Housing Solutions Series: Unlocking the Housing Market

It should be clarified that a complicating factor in the end of housing inflation is the argument about what is causing it. There are people who, usually for ideological reasons, deny that housing prices are the result of supply and demand. I cannot and will not attempt to change that in this paragraph, in this article, or in this series. But if you take the fork in the road that recognizes this fact, that when housing prices go up it’s because there isn’t enough of it, then the next step is to facilitate a regulatory environment that makes housing easy to build and profitably operate. Yes, to profit. Once the psychological, ideological and political barriers have been overcome, how can a policy be put in place that would maximize market performance to meet the needs of the greatest number?

The process of deregulating the housing economy, unfortunately, has to happen at the local level. The Tenth Amendment to our Constitution establishes that any power not specifically granted to the federal government and not prohibited to the state is “reserved to the states respectively.” Whether or not this 100-apartment building gets built is a local matter, and even state governments delegate land use and zoning decisions to the lowest denominator of governance, the hodgepodge of city and county councils. – there are over 89,000. The federal government’s primary role in housing is through funding, and I will discuss this in the next section. But here are the three steps local governments need to take to free up the housing production market.

The first step is for each government to conduct a comprehensive, third-party audit of all laws, rules, practices and regulations that affect and limit the development, construction and operation of housing. This means everything from enabling legislation and zoning categories to the relative position of light switches and handrails. All. And it cannot be a political process in which things are registered or designated as protected or sacrosanct. The goal is to get a quantitative and qualitative measure of what local government is doing to control housing. The point of a democracy is to have discussions and debates about whether, for example, it’s a good idea to have fire sprinklers in new buildings or whether that nosy neighbor can decide of the color of the robust panel on a new building. But all of these things need to be identified and detailed.

The second step is, again using a non-partisan third party, to determine the costs that each of these limits on housing adds to the production of housing and thus to the cost to the consumer in the form of price or rent. There is no Rosetta Stone for housing costs and their impact on prices. Materials, labor, land holding and compliance costs vary. In this sense, hyperlocalization should lead the dollar-and-cent exercise to more accurate cost assessments than broader, more general national or regional data. The result would look like a map or spreadsheet with specific regulations or practices and an estimate of cost by type of project and how that translates to consumers.

If steps one and two seem painful, prepare for a real injury, step three, make the decision to eliminate as many regulations and limits as possible without harming health and safety. Does obliging a developer to keep a tree on a vacant lot planned for 200 apartments have a positive impact on health and safety? My God, yes! Don’t forget climate change! Having been through a similar exercise years ago with public education statutes, I know every detail of the code and procedure has a constituency ready to fight to the death to uphold the rule, no matter how obscure she, in place. But the process means that anyone with an interest must be accountable; “Yes, we should keep the impact fee, even if it makes housing more expensive!” Today’s housing world allows for over-the-top rulemaking unrelated to its cost and price impact, and this painful political process might not lead to many cuts, but it would create accountability.

Unlocking the housing market for maximum output requires an honest, transparent, and quantitative assessment of the rules that end up being part of the price people pay for housing. The political process that follows means that local officials, advocates and housing professionals will all be held to account. To me, fire sprinklers make sense, and are worth adding to the overall housing cost. Allowing neighbors to take care of new housing because of trees and pain color, no, remove all those sections. A measure of these costs would also help prioritize what to keep and what to discard. Finally, at the end of the day, it would provide a window into whether and how lowering the rules helps the price or not. Everyone in the community could know exactly what regulations they are paying for and if it is worth it.