Obama Fair Housing Rules Open Door to Unintended Consequences

By Salim Furth, Ph.D. Research Fellow, Macroeconomics at the Heritage Foundation

The Obama administration is pulling on both ends of the rope in the tug of war over housing regulation. Heritage Foundation calculations found that the typical American household spends an extra $1,700 a year due to land use regulation. Households on both coasts pay much more.

Joining Heritage on one end of the tug of war, the administration released a “Housing Development Toolkit” that offers suggestions for allowing faster, cheaper housing development.

Many of those suggestions come straight from the conservative playbook of cutting red tape and expanding economic freedom. The toolkit’s first, and best, suggestion is to establish “by right” development, which restores appropriate economic rights to property owners.

But on the other end of the rope, the same administration is pulling for more regulations and added layers of bureaucracy in its Affirmatively Furthering Fair Housing, or AFFH, requirements.

Effectively, these fair housing rules attach strings to federal grants to local communities. Beyond merely guaranteeing that the funds are used for their intended purpose, the requirements open up small communities to lawsuits or loss of local control if federal bureaucrats decide newly approved developments do not meet diversity goals.

A few localities have opted out of federal funding to avoid the requirements imposed by the Affirmatively Furthering Fair Housing program. For suburban decision makers who don’t opt out, the equilibrium result is clear: Err on the side of caution.

If local planning officials allow substantial development, it may be reviewed by federal bureaucrats and found lacking. They could end up losing their local authority, being sued, or branded racist in the press.

If, however, local officials regulate development even more strictly, they’ll have fewer chances to be sued. And although Affirmatively Furthering Fair Housing is too new to know exactly how it will play out, the expansion of federal authority likely will put a damper on new building.

As with most regulations, land use restrictions implicitly favor the status quo. That’s why, despite heavy-handed policies in favor of “affordable housing,” progressive New York and San Francisco are so expensive even as lightly regulated, fast-growing Houston is so affordable.

When property owners retain their natural right to build and sell, the result is efficient land use, with housing supply that organically meets demand.

Even economists inside the Obama administration realize that Affirmatively Furthering Fair Housing, its flagship action on land use, is on the wrong end of the tug of war.

The proof? The Housing Development Toolkit never mentions it once.

*Originally published in the Daily Signal, click here.

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