Vice President Kamala Harris made a bold campaign promise: If elected president, she would build 3 million new homes.
It was too late. The rapid rise in rent and housing prices contributed to Americans' discontent and defeat. But the promise to build housing will be fulfilled anyway by a series of lawmakers from both parties who won re-election in part by promising to address rents and home prices.
The last four years hit buyers and renters with a sequence of three blows: supply shocks, demand shocks and interest rate shocks, leaving them reeling.
First, supply chain disruptions from the pandemic slowed production, leaving fewer purchasing options and higher prices.
Then, stimulus checks, increased demand for home space, and loose monetary policy sent more money chasing the relatively few available homes, putting more upward pressure on prices.
Finally, when interest rates soared while the Federal Reserve battled inflation, homeowners with historically low mortgage rates avoided selling their homes, leaving few homes for sale and many potential buyers empty-handed.
Economists believed Harris' proposals (like a big subsidy for first-time homebuyers) would leave us well short of 3 million new homes. Indeed, federal policymaking is moving too slowly to achieve large-scale construction in just four years.
Washington is also not the most important capital when it comes to housing policy.
The biggest housing decisions are made in city councils and statehouses from Sacramento to Augusta. And more than ever (much more than two or four years ago) governors and mayors are determined to address this crisis with the tools at their disposal. So far in 2024, my Mercatus Center colleagues and I have received twice as many requests from state legislators for housing policy briefings as in any previous year.
Fortunately, we can point them to innovative solutions that Republicans and Democrats in other states have pioneered. Many have shown themselves willing to put aside their own orthodoxies. Rhode Island Democrats cracked down on unrealistic and underfunded affordability mandates. Florida Republicans offered significant tax subsidies to build workforce housing and legalized multifamily housing in commercial zones across the state.
As Angelenos know, California was the first to experience high prices and seek legislative solutions. Leaders in other states have followed Sacramento's lead, but some have also found bolder solutions. Now, the California Legislature, which has been as timid as it has been innovative, can borrow some ideas from elsewhere.
It takes four “Ls” to build a house: land, lumber, labor, and loans. Not in vain, reformers have paid greater attention to land, whose price varies the most and is the most regulated. When vacant buildable lots cost $400,000 and more, as they do in suburban Massachusetts, the potential cost relief from allowing more homes to be built on an acre can be far greater than from any other source.
Therefore, relaxing density rules and opening up more land for residential development has been critical to states' housing strategies. Along with Florida, legislatures in Arizona, California, Hawaii, Maryland, Montana, Oregon and Rhode Island have allowed residences in commercial zones under some conditions. Some of these reforms have underperformed, including California's AB 2011, which is hampered by unrealistic mandates to pay above-market wages and charge below-market rents.
Lately, increases in material prices, wages, and interest rates have drawn more attention to the other three Ls. To reduce construction costs, Maryland and New Hampshire now require local governments to allow manufactured housing wherever stick-built houses are allowed. North Carolina has moved three- and four-family homes into the lower-cost International Residential Code, freeing them from requirements intended for much larger buildings.
A primary way to reduce salary and credit costs is to reduce delays. States have found many ways to do this, including eliminating public meeting requirements for simple projects and requiring that local design criteria be “specific and objective.” Tennessee recently joined D.C., New Jersey, Texas and a host of local governments in allowing a developer to hire a qualified third party to review construction plans as an alternative to waiting for city halls' backlog to clear.
The most egregious delays often come from frivolous lawsuits. as Californians know very well. Wisconsin tightened its criteria for legal complaints about development. Washington exempted residential projects within specific urban growth areas from review under its State Environmental Policy Act.
Based on my conversations with representatives, delegates, assembly members, and senators across the country, all of these policies, and others, will be seriously considered in many more states in the 2025 legislative sessions. Those who once considered housing policy a purely local issue now They promise to address housing costs.
With willing leaders and a well-developed policy agenda, 2025 is expected to be a banner year in housing policy.
Salim Furth is a senior fellow and director of the urbanity project at the Mercatus Center at George Mason University.
