The Federal Government Cannot Solve the Housing Crisis

With the median sale price of a single-family home exceeding $400,000 since the pandemic, federal politicians have been champing at the bit to show voters they are working to lower housing costs. The recently passed bipartisan 21st Century ROAD to Housing Act is Congress’s attempt to expand the housing supply. It awaits the president’s signature.

The problem is that there is little the federal government can do to solve a crisis that is primarily the byproduct of local regulations. The local nature of the housing shortage is apparent when comparing housing costs in San Francisco, where the median single-family home price has reached a staggering $2 million, and Houston, where the median home sells for only $371,000.

Federal policy cannot explain that disparity, but local zoning regulations can. San Francisco’s zoning code is so massive that its own planning department described it as “labyrinthine.” With more than 100 distinct land uses applied differently across hundreds of zoning and special-use districts, the city’s planning code regulates population density, building heights, lot sizes, parking spaces, and oh, so many other things that drive scarcity. Houston, meanwhile, is the only major American city that has never adopted a zoning code.

Economists refer to the cost that zoning regulations add to housing as the “zoning tax.” In a 2021 study, Joseph Gyourko and Jacob Krimmel estimated that the zoning tax in San Francisco adds $400,000 to housing costs per quarter-acre lot. In Los Angeles, New York City, and Seattle, the zoning tax adds as much as $200,000 per quarter-acre.

The most promising aspect of the act is that it will incentivize local reform by tying federal funds to housing production. Generous infrastructure grants will be awarded only to those cities that have added to their housing stock. However, the success of these provisions will depend on the caprice of local politics. Funds are likely to flow most heavily to cities that are already aggressively reforming housing policy, such as Austin and Minneapolis.

But the housing crisis is most severe in areas that face significant resistance to new housing from NIMBY (“not in my backyard”) activists, who are less likely to be swayed by whatever carrots the federal government dangles in front of city governments. Elected officials with large NIMBY constituencies will be torn between the desire to snatch up federal grants and the need to woo voters—and NIMBYs have historically exerted powerful influence over local elections.

Another benefit of the act is the repeal of a 1974 regulation that requires manufactured homes to be built with steel frames and wheels, adding as much as $10,000 to the price. Manufacturing costs are not responsible for the housing crisis, so the primary value of the repeal is that it will allow the sale of manufactured homes in areas that restrict mobile homes. But local governments, which amend their planning codes with unusual frequency, could easily nullify the provision if so inclined. Again, the promise of the federal housing bill is dependent on local governments’ willingness to play ball.

For cities that resist federal incentives to relax zoning regulations, the ROAD to Housing Act might even exacerbate housing costs. It is marketed as a supply-side solution, but it also includes demand-side strategies to expand access to mortgages and government housing vouchers. Some individuals may benefit in the short run, but demand-side subsidies do not increase supply, so they can only push prices higher in the long run.

We may hope the act will ameliorate the housing crisis, but we must recognize the federal government’s limitations. The question is whether the act will be enough to compel reform-resistant local governments to make the necessary changes to promote housing construction.