Chair Heinrich and Vice Chair Schweikert, and distinguished Members of the committee, thank you for the opportunity to testify today.
Housing affordability issues are real for many Americans.
As home prices and more recently mortgage rates have risen dramatically, many people can no longer afford to buy a home and have no choice but to remain renters. Since rents have also gone up, renters are feeling increasingly financially stretched. These increasing pressures have led to an increase in displacement and homelessness.
In this election year, Congress is feeling the urge to increase the supply of affordable housing.
Before taking any action, it should first consider a couple of misconceptions:
Misconception 1: The housing supply shortage is a market failure. Not true, it is rather a government regulatory failure.
Actions of all levels of government—from the implementation of restrictive zoning laws, the introduction of discretionary reviews in planning, and the rise of environmental laws and other regulations—have made land scarce and homebuilding expensive. This has restricted private developers from building enough housing to keep up with demand. Today’s housing shortage is estimated to be in the millions.
Misconception 2: The federal government can fix—or at least ameliorate—this shortage. Not true.
The federal government’s track record in housing supply interventions is poor. Just consider how public housing, which is overseen and regulated by the Department of Housing and Urban Development (HUD), is crumbling. Or how the Federal Housing Administration’s (FHA) expansion into high-risk single-family and multifamily insured lending ended up devastating whole communities during the late-1960s and early-1970s.
Likewise, the Low-Income Housing Tax Credit (LIHTC), established in 1986 to combat the lack of affordable housing, has done next to nothing to increase the supply of housing. According to one study, almost all LIHTC development would have been built by the market without any subsidies.
If that’s not enough, LIHTC also limits social mobility and the program is corruption-prone and complex, thus crowding out many smaller builders.
Misconception 3: The only way to add affordable housing is through subsidies and government programs. Not true.
The root cause is government regulatory failure—and no amount of money can fix that. The true policy solution lies at the state and local level. The literature is clear that the most effective way to add affordable housing is to build a lot of market-rate housing, which decreases the cost of both rented and owned homes. Removing this red tape could unleash could provide hundreds of thousands of new homes each year.
More supply helps tamp down the house price and rent appreciation of existing homes. As new market-rate housing is built, higher-income households will move into the new units, freeing up their now vacant lower-priced unit. This process—known as filtering—repeats itself further down the home price ladder, as commonly seen in the new and used car market.
In the case of housing, new construction has not met demand, leading to a breakdown of the filtering process—or even a reversal, where lower income households are selling their older homes to higher income households. No wonder there is so little affordable housing available.
Misconception 4: institutional investors, junk fees, rent pricing algorithms, AirBnb, foreign buyers, or vacant homes are responsible for widespread housing unaffordability. Not true.
While these entities make easy scapegoats, they are at best symptoms of the supply-demand imbalance. To put it bluntly, housing was affordable even before many of these entities were established.
Misconception 5: Government can make housing affordable through various demand subsidies. Not true.
Such practices come in many forms—looser lending policies, lower mortgage premia, downpayment assistance, deeper vouchers, etc. What these policies have in common is that they increase demand against a severely limited supply. This benefits those that own homes or those that receive the subsidy, but it raises housing costs for all.
Having dispelled these misconceptions, the solution to today’s housing shortage becomes clear:
- The federal government needs to stay out.
Congress will soon consider two bipartisan bills to address high rental costs: an expansion of LIHTC and the creation of the Workforce Housing Tax Credit (WFHTC). Both programs would offer generous federal government subsidies for building new apartments. The WFHTC would extend eligibility for subsidized units tenants earning below the area median. On a combined basis the two credits would expand eligibility to about three quarters of the nation’s renters. Such a massive expansion of the state would waste taxpayer money, crowd out more private builders, and deter many families from advancing economically. Worst of all, it would do precious little to address the nation’s housing supply problem. It would be bad policy for Congress to pass these bills.
On the lending side, the federal government also needs to abstain from the disproven notion of making housing more affordable through subsidies.
- Zoning and land use policies are state and local issues and need to be tackled at these levels of government.
As numerous case studies from around the country have shown, the formula for successful housing reforms is simple:
- Enable by-right zoning,
- Allow greater density in lots of areas particularly around walkable and amenity-rich areas,
- Follow the KISS (Keep-It-Simple-Stupid) principle instead of micromanaging the process, and
- Complement high-rise Transit-oriented Development with Light-touch Density to provide naturally affordable (defined as unsubsidized housing with market-rate rents or prices) homes and wealth building homeownership opportunities with minimal changes to the built environment.
These actions will unleash the ingenuity of the American people by allowing builders of all sizes to build abundant market-rate housing over time. Fortunately, this is already happening – and entirely without federal involvement. In 2023 alone, Washington, Montana, and Vermont followed Oregon (2019) and California (2021) in passing statewide reforms that allow moderately higher density in the form of cost-effective duplexes, triplexes, and townhouses. 
The federal government could amplify this trend by auctioning off underutilized federal land without any strings attached for private market-rate development. As Sen. Lee has pointed out, there are plenty of opportunities, particularly out West. More land means more building, which will translate into more filtering and less affordability pressures.
On the other hand, federal involvement to influence state and local reform movements would result in complex, one-size-fits all solutions that violate the KISS principle and therefore perpetuate the housing supply problem.
Housing unaffordability is a self-inflicted wound, stemming from a government regulatory failure that perpetuates a massive supply-demand imbalance. This has resulted in higher home prices and rents relative to incomes. State and local supply reforms require no taxpayer subsidies and in the few areas where they have been implemented, they have been found to work. If more states and cites sign on, such reforms could provide hundreds of thousands of new homes each year and thus allow more Americans to access their own American Dream.
 Eriksen, Michael D., and Stuart S. Rosenthal. “Crowd out Effects of Place-Based Subsidized Rental Housing: New Evidence from the LIHTC Program.” Journal of Public Economics 94, no. 11–12 (2010): 953–66. https://doi.org/10.1016/j.jpubeco.2010.07.002.
 Harnessing Tailwinds on State and Local Land-Use Reform: A Bipartisan Playbook – Gov. Gianforte (MT):
https://www.youtube.com/watch?v=E8DdGLJAx-s&ab_channel=AmericanEnterpriseInstitute; https://tcf.org/content/report/a-bipartisan-vision-for-the-benefits-of-middle-housing-the-case-of-oregon/;  https://www.aei.org/california-housing-conference/
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