In a sign that market solutions for the United States’ growing housing affordability crisis are beginning to earn bipartisan support, the White House this week unveiled its “Housing Development Toolkit,” which encourages state and local policymakers to undertake a number of long-overdue reforms.

The tool kit draws on some of the best and most up-to-date research on housing affordability and cites such respected researchers as Harvard University economist Ed Glaeser. But for such reforms to benefit smaller and distressed communities, Washington needs to undo its own role in distorting the housing market. In short, the Federal Housing Administration has to relegalize Main Street.

The White House’s calls for local policymakers to expand by-right development (where allowable building projects can proceed administratively, without years-long public hearing processes) and accessory dwelling units, to repeal or reduce minimum parking requirements, and to rezone neighborhoods for greater possible density all amount to restoring landowners’ rights to develop property as they and the market see fit. As the tool kit notes, inappropriate parking requirements, in particular, can raise the expected rent in a new development by as much as 50 percent, while depriving towns of socially and commercially productive land.

Establishing by-right development and streamlining local permitting processes will allow developers to respond nimbly to market demands and will relieve the “guilty until proven innocent” status of new building development, which depresses construction starts across the country by delaying and inhibiting housing projects. What’s more, adopting leaner codes would remove obstacles to the countless smaller developers and would-be builders who want to invest in strengthening their local communities, but currently can’t afford to navigate the vast regulatory burdens and uncertain futures awaiting anyone who tries to build in America today. Trulia economist Ralph McLaughlin found that these regulatory delays may have an even bigger impact on housing production than zoning restrictions.

As the White House notes, the regulatory stranglehold has raised entry costs to the point that “new market-rate construction shifts toward predominately, and sometimes exclusively, larger or higher-end units.” The only way to earn back the cost of regulatory compliance is to sell expensive properties to the wealthy, and to have the capital and dedicated legal team to pursue a project through its entire labyrinthine regulatory course. Small developers seeking to build homes for their future neighbors, of course, have none of these resources available to them. Grass-roots groups like the Incremental Development Alliance are forming to pool experience and share wisdom among small developers, but they face an uphill battle, not a level playing field.

Even if those small developers were to make it through the multiple layers of local permitting processes, escape the strictures of their town’s zoning ordinances and find a way to accommodate the required parking, they still would run aground on the shoals of federally restricted finance markets, thanks to ill-conceived and outdated policies still enforced by the Federal Housing Administration.

Main Street-style development — the “storefront on the first floor, apartments rented out above” style that forms the core of any older town’s historic center — is a residential building form that uses first-floor commercial space to serve community members and enliven a neighborhood. This low-rise density helps prop up the balance sheets of towns responsible for running utilities all the way out to suburban developments, as former city planner and engineer Charles Marohn has repeatedly demonstrated. It also keeps a constant set of the “eyes on the street” that Jane Jacobs identified as necessary for safe streets; renters keep an ear out for burglars after business hours and shopkeepers keep the same at bay during the day. It is, in other words, the core of any successful town-building.

Yet for 80 years, Main Street development has been effectively driven from the market by the growth of federal housing policy hostile to mixed use. Ever since Herbert Hoover’s Commerce Department helped promote the spread of model zoning codes that physically separated people and their community institutions, the federal government has poured its energy and resources into encouraging the growth of widely dispersed single-family homes and large, centralized tower blocks. To this day, FHA standards for loans, which set the market for the entire private banking sector, prohibit any but the most minimal commercial property from being included in residential development. As a groundbreaking report by New York City’s Regional Plan Association found, these standards are “effectively disallowing most buildings with six stories or less.” And depending on the program, a building could have to reach to 17 stories before it is eligible for participation in the normal housing markets. Without the FHA’s blessing, projects are granted the “nonconforming” kiss of death unless their developers can persuade a local bank to write an entirely customized loan for them, one whose risk the bank would have to keep entirely on its own books.

These caps on commercial space and income should be raised to level the playing field for housing development and let small developers invest as much in their home towns as huge corporations will in big cities. Caps currently limited to 15 and 25 percent should be raised to more than 35 percent to legalize even just three- and four-story buildings. As small towns and secondary cities across the country seek to revitalize their downtowns to become more competitive job markets, unreformed financing restrictions act as an invisible barrier, suffocating local efforts to invest in smaller communities. And while the housing affordability crisis has reached the most acute levels in a handful of coastal cities like New York, San Francisco and Washington, the White House admits that “this problem is now being felt in smaller cities and non-coastal locations.”

Market-rate affordable housing reform rightly belongs at the local level. Unfortunately, current policy means that, even if they were deregulated, small-scale building efforts would too often die in the halls of the FHA and the Department of Housing and Urban Development. If the White House and federal policymakers are truly interested in encouraging market solutions to housing affordability, they can start by helping the feds get out of the way.

Photo by Kenneth Sponsler /

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