On June 23, the House of Representatives passed the 21st Century ROAD to Housing Act with broad bi-partisan support the day after the bill cleared the Senate. It became law on July 11 without the President’s signature, representing a rare example of the parties rallying around an issue important to the American people.
Bills of this magnitude, especially bi-partisan ones, are always a mixed bag. After all, compromise often means a healthy reciprocal “give and take”. The ROAD to Housing Act is no different. To reach the ultimate goal of housing affordability, we need to parse what the ROAD Act does well, and where it misses the mark on this issue that is so crucial to Americans.
Here is what the ROAD Housing Act gets right: it cuts federal red tape that makes homes more expensive to build. It streamlines environmental reviews that stall projects for years. It ends an outdated rule that forced manufactured homes to carry a permanent chassis which unnecessarily drove up costs.
It is no surprise that reducing government red tape leads to lower prices. In fact, according to the National Association of Home Builders, “On a dollar basis, applied to the current average price ($499,500) of a new home, regulation accounts for $131,734 of the final house price.” This means that about one quarter of the price of a new home is the result of onerous legal compliance.. Simplifying regulations will help millions of Americans by lowering the prices of new housing.
Now let’s look at the give.
Buried in the same section that scrapped the chassis mandate is a handoff. The law makes the Department of Housing and Urban Development (HUD) the primary authority on energy efficiency standards for manufactured homes, and it requires HUD to set new minimums. While Congress deleted one rule, it concurrently authorized an even more complicated one in its place that broadened government oversight.
According to 2023 testimony by the Manufactured Housing Institute, federal energy standards of this kind add around $5,000 to the price of a home. That could erase most of the savings from the chassis repeal.
But the provision that should concern Americans the most is a bar on institutional investors. Firms that own 350 or more single-family homes may no longer buy existing ones.
This may seem like a positive step to the average American. After all, removing corporate single family home ownership would seem to clear the path for many people, especially younger generations, to homeownership. However, there is a hidden cost to this regulation. This bar neither decreases prices of homes nor does it increase the housing supply.
Perhaps counterintuitively, it does the opposite.
The National Association of Home Builders projected the restriction could prevent the building of roughly 40,000 new rental homes per year. The Urban Institute puts the figure at 72,000. Barring corporations from owning single family homes will result in fewer rental homes, and with fewer rental options, the price of rent and home themselves increase.This furthers the trend of government regulations driving up the price of homes.
To be clear, there is a legitimate role for the government in the housing market. But the government works best when it protects the rights of people by creating simple guidelines that people understand and can easily follow. The government does not work when it turns into a micro manager and meddles too aggressively in markets.
Look no further than the proposed JetBlue/Spirit Airlines merger in 2022 as a recent example of what happens when the government micromanages the economy. When JetBlue attempted to acquire Spirit Airlines, regulators blocked the $3.8 billion acquisition arguing it would harm consumers by reducing competition.
Two years later Spirit collapsed into bankruptcy, and consumers have fewer budget airfare options. Government interference meant to help the little guy harmed the little guy, when the better solution was to let the free market operate.
Lower prices through heavy handed government control of the free market isn’t a new pitch. In fact, it’s what got us into this mess in the first place.
Economist Bryan Caplan makes this case in the New York Times. As he puts it, “The panacea policy I have in mind is housing deregulation.” Full deregulation, he estimates, could cut housing prices by roughly half nationally, dropping the cost of living about 10 percent.
Now, full deregulation may seem like a wild fever dream. After all, certain regulations make sense, especially those related to consumer safety.
But what this reveals is that housing prices are on a spectrum. The more the government micromanages the housing market, the more expensive it gets. But the fewer the barriers of government regulation, the more affordable owning a home becomes.
The Road to Housing Act gets part of that equation correctly. But if we truly want more affordable housing, Congress must stop micromanaging the economy.
