Like other states, Rhode Island has a housing problem.

Like many other states, Rhode Island has a housing problem. According to Zillow, the typical home value in the state is $418,708—a 34% increase since the summer of 2020. A new proposal would empower the state to build subsidized public housing to get more affordable units on the market. Though well-meaning, this plan does not address the restrictive land-use regulations that are the root cause of high housing prices.

A couple of Rhode Island House bills would create a $50 million revolving fund financed by 20-year government bonds and a land bank of government-owned land, both of which could be used by local housing authorities to build and operate multifamily housing units. At least 20% of the units must be affordable for households earning 50% or less of the area median income, and another 10% must be affordable for households earning 80% or less of the area median income. The remaining units could be rented at the market rate, and some of that revenue would be used to subsidize the more affordable units.

Several local housing authorities and labor unions support the proposals, arguing that the private sector is unable to meet Rhode Island’s housing needs. To the extent this is true, it is because Rhode Island, like many other states, makes it extremely difficult to build housing. According to the Cato Institute’s Freedom in the 50 States, Rhode Island ranks 42^nd in land-use regulation and has been consistently bad in this category for the last 20 years.

Places with fewer land-use regulations and more flexible zoning have lower housing prices and slower rent growth. Land-use regulations such as density restrictions, height restrictions, minimum lot sizes, parking requirements, and complicated set-back rules prevent developers from building more housing, especially more affordable housing.

Restrictive land-use regulations also obstruct the filtering process. In a properly functioning housing market, expensive housing units depreciate over time and become more affordable as newer units are built. Higher-income families move into the newer, more expensive units, making their older units available for lower- and middle-income families. Several studies show that the filtering process works so long as governments allow new housing to be built.

Rhode Island should liberalize its zoning and land-use regulations to encourage construction of more privately funded housing before it uses taxpayer dollars to subsidize publicly-owned housing. The Mercatus Center at George Mason University has compiled a list of sensible housing reforms, including land-use, finance, and construction reforms, that make housing cheaper and easier to build.

If some public support is still needed after these reforms, there are better ways to provide it than using market-rate units to subsidize more affordable units. This cross-subsidy method only works in places where market prices are already high and expected to stay high. If market rates are reasonable (i.e., close to the cost of construction) there is no excess money to subsidize other units. So cross-subsidy schemes require high market prices since those higher prices are needed to continually offset the cost of the subsidized units.

If governments are going to subsidize housing, they should give the money directly to people. Building subsidized units in particular places traps lower-income families in certain areas. If job opportunities or other economic changes occur, families in the subsidized units may not be able to take advantage of them because they are trapped in the neighborhoods where the subsidized housing exists. Vouchers or cash benefits that lower-income families can take with them when they move provide much-needed flexibility.

This is how governments provide other benefits. In the Supplemental Nutrition Assistance Program (SNAP or food stamps) the government does not produce its own food or run its own grocery stores to augment the diets of lower-income people. It lets the private sector produce and distribute the food and provides the subsidy directly to people to help them purchase it. This allows people to choose the food options that work best for them instead of forcing them to buy certain government-produced foods at special government-owned and operated stores, which would drastically limit their options.

Rhode Island’s lawmakers are rightfully concerned about their state’s housing supply, but the solution is not to get the government more involved. Land-use and other reforms that make it easier and cheaper to build more housing would help keep prices in check without requiring a dime from taxpayers. And if some government assistance is still needed, giving the money directly to families provides them with more flexibility and options. Housing reform is important, and Rhode Island should take the time to get it right.