How HUD Can Help the Housing Market

The Department of Housing and Urban Development announced Monday its intention to increase fair-housing opportunity by streamlining and enhancing the Obama-era Affirmatively Furthering Fair Housing rule. This newspaper reported HUD Secretary

Ben Carson

“plans to focus on restrictive zoning codes,” as these have “limited home construction, thus driving up prices and making it more difficult for low-income families to afford homes.”

But the federal government has limited control over state and local land-use policy. So what should HUD do to increase supply? Condition federal dollars on state and local policy changes. Start with zoning. Give back to property owners the right to build at higher densities. Create higher-density single-family and multifamily zoning where infrastructure is already in place. Add density bonuses for building near jobs. Replace static density requirements with equalized ones that take into account unit size. Thus if a 1,500-square-foot home is the maximum unit size that may be built at nine units an acre zoning density, a developer proposing to build 600-square-foot units would have a right to build 22 units an acre.

How about reducing development costs? Start with streamlining permitting processes and timelines. Eliminate or reduce off-street parking requirements. Offer property tax abatements, tax-increment financing and other incentives for building economically near service and line-production jobs without the use of housing subsidies. Adjust upfront impact fees—charges in addition to property taxes for schools, parks, roads, sewers, water and police. Provide for code variance with waiver and modification procedures based on “good enough” and “substantial equivalence” standards. Allow an expedited appeal process for relief from code requirements.

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As important, in administering HUD Mr. Carson has a statutory obligation to “further the policies” of the Fair Housing Act of 1968. That includes addressing the inflationary and pro-cyclical role federal credit easing has played during the current six-year housing price boom. When the inevitable reversion of real house prices to their trend growth path occurs, low-income and minority home buyers will again be subjected to more volatility, greater loss of equity, and higher rates of loan default.

Research by the American Enterprise Institute found that the prices for the bottom quartile of home sales—largely composed of entry-level buyers—were up 41% over five years, compared with 27% for the top half of home sales by price. We also found that house prices increased faster in census tracts with more risky mortgages.

While HUD should condition federal grant dollars on incentives created by state and local governments to increase supply, this will take many years to achieve the desired impact. In the meantime HUD should take immediate steps to slow the unsustainable home price boom that is being fueled by excessive leverage, almost all of which is provided by the Federal Housing Administration, or by

Fannie Mae


Freddie Mac

competing with the FHA.

There’s plenty for Mr. Carson to do, and no time to waste.

Mr. Pinto is a co-director of the American Enterprise Institute’s Center on Housing Markets and Finance.


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