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Biden’s plan to tie federal transportation spending to zoning reform could worsen housing shortage

President Joe Biden has a new idea to reduce regulatory barriers to building new homes. The White House’s sweeping new housing supply action plan contains a proposal to tie federal transportation subsidies to state and local governments reforming their zoning codes.

Proponents of this approach argue that the huge sums of money authorities spend on transportation gives them useful leverage over the most overregulated jurisdictions. Conditioning that money on removing barriers to new housing could cause exclusive communities, or their respective state governments, to start cutting red tape if they want to fund new roads, bridges or bike paths.

But critics argue that even in its best shape, getting transportation bureaucrats into the weeds of local land-use policy is an excess of federal power.

The details released by the White House so far suggest that they are not embracing the best form of this idea. In fact, Biden could end up encouraging counterproductive housing reform that will likely increase costs and reduce supply.

The Biden administration’s housing supply action plan, which was released on Monday, certainly strikes the right notes on zoning reform when it says that “exclusive land use and zoning policies limit land use, artificially inflate prices, perpetuate historical patterns of segregation, keep workers in lower conditions”. productivity regions and limit economic growth.

To solve the problem, he offers a bag of policies; from easing federal regulations on manufactured homes to streamlining applications for federal affordable housing funds.

It includes a plan to use discretionary transportation subsidy programs funded by the Infrastructure Investment and Jobs Act of 2021 (IIJA) – at a cost of $1.2 trillion – to encourage “land use reform, density, revitalization of rural main streets and transit-oriented development”.

The IIJA provides $150 billion in funding for discretionary grant programs. Starting this year, the White House says the Department of Transportation (DOT) has issued three notices of available funding, totaling $6 billion in grants, that have policies promoting “density and revitalization of rural main streets.” .

Salim Furth, an economist at George Mason University’s Mercatus Center, says it makes “big picture sense” to tie local land-use policy more closely to federal transportation spending.

“You shouldn’t build infrastructure where people aren’t or where [housing] densification cannot follow [transit] investment if you add a lot of capacity,” says Furth Reason.

But he warns that trying to encourage land-use reform through discretionary grant programs — which give the administration wide latitude to set grant terms and decide who will ultimately receive the money — opens the door to many counterproductive political manipulations.

“When it’s a Democratic administration, they’re going to look for Democrat-friendly policies, even when they don’t have a big impact on housing production,” he says. “You might get points for having a strong inclusive zoning ordinance even if it ends up backfiring and creating less housing than a Texas suburb that’s really generous in zoning for multi-family housing.”

Inclusive zoning refers to policies that require or incentivize developers to offer some of the new units they build at below-market rates to low-income tenants or buyers. Nearly a thousand jurisdictions nationwide have some form of inclusionary zoning.

The policy has a poor track record in creating new affordable housing. Research increasingly finds that forcing developers to build units below market price acts like a tax on new housing, which either raises prices or lowers housing prices. new offer. There is an ongoing lawsuit in Pittsburgh, Pennsylvania, arguing that the entire plan is unconstitutional.

And inclusive zoning appears to be precisely the kind of thing the Biden administration’s changes to discretionary transportation subsidy programs are encouraging.

According to a DOT spokesperson, the administration has so far used three “funding opportunity notices” that include language promoting density and land use reform.

This includes a grant solicitation issued in January for $2.2 billion in Rebuilding American Infrastructure with Sustainability and Equity (RAISE) grants. These grants can fund projects ranging from dedicated bus lanes and harbor improvements to recreational trails.

In March, DOT released another “Multimodal Project” funding opportunity notice covering three grant programs totaling $2.9 billion that also asks applicants to talk about how their project relates to the land use and housing development. These grant programs finance large infrastructure projects and infrastructure projects in rural areas.

On Monday, a funding opportunity notice for $1 billion in Safe Streets for All grants — a new program that pays for safety improvement projects — also examines applicants’ land use policies.

The first two funding opportunity notices frequently mention rewarding grant applicants who have policies encouraging “mixed-income residential development near public transit.” And the main way for a candidate to create these mixed-income residential developments would be to have an inclusive zoning policy.

Elsewhere, these funding opportunity notices express preferences for rewarding projects in areas with “tax-responsible land use” or “location-efficient housing.” These terms could plausibly be interpreted as references to more deregulatory zoning policies that allow multi-family housing at market price. However, they are quite vague.

These references are also sandwiched between many other factors that DOT staff will consider when scoring grant applications. For example, the RAISE grant program funding notice asks applicants to detail how their project will improve economic growth. In particular, candidates are invited to:

describe the extent to which the project and local and regional policies related to the project will contribute to the functioning and growth of the economy, including the extent to which the project resolves freight congestion or connectivity, addresses service gaps in rural areas or promotes greater public and private investment in land use productivity, including the revitalization of rural main streets or local density decisions that support equitable commercial and mixed-income residential development.

If the objective is to use transport money to encourage productive housing reforms, making land use one of several factors to consider weakens this incentive.

Other Biden White House-endorsed plans to spend money to encourage local zoning reform have received similar criticism: They focus on too many different policy priorities at once. They therefore become less a means of increasing the supply of housing through deregulation than a general subsidy to local governments.

Indeed, legislative efforts to use federal transportation funds to spur local land use reform have been more explicit about the land use policies they attempt to encourage.

Rep. Scott Peters’ (D–California) More Housing Near Transit Act, for example, rewards jurisdictions that don’t give local bureaucrats the discretion to tear down housing projects near transit stops. The 2019 HOME Act, sponsored by Sen. Cory Booker (D–NJ) and Rep. Jim Clyburn (D–SC), explicitly details “transformative activities” that jurisdictions receiving federal road and rail funding could adopt.

During the campaign trail, then-candidate Joe Biden explicitly endorsed Booker’s bill.

Marc Scribner, a transportation researcher at the Reason Foundation (which publishes this website), says competitive grant programs that give the executive wide latitude in selecting winners have a long history of sending pigs to political allies.

A report earlier this year from the Reason Foundation found that 41 of the 90 RAISE grants awarded in 2021 went to districts or states represented by lawmakers on the various congressional transportation and finance committees. The Trump administration has used the same program to flood Republican rural areas with cash.

Scribner says the Biden administration’s consideration of land use policies when handling that money is just another way Democrats are funneling money to areas where their families live. supporters.

“I expect dense urban cores to receive a disproportionate share” of transportation funds, he says. “These are assignments by another name.”

Scribner is skeptical of the idea of ​​explicitly tying federal transportation dollars to local land use policies. Prioritizing transit projects with higher ridership projections will already send money to roads and railroads being built in areas ripe for development, he says.

The Biden administration has been remarkably consistent in criticizing local and state barriers to housing construction. On this point, they agree with the fanatics of libertarian politics.

Whether the federal government can be a force for good in trying to solve this problem depends on the details of its political problems.

And the details released so far about White House plans to tie federal transportation spending and local land use aren’t particularly encouraging.