Among the few things Americans agree on these days is that housing is too expensive. With a shortfall of at least 3.7 million homes, the obvious solution is to build more. Regrettably, a once-promising effort in Congress intended to do just that now seems to be falling apart — a victim of populist politics gone awry.
Over the past two decades, home values have risen faster than incomes in much of the U.S. Rents also have soared in many cities, contributing to widespread worries about the cost of living. The main culprits are restrictive local zoning and land-use rules, which curb construction and investment. When cities ease such regulations to meet pent-up demand — as Austin, Texas, and Minneapolis have, for example — the effect on prices is often dramatic.
Enter the ROAD to Housing Act, which recently passed the Senate. It creates a variety of incentives for communities to overhaul zoning and boost development, attempts to streamline environmental permitting and eliminates a rule that limits the availability of cheaper manufactured homes. All worthwhile.
Yet, as so often in Washington, the bill won support for these measures by stitching together a tangle of other ideas — drawn from 40 different bills — many of them bad. One recent addition is particularly counterproductive. Claiming to protect Main Street homebuyers from undue Wall Street competition, it would ban most home purchases by large institutional investors, such as Blackstone Inc. and Cerberus Capital Management.
Although this stipulation may please populists, it would be foolish for several reasons. For one, the alarm about private equity firms and hedge funds outbidding potential homebuyers is misplaced: Big institutional investors own only about 1% of the single-family market, and there’s little evidence they’ve significantly increased costs even in areas where their ownership is most concentrated.
More perniciously, even those investors that avoid the ban would be required to sell any “build-to-rent” properties to individuals within seven years of their construction. Such homes are an integral part of the market. Mandating their sale would likely lead to more evictions, diminished investment and less housing for those who need it most. If anything, Americans need more rentals.
Unfortunately, its benefits simply don’t outweigh drawbacks. Although the bill aims to speed up environmental reviews, it applies only to buildings with 15 residential units or fewer. A promised 10% funding boost for cities that accelerate development probably isn’t enough to overcome local opposition in richer areas. The same goes for an “innovation fund” award, capped at a not-so-inspiring $10 million.
If the bill can’t be fixed, Congress should try to salvage some of its better elements. As one example, a proposal to allow manufactured homes (that is, mobile homes or trailers) to remove their steel frames would cut about $10,000 from their cost, allow for more innovative designs and provide an important source of affordable housing.
But the fact is, too many rules have left Americans with too few homes. As things stand, this bill would only worsen that problem.