With states across the nation experiencing a severe housing affordability crisis, federal politicians are seizing on the moment to propose their ideas for addressing the cost of housing.
The real substance of federal housing proposals deserves serious scrutiny. Some proposals to “reduce the cost of housing” may actually increase housing costs.
Some of the most prominent ideas being proposed to address housing costs include establishing federal tax credits for first-time home buyers, giving anywhere from $15,000 to $25,000 to help people afford buying their first home.
Unfortunately, home-buyer tax credits are more likely to hurt housing affordability than help. Simple economics teaches us that if you subsidize greater demand for homes while not expanding the supply, you get higher prices. Demand for housing in Montana has already far outpaced supply, leading to higher costs.
Without any accompanying proposals to increase the supply of available homes, home-buyer tax credits would likely deepen Montana’s severe housing shortage, actually increasing the cost of housing.
Other proposals include a renewed embrace of socialist-style price controls, such as capping rent increases for existing units. Rent-control in practice destroys the supply of rentals which actually makes the housing shortage worse. Montanans need only to look to what’s happening in Argentina to understand why rent-control is bad policy. Argentina’s President Javier Milei recently ended rent control and as a result rents declined 40% and the supply of rental units doubled.
There’s also a lot of scary rhetoric claiming “out-of-state corporations are buying up our neighborhoods” spurring proposals to ban hedge funds from buying homes. At least in Montana, there is no evidence this is even an issue. In fact, the share of owner-occupied units in Montana has actually increased since 2017.
Even some supply-side proposals may end up being counterproductive. One federal proposal provides grants to local governments to fund efforts to revise strict zoning regulations that suppress housing supply. Simply giving away federal dollars for planning could create a perverse incentive for grant recipients to capture more funding with more studies, more complex planning, and more expensive consultants, which in turn could actually increase the cost of implementing pro-housing reform.
It would be much better to reward governments that have already adopted zoning reforms, which would incentivize cities to find the most efficient way possible to implement reforms.
While more subsidies and market controls make for popular campaign rhetoric, it remains clear that boosting the supply of available housing is the only sure way to reduce the cost of housing in Montana over the long term. Thankfully, Montana lawmakers have already shown tremendous leadership on the question of housing supply.
Republicans and Democrats in the 2023 Legislature passed nearly unanimously sweeping reforms to legalize building affordable starter homes and streamline local regulations to speed up construction and help drive housing costs down for everyone. While the 2023 housing reforms aren’t a silver bullet for the housing market, the American Planning Association and others have recognized Montana’s reforms will go a long way toward boosting the supply of homes and reducing costs over the long term.
An amazing bipartisan coalition formed to champion the 2023 pro-housing reforms representing Montanans from all walks of life, proving that supply-side housing reforms can be politically popular too.
Federal politicians should take note of Montana’s example for tackling the housing crisis and focus efforts on boosting the supply of housing, which will help reduce costs for everyone.
Montanans should be especially wary of proposals to subsidize home-buying that aren’t attached to proposals that will increase the supply of available homes.