would earn more and be more productive. I have found relaxing land-use rules could add trillions of dollars to the US economy. That would mean higher wages, more job opportunities, and higher standards of living for Americans.
Fortunately, we can create land-use policies that meet today’s housing demands while still protecting our communities and environment.
First, we can stop frivolous environment lawsuits. We could ban duplicative suits where litigants file the same claim several times. We could also require those who file these lawsuits to pay all legal fees if they lose. We should also demand transparency among those who are financing these lawsuits.
Next, governments should change zoning rules to encourage more multiuse buildings and multifamily housing. And we should make it easier to retrofit existing buildings to add to the housing stock.
And finally, we should rewrite land-use rules to make it easier to build new cities. New cities would not only alleviate the house shortage, they would avoid the political challenges of trying to build in the heart of populated cities. These new cities could embrace the latest technologies for water, transportation, and energy use.
Meeting today’s housing demand will remain a challenge, but fixing the way we regulate will help create more economic opportunities for American families and a growing economy for all.