America must build its way out of the housing shortage

OPINION:

The bipartisan 21st Century ROAD to Housing Act is one of the most significant federal housing bills Congress has considered in decades.

That’s not because the bill solves America’s housing crisis, but, rather, because it acknowledges a reality that policymakers have ignored for far too long: The United States cannot make housing affordable without building substantially more housing.

For years, the national housing debate has focused on helping more people compete for a limited number of homes through subsidies and assistance programs. It has not addressed the reason that there are too few homes in the first place.

The ROAD to Housing Act represents a welcome shift by recognizing that increasing housing supply must be part of any serious affordability strategy.

America’s housing shortage is the product of decades of restrictive zoning, burdensome permitting requirements, environmental review delays, parking mandates, minimum lot sizes and discretionary approval processes that have made it increasingly difficult and expensive to build new homes. The result has been higher home prices, rising rents and dwindling opportunities for families to achieve homeownership.

Too often, however, policymakers focus on the symptoms rather than the causes.

Institutional investors purchasing single-family homes has become a central focus in the housing debate. Concerns of institutional investment have emerged as fewer affordable, entry-level homes for young buyers have been built. Those homes that are built are frequently purchased by investors and then rented out.

The ROAD to Housing Act directly addresses these concerns by prohibiting large institutional investors who control more than 350 single-family homes from acquiring any new single-family properties.

While this approach reflects growing concern about investor activity, it also represents a significant intervention in housing markets. Institutional investors expanded their presence in response to existing supply constraints that drove up housing prices. Restricting their participation does not address the underlying shortage that made such investments attractive in the first place.

If policymakers want to reduce the influence of large investors, the most effective solution is not simply banning them from purchasing homes. It is making housing abundant enough that scarcity no longer creates outsized investment opportunities.

That is where the ROAD to Housing Act gets the conversation right. The legislation expands and modernizes the Low-Income Housing Tax Credit, streamlines certain federal permitting and environmental reviews, encourages commercial to residential conversions, improves financing for manufactured housing, promotes redevelopment of vacant properties and strengthens reporting requirements on institutional ownership of single-family homes.

But the bill is not without flaws. Expanding federal tax credits and housing programs increases Washington’s role in markets that are fundamentally local. Subsidies can distort investment decisions, increase taxpayer costs and encourage projects driven more by federal incentives than consumer demand. Those tradeoffs deserve careful scrutiny.

Even so, the legislation moves federal housing policy in a more productive direction because it recognizes that affordability depends on supply.

Congress cannot override every local zoning ordinance, nor should it. Most barriers to housing construction remain at the state and local level.

Federal lawmakers can remove unnecessary federal barriers and encourage reform, but state and local governments must also modernize their own policies. Expanding by-right approvals, allowing a greater variety of housing types, reducing permitting delays and eliminating regulations that unnecessarily increase construction costs would do more to improve affordability than simply increasing subsidies.

The housing crisis did not result from one bad policy, nor will it be solved by one good bill. The ROAD to Housing Act does not eliminate every obstacle to building more homes, and some of its provisions deserve continued debate.

But it embraces a principle that has been missing from federal housing policy for far too long: America cannot subsidize its way out of a housing shortage. It has to build its way out.

• Kelly Lester is a policy analyst at John Locke Foundation’s Center for Food, Power, and Life.