The Abundance housing policy that already exists

The big idea in “Abundance,” the new book from Ezra Klein and Derek Thompson, is that if we want more stuff — more housing, better healthcare, cleaner energy — we need to clear away the dense thicket of bureaucratic impediments that block the production of that stuff.

Housing specifically is the area where the ideas of the Abundance movement have the most political momentum so far. YIMBY advocates who want to cut red tape to allow more building have started winning legislative battles in recent years. Policymakers and pundits (like me) have likewise been emphasizing the variety of downstream problems, from homelessness to low family formation, that have resulted from the shortfall of housing supply.

But even within the realm of good ideas, some ideas are better than others. And I would argue that there is a specific kind of housing policy that best aligns with the Abundance agenda.

The problem with the usual solutions

The most consequential red tape is found in zoning and building codes. By mandating bigger units, bigger lots, more parking, and other burdensome requirements, municipalities across the country have spent decades making it harder and harder to build apartments.

Ironically, when the government tries to address the lack of building with subsidies for new construction, the red tape gets even thicker. Klein and Thompson document in detail the tangle of additional mandates and regulations that are typically attached to government money. These requirements are often aimed at achieving goals that are unrelated to the building of new homes.

Government money can trigger, for example, a mandate to pay construction workers “prevailing wages,” which ends up raising labor costs by 20 to 30 percent in the estimation of one expert in the book. Then there can be mandates that workers must be unionized and hired locally, raising labor costs further. Sustainability requirements and “Buy American” mandates are sometimes added. In some places there are requirements to hire minority or women owned businesses. These were struck down in California but then replaced with requirements to hire small businesses.

And finally there is the red tape that comes from local review and community input. Klein and Thompson take us to a housing project in San Francisco, which required reviews from the arts commission and the Mayor’s Office on Disability. Facing the risk of local opposition, “developers hire pricey architects, redo plans repeatedly, make all kinds of aesthetic and architectural concessions or additions, hire extra lawyers and auditors, and on and on.”

Not only must builders fulfill all of these expensive mandates, they also have to fill out reams of paperwork and hire expensive consultants to prove they have done so. The whole process can lead to extremely costly delays in the back and forth of placating stakeholders and bureaucrats. It always seems easy to ask that developers check just one more box. Rarely is thought given to the time and paperwork costs of proving the box has been checked.

Goals like higher pay, prioritizing union workers, and including community input may seem desirable. But the costs and bureaucracy they impose undermine the main goal of building more housing. They represent what Klein and Thompson call "everything bagel liberalism.”

“When the government adds the right number of goals, standards, and rules, much can be accomplished,” they write. “When it adds too many, the project can collapse under its own weight.”

The results of everything-bagel housing policy can be stark. In one example in the book, it takes six years and almost $700,000 to build a single affordable housing unit in San Francisco. Yet it’s not just San Francisco. These issues can be found anywhere the government writes a check with the goal of increasing housing supply.

Designing an Abundance housing policy

If you take the Abundance approach seriously, then you should look for a housing subsidy that avoids the litany of mandates, bureaucracy, and cost raisers that Klein and Thompson document.

This means ruthlessly avoiding the side goals and red tape. Programs like the Low-Income Housing Tax Credit and the New Markets Tax Credit, which rely on heavy-handed bureaucracy and tens of thousands of dollars of paperwork to “prove” that the project checks dozens of everything-bagel boxes, fail to qualify.

Instead, a policy consistent with Abundance would include a few specific design features.

First, since real estate investors are highly sensitive to their capital gains tax liability, a well-designed housing incentive should take the form of allowing investors to keep more of whatever money they earn on productive investments — rather than an up-front subsidy from the government.

Second, the policy should avoid arbitrary and extraneous mandates such as job creation, “Buy American” provisions, union requirements, community input, and others that eat into the subsidy’s value and undermine the main goal. The goal is more housing, end of story.

Third, the policy should let market forces work to determine what gets built. It should not require a team of consultants to prove that a project is building the exact kind of housing that is “needed.” Research is clear that increasing the supply of housing of all kinds, including market-rate housing, helps to alleviate affordability and displacement pressures.

Fourth, the policy should use clearly defined geographic rules about which places are in need of investment — rather than necessitating reams of paperwork to determine whether a particular project is sufficiently targeted to places in need.

Finally, the policy should be by-right, which means it is uncapped and can be claimed by anyone following the rules. This is in sharp contrast to a subsidy awarded from a scarce pool of resources — like a grant or tax credit drawn from a fixed allocation — which in turn usually involves high entry costs to compete for the subsidy, a lengthy application process, and still more mandates that must be met along the way. A by-right policy means that if an investment qualifies, it qualifies, further avoiding paperwork and the ensuing delays that any bureaucratic approval process would create. It also generates the kind of broad participation necessary to tackle difficult issues — like housing supply — at scale.

Oh, wait

The good news is that this Abundance-consistent housing subsidy already exists. It is known as Opportunity Zones (OZs).

If you are surprised to hear this mostly unsung part of the 2017 Tax Cuts and Jobs Act described as an Abundance policy, then you haven’t been following the debate.

For those who need a refresher, Opportunity Zones are aimed at increasing investment in distressed areas. The policy offers a capital gains tax benefit to individuals or corporations that make long-term investments into designated low-income census tracts.

While the policy has sailed under the radar for most of the Abundance movement, its critics were reading right from the NIMBY playbook.

In 2018, Adam Looney and Hilary Gelfond complained that the tracts selected as OZs had housing price appreciation between 2012–2016. This was bad, they argued, because these tracts were “already rapidly gentrified areas where subsidized infusions of capital are not the most economically efficient.” Not only was their evidence proven to be flimsy,¹ but the idea that building more houses undermines (rather than contributes to) affordability is exactly the type of argument that the Abundance movement is also up against.

The 2021 testimony from Bret Theodos of the Urban Institute reads like a greatest hits of everything-bagel liberalism. He complains that OZs should have been forced to reward “impact investors who are willing to support projects with large social impacts.” He argues that the subsidy should be “adjusted based on the number of quality jobs created by the investment or the equitable development characteristics present in a project…” He calls for the program to be limited to “mission-driven funds that are accountable to the community,” and that they should be required to adhere to “community engagement processes.”

In other words, Theodos was quite literally demanding what Klein and Thompson warn against, which is to make sure that “taking advantage of public money layers on requirements, delays, and additional goals, slowing down construction and raising costs.”

While critics act as if the lack of everything-bagel liberalism was an oversight, the importance of Abundance ideas to Opportunity Zones was apparent in the original 2015 essay from Kevin Hassett and Jared Bernstein that first made the broad case for them. Hassett and Bernstein argued that one reason for the weak results from earlier place-based policies was “bureaucratic requirements that are not offset by small rewards,” and that enormous resources were required “to organize an activity in a manner that benefits from the positive treatment.” A decade before Abandance, OZs attempted to overcome the problems identified in the book — and critics treated it as an oversight instead of a wise, deliberate strategy.

Early signs of success

The results speak for themselves. In our new econometric analysis, we found that OZs causally increased housing supply in targeted areas by about 300,000 units at a cost of roughly $20,000 per unit. This finding can be contrasted with the Low-Income Housing Tax Credit, an affordable housing subsidy that subscribes to the full bevy of usual mandates and micromanagement — and which costs an estimated $1 million per net new unit. If critics had their way, the same would be true of Opportunity Zones.

Not only did OZs generate a large increase in housing supply at a low cost, but the policy provides a clear win for Abundance ideas — it has benefitted genuinely distressed communities. Research using tax data shows that half of OZ investments went to the bottom 25 percent of tracts by median income. The researchers conclude that “a common critique of OZs is that it provides too much discretion to private investors who may simply invest in the least needy areas where the return on investment is expected to be highest… Across a number of static measures of distress, that does not appear to be the case, with OZs providing a large amount of investment to distressed areas.”

It is time for the Abundance community to take a second (or first!) look at this misunderstood policy.

1. In addition to conceptual errors, the analysis suffered from methodological problems. They argued, for example, that 40 percent of Opportunity Zones in Mississippi were “gentrifying.” But two thirds of those tracts were rural or small towns, and half of those, in turn, were experiencing a declining population. A rural tract with a falling population in the poorest state in the country cannot plausibly be described as gentrifying. See here for more discussion.