Eli Dourado, an economist for the Center for Growth, outlines steps to address America’s housing affordability crisis.
The solution to high housing costs could not be simpler: Build more homes. To address housing affordability, many progressives have advocated subsidized affordable housing programs. These programs may not be adequate to generate sustained cost reductions, and they aren’t necessary. What will work with certainty are the laws of supply and demand. If we increase the supply of housing enough, prices will fall. Any solution to our infrastructure problems will likewise boil down to the need to build infrastructure.
But to build housing and infrastructure, we must sweep aside the regulatory obstacles that stand in the way.
In housing, zoning and related rules are the culprits behind the restricted supply of new homes. Zoning, in theory, is supposed to separate incompatible uses of land — for example, keeping polluting factories separate from housing. In practice, it has an ugly history of promoting racial segregation. In 1910, Baltimore adopted the country’s first explicitly racial zoning law, barring Black residents from moving into predominantly white neighborhoods and, cynically, vice versa. The Baltimore law was copied in cities all over the South until the Supreme Court held that a version in Louisville, Ky., was unconstitutional in 1917. Even after this ruling, explicitly racial zoning codes in some cities tested its limits.
While we would not tolerate open segregationist justifications for zoning today, laws that ban multifamily construction in certain neighborhoods — along with parking minimums and restrictions on lot coverage, setbacks and building heights — continue to perpetuate segregation by income and race. These rules reduce the supply of housing, increasing its cost. Recent research estimates the value of the “zoning tax,” the amount by which zoning rules are artificially raising the cost of land. In our coastal hubs — San Francisco, Los Angeles, Seattle and New York — the zoning tax per quarter-acre of land exceeds twice the city’s median income. In San Francisco, it’s four times the median income.
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