Over at becauseChristian Britsgi writes about how federal money meant to spur zoning reform has ended up in the hands of those who want to further restrict housing construction.

If you want an overview of why land and zoning deregulation is one of the most important policy issues that no one cares about, read Brian Kaplan on the subject and check it out. As Kaplan notes, “We’re talking trillions of dollars Annually Profits, implying an “astronomical present value” that would be realized from even modest housing deregulation (and immigration liberalization). Housing deregulation would increase the supply of housing, thereby lowering housing costs and allowing workers from low-productivity areas to move to high-productivity areas.

An idea offered by my colleagues at the Mercatus Center, but also by other scholars, is to use federal funds to encourage states to relax zoning regulations. The Biden administration tried to do something similar with grants to the state Department of Transportation and the Port Authority:

The White House is one big splash in May 2022 when it announced that its Housing Supply Action Plan would use competitive transportation grant programs to reward jurisdictions that remove regulatory barriers to new housing construction.

The $1.2 trillion Infrastructure Investment and Jobs Act, enacted in November 2021, dramatically increased funding for this grant program—giving the Fed an even bigger carrot that will reward governments for removing red tape on new development.

However, in practice this did not work well. Britschgi explained:

But as grant awards flow out of these retooled transportation grant programs, there is little evidence that the money is going to reformist jurisdictions.

Late last week, the US Department of Transportation announced the recipients of a $1.5 billion grant from Infrastructure for Rebuilding America (INFRA). Activities— one of five grant programs the administration says will be used to spur zoning reform.

Of the 26 INFRA grant awards this cycle, 19 are going to state departments of transportation or port authorities that do not 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 added:

It was a similar story $2.2 billion in RAISE grants Awarded last month, another program the Biden administration said it would retool to encourage zoning reform. Some awards seem to have a lot to do with zoning. One of the largest RAISE awards went to San Francisco, which is currently being investigated by the California state government for demolishing new housing in violation of state law.

I can’t say I’m surprised.

Before I explain why, I want to offer two caveats. I completely understand why this idea is attractive – it’s not like we’ve been very effective at convincing politicians to end most zoning rules the old way – despite some bipartisan support from scholars – and I have no idea if this approach has worked in that piece. There are other examples out there.

That said, there is always a danger in using public funding—in addition to the money spent—to create incentives for deregulation rather than directly pushing for deregulation. This is partly because incentives within government rarely appear on paper.

Obviously, public choice economics has a lot to say about this. Unlike markets, public officials have very weak incentives to manage public funds prudently, not least because personal accountability for bad decisions or misappropriation is almost non-existent. Additionally, the pressure on government officials to reward both their cronies and special interests is intense. After all, it’s not their money.

To be fair to the scholars who first advocated using government to create incentives for zoning reform, they are clear about the fact that the grant program must be designed specifically to achieve zoning reform. The Biden donations were set to encourage zoning reform—among many other goals. Unfortunately, the claim that “if we can get the design right, it will work” is omitting the reasons why it would be impossible for the government to build it. And stick to it Design is essential for this plan to succeed. In other words, there’s a reason why grants aren’t designed simply to encourage relaxation of zoning regulations. For the same reason bills are always loaded with pork barrel projects to reduce inflation or to keep the government from shutting down. The incentive to add to all the garbage is strong.

The same applies to many other cases. For example, the austerity literature tells us what a government should do when it wants to reduce its debt-to-GDP ratio. The Legislature must adopt a fiscal adjustment package based largely on spending cuts – including cuts to entitlements – rather than tax increases. However, researchers have shown that 80 percent of adopted fiscal adjustment packages are based on tax increases or the so-called balanced approach (which actually means that taxes are increased, and spending is not cut). That’s because the special interests that helped fuel the fiscal problems in the first place still influence lawmakers and prevent them from cutting spending.

Now, I have great ideas on how to get zoning reforms done quickly without continuing the war of ideas and trying to convince the American people – who can ultimately put pressure on our rulers. This is what has happened in some states with occupational licensing, certificate of need restrictions, and school-choice reforms. Hope springs eternal…


Veronique de Rugy is a senior research fellow at the Mercatus Center and a syndicated columnist for Creators.

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