In cities across America, renters and home-buyers face shockingly high prices. The explanation is simple: demand for housing is growing faster than the supply of housing, causing prices to rise. Under normal circumstances, markets would correct this problem by themselves; higher prices would incentivize developers to build more housing units, and the increased supply would result in lower prices. However, thanks to myriad local rules, building new housing can be difficult, costly, or even impossible.
Thankfully, the Department of Housing and Urban Development (HUD) has recognized the problem and asked for constructive solutions to a pressing problem. That’s why my colleague Emily Hamilton and I recently submitted a public interest comment that encourages HUD to promote affordable housing policies on the local level by leveraging its Community Development Block Grant (CDBG) program.
In 2015, HUD promulgated the “Affirmatively Furthering Fair Housing” (AFFH) rule, which required that each jurisdiction analyze its level of racial and income integration and, if their level of integration was insufficient, explain their failure and present a policy remedy. Unfortunately, this plan was ineffective. Even as one department in a city governments crafts extensive plans to address statistical patterns of segregation, other departments enforce regulations that keep the rate of growth low and the cost of housing high through zoning ordinances, historical commissions, environmental rules, and comprehensive plans.
We suggest a different way forward, in keeping with HUD’s new emphasis on affordable housing. We argue that HUD should only give CDBG funds to jurisdictions that either that meet one of the following conditions:
- Rent is moderate or falling,
- The city has issued building permits equal to five percent of its housing stock over five years,
- The city has enacted a pro-market, pro-housing regulatory reform.
If those outcomes or actions have not occurred, then HUD should withhold CDBG funds for the next five years. Our approach relies on market outcomes and actions, not plans.
CDBGs are well-suited to motivate mayors. As a matter of statute, they are purposed for housing, economic development, and infrastructure. Their flexibility has made them popular with local governments. As a result, CDBGs provide a form of “soft power” that can incentivize localities to provide affordable housing without resorting to federal mandates. Finally, since the grants go to local governments, not low-income individuals, the actors responsible for housing shortages are the ones that would be targeted by this rule.
Local policies matter. Areas that restrict housing development, such as Los Angeles and Silicon Valley, are punishing low- and medium- income residents. Other cities, such as Houston, have kept costs down with unrestrictive development rules. HUD should use its influence to encourage the second approach.
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