Expanding Housing Opportunity in an Environment of Exclusionary Regulation

Good morning, Chairwoman Waters, Ranking Member McHenry, and members of the House Committee on Financial Services. Thank you for giving me the opportunity to address the committee today.

My name is Salim Furth and I am a senior research fellow at the Mercatus Center at George Mason University, where I am codirector of the Urbanity project. I study land use regulations that are barriers to opportunity. My comments today will focus on the details of the Affirmatively Furthering Fair Housing (AFFH) rulemaking; but first, please allow me to frame one of the fundamental problems in the US housing market.

The Exclusion Problem in Urban Planning

Contemporary American land use law embodies the bad idea that private land use ought to be publicly planned. In practice, these plans routinely exclude low-income families by indirect means, causing income-based segregation.

Exclusion is widespread: most jurisdictions, through zoning ordinances, ban apartments and manufactured homes in all but a few locations. Single-family homes are usually allowed, but only in specified areas and often on lots larger than many buyers want.

As a consequence, those states that give the most power to planners and the least authority to property owners have abysmal housing growth rates. When wages rise in those states, rents and home prices soar.

Some of the most vibrant economies in the United States have housing growth rates comparable to the Rust Belt. As I note in previous research, “The median census tract growth rate in [the] Los Angeles, San Diego, and San Francisco [metro areas] was about the same as in struggling Rochester and Buffalo, New York.” Silicon Valley has a smaller share of the US population now than it did in 1990. These places are practicing so much small-scale exclusion that it amounts to a regional crisis of housing affordability.

The standard defense of zoning is that it addresses spillovers from growth (that is, externalities). This is true. But it removes more positive than negative externalities. There are fewer noise violations and fewer parking crunches thanks to zoning, but there are also fewer job opportunities, fewer neighborly friendships, and fewer escapes from poverty. Density has many spillovers, and most of those spillovers are positive.

The Role of Federal Government

Although restrictions on housing production do not originate with the federal government, federal policymakers ought to be concerned about them. For one thing, local restrictions have become a major macroeconomic concern. For another, federally supported housing has to abide by these rules as well. When land is artificially scarce, federally funded housing construction and rent support are more expensive and less effective.

In this environment, how should federal policymakers respond?

Policymakers should resist the temptation to implement anything like nationalized or state-wide zoning. What they can and should do is amend the ways in which federal policy interacts with local government to encourage and facilitate inclusion and to stop subsidizing extremely exclusionary local policies.

In this spirit, my colleague and codirector Emily Hamilton and I submitted a public interest comment to the US Department of Housing and Urban Development (HUD) to suggest specific revisions to the AFFH rule. That comment is submitted as an attachment to this testimony.

The 2015 AFFH rule is based in an important but vague admonition in the Fair Housing Act that “the Secretary” shall act “in a manner affirmatively to further the purposes of this subchapter.” In layman’s English, I take this to mean that HUD has to abide by the spirit of the law, not just the letter of the law.

Exclusionary zoning seems like a clear example of government violating the spirit of the Fair Housing Act without technically discriminating against any protected class. HUD, under both the current and previous administrations, seems to agree.

But when HUD makes grants to localities that are actively fighting the construction of modest amounts of rental housing—Cupertino, California, comes to mind—it is not affirmatively furthering fair housing. The 2015 AFFH rule, however, has not led to any change whatsoever in HUD’s grant-making behavior. Cupertino is in good standing and has received a Community Development Block Grant (CDBG) to rebuild some sidewalks.

In the year and a half during which the 2015 AFFH rule was used by HUD, a pattern emerged: Entitlement communities would submit a long document. HUD staff would review and send it back for corrections. The document would grow even longer. When it was finally done, the entitlement community would be qualified to receive funding for the next five years. The documents typically contained analysis of any segregation and demographics as well as some plans to improve policy. There were, however, no teeth, and I am unaware of a single local policy that was changed as a consequence of the rule.

Hamilton and I offer three principles for revision of the AFFH rule:

1. The rule should evaluate enacted policies and market outcomes, not plans.
2. The rule should be easy to administer.
3. The rule should have real teeth.

Following these principles promotes fair housing more effectively and with less wasted effort.

The AFFH rule made lots of work for planners without taking seriously the elected decision makers. HUD should reverse this emphasis. To be in good standing with HUD, jurisdictions should be able to point to market outcomes or enacted policies that are consistent with inclusion and strong property rights.

Second, HUD ought to strive for ease of administration. By all accounts, an extraordinary amount of work went into preparing and evaluating the Fair Housing Assessments required by the AFFH rule. But do not mistake administrative burden for policy rigor. Standing in a long line at the DMV doesn’t make somebody a better driver.

Our final principle is that the AFFH rule ought to have real consequences, at least for egregiously exclusive grantees. How can the secretary of HUD be acting “affirmatively to further fair housing” when he or she approves grants to jurisdictions that have high and rising rent, issue few housing permits, and are unwilling to change policy to allow more housing construction?

There are many ways to put teeth into AFFH. The most obvious is for highly exclusionary jurisdictions to lose access to CDBG funds for a time. CDBG funds are the ideal carrot or stick because they are rarely used for housing. Under existing statute, however, this is difficult and would result in lawsuits. A softer set of teeth would be to require that CDBG funds in highly exclusionary jurisdictions be spent directly on low-income housing.

In our public interest comment, Hamilton and I outline one particular approach for the AFFH rule. But there are many ways to implement our principles. With the help of this committee, HUD can, and should, revise the AFFH rule (1) to focus on enacted policies and market outcomes rather than plans, (2) to ease the costs of administration, and (3) to have real financial consequences.

Attachment

Salim Furth and Emily Hamilton, “Conditioning HUD Grants on Housing Market Outcomes Furthers Fair Housing” (Public Interest Comment)