The Terner Center for Housing Innovation at University of California at Berkeley published a helpful review of their latest report, ” How States are Incentivizing Local Housing Production: A Typology of State Pro-Housing Laws“. The center’s research was extensive but often academic and I won’t go into detail about their typology. Instead, I suggest we reexamine how we assess housing policy, particularly on supply issues.
It’s easy to see headlines praising the end single-family zoning or stories about legislation that increases housing supply. It is more complex than that. Let’s look at how we know a policy will lower rents or prices.
Take, for instance, California’s S.B. 35. The legislature is currently reviewing the original 2017 law. Terner stated that S.B. 250 “imposes an iron or penalty on localities that fail to meet certain housing production goals by offering developers a simplified approval process for zoning and design-compliant developments that meet certain affordability, labor and other goals.”
This last part, “a simplified approval process for zoning and design-compliant project that meets certain affordability, labor, or other goals”, should be alarming. These types of requirements are not solutions. How can we find out? Let’s look at the questions that we should ask about this housing policy or any other.
We must first ask about supply. Is the policy clear that housing is more important than subsidies? Ohio is an example of a bill that does this. The Ohio bill preempted local rental control laws and declared that rent control would “distort residential premises market functioning.” It recognized that housing was a commodity subject to market choices; sound policy is reflective of this reality.
Next, let’s ask if the proposal directly regulates rental or housing prices. S.B. 9 was another California proposal that I wrote about. S.B. 9 was hailed as the “end to single-family zoning in San Francisco.” Although I have argued that segregation of use raises housing prices, takes a closer at S.B. 9 shows that San Francisco’s density program actually imposed mandatory rent controls. S.B. 9 “is simply a means lefty legislators to say they’ve ‘ended one family zoning’ and then sit back and observe as nothing happens.”
Other questions should be asked about the regulatory aspect of housing policy. Is there a reduction in the number of rules, fines and fees or taxes that a particular law will result? Many bills remove some rules and add many more: Nearly every policy Terner reviewed imposed additional requirements. A sound state policy on housing would encourage fewer rules at the local level.
Is the bill likely to reduce production time? I have written before about the negative effects of regulatory footdragging on Nashville‘s housing market. States should insist that local reviews be done quickly and transparently.
Will the bill require “affordability requirements?” The worst policy in housing is mandatory housing affordability. This policy, which I refer to as a legal Bribery Scheme, requires developers to purchase additional square footage. Any state policy that requires developers to pay a fee or make payments to non-profits in exchange for more housing is a red flag. These schemes can lead to inflation by transferring the costs to interest groups to consumers at higher prices.
Will the law, if not to limit affordability, impose labor and demographic requirements? Politicians love to choose winners, especially when those winners have already voted for them. California’s S.B. California’s S.B. 35 requires prevailing wage, and also requires apprenticeships. California has the ambitious goal to “resolve gender and racial inequalities in apprenticeships in traditional firefighting and construction trades”: This is a costly but noble goal.
We should also ask whether the bill will lock out private investors and developers. Private investment is required to build housing. None. Private investment is required for even nonprofit projects, most often in the form Low Income Housing Tax Credits. California or Ohio denigrate private investors is a clear indication that the policy objective isn’t more housing but rather finding political punching bags.
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Terner’s academic studies, which examine state efforts to encourage local jurisdictions towards housing, are a welcome development. However, unless there is a shift of public opinion away form punitive measures against developers and housing providers to deregulation and opposition to federal subsidies, nothing will ever change.
Some states have already shown promise. For example, Montana published recommendations to streamline permitting and condition state subsidies on its effectiveness. Although it is not yet policy, what I have mapped here should serve as our metric for success: Does the policy reduce fees and taxes that increase housing costs?
