By Jerusalem Demsas

The housing supply crisis has become so acute it has spawned a rarity in Washington: A bipartisan bill that grapples with a national problem.

A record 42 percent of homes sold in the US in March sold above their list price. Why? Covid-19 has exacerbated America’s long-running failure to build a sufficient number of homes, and the supply crunch has a growing pool of people fighting for a dwindling number of properties.

Sen. Amy Klobuchar (D-MN), along with Sens. Rob Portman (R-OH) and Tim Kaine (D-VA), introduced the Housing Supply and Affordability Act — a new program geared to “help localities develop and implement comprehensive housing policy plans” with the goal of increasing housing supply and affordability.

“We don’t have enough housing,” Klobuchar told Vox after returning from recess. “Literally every mayor, Democrat or Republican, brought it up to me last week. Of course we’re talking about vaccinations and restaurants closing, but they want to keep workers and they need housing to do it.”

Klobuchar cited data from FreddieMac showing that her home state of Minnesota has one of the highest housing stock deficits in the nation, but it’s not alone. This measure estimates that at least 29 states are facing a housing shortage and few of them are taking steps to combat the problem, making an issue often reserved for local governments ripe for engagement at the federal level.

“The federal government can fund things and we can create incentives for change,” Klobuchar said. “We’re really good at doing that when we’re at our best.”

What does the Klobuchar plan do?

The bill proposes creating an annual $300 million grant program administered by the Department of Housing and Urban Development (HUD). States and localities could apply for either planning or implementation grants to help them reduce barriers to housing development.

Zoning regulations such as minimum lot sizes, mandatory parking requirements, and other prohibitions on multi-family dwellings have the effect of reducing the supply of housing. For example, if there is a requirement that every unit must be allotted 10,000 square feet, that makes it de facto impossible to build a multiplex on a 10,000-square-foot property. So instead of housing five families on 10,000 square feet, you house only one, leaving four still looking for housing accommodations. These restrictions lead developers to build fewer units — and more expensive ones at that.

The Senate plan also seeks to give priority to localities that are reforming zoning with transportation in mind. One way cities or counties could become competitive for the funding is if they engage in transit-oriented development like legalizing multi-family housing within walking distance of train stations. This type of policy change can have the added benefit of reducing car dependence and providing easier access between where people live and where they work.

President Joe Biden released a plan of his own to address the housing supply crisis, one his team is aiming to include in the upcoming infrastructure plan. He proposed a $5 billion grant program that would also target zoning reform. The difference, though, is that “cities need to demonstrate that they are taking down some of their exclusionary zoning requirements and then they will be able to access this pot of money,” an administration official told Vox. In other words, cities would get money under Biden’s plan once they had already made the changes; under Klobuchar’s, they would get the money in order to start making changes.

The bipartisan Senate proposal is aimed at mid-sized and smaller locations where a large barrier to zoning reform is they may not have the in-house expertise to undergo a major re-zoning effort on their own. Larger cities and counties often have the funding and in-house expertise to undergo these reforms. These plans are complementary — with the Biden plan, cities would need to have removed zoning barriers already to receive the money; the bipartisan Senate plan can help them get there.

Paul Mogush, who is the community planning manager in Minneapolis, agreed. “A lot of communities don’t have the capacity to do this type of strategic work,” he said. “They’re just busy keeping up with the day-to-day business of a planning office. ... They often don’t have the time or resources to do these big projects that require big structural change.”

Mogush explained that these grants would likely be used to hire seasoned planning consulting firms to help do the work for them. “I would imagine, if this becomes law and there’s $300 million a year ... I think a new industry could be born out of this with experts helping communities work through this.”

What grant proposals miss about solving the housing supply crisis

In interviews with Vox, several experts registered skepticism that grant programs could encourage many communities.

In fact, many of the most exclusionary localities are uninterested in the extra money changing these rules would give them. After all, they’ve already left billions on the table: According to a study by University of Chicago economist Chang-Tai Hsieh and UC Berkeley economist Enrico Moretti, researchers find that because metropolitan areas have made it prohibitively expensive for middle- and low-income Americans to move to high-productivity areas, US aggregate economic growth was lowered by more than 50 percent from 1964 to 2009. In simpler terms, the typical American worker would have earned an additional $3,685 every year without these housing barriers.

Jenny Schuetz at the Brookings Institution looks at the popular HUD-administered Community Development Block Grant in California and New Jersey and finds that in the former, “only 17 percent of the most exclusive communities receive any CDBG funding.” And in New Jersey, none of the most exclusive communities receive CDBG funding.

Klobuchar pushed back on this idea in an interview, saying, “You’d be surprised at how much people may want to depend on federal grant dollars. They really want help right now.”

Mogush agreed, adding that the growing realization of how zoning contributes to racial inequality has left some communities wanting to change but not knowing how exactly to go about it. “There are suburban communities here in the Twin Cities area,” he said, “who are really interested in figuring out how to work to achieve racial equity [through zoning reform].”

Vox spoke with an official at a mid-sized suburb of the Twin Cities who said that his city’s housing shortage had little to do with changing zoning regulations and more to do with money to help build and subsidize affordable housing.

Construction costs and subsidies for affordable housing development are a common request from localities to the federal government and will need to play a large role in shoring up the nation’s affordable housing stock. However, after reviewing his city’s current and future plans for zoning, Vox found that the vast majority of residential land is still reserved for low-density development. So, more could certainly be done on that front.

That even suburbs of large cities that are trying to re-zone for multi-family housing still plan to maintain a vast majority of their residential land for low-density development speaks to the need for federal action to push localities to move faster.

In addition to offering grant funding to localities that need help planning, the federal government should withhold existing funds from localities that won’t remove barriers to development.

Ed Glaeser, a leading housing economist, recently wrote an op-ed in the New York Times to this effect, writing, “If the president wants to break the country out of its zoning straitjacket, the infrastructure plan should ensure that no benefits go to states that fail to make verifiable progress enabling housing construction in their high-wage, high-opportunity areas.”

This is a politically dicey policy. When I asked Klobuchar about it, she hedged but agreed that it was something the Senate should “consider.”