Roughly 10 percent of President Joe Biden’s two trillion-dollar proposal for infrastructure is intended for housing. The proposal starts out on the wrong foot, suggesting that what ails American housing “a severe shortage of affordable housing,” implying that the problem is one of price, not supply. What we really need is more housing so that it is affordable. This misunderstanding means the President’s plan focuses too much on subsidies to help people rent costly housing, and not enough on supplying more housing so that prices go down.

What’s in the plan?

A White House fact sheet commits the President to allocate $213 billion to “produce, preserve, and retrofit more than two million affordable and sustainable places to live.” The White House says the funding will “produce, preserve, and retrofit more than a million” units of housing. This would be accomplished, “through targeted tax credits, formula funding, grants, and project-based rental assistance.”

The plan would, the White House says, “build 500,000 homes,” by expanding direct subsidies and existing equity from the Low-Income Housing Tax Credit (LIHTC) program. The President is calling on Congress to pass something called the “Neighborhood Homes Investment Act (NHIA).” The NHIA uses $20 billion in tax credits over the next five years” to renovate or build an additional 500,000 homes.

The plan calls for putting “union building trade workers to work upgrading homes and businesses to save families money." The proposal includes money for local governments to essentially plan for proposals to modify local zoning to allow for more production, and the plan outlines a variety of block grants for local government to invest in various capital facilities that are not housing, but could benefit areas with growing populations.

We should do more to reduce regulatory barriers

The primary problem in housing scarcity is always the limits imposed by state and local governments that limit buyer and seller. Zoning is chief among them. By its very nature, all zoning is exclusionary; the administration has gone along with a formulation that single-family zones are uniquely exclusionary, which they aren’t.

Apparently, Biden is counting toward his $213 billion funding for a bill introduced by Sens. Amy Klobuchar (Minn.), Tim Kaine (Va.), and Rob Portman (Ohio) called the Housing Affordablity and Supply Act, a bill that would allocate lots of money for planning by local governments. What would they be planning?

The intention is that the money would support local governments “that intend to leverage and more efficiently target existing federal funding streams—such as the HOME or CDBG program.” Again, more money, not more housing. Sure, these "plans" might include inclusionary zoning schemes, but that's just a way of paying for what we should be doing anyway, creating more dense, transit and pedestrian friendly cities. Why pay with writing legislation  what could be accomplished with the pencil's eraser, fewer rules, taxes, fees, and regulations?

The best thing to do is abolish all zoning and focus on regulating only health and safety. But the plan concentrates on putting more money into existing or new channels of funding for direct construction or rehabilitation which are currently inefficient. And its emphasis on paying higher wages means it will be difficult or impossible to capture the value of energy savings from retrofits (this failed in 2010 because of Davis-Bacon wage requirements that mandate costly union labor).

A positive outcome from the legislation would be eliminating costs to local governments for capital facilities currently being paid by new housing construction through impact fees, an inflationary policy. Impact fees, one study found, add as much as $25,000 the cost of a single-family home. Impact fees are a tax shift from existing residents to new residents and it pushes up prices

If we believe (which we do), that housing price inflation is an indicator of a disequilibrium of supply and demand, then we would concentrate on reducing the regulatory barriers and costs created by those barriers to getting housing to the market.

What Biden’s plan does is emphasize more money, and as Milton Friedman pointed out, “always and everywhere,” inflation is caused by too much money. Nowhere is this more true than housing. And the money already set aside for rent relief, $25 billion, isn't getting to people who need it. Unless Biden does more to incentivize local governments to stop stepping on supply, the proposal is likely to make housing price inflation worse.