Hearing: Housing Supply and Innovation
Tuesday, September 12, 2023

Submitted by the Niskanen Center

Chairwoman Smith, Ranking Member Lummis, and Members of the Committee, thank you for holding this critical hearing to assess housing supply and how to mitigate America’s housing shortage.

Today’s housing crisis comes in two distinct but related forms: low incomes on the demand side and high housing costs on the supply side. The former is an old problem. Americans in vulnerable circumstances with low or no market incomes have always struggled to afford market-rate housing, and only income and work support or housing subsidies can fix that. The latter supply-side problem of high housing costs is new and spreading.

The new supply problem began in the big East and West Coast cities with the post-war imposition of tight urban growth controls that cap homebuilding through zoning and other land use regulations. High and rising housing costs have since spread beyond the old “Not In My Back Yard” hotspots like New York, Boston, and San Francisco to metro areas nationwide. As more and more cities gradually run out of room for new single-family homes within an hour’s commute, this widening crisis has brought our country’s regulatory bans on denser starter homes, townhouses, and apartments to a head as the leading constraint on supply and affordability.

This supply-side problem is especially concerning because demand-side income supports and housing subsidies alone cannot remedy it. Like a zero-sum game of musical chairs, even an unlimited housing subsidy cannot enable 100 families to afford 90 homes. Unless the supply of homes is allowed to increase, someone will always be outbid. To mitigate this national crisis, we must discard the self-imposed growth control regulations that restrict housing supply. 

Though most direct regulation of land use happens at the state and local level, the federal government has powerful policy tools to help. Congress, in particular, can help address the housing crisis on the supply side with a mix of financial incentives, direct regulation or regulatory relief, and oversight of administrative rulemaking. On the demand side, Congress can appropriate income supports or housing subsidies to support households in need directly. Though the Niskanen Center has wide-ranging research on improving and expanding income support from the child tax credit to Supplemental Security Income reform and beyond, this statement is restrained to the immediately actionable recommendations on the supply side of housing for this hearing.

Federal Financial Incentive Options

  • “Race to the Top” funding for state and local reform
  • U.S. Departments of Housing and Urban Development, and Transportation discretionary grant criteria incentives for state and local reform

Congress’s spending power allows it to influence downstream policies. To encourage homebuilding, Congress should develop a “race to the top” style program to reward communities for making reforms that boost housing supply, including zoning and permitting reform. This year’s new variant of HUD’s Community Development Block Grant (CDBG), called “CDBG-Pro” for pro-housing jurisdictions, was a wise first step by Congress. To build on this, Congress should explore a larger future version of this pilot to shift the emphasis from the present focus on funding for planning inputs towards a heavier emphasis on permitting outcomes.

Within federal agency rulemaking, Congress can direct HUD and DOT to amend their discretionary grant criteria to reward communities that allow more housing within their borders. At HUD, Congress can amend existing programs like CDBG and others to prioritize, among state and local government applicants, those with supportive land use policies. At DOT, Congress can expand and make permanent recent agency actions to score discretionary transit capital grants to favor projects with pro-housing land use reforms near stations and terminals. These changes will ensure federal dollars will work toward building more housing while also ensuring grants for infrastructure like public transit are highly utilized.

Regulatory Policy and Administrative Rulemaking Oversight

  • Lift the HUD Code chassis requirement, allowing HUD to offer a “modular housing” code
  • Facilitate federal land disposition for housing
  • Add the YIMBY Act’s supply checklist to HUD’s Affirmatively Furthering Fair Housing rule

The most straightforward way Congress can influence the housing supply is through the national HUD Code that governs manufactured homes. Formerly called “mobile homes,” these manufactured homes are factory-built to HUD’s specifications for quality and resiliency. Congress rightly delegated the details to HUD rulemaking except for one key aspect: these homes must remain on a permanent “trailer” chassis under the home even after permanent installation. Today, when a factory-built home is removed from the chassis, it is called a “modular home” and must follow fragmented state or local codes instead of the national HUD code. Congress could remove this requirement to allow HUD to write a “modular” code option that covers factory-built units without a chassis. This would provide builders and consumers more design flexibility and lower costs, eliminating one outdated element local governments use to exclude these homes from single-family zoning districts.

Allowing consumers more choices of factory-built housing options will lower costs for infill and replacement homes in rural areas, urban areas with modest land prices, and anywhere else where construction costs are a more significant barrier than land costs to housing affordability.

Congress can directly impact homebuilding in areas where the federal government owns or otherwise controls large tracts of land. A thoughtful mechanism for turning over federal land adjacent to metropolitan areas could provide relief for communities least able to build their way out of their housing supply problem. Like Congress’ spending power, land grants to states and local governments for homebuilding hold an opportunity for encouraging broader land use reforms in the communities that receive the land grants. The HOUSES Act from last term follows this general framework but does not require more overall pro-housing policy changes from communities beyond the land being transferred.

Finally, Congress granted HUD substantial obligations and powers to affirmatively further fair housing (AFFH) through rulemaking under the Fair Housing Act. The AFFH rule is constitutionally usable for much broader growth control deregulation than has been attempted. Though Congress should understand that it does have the constitutional power to modify local growth control policies directly, the potential contentiousness of broad and direct federal preemption of local zoning could set back the cause of zoning reform. It should be a last resort to which this Congress need not yet turn. The consequences of the housing crisis are severe and of national concern, but state-level reform has only recently begun and Congress has not yet exhausted the broadly popular actions available to support those state-level reforms. Instead of broadening direct zoning preemption through AFFH, Congress should consider instructing HUD to add the YIMBY Act’s bipartisan supply-side policy checklist to the Assessment of Fair Housing tool for local governments. This would clarify the supply-side aspects of furthering fair housing at the local level through bipartisan zoning deregulation without  unleashing  unintended consequences.

Respectfully submitted on behalf of the Niskanen Center,

Alex Armlovich, Senior Housing Policy Analyst

Andrew Justus, Housing Policy Analyst