Making Housing Affordable Again: Part 3

Part 3: Solutions

Part 1: The Free Market is Not Causing the Affordability Crisis may be read here. Part 2: The Housing Affordability Crisis is a Creation of Government may be read here.

Solutions

Though this paper is focused mostly on Texas, if the following recommendations implemented by state and local policymakers they would significantly reduce the cost of living for all Americans, including the high cost of housing.

Eliminate Property Taxes

Since 1997, the Texas Legislature has been reacting to Texans’ concerns about high property taxes. And since 1997, they have accomplished very little; over that time, property taxes have increased from $17.6 billion to $81.5 billion.

But there is a path forward for true property tax relief, even to the elimination of property taxes—its called spending restraint. If Texas state and local government would rein in spending, we could use the surplus funds to buy down property taxes over a relatively short period of time. School property taxes could be eliminated in 10 years if state spending growth was held to 1% annually and school property taxes were frozen in place. A similar mechanism could be used to eliminate local government property taxes. The only requirement for making this happen is fiscal restraint on the part of our state and local elected officials.

Stop Runaway Local Government Spending Growth

Runaway local government spending not only fuels the growth of property taxes, it also increases the cost of living for residents. Local government spending increases other taxes, is behind the increase of fees for development, building, impact, and other fees. Resident have less money to spend, local prices increase. The Texas Legislature can stop the runaway local spending growth by 1) requiring that voters to improve any increase in property taxes, 2) putting a 3% hard cap on annual local property tax increases approved by voters, and 3) restricting local government spending growth to no more than the property tax growth rate approved by voters.

Reduce Land Use Restrictions, Building Codes, and Permitting Costs

There are a lot of possibilities in this area to reduce housing costs. One of those is to end zoning in Texas. We do not need land use controls that sprang our of racism and commercial protectionism. Houston has proven that cities do not need zoning to maintain a vibrant city and local economy. There is no reason why the government should tell us how we can use our private property. Restrictions on use can be dealt with voluntarily through mechanisms such as deed restrictions and neighborhood associations. This would open up as much land as possible for new housing, including allowing the building of townhomes and multifamily housing, smaller lot sizes, etc.

Additionally, the Texas Legislature should take cities and counties out of the environmental regulation business when it comes to land use. If the federal government or the state believes there is a legitimate need for environmental restrictions, they can take care of it. But with the situation today, we have local officials imposing their beliefs on residents by making housing less accessible and less affordable. The Legislature should put an end to this.

Another possibility is to increase the use of municipal utility and other special districts. MUDs and these other districts often deliver the best house for the best price for homeowners because they do not face all the taxes and regulations that come with being incorporated in a city. In this situation, developers and homebuilders can avoid the morass of city bureaucracies that drives up the cost of housing. One reason the Houston area has more affordable housing is because it has a thousand MUDs. Cities often push back and fight special district creation because they do not want the competition.

Close the Border

America’s border crisis comes at great expense to Texans. One group estimated the 2022 costs of illegal aliens to Texans at $9.9 billion. This is in addition to the higher cost of housing created by the vastly increased demand for housing created by the 5.46 million foreign born residents in Texas. The only way to stop the increasing cost that illegal immigration has on housing is to close the Texas border until Mexico stops the flow across its border. And the lonely way to accomplish this is by putting economic pressure on Mexico.

President Trump showed that a tough-on-Mexico approach works. He began putting pressure on Mexico through the threat of tariffs in 2019. It worked. U.S. – Mexican border encounters declined by more than half from 2019 to 2020, from 977,509 to 458,088. However, once Biden took office and took away the threat of tariffs, encounters skyrocketed more than fivefold to 2,475,669 in 2023.

While we can hope that the incoming Trump administration takes this approach again, Texas can also participate. For instance, Texas could stop, search, and, if necessary, seize all trucks and other shipments transiting the US-Mexico Border Through Texas. We could also discourage tourism in Mexico and other countries through advertising. And our governor and other leaders could meet with Mexican border governors to make clear we are serious about this but also that if they stop the flow of illegal aliens, we will stop our efforts.

Provide Local Residents More Opportunity to Hold Local Governments Accountable

Individual Texans have very little say when it comes to controlling local governments’ regulation and taking of their property rights. A major reason for this is the failure of the Texas Legislature when it passed the Private Real Property Protection Act of 1995.

A major aspect of the act is that it requires compensation when governmental regulations are the cause of a reduction in real property value. Citizens could sue to recover their losses. If the act was truly effective, housing and real estate prices generally would be much lower today. Unfortunately, the act contains two clauses that make it largely useless.

The first is the requirement that the loss of value caused by a government regulation must be at least 25%. Most government actions cause value loss less than this, leaving property owners with no recourse. The other fatal flaw is that the act exempts cities. Which means that zoning, development restrictions and fees, and any other city activity are excluded from the provisions of the law.

The Texas Legislature should amend the Private Real Property Protection Act by applying it to cities and reducing the loss of value trigger down to 5% or 10%. This would allow citizens to hold local governments responsible for their actions. Perhaps more importantly, it would put a brake on many of the actions of local governments that reduce property values and increase the cost of housing.

Dealing with Federal Policies

There is little Texas government can do to directly control federal policies such as inflation or housing subsidies. But the state can make efforts to change them or their administration in Texas.

When it comes to inflation, the creation of new money out of thin air by the Federal Reserve is almost completely responsible for inflation. But the Texas Legislature and Texans should put pressure on the federal government to 1) clamp down on the Federal Reserve, and 2) adopt a balanced budget and limits on federal spending increases, preferably through a constitutional amendment. These reforms would take the pressure off the Federal Reserve to print more money and would lead to lower and more stable interest rates. Housing costs will stop increasing so rapidly.

Federal housing subsidies have a closer nexus to Texas because many of the funds are administered through the Texas Department of Housing and Community Affairs. U.S. Rep. Bob Good (Virginia) has filed legislation that would keep these funds from going to many of the “large woke corporations like Blackstone, Vanguard, and Starwood Capital [that] are buying up single-family homes en masse—driving up rents and placing a strain on housing availability,” according to Rep. Good. Another bill he has filed would prohibit the U.S. Department of Housing and Urban Development from implementing a rule requiring HUD grantees to implement equity-driven housing plans. Texas could work with Texas co-sponsors of the legislation, Rep. Randy Weber, and Rep. Brian Babin. Governor Abbott and the Texas Legislature could also examine whether it wants Texas to continue to administer programs such as the the Housing Tax Credit Program.

Conclusion

In 2019, President Donald Trump issued an executive order to address the rising costs of housing. The order said that “Driving the rise in housing costs is a lack of housing supply to meet demand. Federal, State, local, and tribal governments impose a multitude of regulatory barriers—laws, regulations, and administrative practices—that hinder the development of housing.” The order also identified many of the regulatory barriers, including: “overly restrictive zoning and growth management controls; rent controls; cumbersome building and rehabilitation codes; excessive energy and water efficiency mandates; unreasonable maximum-density allowances; historic preservation requirements; [and] overly burdensome wetland or environmental regulations.”

There should be an orderly, logical, and safe way to move forward and provide housing without the illogical responses that are driving local government policies. In fact, there is a way. It is called the free market, where buyers and sellers, builders and prospective homeowners can get together and work out the various challenges associated with homeownership and expanding the housing stock. By removing the bureaucratic hurdles that are limiting housing stock and increasing housing costs Texas can significantly reduce the cost of living for Texans, including the high cost of housing.

To download a .pdf of the entire paper, click here.