Obama’s Housing Toolkit: A Mixed Bag

Something striking happened last week: the Obama White House released its Housing Development Toolkit and Obama’s economic advisor, Jason Furman, wrote a follow-on op-ed about land use regulation’s negative consequences. While White House reports tend to be geared toward partisan political objectives, these two publications could have been written by non-partisan economists. Nevertheless, although the honest application of economic theory is welcome, libertarians will still find points of disagreement.

What’s good? The report highlights zoning policies’ influence on increasing housing prices, immobilizing workers in job deserts, creating costly uncertainty for developers, increasing inequality and racial segregation, and suppressing economic growth. These negative outcomes were attributed to “excessive barriers,” “unnecessarily slow permitting processes,” and “arbitrary or antiquated” zoning and land use regulations.

The White House even went so far as to say that “even well-intentioned land use policies” can have negative impacts. So far, so good.

What’s bad? The worst part of the report is the declaration that the President’s 2017 HUD budget includes a $300 million proposal for grants to help cities “modernize their housing regulatory approaches.” Since when does it cost $300 million to reduce regulation, which is all the “modernizing” that needs to be done?

The report also gets it wrong with some of its specific policy prescriptions. In order to increase housing supply, it not only suggests a range of deregulatory measures, but also various reregulations. For instance, the Toolkit recommends that vacant land be taxed at a higher rate, and that local governments require developers to build affordable units in exchange for development approvals.

In this way, the authors fall back into the original trap: they think that city officials know better than private citizens what should be built and where. But if the last century taught us anything, it should have taught us that officials are not more capable of guiding urban development than private citizens are. In fact, that brand of overconfidence is what got us into this housing supply crisis to begin with.

Finally, the authors seemingly approve of states dictating zoning and land use policies to their cities. This mentality overlooks the fact that cities often resort to zoning in order to protect their own interests when they feel threatened by intrusive state policies. Consequently, the worst thing state governments can do is squeeze their cities with more requirements, thereby providing more incentive for cities to assert local control through work-around policies.

So if the state or federal government can’t impose their will on cities, what can be done? If federal and state governments step aside, local community advocacy groups will step in. For example, in San Francisco, one of the most expensive and constrained urban markets, GrowSF and other groups are educating voters, canvassing neighborhoods in support of pro-growth policy, building a political coalition between democrats, conservatives, and libertarians, and filing lawsuits against burdensome regulations. This grassroots approach is how civil society is built, how consensus is built, and where lasting policy change occurs.

Paradoxically, the Toolkit even acknowledges the preeminent role that local preferences should play: “regions are better able to compete in the modern economy when … housing development is allowed to meet local needs” it declares. Who better to determine local needs than property owners and concerned citizens themselves?

(For more on the Toolkit, please see my colleague’s work here.)