Making Good Housing Policy: More Do’s And Don’ts

Last month I raised the question “what is the problem with housing and how do we solve it?” and followed with some a “do” and a “don’t” for state and local governments. The answer, I said, is pretty simple: allow more housing. I pointed out that policy today is dominated by the answer “we need more money,” when what’s truly needed is fewer rules and regulations that prevent more housing from being built. Almost all housing policy is made at the state and local level, while many subsidy dollars flow from the federal government. This sets up a dynamic in which local rules and laws slow production and limit supply; the scarcity that follows means higher prices and rents and calls for more federal subsidies. Here’s more don’ts and dos for state and local governments looking to improve housing policy.

Don’t: Unhelpful Measures

Rent Control – Price controls always increase inflation by disincentivizing production. If housing producers can’t increase prices in the face of rising costs, they can’t pay their loans and mortgages. This means investing in housing becomes risky and money will go elsewhere, so this aggravates underlying scarcity. Some units are rent controlled but none are available. Cities with rent control—think New York, San Francisco, or Santa Monica—always top the list of the most expensive cities.

Solution: Preempt local cities from creating rent control. Political pressure can push local city councils to enact rent control measures. The best thing to do is for state governments to remove this as an option and support better ideas like cash for rent.

Read More: “How Rent Control Makes Housing Less Affordable,” by Roger Valdez, FREOPP.org, May 20, 2022.

Allow More Local Tenant/Landlord Laws –Generally, adding more rules and requirements to regulations of contracts between tenants and housing providers is done in the interests of preventing evictions. These onerous rules include: banning credit checks and background checks; paying for eviction legal defense; requiring housing providers to accept payment after an eviction has been filed; requiring housing providers to provide “just cause” for evictions; and limiting deposits and late fees. All of these incrementally increase the risks for providers that can only be offset with higher prices. These interventions are myriad and have surfaced all over the country.

Solution: State governments should simplify rules that correctly govern the contracts that are made between residents and housing providers. Leases are a contract, and when one party doesn’t keep their end of the contract, courts intervene, and if a solution can’t be found will impose one. When local governments change rules, the result can be increased risk for providers of housing and higher prices, the opposite of the desired outcome. Also, a patchwork of rules makes it more complicated for residents and providers. States can smooth out irregularities and risk with simple and uniform regulations at the state level.

Read More: “There Is No “Eviction Epidemic,” Just Bad Data And Poor Reporting,” by Roger Valdez, Forbes.com, March 28, 2019.

Do’s: Some positive proposals

Tax Exemptions for Rent Restricted Housing – In the state of Ohio, the Ohio Community Reinvestment Area program “provides real property tax exemptions for property owners who renovate existing or construct new buildings.” Program could be expanded and modeled on a program in Washington State called the Multifamily Tax Exemption. Developers and housing providers in Washington can get a reduction in property taxes for 12 to 15 years by restricting rents to households making 80 percent of Area Median Income or lower. The program is efficient, producing thousands of rent restricted units and—unlike inclusion mandates—does not boost the cost of other units to subsidize cheaper units or fees.

Proposal: Create efficient and effective incentives for lower rents.

Read More: “Incentives More Effective At Creating Housing Than Mandates,” by Roger Valdez, Forbes.com, September 1, 2022.

Create a Low-Interest Loan Program for Rental Housing – Lead contamination is real problem in many cities across the country. It is a real threat to people’s health, especially young children. Using Ohio as an example again, one group in Cleveland called CLASH has proposed punishing property owners with the demolition of rental housing that doesn’t comply with stronger lead requirements. This is counterproductive as it punishes owners and renters alike. Were this policy to catch on, it would expose many older but more affordable housing units to destruction, reducing housing supply and thus driving up prices. The right approach is to support upgrades and fixes for lead and other problems without passing the costs on to people who need an affordable place to live.

Proposal: A revolving fund that property owners could tap to get low-interest loans to improve rental housing. Condition the use of the funds on keeping rents consistently lower.

Read More: “Too many Fort Worthians live in substandard houses. Here’s how we can help with repairs,” Fort Worth Start-Telegram Editorial, March 28, 2022.

I’ll continue with another post next with more ideas of what to avoid and what to seek when making housing policy. Central to good policy is always recognizing that rules and regulations that add costs in the form of money and time to production lower supply and add costs, each of which ends up getting paid by housing consumers or with more subsidies from taxpayers. It’s always best to start with lowering barriers to production and making subsidies easy and efficient.