Compounding the Housing Crisis - TribPapers

Compounding the Housing Crisis

Photo by Brent Assis.

Asheville – Way back in 2017, Vanessa Brown Calder wrote a policy analysis, “Zoning, Land-Use Planning, and Housing Affordability,” for the Cato Institute. It was merely the latest collection of statistics backing claims conservative think tanks had been making for decades. It reported, “… zoning and land-use regulations have deleterious effects on housing affordability. And zoning and land-use regulations are rapidly becoming more restrictive.”

Before COVID, federal subsidies for housing were being awarded to states where zoning and land-use regulation were driving housing costs up most. (OMB table based on the author's data, included with report.)
Before COVID, federal subsidies for housing were being awarded to states where zoning and land-use regulation were driving housing costs up most. (OMB table based on the author’s data, included with report.)

Since simple gedanken modeling of supply and demand and the costs of compliance has made few inroads with policymakers, Calder’s study added to a body of literature that showed how these concepts are playing out in American cities. Before her, for example, Rothwell found density regulations to be responsible for about 20% of the variation in metropolitan housing growth; Schuetz found an inverse relationship between zoning regulations and the number of permits issued, especially for multifamily residences; Glaeser and Ward found, in Boston, that each acre added to the minimum lot size requirements accounted for a 50% drop in building permits; Quigley and Raphael estimated that each zoning or land-use regulation in California municipalities accounted for a 4.5% increase in housing costs and a 2.3% increase in rental costs; Ihlanfeldt performed a meta-analysis that correlated zoning regulation with suburban housing costs; Glaeser found zoning rules increased apartment rental costs by about 50% in Manhattan, San Francisco, and San Jose, and Furth found special regulations in coastal cities drove housing prices up about 25% and rental costs up about 10% on average.

With others, Calder also observed that increases in the cost of living forced by zoning and land-use regulations harm more than isolationist aristocrats. Tech centers and other areas experiencing fast economic growth typically have the most restrictive land-use and zoning regulations. So, those who can’t pay the rent are less likely to get a piece of the action. In fact, Hsieh and Moretti estimated that this form of economic segregation reduced the national economic output by 8.9%.

Looking through the equity lens from another angle, Calder noted, “Comprehensive zoning and land-use planning were mostly unknown in America prior to the 20th century. Property rights remained intact, and the courts adjudicated disputes between landowners.” Zoning, she concluded, was spurred largely by traffic problems caused by the automobile. However, two years after the Supreme Court ruled that zoning was an expression of police power, the number of municipalities with zoning leapt from 68 to 1,246.

Calder and other authors have found court decisions work well as a proxy for regulation because important land-use and zoning rules are going to be challenged. She compiled data on the volume of land-use decisions and zoning decisions separately and then looked for correlations between these numbers and housing costs nationwide and by state. By focusing on the timeframe between 1980 and 2015, Calder was able to view the volumes of both court cases and new regulations when they were rising drastically more than the population was increasing.

Calder first established that there was a statistically significant association between increases in land-use regulation and “real average home prices” in 44 states. A statistically significant association was also found between increases in zoning regulation and home prices in 36 states. After accounting for poverty, she found the top decile of restrictively-zoned states was receiving about twice as many federal vouchers and twice as much in federal housing subsidy dollars per capita than the bottom decile.

Calder said this was likely because, generally speaking, increases in zoning and land-use restrictions come with costs of compliance that price people with marginal resources out of the market and into housing assistance. The irony, she said, was the way local governments tend to attribute their housing shortages to insufficient federal funding. Sadly, as long as local governments fail to address the role their zoning regulations play in elevating housing costs and seek government relief instead, federal programs will continue to reward them for it.

Calder reframed the significant correlations she found between escalating housing costs and hyperregulation. She asked if it were fair for the taxpayers of certain municipalities, who elect leaders who act responsibly and avoid inflating housing prices through costs of compliance that add nothing to health and safety, to pick up the bill for housing costs in the municipalities where citizens and their leaders are not as mindful of cause and effect.

She noted, “The federal government spent almost $200 billion to assist Americans in renting or buying homes in 2015. The Department of Housing and Urban Development spends about $50 billion per year, much of which is devoted to improving housing affordability. Despite this, the number of US households that are considered ‘cost burdened’ by their housing has increased or remained constant over time.”

To lower housing costs, Calder said local governments can streamline approval processes, which has been done locally, and make more forms of development a use-by-right. States could do the opposite of what the federal government has been doing and allocate more affordable housing funds to municipalities that reduce regulations. States could also restrict the ability of municipalities to regulate and require municipalities to compensate owners for potential uses of their property taken away through new regulations.

Of other well-intended reforms, Calder said, “At best, most initiatives only provide a Band-Aid solution, and at worst, they undermine their claimed objectives.” For example, inclusionary zoning, like other forms of regulatory zoning, reduces market incentives to construct housing units. It should go without saying that this exacerbates housing shortages, with the scarcity exerting upward pressure on prices.

Right-sizing zoning, on the other hand, “provides benefits to all constituents. The benefits of reform include housing affordability, better job-to-worker matching, and improved economic growth.”