What the Federal Government Can do to Alleviate the Housing Crisis

Many parts of the United States are suffering from severe housing shortages. The main culprits are exclusionary zoning restrictions and other regulations imposed by state and local government. But the federal government could potentially help break down these barriers. So far, unfortunately, Donald Trump and Kamala Harris have mostly offered terrible policies that are more likely to make things worse than better. In a recent New York Times article, Harvard economist Edward Glaeser—one the world’s leading expert on the economics of housing and urban development—offers a proposal for how the feds can do better:

Our next president could do much to unwind America’s housing shortage, which has its roots in regulations enacted by innumerable municipalities. But “not in my backyard” towns won’t start building out of the goodness of their hearts. To unleash enough new building to bring affordability, we need to dust off our history books and remember how this country raised the legal alcohol drinking age. The National Minimum Drinking Age Act of 1984 demanded states raise the minimum age to buy or publicly possess alcohol to 21 — or face a reduction in federal highway funds. The threat of losing such funds is a big stick….

As many observers have already realized, residents have made it particularly difficult to build in the most productive parts of America, such as Silicon Valley, which means that America’s G.D.P. is much lower than it would be if people could move to where the jobs pay the most. Areas with the most upward mobility limit building the most, which makes America more permanently unequal….

The rules that limit building are hyperlocal, and the limits on local government are set by state governments. States have been taking small steps forward in recent years. For example, in 2022 the California State Legislature eliminated the ability of most local governments to require that new building projects build extra parking spaces if they are close to public transportation. The goal should be to nudge state legislatures to reduce the ability of communities to zone out change.

For example, the legislation could establish minimum construction levels over three years for all counties with median housing values above $500,000. States with high-price, low-construction counties would have to figure out how to overrule local zoning codes themselves or lose federal transportation funding.

Glaeser also explains how such a funding condition could meet constitutional requirements:

What about the constitutional challenges facing such a federal law? In South Dakota v. Dole, the Supreme Court ruled 7 to 2 that “indirect encouragement of state action to obtain uniformity in the states’ drinking ages is a valid use of the spending power,” although the court also placed limits on such “indirect encouragement of state action.”

The most important requirement is that the spending requirement must relate “to the federal interest in particular national projects or programs.” To make the case that building new housing is closely related to transportation spending, any federal legislation would need to emphasize that the benefits of transportation are closely linked to the ability to build near that transportation. If you built a train system to an exurb but didn’t allow any building near the new stations, then the value of that system is far lower than if housing surrounded the stop.

I largely agree with Glaeser’s proposal. Indeed, Congress should go further. In addition to tying transportation grants to zoning reform, it should also tie other economic development grants. After all, development is much more effective if more people can “move to opportunity,” thereby becoming more productive. Reducing housing costs would enable millions of people to do just that. This should satisfy the South Dakota v. Dole requirement that the condition must be related to the purpose of the grant.

The same logic applies to education grants. Education spending is more effective if more families with children can move to areas where there are better educational opportunities.

Relatedness is not the only requirement that conditional spending grants must satisfy under Dole and other Supreme Court precedents.  Conditions must also be “unambiguously” stated in the text of the law “so that the States can knowingly decide whether or not to accept those funds.”  Thus, Glaeser’s proposed law would need to make clear what types of zoning are forbidden. I would urge drafters to presumptively forbid most restrictions on the amount and types of housing that property owners are allowed to build. Narrowly drawn restrictions are vulnerable to circumvention. To the objection that such preemption overrides “local control,” I would respond that YIMBYism is the ultimate localism. Letting property owners decide for themselves what can be built on their land is the most local form of control possible!

The Supreme Court also holds that grant conditions must not be so onerous as to become “coercive.” The Court has never precisely defined what counts as coercion in this context. But, in the famous case of NFIB v. Sebelius (2012), Chief Justice John Roberts did indicate there is unconstitutional coercion if the condition is like a “gun to the head.” Glaeser’s ideas and mine fall well short of that. Even in combination, federal transportation, economic development, and education grants don’t impact state budgets nearly as much as the Medicaid funds the federal government threatened to withhold from states that refused conditions imposed by the Affordable Care Act, which amounted to 10% or more of states’ total revenue. Still, Congress would need to be careful to stay on the right side of this admittedly nebulous line. If necessary, it could condition only some education, economic development, and education grants on rolling back zoning restrictions, rather than all of them.

I admit to having some reservations about relying on conditional spending here. In one of my earliest articles, I argued that most conditional spending requirements are unconstitutional under the text and original meaning of the Constitution. But the Supreme Court has decided otherwise, and is highly unlikely to reverse the relevant precedents anytime soon.

Moreover, I do think conditional spending restrictions are a permissible tool when Congress is enforcing the requirements of the Fourteenth Amendment and the Bill of Rights, which the Fourteenth “incorporated” against state governments. And, as I have argued in a more recent article (coauthored with Josh Braver), most exclusionary zoning violates the Takings Clause of the Fifth Amendment. For that reason, the use of spending conditions here is far more defensible than it might be in other contexts.

Conditional spending isn’t the only tool the federal government could use to curb exclusionary zoning. They would also do well to support constitutional litigation against such zoning rules. Federal Justice Department support for such lawsuits would not guarantee success. But it would improve the odds by, among other things, giving the plaintiffs’ arguments some instant additional credibility with courts.

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