Housing Policy

Local institutions for housing policy exhibit dramatic governance failures: both high housing prices (affecting individuals across the income distribution) and a lack of housing for the poor (resulting in a homelessness crisis). Politically, there are two prevalent views on how to address these problems. One, pro-market, seeks intervention by state or federal governments to deregulate local land-use policies. The other, market-skeptical, aims to decommodify housing through rent control and public provision.

In this project (with David Foster), we argue that both sides undervalue local democracy. To be sure, existing land-use institutions are flawed. However, it is possible to reform local institutions to take advantage of local information and align incentives, while it is not possible to do the same through centralization. The first part of the project focuses on housing supply, and the second part focuses on homelessness.

In the first part, we reconsider the origins of nimbyism in land-use policy. While prior work ascribes nimbyism to an inherent disjuncture between concentrated costs and diffuse benefits of new development, we argue that nimbyism requires a bargaining failure between developers and local residents. This bargaining failure is not a necessary result of local institutions, but instead arises from the specific structure of procedures for resident participation, which ultimately limit the potential compensation that developers can offer local residents. For this reason, local land-use institutions can be reformed to ensure a greater available surplus to compensate residents, increasing public support for new development. Importantly though, the fact that local residents maintain veto power allows them to reject truly bad projects, where the local costs exceed the social benefit.

In the second part, we investigate persistent failures of policies to address homelessness. Despite strong public support and substantial quantities of public funds, policies to end homelessness have so far failed and the precise reasons for these policy failures are unclear. Given this uncertainty, policymakers must be willing to expend effort to discover the best policies. But, as we explain, the electoral accountability mechanism fails to elicit adequate effort. For politicians, the costs of failure are externalized (onto the homeless). To remedy this incentive problem, we propose a “liability for homelessness” whereby the tax burden on the wealthiest citizens is reduced contingent on adequate housing being available for all citizens. Unlike elected officials, private actors can be made to internalize both costs and benefits of policies to reduce homelessness, and this implies an incentive to find the most efficient means of doing so.

For both housing supply and homelessness policies, there is an important interaction between political incentives and policy uncertainty. For good policy, decision-makers must incorporate the local costs of new housing or the best strategies to address homelessness. Existing institutions fail to address uncertainty in these areas, and this failure creates perverse incentives. By rethinking the sources of these policy failures—with close attention to information and strategic incentives—our goal is to illuminate potential avenues for institutional reform that have so far been unexplored.