More than RaisonChristian Britschgi writing about how federal money intended to encourage zoning reform ended up in the hands of those who want to further restrict housing construction.
If you want a recap of why land and zoning deregulation is one of the most important political issues that nobody cares about, read Bryan Caplan about this question and look at this. As Caplan notes, “We’re talking about trillions of dollars of annual gain, implying an astronomical present value” that would materialize from even modest housing deregulation (and immigration liberalisation). Housing deregulation would increase the supply of housing, which would lower the cost of housing and allow workers from low-productivity regions to move to higher-productivity regions.
One idea that has been proposed by my colleagues at the Mercatus Center, but also by other researchers, is to use federal funding to incentivize states to relax zoning rules. The Biden administration tried to do something similar with subsidies to state transportation services and port authorities:
The White House made a big splash in May 2022, when it announced its housing supply action plan would use competitive transportation grant programs to reward jurisdictions that remove regulatory barriers to building new housing.
The $1.2 trillion Infrastructure Investment and Jobs Act, signed into law in November 2021, also dramatically increased funding for these grant programs, giving the federal government many more carrots to reward governments. for cutting red tape on new developments.
However, in practice it didn’t work very well. Britschgi explains:
But as grants from these revamped transportation grant programs spread, there is little evidence that the money will go to reformist jurisdictions.
Late last week, the U.S. Department of Transportation announced the recipients of $1.5 billion in Infrastructure for Rebuilding America (INFRA) grants. program– one of five grant programs, according to the administration, would be used to encourage zoning reforms.
Of the 26 INFRA grants this round, 19 go to state transportation departments or port authorities that don’t set zoning regulations or issue residential building permits. These bureaucracies cannot be incentivized to change regulations over which they have no power in the first place..
He adds:
I can’t say I’m surprised.
Before explaining why, I want to offer two caveats. I totally get why that idea is appealing – it’s not like we’ve been very effective in convincing politicians to end most old-style zoning rules – despite bipartisan support from academics – and I also haven’t a clue if there are any other cases outside of those mentioned in the article where this approach has worked.
That said, there is always a danger in using government funding – in addition to spent money – to create incentives to deregulate rather than push for deregulation directly. This is partly because incentives within government are rarely the ones that appear on paper.
Obviously, public choice economics has a lot to say about it. Unlike the market, the incentives for government officials to manage public funds prudently are very weak, not least because personal accountability for bad decisions or badly spent money is almost non-existent. Moreover, pressures are intense on government officials to reward both their friends and their special interests. After all, it’s not their money.
To be fair to researchers who have suggested using the government to create incentives for zoning reforms in the first place, they are explicit that the subsidy program must be specifically designed to achieve zoning reforms. The Biden grants were set to encourage zoning reform, alongside many other goals. Unfortunately, the statement “if only we could get the design right, it would work” omits the reasons why the government is unlikely to produce and stick to the design necessary for this plan to succeed. In other words, there’s a reason the grants weren’t designed simply to encourage a relaxation of zoning rules. It’s the same reason why bills intended to reduce inflation or keep the government from being shut down are always laden with pork barrel bills. The incentives to add all that mess are powerful.
The same is true in many other areas. For instance, austerity literature tells us exactly what a government should do when it wants to reduce its debt-to-GDP ratio. The legislature must pass a fiscal adjustment program that relies primarily on spending cuts – including duty cuts – rather than tax increases. However, researchers have shown that 80% of the fiscal adjustment programs adopted are based on tax increases or on the so-called balanced approach (which in practice means that taxes are increased and spending is not reduced ). That’s because the vested interests that help fuel budget problems in the first place still hold sway over lawmakers and prevent them from cutting spending.
Now, it’s not like I have any good ideas on how to get zoning reforms pronto, except to continue to fight the battle of ideas and try to convince the American people – who could possibly put pressure on those who govern us. This is what happened in some states with professional license, need certificate restrictions and school choice reforms. Hope is eternal…
Véronique de Rugy is a senior researcher at the Mercatus Center and a syndicated columnist at Creators.