Vice President Kamala Harris made a bold campaign promise: If elected president, she would get 3 million new homes built.
It was too late. The rapid rise in rent and home prices contributed to Americans’ discontent and to her defeat. But the promise to build homes will be carried forward nonetheless by a host of legislators in both parties who won reelection in part by promising to address rents and home prices.
The last four years slammed homebuyers and renters with a three-punch sequence of supply shocks, demand shocks and interest-rate shocks, leaving them reeling.
First, pandemic supply-chain disruptions slowed production, leaving fewer purchase options and higher prices.
Next, stimulus checks, higher demand for space at home, and loose monetary policy sent more money in pursuit of the relatively few available homes, putting more upward pressure on prices.
Finally, when interest rates shot up as the Fed fought inflation, homeowners with historically low mortgage rates avoided selling their homes, leaving few homes for sale and many prospective buyers empty-handed.
Economists believed Harris’ proposals — such as a large subsidy for first-time homebuyers — would leave us well short of 3 million new homes. In truth, federal policymaking moves too slowly to deliver large-scale construction in just four years.
Nor is Washington the most important capital when it comes to housing policy.
More significant decisions about housing are made in city halls and statehouses from Sacramento to Augusta. And more than ever — far 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 fielded twice as many requests from state legislators for briefings on housing policy as in any previous year.
Thankfully, we are able to point them to innovative solutions that Republicans and Democrats in other states have pioneered. Many have proved willing to set aside their own orthodoxies. Rhode Island Democrats cracked down on unrealistic, unfunded affordability mandates. Florida Republicans offered deep tax subsidies to get workforce housing built and legalized multifamily housing in commercial zones statewide.
As Angelenos know, California was the first to experience high prices and search for legislative solutions. Leaders in other states have taken cues from Sacramento — but some have also found bolder solutions. Now, California’s Legislature, which has been timid as often as innovative, can borrow some ideas from elsewhere.
It takes four “Ls” to build a house: land, lumber, labor and loans. For good reason, reformers have paid the most attention to land, the price of which varies most and which is the most onerously regulated. When vacant, buildable lots cost $400,000 and up, as they do in suburban Massachusetts, the potential cost relief from allowing more homes to be built on an acre can be vastly larger than from any other source.
Relaxing density rules and opening more land to residential development have thus been central to states’ housing strategies. Along with Florida, the legislatures of 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 collect below-market rents.
Lately, increases in materials prices, wages and interest rates have brought more attention to the other three Ls. To reduce construction costs, Maryland and New Hampshire now require local governments to allow manufactured homes wherever stick-built houses are allowed. North Carolina has shifted three- and four-family homes to the lower-cost International Residential Code, freeing them from requirements intended for much larger buildings.
A primary way to reduce salary and loan costs is to cut down on delays. States have found many ways to do this, including removing 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 building plans as an alternative to waiting out the backlog at city halls.
The most egregious delays often come from frivolous lawsuits — as Californians know all too well. Wisconsin tightened up its criteria for legal complaints about development. Washington exempted residential projects within specified urban growth areas from review under its State Environmental Policy Act.
Based on my conversations with representatives, delegates, assembly members and senators from across the country, all of these policies, and others, will be given serious consideration in many more states in the 2025 legislative sessions. Those who had previously considered housing policy a purely local issue are now promising to tackle housing costs.
With willing leaders and a well-developed policy agenda, look for 2025 to be a banner year in housing policy.
Salim Furth is a senior research fellow and director of the urbanity project at the Mercatus Center at George Mason University.