SACRAMENTO, Calif. — On most major issues, Congress has largely been AWOL or consumed by partisan bickering, but once in while it proves that it can pass constructive legislation and — will wonders never cease? — do so in a bipartisan manner. The U.S. House of Representatives just passed a package called the 21st Century ROAD (Renewing Opportunity in the American Dream) to Housing Act. The legislation involves a mishmash of regulatory changes, but lawmakers are finally focused on the right solution: Making it easier for developers to build more housing.
“As now written, the Act will be the most significant legislation to increase housing supply in years and has the potential to meet our shared housing goals of providing more housing options and more housing affordability in communities across the country,” per a letter to Congress from some of the nation’s most prominent housing groups. “This legislation preserves flexible housing options for renters, eases affordability challenges and provides more options for those on the path toward homeownership.”
Pro-housing groups are relieved that the House stripped out the legislation’s most contentious provisions: A Senate amendment that would have required investors who build single-family homes as rentals to sell them within seven years. That would have essentially stopped the construction of these units, which provide a useful option for some renters. Many people who can’t afford a home would rather live in a single-family residence than an apartment. That rule also was an affront to the basic principles of a free-market economy.
The latest version of the legislation still includes restrictions — although less severe than originally proposed — on the ability of large investors to buy properties. That’s a big populist concern on the Right and Left these days, but institutional investors own only a small share of the nation’s properties. President Donald Trump and California Gov. Gavin Newsom have both championed this noxious idea. Again, in a free market, companies should be free to buy and sell properties as they choose. But the rest of the package is pretty reasonable.
As the House Committee on Financial Services explained, “The American people are laser-focused on the cost of living, and housing is a major driver. Housing supply has not kept pace with demand, leaving the nation short by as many as 5.5 million units. Rising construction costs, regulatory delays and outdated zoning constraints have all fueled this crisis. Additionally, small and medium sized banks that finance new construction loans are struggling to provide financing due to regulatory burdens.”
That sums up the problem nicely. Some critics argue that there’s no real housing crisis, as the rising prices are simply the result of supply and demand. Well, yes, but the problem is that government regulations have restricted the supply of housing — and cumbersome financing rules make it difficult for qualified borrowers to receive credit to buy homes. Housing markets are local, and there’s a limited role for the feds, but federal financing and subsidy rules need updating — and it’s wise to incentivize local governments to loosen their zoning rules.
Median home prices obviously vary greatly by state, ranging from $250,000 in Iowa to $850,000 in California, but federal environmental rules in particular add to the costs of construction. For instance, the National Environmental Policy Act (NEPA) requires extensive and costly reviews for projects that receive federal funding. I’m not fond of such subsidies, but if the government is going to provide them then it shouldn’t then hobble these projects with unnecessary reviews.
My housing work is focused mainly on California, which has the overall highest prices and the lowest housing affordability rates. In California, the median home price has quadrupled from 2000 to today, which is still more than a doubling in prices when accounting for inflation. It’s driven by state and local slow-growth rules and local urban growth boundaries. Government policies have artificially restricted supply, which of course has driven up prices for existing properties.
Our problems also stem from the state’s “landmark” California Environmental Quality Act (CEQA), which requires voluminous impact reports and encourages litigation. A 2020 report from the Center for Jobs found that CEQA lawsuits targeted nearly half of the state’s new housing units — and that California is building only one-third of the state’s housing targets. Other states face similar problems, although as usual California ratchets up the bureaucratic insanity a few notches.
Realistically, the passage of this federal housing package will only help around the margins — but at least it indicates a growing bipartisan consensus around the need to reform regulations that restrict the housing market. It might encourage state legislatures to reform their states’ zoning rules. California’s lawmakers have passed many new laws that make it easier to build housing and force localities to step back from their usual NIMBYism (Not In My Back Yard), but they don’t go far enough.
It’s noteworthy that Democrats have been the driving force for these deregulatory measures, although they remain fixated on only promoting higher-density construction — rather than deregulating all types of housing construction, including the single-family homes that most people prefer. But conservatives here have been equally inconsistent, as they use “local control” as a mantra to defend heavy-handed local restrictions on market-based construction.
The Trump administration has given mixed signals on this issue, although it is backing this housing package. So perhaps its passage will show that there’s plenty of common ground to be had on this key affordability issue. And who knows? Perhaps Congress and the administration might apply these lessons to other national problems.
Steven Greenhut is Western region director for the R Street Institute. Write to him at [email protected].
