The Rise of Housing Policy Reform
Vice President Kamala Harris made a bold campaign promise: If elected president, she would get 3 million new homes built. However, the rapid rise in rent and home prices contributed to Americans’ discontent and to her defeat. Despite this, the promise to build homes will be carried forward by a host of legislators in both parties who won reelection in part by promising to address rents and home prices.
The Supply Shock, Demand Shock, and Interest-Rate Shock
The last four years slammed homebuyers and renters with a three-punch sequence of supply shocks, demand shocks, and interest-rate shocks, leaving them reeling. First, pandemic supply-chain disruptions slowed production, leaving fewer purchase options and higher prices. Next, stimulus checks, higher demand for space at home, and loose monetary policy sent more money in pursuit of the relatively few available homes, putting more upward pressure on prices. Finally, when interest rates shot up as the Fed fought inflation, homeowners with historically low mortgage rates avoided selling their homes, leaving few homes for sale and many prospective buyers empty-handed.
Economists’ Views
Economists believed Harris’ proposals — such as a large subsidy for first-time homebuyers — would leave us well short of 3 million new homes. In truth, federal policymaking moves too slowly to deliver large-scale construction in just four years. Nor is Washington the most important capital when it comes to housing policy. More significant decisions about housing are made in city halls and statehouses from Sacramento to Augusta.
State and Local Solutions
More than ever — far more than two or four years ago — governors and mayors are determined to address this crisis with the tools at their disposal. So far in 2024, my Mercatus Center colleagues and I have fielded twice as many requests from state legislators for briefings on housing policy as in any previous year. Thankfully, we are able to point them to innovative solutions that Republicans and Democrats in other states have pioneered. Many have proved willing to set aside their own orthodoxies.
Innovative Solutions
Rhode Island Democrats cracked down on unrealistic, unfunded affordability mandates. Florida Republicans offered deep tax subsidies to get workforce housing built and legalized multifamily housing in commercial zones statewide. As Angelenos know, California was the first to experience high prices and search for legislative solutions. Leaders in other states have taken cues from Sacramento — but some have also found bolder solutions.
The Four “Ls” of Homebuilding
It takes four “Ls” to build a house: land, lumber, labor, and loans. For good reason, reformers have paid the most attention to land, the price of which varies most and which is the most onerously regulated. When vacant, buildable lots cost $400,000 and up, as they do in suburban Massachusetts, the potential cost relief from allowing more homes to be built on an acre can be vastly larger than from any other source.
Policymaking
Relaxing density rules and opening more land to residential development have thus been central to states’ housing strategies. Along with Florida, the legislatures of Arizona, California, Hawaii, Maryland, Montana, Oregon, and Rhode Island have allowed residences in commercial zones under some conditions. Some of these reforms have underperformed, including California’s AB 2011, which is hampered by unrealistic mandates to pay above-market wages and collect below-market rents.
Cutting Down on Delays
Increases in materials prices, wages, and interest rates have brought more attention to the other three Ls. To reduce construction costs, Maryland and New Hampshire now require local governments to allow manufactured homes wherever stick-built houses are allowed. North Carolina has shifted three- and four-family homes to the lower-cost International Residential Code, freeing them from requirements intended for much larger buildings.
Federal and Local Collaboration
A primary way to reduce salary and loan costs is to cut down on delays. States have found many ways to do this, including removing public meeting requirements for simple projects and requiring that local design criteria be “specific and objective.” Tennessee recently joined D.C., New Jersey, Texas, and a host of local governments in allowing a developer to hire a qualified third party to review building plans as an alternative to waiting out the backlog at city halls.
Conclusion
With willing leaders and a well-developed policy agenda, look for 2025 to be a banner year in housing policy.
FAQs
Q: What were Vice President Kamala Harris’ campaign promises regarding housing policy?
A: Harris promised to get 3 million new homes built if elected president.
Q: Why did Harris’ housing policy promises not come to fruition?
A: The rapid rise in rent and home prices contributed to Americans’ discontent and to her defeat. Additionally, federal policymaking moves too slowly to deliver large-scale construction in just four years.
Q: Who are the key players in addressing housing policy at the state and local level?
A: Governors and mayors are determining to address this crisis with the tools at their disposal.
Q: What are some innovative solutions to address housing costs?
A: Many states have pioneered innovative solutions, such as relaxing density rules, allowing manufactured homes, and removing public meeting requirements for simple projects.
Q: What can be done to reduce delays in homebuilding?
A: States can reduce delays by requiring local governments to allow manufactured homes, shifting to the lower-cost International Residential Code, and allowing developers to hire qualified third parties to review building plans.
