Housing reform should actually add housing

Affordable-only upzonings are a big political struggle for minimal gain

Wes Moore beat a lot of more experienced candidates to become governor of Maryland in 2022, reflecting his very high level of charisma and political skill, but also leaving people a little uncertain as to where he really stood on various issues and his alignment in intra-Dem factional controversies. But I really liked his summer 2023 emphasis on the need for Maryland to grow its economy.

“We have not been intentional,” he said, “and our economy has been lazy.”

I thought that was exciting, because if you look at Maryland without preconceptions or pre-commitments and just try to identify objectively what would grow the economy, I think you very quickly reach the conclusion that land use reform is the key lever. Maryland already has the highest median household income in America. There are, of course, non-housing problems in Maryland, notably in the City of Baltimore. But fundamentally, it’s a rich and pleasant state. For its economy to grow, it literally needs to grow. More homes need to be built, and then more people need to live in those homes — that would be a growing economy.

In February of 2023, Moore installed Jacob Day as housing secretary, who’d previously been the mayor of Salisbury, Maryland, a small city on the Eastern Shore that implemented a bunch of reforms that were designed to (and ultimately did) increase housing supply. And upon confirmation, Day said “supply is needed right now.”

So I was interested to see what a growth-oriented governor with a YIMBY-inclined housing chief would come up with on the housing front. And then on January 9, they paired up to publish a fantastic op-ed in the Capital Gazette that hit a ton of notes that I love. I’m just going to quote a passage from it, because I think it’s really good and offers a fantastic model for how officials should address housing supply issues and regulatory constraints in a way that is neither sectarian nor ideological:

Many Marylanders can’t buy a house in the same neighborhood they grew up in. Working families are burning through cash to make rent, leaving them with less to spend on groceries, medicine and the occasional hard-earned night out. What’s even harder to measure is the opportunity cost of spending so much on housing instead of saving for a down payment, paying for a child’s tutoring or writing a family’s next chapter by starting a small business.

We must address the housing crisis at its source: Withering supply. Since the 2008 Great Recession, our state has not built new homes at an adequate pace to keep up with demand. The result is a staggering housing shortage of approximately 96,000 housing units — and counting.

When demand outpaces supply, prices soar. For renters and homeowners, that means insufferable costs just to keep a roof over your head — and a strain on your bank account that can last a lifetime. Marylanders are cramming into small spaces and paying too much for it. Young adults are moving home after college instead of setting out on their own.

It’s a great op-ed. It’s a great team. It’s a great vision. But I think it’s important to take a close look at what they’ve actually proposed.

The proposal contains three parts. One is mostly about state financing for affordable housing and helps address vacant buildings in Baltimore, which seems good. Another requires jurisdictions to allow manufactured homes in all single-family home zones, and barring changes in federal legislation, that’s the best a state government can do on manufactured housing, which is great.

The third part is a zoning preemption bill, The Housing Expansion and Affordability Act.

And that’s where things get weird. Because as written, I don’t think the HEAA proposal will actually generate very much new housing. Interestingly, that’s not because it’s an excessively timid proposal. It’s actually pretty sweeping in scope, essentially upzoning all parcels that are owned by nonprofits or that are located within one mile of a rail transit station, which is a very broad definition of transit-oriented development. But the practical impact of that sweeping violation of local control is sharply limited by the proposal’s very strict affordability requirements.

So on the one hand you have big changes to zoning. Land that is currently limited to single-family homes will have to allow duplexes and triplexes and land that is currently zoned for multifamily or commercial uses will have to allow for 30 percent taller buildings — but that’s only for projects that include a ton of subsidized units. After this sweeping analysis of the problem and a dramatic-sounding proposed regulatory change, we’re mostly talking about regulatory relief for nonprofit builders or projects that get direct state subsidies. To be clear, this is a good idea and it would be good for the state for it to pass. But it strikes me as odd framing. I appreciate the need for political pragmatism, and the governor’s team is in better position than I am to know what the legislature has appetite for. On its face, though, this is a strikingly sweeping attack on the principle of local control that’s going to be very modest in its practical impact. And I think we should be looking for the opposite kind of idea, changes that sound small but unlock a lot of new construction.

“Affordable” versus plentiful housing

A crucial fact about the housing policy conversation is that “affordable” in this context has a peculiar technical meeting that is a little bit at odds with common sense.

It’s a regulatory category, not a description of the price. Housing will be designated at “affordable” at some specific level, normally either 60 or 80 percent of Area Median Income — 60 percent in the case of this Moore proposal.

That means that the rent is capped at 30 percent of the income of a family that earns 60% of AMI, and also that only families earning less than 60% of AMI are allowed to occupy the home. That’s not a cheap unit (“affordable” in ordinary language terms) it’s a unit the builder loses money on. A big project with a small number of money-losing units can still be profitable due to cross-subsidy from the profits on the other units. But when you pump affordability requirements up to a high level — 25 percent to qualify for Moore’s transit-oriented density bonus and 50 percent for his nonprofit land bonus — you’re talking about losing money on the whole project.

That doesn’t mean the project can’t happen. Maryland, like most states, has a community of dedicated nonprofit affordable housing builders, and this is targeted regulatory relief for their projects. Moore’s proposal also just straightforwardly includes proposals to make more financing available for affordable units.

The orthodox progressive thing to do on housing is to put more money into affordable housing and either do nothing on the regulatory side or else go full everything bagel and attach a bunch of extra regulatory encumbrances to subsidized projects. Relative to that baseline, Moore has come up with the much better idea of pairing additional funding with targeted regulatory relief. That said, even if your only interest is in maximizing the number of “affordable” units you ought to consider the possibility that a lower affordability ratio will actually generate more affordable units. A 25 percent affordable project, in the vast majority of cases, will only get off the ground with a big injection of public funds which will always be in short supply. A 5 percent affordable project might actually get built. So I get the desire to make sure you are doing something that directly benefits the most vulnerable. But a less stringent rule might achieve more here. And it would also unlock more market-rate units, which do improve overall affordability and also grow the state’s economy.

It’s not good to seem more radical than you are

Housing policy has a lot of complicated moving pieces, the governor’s regulatory proposals are helpful, and proposing something along these lines can help smoke out left-NIMBYs and force them to show their cards.

But on this week’s Kojo Nnamdi Show (a major local news sources in the DC area), prominent columnist Tom Sherwood described this as a plan to end single-family zoning statewide. Now personally, I would love to end single-family zoning throughout Maryland and every other state. But I also recognize that dramatic policy changes tend to generate a lot of legislative pushback and, potentially, public opinion backlash. In a state as deep blue as Maryland, I wouldn’t worry about Moore pushing an idea that could generate partisan backlash, and I’d just congratulate him on pushing a visionary reform if he genuinely wanted to go for dramatic change to the state’s housing policy. But the fact is the actual impact of what he’s proposing here would be very small. So why run the risk of backlash with a proposal that sounds dramatic?

Unfortunately, this is a bit of a growing trend, one that exists at the conjunction of affordable housing rules and “—plex” mania.

Washington State, for example, passed a zoning preemption last year that forces small cities to allow up to four housing units on all residentially zoned lots — but one of the units has to be “affordable.” Larger cities must allow up to six units, but two of them have to be “affordable.” To the best of my knowledge, this bill doesn’t provide any regulatory changes in terms of the size of the structure that you are allowed to build or relief from setback requirement. It’s just saying you can subdivide a building in a single-family neighborhood into multiple units — if you agree to lose money on a large fraction of the units.

I hope that this works out well for Washington, but I’m skeptical that it’s going to generate very many units. You’re tempting a lot of political backlash to the idea of new construction without generating the economic benefits of new construction. And you’re risking discrediting the entire YIMBY analysis if people hear about dramatic new laws that then don’t accomplish anything. Elizabeth Warren, interestingly, has been on a bit of a YIMBY kick on Twitter recently, even uttering the phrase “Econ 101” in a positive way in support of the idea that new housing supply is important.

But the actual proposal from Maura Healy that Warren is trying to whip up support for is incredibly modest in the regulatory relief it offers. What Healy wants to do is change the rules so that you can build an accessory dwelling unit that’s smaller than 900 square feet without getting special permission. That’s great, and frankly probably more impactful than Moore’s proposal, but it’s still really narrow.

And it seems to me that if your strategy is to pass narrow reforms, then you ought to describe them that way — there’s nothing wrong with a modest, homeowner-friendly proposal like Healy’s ADU bill. But that’s what it is. Alternatively, if you want to have a big public debate about dramatic solutions to an acute housing crisis, you should propose some measures that would solve it.

Empirical rigor in my backyard

A big question that’s now looming over YIMBYland is what we should say about this kind of proposal.

Dan Reed, the regional policy director for Greater Greater Washington, did a writeup of Moore’s proposal that I don’t think disagrees with mine at all in terms of its policy analytics. But the tone and framing are quite different. Their headline is “Maryland’s governor wants to tackle the state’s housing shortage” and the lede is that “Moore wants housing to be a big priority this year.” They say that GGW wants to see Maryland state government tackle housing production with the same energy that Day’s administration brought to Salisbury and “the administration’s proposal comes pretty close.”

The reality, though, is that it doesn’t come anywhere near close!

As Reed notes, the key move in Salisbury wasn’t even to change zoning at all, it was to cut developer impact fees. Impact fees aren’t necessarily bad if they align incentives and make local government want to approve new housing. But Salisbury (and many other jurisdictions) had fees set at a level high enough that they weren’t generating revenue, they were just impeding new housing. Strict “affordability” requirements are exactly like this. New market-rate housing generates tax revenue, and that revenue can be used to finance spending on subsidized housing or anything else you want. That was Moore’s original analysis of why Maryland needs to aim for more economic growth — he was saying, correctly, that the best way to achieve his progressive aspirations for the state is to have a growing economy. And the best way for Maryland’s economy to grow is to relax the regulations impeding housing creation.

I understand why GGW wants to exude positive vibes on this proposal:

1. Moore’s plan passing is better than it not passing.

2. Day and the other officials fronting for this are good guys who “get it” on housing, and we want to cheer them on.

3. In his rhetoric, Moore has completely embraced YIMBY analysis, which feels good, and it seems churlish to complain about someone who is basically agreeing with you.

4. As a matter of practical politics, GGW may catch more flies with honey than they would be being mean.

With regard to point four, my role in life is often to play bad cop, so I’m happy to say it: I loved Moore’s housing op-ed, and I love his whole bit about economic growth, but his actual proposal does not match his words.

And beyond that, I’m increasingly worried about people confusing themselves. What if there’s someone in Chris Murphy’s office here in DC who reads Greater Greater Washington, gets it into her head that this is a visionary housing reform, and then winds up getting a job with Ned Lamont and pushing something similar as a remedy to Connecticut’s very Maryland-like economic stagnation? Someone, somewhere, needs to be providing people with accurate information about housing reform policy proposals. Which means in part being blunt and a bit rude, like I am in this column, but it also means more investment in rigorous modeling. Neither Maryland nor any other state is going to suddenly eliminate all land use regulations, so it would be nice to know which “half a loaf” ideas will actually generate a lot of housing.

Meanwhile, the governor ought to listen to himself about economic growth versus the “lazy” attitude of the past generation of Maryland policymakers.

The state doesn’t need an affordable housing policy, it needs an economic growth policy. And the key to growth in a state like Maryland is reducing regulatory barriers to the creation of market-rate housing. That doesn't mean you totally ignore political reality, but it does mean that growth has to be your focus and “how many extra units will this generate?” is the question you should be asking. If you’re having some other conversation with social service providers, you’re really still in lazy mode, not answering the big question Moore put on the table. I hope that as the legislature takes this proposal up they will consider adjustments in the direction of “more housing.” Because if you’re not adding housing, it’s not really worth having a big abstract conversation about the sanctity of single-family zoning.