How the Federal Government Can Help Solve the Housing Crisis

Episode Overview

• The panel explores the appropriate roles for federal, state, and local governments in addressing the housing crisis, concluding that the federal government has a key role in incentivizing local action due to national economic and defense interests.
• Panelists detail the bipartisan "ROAD to Housing Act," highlighting its innovative use of financial "carrots and sticks" to encourage local governments to increase housing supply, a significant shift from previous regulatory approaches.
• The discussion connects restrictive local housing policies to a broader drag on national innovation and progress, arguing that the inability for people to move to productive economic hubs stifles collaboration and growth.
• The conversation touches on the political dynamics of housing reform, noting that the crisis has become a national, middle-class issue, creating a rare bipartisan consensus for federal action.

Key Concepts

• Federalism and Housing Policy: While states hold the primary zoning power, the federal government has a strong interest in local housing supply as it impacts the national tax base, economic agglomeration in key industries (like AI), and even national defense.
• Incentives over Regulation: The "ROAD to Housing Act" marks a strategic shift in federal policy, moving away from mandates and toward using financial inducements to encourage local governments to adopt pro-housing reforms.
• Performance-Based Funding: The act introduces mechanisms like the "Build Now Act," which ties federal community development funds to measurable outcomes, reallocating money from cities that fail to grow their housing supply to those that succeed.
• The Pitfall of Demand Subsidies: In a supply-constrained market, subsidizing demand (e.g., for homebuyers) without increasing supply primarily drives up prices, often harming those who don't qualify for the subsidy.
• Connecting Infrastructure and Land Use: A core principle of the new legislation is to ensure federal infrastructure investments, such as transit projects, are not wasted by local zoning that prevents housing development nearby.
• The Nationalization of the Housing Crisis: The affordability crisis has expanded beyond coastal "superstar" cities to affect the middle class nationwide, creating the broad political pressure necessary for bipartisan federal reform.

Quotes

• At 4:08 - "The ability to recruit labor is, in turn, a function of housing prices. So if you think the AI industry is important for national welfare, for national defense, you also have to be concerned about housing supply in the San Francisco Bay Area." - Chris Elmendorf, arguing that local housing shortages in key economic hubs have become a matter of national interest.
• At 8:24 - "If you subsidize demand without doing anything about the supply problem, you're really going to screw the people who just miss qualifying for the demand subsidy." - Chris Elmendorf, articulating the negative consequences of demand-side subsidies in a supply-constrained housing market.
• At 14:52 - "It's the first federal housing policy, and really the first housing policy anywhere at the state or federal level in the YIMBY era, where a higher level of government has tried to create financial incentives for a lower level of government to produce housing." - Chris Elmendorf explains what makes the Road to Housing Act a groundbreaking piece of legislation.
• At 16:19 - "You have to allow people to use the infrastructure that the federal government is going to fund... it's still in their interest to not blow federal money on projects that no one's allowed to live near or ride." - Alex Armlovich explains the common-sense, taxpayer-protection argument behind the Build More Housing Near Transit Act.
• At 20:13 - "People need to be in physical communities with other people who are working on the same problems. And that's a geometry problem... it's a transportation problem and it's also a housing problem." - Chris Elmendorf connects housing policy to the concept of economic agglomeration, which is essential for innovation and progress.
• At 29:32 - "The material pressure on the middle class has gotten so large that every Congressperson is hearing in every town hall, and so it's just like, that's the part that's novel." - Alex Armlovich explains that the current bipartisan interest in housing reform is driven by the fact that the crisis now acutely affects the middle class across the country.

Takeaways

• Effective federal housing policy should focus on altering local incentives through financial carrots and sticks rather than imposing one-size-fits-all federal mandates.
• Addressing housing shortages in innovation centers is a critical component of national economic and security strategy, not just a local real estate problem.
• To maximize public benefit, major federal investments, particularly in infrastructure like transit, must be legally and financially tied to complementary local land-use reforms that allow for increased housing density.