Housing scarcity in high-productivity American cities may be a root cause of many pernicious modern American challenges, including slow economic growth, inequality, and falling fertility. Restrictive zoning in productive urban areas has made housing unaffordable. This phenomenon has, in turn, disrupted the historical pattern of workers moving to high-wage locations and becoming more productive. For example: San Francisco’s economy could potentially support three times as many people. One study suggests that if just New York, San Jose, and San Francisco relaxed their housing rules to match the median US city’s level, it could boost national GDP by four percent and increase average earnings for all American workers by $4,000.

But can Washington do anything about a problem that seems inherently local in nature despite its national ramifications? As Edward Glaeser, a Harvard University economist and AEI nonresident senior fellow, writes in the New York Times:

It will take a forceful solution to address such a big problem. Nominal rents have risen by 6.5 percent a year since the start of the Biden administration and continue to surge even while overall inflation is dropping. The National Association of Realtors reports that the median sale price for an existing single-family home was $422,000 in the second quarter of 2024. One-half of renters spend more than 30 percent of their income on rent, and about one-fourth spend more than one-half of their income on housing. High prices and high interest rates make homeownership way out of reach for millions of people.

So what to do? Glaeser first cautions that demand-side fixes like homebuyer subsidies, as Kamala Harris proposes, risk fueling the fire. He also argues that the vice president’s proposed $40 billion innovation fund to incentivize housing reform is unlikely to sway prosperous, NIMBY-driven suburbs.

Instead, Glaser recommends an innovative approach that would tie federal transportation dollars to housing targets, compelling states to overrule NIMBY strongholds. This tactic, potentially constitutional thanks to the 1987 Supreme Court decision South Dakota v. Dole (which upheld the federal government’s right to withhold highway funds from states refusing to raise their drinking age), could unlock construction in high-value counties, addressing not just affordability but also the economic drag from an inability to build.

By pressuring areas with median housing values above $500,000 to build or lose funding, this plan aims to dismantle the regulatory web strangling America’s most productive and upwardly mobile regions. Glaeser:

For example, the legislation could establish minimum construction levels over three years for all counties with median housing values above $500,000. States with high-price, low-construction counties would have to figure out how to overrule local zoning codes themselves or lose federal transportation funding.

In my 2023 book, The Conservative Futurist: How to Create the Sci-Fi World We Were Promised I floated a similar idea. It’s great to see a more fleshed-out, scholarly version by one of the great thinkers of urban economics, especially with that SCOTUS kicker. I wish I would have thought of that!

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