Taking a cue from one of the main themes of the week — “We’re not going back” — the former president noted that the nation needs “to chart a new way forward to meet the challenges of today.”
For example, he noted, “if we want to make it easier for young people to buy a home, we need to build more units and clear away some of the outdated laws and regulations that have made it harder to build homes for working people in this country.”
For us veterans of the land-use reform movement, it was a thrilling moment. Not that these ideas are brand new to Obama. His administration embraced the basic analytic viewpoint of YIMBYism during his second term, most clearly in its 2016 Housing Supply Toolkit but also in various budget requests and remarks by administration officials over the years. President Joe Biden’s administration has similarly been officially YIMBY in a low-key way.
What we never got from either president, however, was the kind of high-profile endorsement that Obama delivered last week. Under the circumstances, it would be extremely churlish to offer any reaction other than a simple, “Thank you.”
And yet here I am.
While tackling regulatory barriers to housing construction in high-demand areas is absolutely an important long-term issue for the U.S. economy, in the short term federal policymakers have more powerful tools.
For better or worse, the U.S. is currently building dense housing at the highest rate since the mid-1980s. It’s true that anti-density rules are still too strict, and that rolling them back would have large economic benefits. But restrictions on apartments don’t explain very much about why housing-cost pressures are so much more severe today than they were a decade ago. What’s happened instead is that construction of single-family homes is running at a dramatically slower rate than in the 1990s, to say nothing of the aughts.
In 2010 or 2014, nobody found the low rate of housebuilding remarkable. There had just been an enormous housing market crash, after all, and homebuilding was recovering from a low level. But the slow recovery has basically plateaued since the pandemic, even though demand keeps rising. What gives?
Some analysts, such as Kevin Erdmann at the Mercatus Center, point the finger at Fannie Mae and Freddie Mac noting that tighter lending standards adopted after the financial crisis mean that mortgage lending to lower-income families has dried up.
Without any eligible purchasers of cheap starter homes, it doesn’t really make sense to build them. Despite the hype around private equity funds investing in single-family homes as rental properties, single-family rentals are a very small and unproven business. The majority of investment in purpose-built rental housing is multifamily apartments, just as it’s always been.
Investment in this sector is in fact up in response to the rise in demand, but it is running into the regulatory constraints Obama is talking about. Lifting these constraints is important and useful, but a series of state-by-state, city-by-city, zoning-board-by-zoning-board battles is a generational struggle — it’s not a quick fix for suffering families. Mortgage lending standards, by contrast, are set nationally by the Federal Housing Finance Agency (and to an extent the Consumer Financial Protection Bureau) and could simply be made more lax.
Would this be courting another financial catastrophe?
I’m skeptical. For starters, the rules can be altered without going all the way back to the “liar loans” of yesteryear — there’s such a thing as an overreaction to a real problem. More to the point, trying to avoid financial crises at that end of the funnel is just a slightly odd idea. The federal government regulates the overall riskiness of banks’ loan portfolios with regulations on stuff like capital and liquidity. The recent trend at the Federal Reserve has been toward weakening these rules in pursuit of economic growth. It would make more sense to be lax on mortgage lending and strict on bank capital, letting investors risk their money on loans if that’s what they want to do.
There is also the construction market, which is significantly influenced by the interest-rate environment. Democrats are aware of this when they talk about their hope that the Fed will cut rates this fall. But they are less aware that the capacity of long-term rates to fall — unless unemployment surges — is limited by the size of the budget deficit.
Fiscal discipline and bank deregulation was the housing-policy formula of another former Democratic president who spoke last week: Bill Clinton. But ever since the financial crisis, he hasn’t liked to talk about it so much — even though, as housing policy, it worked pretty well.
America’s current home dearth is a reminder that every choice in life comes with trade-offs. There are downsides to getting too lax with mortgage origination rules, and downsides to getting too strict. And over time, the US does really need to address zoning and other land-use practices that block apartment construction from too many communities.
But America suffers from a housing shortage right now, and if Democrats want to fulfill Kamala Harris’ pledge to end it, then they will need some powerful, fast-acting tools. That means making use of the federal government’s vast power over home financing instead of its limited influence over local building regulations.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management. ©2024 Bloomberg L.P. Distributed by Tribune Content Agency, LLC.
