Road to Housing Act will exacerbate, not fix, Idaho’s housing crisis | Opinion
The federal government has a fix for the “fix” we have found ourselves in.
The U.S. Senate overwhelmingly passed the 21st Century ROAD to Housing Act. This lengthy piece of legislation is being hailed as a comprehensive fix to housing policy. The bipartisan package seeks to increase housing supply by cutting regulatory red tape and capping corporate competition in the single-family housing market.
Unfortunately, these new rules will just pile on to the old ones. Viewed through the lens of economic history, this legislation is simply doubling down on a broken cycle of intervention.
Economic historian Robert Higgs has demonstrated that government expansion is a cascading chain reaction. An initial government intervention creates unintended consequences and economic distortions. Rather than repealing the original policy, lawmakers view these distortions as a “crisis” that demands action. The new “Housing Act” is a direct, predictable reaction to a crisis manufactured by decades of previous government meddling in the housing market.
Because the federal government cannot easily strike down local zoning laws, it introduces a new layer of bureaucracy: federal “carrots” and grant programs to incentivize cities to undo the damage of their own regulations. Higgs would point out that the state is spending taxpayer money to create a workaround for obstacles the state itself erected.
First, the restriction on institutional investors in the new bill is a direct consequence of the state creating a hyper-financialized secondary mortgage market. For decades, the federal government has heavily intervened in housing finance through government-sponsored enterprises, primarily Fannie Mae and Freddie Mac.
The government granted these entities special charters, lines of credit with the U.S. Treasury and an implicit (later explicit) taxpayer backup. This allowed Fannie and Freddie to buy mortgages from local banks, bundle them into new financial securities and sell them with a guarantee against default.
In the absence of such government interventions, that is, a free market, lenders would price mortgages based on the true risk of the borrower and the property. Federal backing eliminated the need for risk management, creating market distortions. By stripping away the risk of default from the private sector and shifting it to the taxpayer, the federal government made housing an artificially safe, highly liquid and heavily subsidized investment vehicle.
It’s no surprise investors are attracted to this market. Private equity firms didn’t enter the single-family rental market by accident; they stepped into a financial architecture built and subsidized by federal housing policy.
Second, decades of government interventions that include exclusionary zoning laws, minimum lot sizes and urban growth boundaries, have made it legally impossible or prohibitively expensive to build dense, affordable housing. The resulting housing shortage and higher home prices keeps many buyers locked out of the market.
Members of Congress can go home now and claim they did something about the so-called housing crisis. But housing, by definition, is a local market. Rather than demanding the removal of these local barriers, the federal government is introducing a new layer of bureaucracy. They are trying federal “carrots” and grant programs to incentivize cities to undo the damage of their own regulations.
Higgs observed that once the government intervenes, the market’s natural pricing mechanisms are warped. When the public demands a fix for the resulting chaos, the state almost never says, “Our bad, let’s step back.” Instead, it says, “The market has failed; we need a new law.”
We’ll find a way out of the fix we’re in when we stop asking politicians to fix it for us.
Peter Crabb is a professor of economics and the director of the Center for the Study of Market Alternatives at Northwest Nazarene University in Nampa.