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Opinion | Policy

Federal and State Dollars Could Be Used to Force Change in Exclusionary Towns

Strict zoning policies keep housing unaffordable. But there are strategies governments can implement to change exclusionary housing policies and promote the construction of more affordable housing.

Photo by Aslan Alphan via iStock

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An extreme close-up of a dollar bill showing the dome of the U.S. Capitol

Photo by Aslan Alphan via iStock

Grosse Pointe Park, Michigan, a suburban community east of Detroit, and Hudson, Ohio, located between Akron and Cleveland, are 200 miles apart and in different states. But the communities share a distinction: they belong to a cohort of the nation’s most exclusionary cities and towns. This means that, despite considerable demand from would-be new residents to live there, they have mounted barriers to new housing construction through overly restrictive land-use rules. Between 2000 and 2020, Grosse Pointe Park permitted only 54 new housing units—meaning its new housing is growing at only a tenth of the rate of new construction in the surrounding metro area.

Like many other local governments, Grosse Pointe Park’s and Hudson’s governments have considerable control over their land use regulations. They are entitled by their respective states to set zoning rules that limit housing construction, particularly of units affordable to low-income families. The consequences of such regulations extend beyond a simple lack of housing supply. By excluding people, restrictive zoning policies allow communities to hoard resources—meaning that they can restrict the use and benefits of their public services, like schools and parks, to wealthier residents who are also more likely to be white. Both of the suburbs—illustrative of many other exclusionary communities nationwide—have populations that are overwhelmingly white, with median household incomes double those of their respective metropolitan areas.

The states and the federal government could take steps to encourage more equitable policies in these types of cities. Our new research shows that higher-level governments have some options, including conditioning grant awards on improved land use policies to promote new housing construction and equitable outcomes—especially in communities whose budgets significantly depend on federal and state funding.

But this approach won’t work in communities that don’t rely as much on federal or state funding or that are willing to refuse it in order to preserve their exclusive land use rules. That’s why the best strategy is one that connects a variety of approaches aimed at improving housing affordability, limiting restrictive zoning rules, and increasing the housing supply.

Exclusionary Communities Are Often Hostile to New Housing Construction

In many towns and cities in the U.S., residents and policymakers are opposed to new housing construction, particularly when it involves anything other than single-family homes. Grosse Pointe Park and Hudson allow only single-family homes to be built on 84 percent and 85 percent of their residential land, respectively.

These types of strict land-use regulations prevent the construction of multifamily housing, creating a supply shortage and increasing housing costs. It is far easier to construct multifamily buildings of three or more units in neighboring cities than it is in Hudson; 2 percent of all land in Hudson allows this type of construction, compared with 7 and 22 percent in Akron and Cleveland, respectively. Is it fair for certain suburbs to declare themselves off-limits to a complete housing type—and the people who live in those sorts of units? These conditions limit the development of subsidized housing, which is typically in the form of multifamily buildings; recent data show zero federally supported affordable housing units in Grosse Pointe Park or Hudson.

These types of exclusionary municipalities have maintained a population of residents who have higher incomes, are more likely to be white, and are more likely to be homeowners than are residents of nearby cities. These residents also tend to be fierce defenders of stasis in their communities.

High housing prices and lower supply disproportionately affect households of color and people with low and moderate incomes by, among other things, limiting their access to these exclusive communities.

Conditioning State and Federal Grant Money Could Lead to More Equitable Land-Use Regulations

Local governments rely to different degrees on financial help from other levels of government. In 2020, federal and state transfers accounted for 17.5 percent of overall local government revenue for Grosse Pointe Park and 15 percent for Hudson (the second-highest share after property taxes in both cases).

Intergovernmental transfers generally involve grant awards and funds distributed from tax revenue based on a formula model. Localities use these transfers to supplement locally generated revenue. For example, in the 2020 fiscal year Hudson received a major grant for highway planning from the U.S. Department of Transportation via a distribution from Ohio’s Department of Transportation, and in the same fiscal year Grosse Pointe Park received a community development grant from the federal government.

Most of these transfers are not housing-related; many are directed to policy areas like environmental protection, stormwater systems, police equipment, and health care. Still, the reliance of local governments on these funds could allow state and federal governments to exert leverage over existing land-use and housing policies in cities and towns that are not providing their fair share of the region’s housing supply growth.

The Best Strategy Is a Myriad of Approaches that Fit Each Context

Each situation will inform what collection of policies are most effective. For example, federal or state governments could distribute funding as a reward to any municipalities that demonstrate progress in increasing access to housing. Or they could deny funding to the most exclusionary cities.

These types of policies can, of course, only serve as effective approaches for localities that rely on intergovernmental transfers. In our examination of exclusionary cities, we identified some, like University Park, Texas, whose local budgets relied on almost no funds from state or federal transfers. And some of the most exclusionary localities may choose to stop taking intergovernmental transfers altogether in exchange for preserving their exclusive land-use regulations.

States are in a particularly good position to promote better housing policies, not only because the majority of transfers come through them, but also because they can legally impose virtually any requirement or restriction through preemption laws; cities hold no guarantee of independent policymaking in the U.S. federal system. Using intergovernmental transfers as levers could take various forms, such as promoting altered zoning laws when cities limit the construction of multifamily housing, or promoting increased subsidized housing when cities have limited affordable housing options.

Federal leverage may be harder to achieve, particularly when funds (like from the Department of Transportation) are not directly linked to housing. But there may be a legal basis for establishing connections between funding for programs like transportation infrastructure and land use policy, since residential development informs the effectiveness of investment in transportation.

That’s why, as policymakers consider what tactics to pursue to ease the housing crisis, they should consider a combination of strategies to address communities’ different characteristics. This could mean conditioning grants, but it could also involve setting preemptive requirements for municipalities to provide a minimum number of affordable housing units, directing new state-funded affordable housing projects to be built in the most exclusionary cities, or expanding access to housing vouchers to allow people with low incomes greater access to opportunity.

Overall, creative policies are necessary to encourage exclusionary localities like Grosse Pointe Park or Hudson to contribute their fair share of housing and create more inclusive communities.

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