I was hopeful when the Biden administration unveiled its Housing Supply Action Plan. Perhaps here was a proposal that would incentivize more housing production and, maybe, begin to push local governments to loosen regulation that currently makes it hard to build new housing. Non-profit housing groups called the proposal, “the most comprehensive national housing policy we have seen in a generation.” But is it? I took a look specifically at the part of the proposal aimed at “Providing Incentives for Land Use and Zoning Reform and Reducing Regulatory Barriers.” Unfortunately, there are not a lot of detailed requirements for local governments and the bulk of the proposal is more about expanding the money supply for existing programs than increasing the supply of housing in the market.
Subsidizing housing non-profits instead of tenants
The proposal announces an effort to “expand and improve existing forms of federal financing, including for affordable multifamily development and preservation.” This is essentially flooding the existing canals of cash that keep nonprofit housing developers afloat. But even more than that, the proposal will “include making Construction to Permanent loans (where one loan finances the construction but is also a long-term mortgage) more widely available by exploring the feasibility of Fannie Mae purchase of these loans.”
Building any housing is difficult in the United States. I wrote a five-part series at Forbes detailing the many phases of a development project. Each phase is made more complicated by state and local government regulations. How is adding Fannie Mae's bureaucracy to the mix going to make it easier to build housing? When I was a nonprofit developer, we spent three hours a week on regular conference calls trying to get our deal to close, an hour with a bank lender, an hour with the Low Income Housing Tax Credit (LIHTC) attorneys and staff, and more time with the state that had funding in the project.
If Fannie Mae is going to back loans, there will be even more challenges getting projects across the finish line. Worse, this puts the institution in the position of essentially backing more easy money. As I've pointed out many times, the last thing the country needs for housing is more money. There should be fewer barriers to the development and building of market-rate housing so that supply can meet demand, obviating the "crisis" that occurs when prices go up hurting people with less money the most.
Inadequate zoning ‘reform’
As I’ve advocated in work at FREOPP and elsewhere: the fundamental problem really is all about the money. There’s no other way besides financial incentive that the federal government can influence local policy since land use is controlled by states and localities. So I was interested in digging into the idea that the proposal will “reward jurisdictions that have reformed zoning and land-use policies with higher scores in certain federal grant processes, for the first time at scale.”
Ultimately, localities need to get rid of zoning. Until then, using federal dollars to reform would really help start that process. What does the proposal do to accomplish “reform” at scale? The White House points to three recent requests for grant proposals from state and local government issues by the Department of Transportation.
The proposal starts out in the right direction, pointing out that “the U.S. Department of Transportation released three funding applications for competitive grant programs totaling nearly $6 billion in funding that reward jurisdictions that have put in place land-use policies to promote density and rural main street revitalization with higher scores in the grant process.”
But a look at these grants in the Federal Register shows that they are pretty weak on “reform.” Criterion three in the request is called “Economic Impacts, Freight Movement, and Job Creation,” requiring at least one of a range of outcomes including:
Support integrated land use, economic development and transportation planning to improve the movement of people and goods and local fiscal health, facilitate greater public and private investments and strategies in land-use productivity, including rural main street revitalization or increase in the production or preservation of location-efficient housing.
What in the world does that mean?
There are no requirements to produce an increase in “location-efficient housing”—a catchphrase for density and transit-oriented development—it’s only one option blended into the scoring criteria. And the example of a successful project for criterion three says nothing about housing, but it does promise high scores for “incorporation of strong labor standards and practices, such as project labor agreements (PLAs).”
I've pointed out in the past that LITHCs are bedeviled by high labor costs mandated at the local level. I received numerous comments telling me that the federal government doesn't require PLAs or prevailing wages. Even so, those requirements are de rigueur for almost every LIHTC project in the country. Now transportation projects that may somehow encourage “location-efficient housing” will have them too.
Undermining truly affordable housing and racial equity
This administration is fond of talking about civil rights. But as pointed out in our comments on the reauthorization of the Fair Housing Act, pumping more cash to nonprofits to subsidize higher prices caused by local supply-choking regulation makes things worse for poor people who are disproportionately people of color.
When local governments limit supply with zoning, rents go up and so does equity in single-family homes. Solving this with huge subsidies for pricey subsidized units trickled out by non-profits won’t provide lower prices or help for people with less money. Poorer folks will instead take a place on a waiting list for housing that might be available someday.
I have proposed the idea of skipping the middleman and getting subsidies directly into the hands of people who need help with rent. The idea is pretty simple: allow people to use vouchers where they are currently paying rent rather than waiting for an inspected qualified unit. That would be the beginning of real reform. The White House’s proposal has too much of what we know does not work. But I hope they’ll keep trying.