Local deregulation is the path to relieving Maine’s housing crunch
Ask anyone looking to move to or within the greater Portland area and they will express to you how difficult it is to find an affordable place to live. Housing costs have been a thorn in the side of Mainers new and old, as well as local leaders, for at least a decade or longer.
Though the Maine Association of Realtors reports the median price of an existing single-family home is up 10% from October 2020, at least home prices are showing signs of steadying from the roller-coaster of the last two years or so. The national median home price rose nearly 13.5% since then. The biggest factor in Maine seems to be in pre-sale inventory. Whereas in October 2019 the market had more than four months of for-sale inventory, today, less than two months of supply exists.
A broad consensus in housing economics is the recognition that, when rent is greater than 30% of the household’s income, that household is considered “rent-burdened.” The logic of this idea is presented in findings of a study supported by real estate website Zillow, which showed that “homelessness is higher in areas where rents make up a larger share of income.”
This assertion supports other research by scholars such as Salim Furth of the Mercatus Center at George Mason University. In a paper published in the journal Critical Housing Analysis, Furth uses data from various New England sub-regions to “rewrite the equation for rent burden as a sum of four factors: rent gap, income gap, excess size cost, and demographic baseline.” He ultimately shows that “high rent is the primary cause of unaffordability in high-cost, high-wage metro areas,” like the southern counties of Maine and New Hampshire.
In other words, the affordability of housing is a function of the overall economy. It is intricately related to overall economic vitality, but Maine’s recent approach to economic development, predominately made up of corporate welfare programs—ever-increasing grants and exemptions to select employers and industries—has not borne adequate results to help Mainers better afford daily life. This government-centric fiscal philosophy rears its ugly head in housing policy as well.
According to Federal Reserve data, the number of newly-built housing per capita in the United States has fallen 50% over the last 40 to 50 years. This housing crunch clearly stems from a lack of supply, not of regulation. Thankfully, many high-demand Maine towns are addressing the issue of housing supply by recognizing the consequences of onerous local zoning on builders, owners, and renters.
In March, Rockland city officials moved to roll back their rules on accessory dwelling units (ADUs) such as tiny homes, garage apartments, and in-law suites. The City of Portland is more than a year into its ReCode Portland initiative to update its zoning and land use ordinances to be more inclusive to the city’s growing population and align with the goals outlined in its 2017 comprehensive plan. Even the progressive Portland Press Herald newspaper editorial board pointed to “burdensome” local ordinances as contributing to high housing costs, and endorsed some level of local zoning deregulation. At the same time, they advocated for the state to force towns to pay for housing affordability initiatives.
In many ways, the most aggressive plan to tackle housing and growth issues has come out of the City of Auburn, driven by Mayor Jason Levesque. In testimony to the housing commission’s first meeting, Mayor Levesque detailed some of the policy actions already taken, such as the removal of parking requirements for new construction, getting rid of restrictions on size, placement, and usage of ADUs throughout every residential zone, eliminating exclusive density zoning rules, and waiving all building and permitting fees for veterans.
This moment is key for Maine’s local and state leaders to recognize the folly of central planning. They should reject the philosophy of piling on government programs and red tape to craft society in one’s preferred image and instead embrace the power of individual relationships to recognize a need in the marketplace and fill it. Vast research supports the view that government actions muddle the incentives for private economic actors, leading to malinvestment, diminished start-up rates and decreased worker mobility.
In the past week, a commission established by the Maine Legislature earlier this year to study housing and zoning policy published its preliminary recommendations. The commission was made up of local advocates, legislators, lobbyists, and others who took public comment over the course of a few months to diagnose the issues within Maine’s housing markets. Its recommendations spanned a variety of options, some which embraced the ethos of free enterprise and others that leaned on state power to mold their vision.
The fundamental question overshadowing the commission’s report is to what extent will lawmakers and local officials use their recommendations in their own work when they reconvene in 2022? Some of their policy options make sense for the problem at hand: relaxing zoning to allow property owners to build more ADUs, reducing minimum lot sizes, setbacks, single-family density requirements, and ending income limits on homeownership. While the Maine Municipal Association, a lobbying group representing towns and cities, generally supports these policies, implementing them across the state would require substantial local support to be accomplished.
Recommendations for local deregulation are on the right track, while some of the commission’s other advice relies on stacking the deck in favor of building “affordable housing” at the expense of market-directed development. For instance, on the subject of local housing production caps, commission members were split on whether these caps should all be prohibited, but the broadest consensus was related only to affordable housing caps.
Also, commission members recommended adding additional red tape to Maine’s Fair Housing law by including the vague idea of “exclusionary zoning,” which may include some of the more restrictive zoning ordinances seen by commissions members as unhelpful (such as those mentioned above). While the ideal policy would reject some ordinances considered to be “exclusionary,” the type of command-and-control housing policy would require hefty state power to enforce local compliance. To this end, some on the commission recommended that “the Legislature should contemplate the creation of a State-level housing appeals board to review decisions made at the local level.”
Think about it. In the midst of a fairly dire housing crunch, why would limiting production be at all acceptable? How would overbearing government influence on housing production vis-a-vis a state appeals board affect the climate for developers and prospective homebuyers?
This philosophy clearly leaves much to be desired. No single group of people can claim to know everything about the economy, or even a single industry. Indeed, what economist F. A. Hayek called the “knowledge problem” persists to this day, exacerbated by regulatory agencies that try to fit society into their plan. This problem is obvious at the highest levels of government, but it can also manifest on the local level. In many ways, the greatest infringements on personal liberty and property rights can come from one’s local government.
Ultimately, the way out of this persistent and worsening housing crisis is for state policy to provide a carrot for localities rather than sticks for developers. One of the guiding principles of governance in Maine, and much of New England as well, is local control. While the state requires towns to implement certain zoning provisions such as those related to shoreline development, Maine municipalities have historically been granted wide deference to make local policy. State lawmakers have another tool at their disposal to incentivize municipalities to follow their vision, though: the state revenue sharing formula.
Every budget, state lawmakers set an overall percentage of state revenues which Maine’s towns and cities receive; right now it is 5%, up from 3.5% in the last budget. By rewarding towns which implement appropriate zoning reforms (repealing limits on ADUs, lot sizes, setbacks, owner/renter income), as well as other outdated and counterproductive rules, state legislators can push localities toward more inclusive and encouraging policy for builders and prospective movers. This is the path to building a housing market that works for Mainers.
Encouraging blanket local deregulation would do more for renters and low-income folks overall than funneling tax dollars into programs which are marginally beneficial at best, and incredibly wasteful at worst. By focusing too much on publicly-subsidized housing and ways to appeal only to renters at certain income levels, lawmakers can do more harm than good. The state should not subvert local authority and direct production quotas of housing construction; it should encourage more flexible local policy.
State Representative John Andrews of South Paris expressed his concern of state-directed housing policy replacing local control:
“We must oppose the centralization of government in all forms. We are a local control state. Paying property taxes to your town while being beholden to the dictates of an un-elected, state level, centrally planned housing and zoning authority is taxation without representation. Every Mainer owns the right for a redress of grievances with their local select board in the town where they pay property taxes with regard to zoning and municipal matters. That only happens with local control.”
A study published this August by researchers from the private sector and University of Chicago found that incentives to relax local zoning regulations would pay off for federal assisted housing programs, allowing them to serve 13% more (>420,000) families. In a piece for The Hill, the authors write that, because the federal government covers the cost when rent increases incrementally for affordable housing dwellers, “stringent local regulations can substantially increase the federal cost of covering a fixed number of families.” Since those costs of regulation are borne by the federal government, they estimate that savings from deregulation would “flow back to housing assistance programs — freeing up an estimated $2.3 billion for Section 8 housing choice vouchers and $1.1 billion for project-based rental assistance.”
It may be counterintuitive, but economic literature shows us that we do not need to target and particularize our housing policy solutions to preferred demographics. Overall deregulation can help to keep costs lower across the whole economy, leading to more directed investment from developers, sustained earnings for renters, as well as ancillary benefits to the state and local communities when more families and workers move in.
This is precisely why Maine legislators should reduce state-level red tape and provide incentives to localities which free up their communities from onerous zoning rules.