New HUD Goals on Local Control, Affordable Housing May Be Incompatible

Secretary of Housing and Urban Development (HUD) Ben Carson has put forward a new plan to roll back the Obama administration’s Affirmatively Furthering Fair Housing policy (AFFH). The AFFH is a tool to withhold federal Community Development Block Grants (CDBG), funds meant to improve housing conditions for low- and moderate-income people, from jurisdictions that fail to achieve targets for integrating neighborhoods and city services based on race and income. Carson’s stated goal is to both increase local control of land use planning and improve housing affordability. This may be impossible, however, because local development restrictions have created the affordability problems we have today.

AFFH was designed to expand the scope of the Fair Housing Act, a provision of the Civil Rights Act of 1968 that makes it illegal to discriminate against protected classes in housing markets. AFFH is intended to extend HUD’s role beyond merely eliminating discrimination at the point of sale to also implement policies that desegregate neighborhoods by race and income. If communities failed to meet AFFH requirements, their CDBG funds may be withheld.

AFFH initially required localities to use a HUD software program to evaluate integration. While this system provided the illusion of an objective measurement of localities’ integration, it left extensive leeway for communities to come to their own conclusions about their housing policy and to create nebulous plans to improve access to high-income neighborhoods. Under Carson, HUD has ended use of this software, but the rest of the AFFH is still in place.

At this stage Carson’s proposal includes few details, but he has emphasized that he wants increased housing supply in both high- and low-income neighborhoods through zoning deregulation while reducing federal involvement in local land use planning. But local control has led to current exclusionary zoning rules. Local policymakers tend to heavily favor homeowners’ preferences. Homeowners are more likely to vote and are more likely to stay in the same jurisdiction over time. Local politicians face strong incentives to please these homeowners rather than potential constituents who would move into their jurisdiction if they could afford to.

Homeowners tend to favor strict zoning rules mandating that large swaths of cities only be developed as single family homes on large lots. These rules prevent their neighborhoods from changing and limit new housing construction that may reduce the rate of appreciation of their own home. They make it impossible to build less expensive types of housing, like townhouses or apartments, in many neighborhoods.

Economists have reached a broad consensus that these rules—along with byzantine permitting processes—reduce housing supply and drive up prices. For example, a study using data from 1998 found that housing prices in San Francisco would be cut in half if more construction were allowed. The problem has surely gotten worse since then.

Zoning rules have the largest effect on house prices in areas where the country’s best jobs and other amenities are located. Land use rules wall off opportunities to people who can’t afford exorbitant rent, reducing income mobility. Because people with low-incomes are disproportionately racial minorities, zoning contributes to segregating neighborhoods by race.

Carson has an opportunity to improve upon the AFFH by creating opportunities for low-income people to move to currently high-income neighborhoods, resulting in more integration. Rather than relying on complex integration targets and local policymakers’ vague commitments to allow more construction, CDBG grants should be tied to clear requirements for zoning deregulation. HUD should set a clearly defined metric at which cities must begin permitting more housing, including multifamily housing, if they want to continue receiving CDBG money. This target could be, for example, a growth rate in rents over a period of a few years. If housing prices are increasing too quickly, cities could be required to amend their zoning codes to allow more construction in order to continue receiving grants.

The federal government has little direct control over land use policy, but it makes sense to use CDBG as a carrot to encourage zoning reform. Because the intent of CDBGs is to improve housing options for people with low-incomes, they should not be given to municipalities that engage in policies that thwart this goal.

As Carson’s proposal stands, it has the potential to eliminate the AFFH without successfully incenting zoning deregulation. However, by creating clear requirements that cities and counties must meet to receive CDBG funds, AFFH reform could encourage localities to reform the policies that block access to low-income people.