US president Joe Biden wants to close a 15-year housing shortage in just five years.
The US housing affordability crisis has only gotten worse with pandemic-era supply chain issues, despite generous welfare and federal housing assistance. As fewer homes are on the market and more people own homes, around 50% of Americans told Pew Research that housing affordability was a major problem where they lived, up 10 percentage points from an early 2018 survey.
New construction on private-owned housing is the highest it’s been since 2006, but it may also decline in the next year with rising mortgage interest rates. When housing demand dries up, the second best option for incentivizing more building is to deregulate construction.
The crisis is an issue that states and private developers have been tackling for some time. In August 2021, California became the first state to pass a bill allowing two-unit buildings to be built on lots that had been previously zoned for single-family homes. This law encourages builders to construct more units, bringing down home prices across the board by increasing housing supply.
After centrists in Congress killed his Build Back Better bill aimed at addressing housing affordability, Biden is now finding ways to fix the problem without the legislature’s help. He’s proposing expanding federal financing for affordable housing and to offer more grants from the Department of Transportation (DOT) to localities that pass denser zoning laws. He also wants more housing that’s made up of manufactured parts instead of being built onsite.
Policy experts are excited to see the federal government finally do something about this, but federal agencies acting alone is not going to fix the problem.
Housing is expensive because local governments stop new construction
The NAHB estimates that the US is short about 1 million residencies—and this is on the low end. The National Low Income Housing Coalition, for instance, estimates that the true shortage is more like 7 million.
Either way, there’s not enough affordable housing in the US, which is increasing homelessness and causing people to live with their parents.
This is largely due to local governments making construction more difficult—something that began over a century ago and persists today. Zoning laws are a set of rules created at the municipal or local level that govern what can be built in a certain geographic area, and research in recent years has shown that it creates more ills than benefits. Ideally, the laws would be used to protect the health and wellness of the community—like preventing a sewage treatment plant from being built near houses—but they have often been used to enforce racist housing segregation and push home prices up further by limiting supply.
Biden’s plan tries to counteract these laws’ chilling effect on construction by incentivizing better land use with federal funds. Earlier this year, Biden’s DOT awarded three grants worth a total of $6 billion to localities that promoted density with better land-use policies.
While Biden is not the first president to propose this kind of incentive, his plan would allocate the largest amount of federal funds to encourage denser zoning.
The denser housing not only fits more homes into the same space, but by pairing transportation funding with affordable housing requirements, the government ensures that the new transit lines would be built for the people who would most use them, said Yonah Freemark, a researcher at the Urban Institute, a DC think tank.
However, the communities that are most resistant to denser zoning laws are richer and might not care about getting more federal funds in the first place, Freemark added. Freemark says it would be better if the government prevented cut off federal funds to communities that don’t have good land-use policies. But others, like urban economist Jenny Schuetz, say the carrot approach is likely to reach a decent number of local governments looking to complete larger transportation projects.
No longer discriminating against manufactured homes
Another more exciting part of Biden’s plan would increase US manufacturing and affordable housing at the same time.
Americans often think manufactured homes—which are built off site and then placed on the land—are just mobile homes. Local governments ban them while the federal government limits financing for them.
In fact, manufactured homes are much more sophisticated than they used to be and offer many of the same features as homes built on site. While many local jurisdictions treat them like trailer homes and subject them to onerous regulations, most manufactured homes now have a foundation and aren’t meant to be moved more than once.
Manufactured homes are often half the price per square foot of homes that were built onsite. This makes them viable units for lower-income Americans based on the purchase price, but the financing is often times more expensive for manufactured homes.
People who purchase a manufactured home often can’t get a conventional mortgage to purchase one because in theory the homes are mobile.
“The most promising [policy] is using Fannie and Freddie to create mortgage products for types of housings that aren’t particularly well covered with existing loans,” said Schuetz, the urban economist. Right now a lot of the loans offered for manufactured housing have looked more like car loans, which are more expensive than mortgages, she added.