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We Need a Lot More Housing. It Won’t Come from Washington.

Biden’s budget would provide billions, along with heavy-handed regulation, but it won’t expand the supply. The way to build more housing and tame prices is for states to encourage local innovation.

An ADU in Santee, Calif.
A house in Santee, Calif., with an accessory dwelling unit added by the owners. At least nine states now widely allow ADUs.
(Karen Pearlman/TNS)
The budget proposal that President Biden sent to Congress last month included a big focus on housing. The administration’s push to tackle this pressing problem, particularly in an election year, is not surprising: Polling has consistently shown housing costs to be a significant pain point for Americans.

It’s unlikely, though, that flooding the housing market with more taxpayer money and reams of regulations from Washington will provide relief. Instead, individual communities and their governments will be the ones to solve this crisis by adopting innovative and localized solutions.

Biden’s budget asks for $258 billion for housing. A significant portion of this money would go toward a $10,000 tax credit for home sellers and $10,000 in tax credits, over two years, for first-time home buyers. There are additional aspects of the plan that simply provide money to help cover housing costs, such as grant programs to help at-risk individuals stay current on their housing bills. Further proposals would pump more money into existing federal programs that ignore market realities and are bogged down by bureaucracy and waste. These initiatives would provide limited relief to small segments of Americans but would not address the underlying problem.

Tax credits for transferring existing homes will not expand the supply of housing, which is what is desperately needed in the current market with an estimated shortfall of 2.5 million units. Instead, the credits would provide financial incentive for homeowners to leave their current housing situation, which may not be in their financial interest given current interest rates. The tax credits would likely provide a benefit to those who could already afford to buy or sell in the current climate, without federal cash. Other grant programs would simply put an influx of cash into the market, driving prices up for everyone.

Additional credits and provisions aim to expand the supply but will likely require too much bureaucracy to be efficient or even to ensure they are used as intended. One example: Biden proposed $19 billion for credits to close the gap between construction costs and market prices in low-income neighborhoods, provided the home is occupied by low- or middle-income homeowners. That would necessitate layers of approvals by bureaucrats in Washington, including their assessment of “reasonable” for costs and prices.

Biden’s tax credits and grants are unlikely to do much for Americans’ housing woes. But tucked away in a proposal full of increased government spending is good policy to encourage and expand innovation in housing policy that would meaningfully boost supply. The White House notes on Biden’s proposal talk about wanting to provide incentives to state and local governments to convert empty commercial real estate into residential dwellings; remove local barriers such as zoning restrictions to allow for more housing construction; and update the definition of “manufactured housing” to allow builders more flexibility in design and construction of accessory dwelling units such as garage apartments or backyard cottages. These are smart solutions that draw bipartisan support.

Most analysts don’t see Congress taking up Biden’s extensive housing proposal. The good news is that it doesn’t need to. State and local governments already have a considerable amount of flexibility to make changes that allow for and encourage supply expansion. Last April, for example, Montana’s Legislature passed a series of measures, with bipartisan support, that would streamline regulatory review on construction, build apartment housing in commercial areas and update zoning laws to permit more multifamily dwellings and accessory dwelling units (ADUs). At least eight other states already widely allow ADUs.

Even states that prefer the liberal tradition of using government money to shape the market, rather than an innovation-based approach, are diving into housing policy. Last year in Rhode Island, for example, Democratic Gov. Daniel McKee pledged $250 million to create housing supply in the state. Delaware allocated a combination of American Rescue Plan Act and additional state funds to create new housing in local areas with significant need.

States are well aware of the housing shortage and unaffordable prices confronting their citizens, and are already acting without heavy-handed government interference. Furthermore, state- and local-level action recognizes housing and zoning policy is a hyperlocal issue that members of the community should have input on. Additional regulations and requirements from the federal government will not help the situation. President Biden should continue to encourage states and localities to take an innovative approach to expanding housing supply, but otherwise recommend that the federal government stay out of the way.

Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
Erin Norman is the Lee Family Fellow and senior messaging strategist at the State Policy Network.
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