Biden's Plan To Link Federal Transportation Spending to Zoning Reform Could Make the Housing Shortage Worse

The administration is encouraging counterproductive "inclusionary zoning" policies that often raise housing prices and reduce supply.

President Joe Biden has a new idea for reducing regulatory barriers to new housing construction. Contained within the White House's expansive new Housing Supply Action Plan is a proposal to tie federal transportation grants to state and local governments reforming their zoning codes.

Proponents of this approach argue that the massive amounts of money that the feds spend on transportation give them a lot of helpful leverage over the most overregulated jurisdictions. Conditioning that money on the elimination of barriers to new housing could get exclusive communities, or their respective state governments, to start slashing red tape if they want funding for new roads, bridges, or bike lanes.

But critics argue that even in its best form, getting transportation bureaucrats into the weeds of local land use policy is federal overreach.

The details released from the White House so far suggest that they are not adopting the best form of this idea. In fact, Biden could end up incentivizing counterproductive housing reform that will probably raise costs and reduce supply.

The Biden administration's Housing Supply Action Plan, which was released Monday, certainly sounds the right notes on zoning reform when it says that "exclusionary land use and zoning policies constrain land use, artificially inflate prices, perpetuate historical patterns of segregation, keep workers in lower productivity regions, and limit economic growth."

To fix the problem, it proposes a grab bag of policies; from easing federal regulations on manufactured homes to streamlining the applications for federal affordable housing funds.

Included is a plan to use discretionary transportation grant programs funded by 2021's Infrastructure Investment and Jobs Act (IIJA)—costing $1.2 trillion—to encourage "locally driven land-use reform, density, rural main street revitalization, and transit-oriented development."

The IIJA provides $150 billion in funding for discretionary grant programs. Beginning this year, the White House says that the Department of Transportation (DOT) has released three notices of available funding, totaling $6 billion in grants, that have policies promoting "density and rural main street revitalization."

Salim Furth, an economist at George Mason University's Mercatus Center, says more closely tying local land use policy and federal transportation spending is "broadly logical."

"You shouldn't build infrastructure where people ain't or where [housing] densification can't follow the [transit] investment if you're adding a lot of capacity," Furth tells Reason.

But he cautions that trying to incentivize land use reform through discretionary grant programs—which give the administration a lot of freedom to set grant conditions and pick who ultimately gets the money—opens the door to a lot of counterproductive political manipulation.

"When it's a Democratic administration, they are going to look for Democratic-friendly policies, even when they don't have a big impact on housing production," he says. "You might get points for having a strong inclusionary zoning ordinance even if that ends up backfiring and creating less housing than a Texas suburb that is really generous about zoning for multifamily" housing.

Inclusionary zoning refers to policies that require or incentivize developers to offer some of the new units they build at below-market rates to lower-income renters or buyers. Close to a thousand jurisdictions in the country have some form of inclusionary zoning.

The policy has a poor track record of creating new affordable housing. Research is increasingly finding that requiring developers to build below-market-rate units acts as a tax on new housing, which has the effect of either raising prices or reducing new supply. There's one active lawsuit out of Pittsburgh, Pennsylvania, arguing the whole scheme is unconstitutional.

And inclusionary zoning appears to be precisely the kind of thing that the Biden administration's changes to discretionary transportation grant programs are encouraging.

Per a DOT spokesperson, the administration has thus far used three "notices of funding opportunity" that include language promoting density and land use reform.

That includes a January-issued grant solicitation for $2.2 billion in Rebuilding American Infrastructure with Sustainability and Equity (RAISE) grant money. These grants can pay for projects ranging from bus lanes and port improvements to recreational trails.

In March, DOT released another "multimodal project" notice of funding opportunity covering three grant programs totaling $2.9 billion that also asks applicants to talk about how their project relates to land use and housing development. Those grant programs fund major infrastructure projects and infrastructure projects in rural areas.

On Monday, a notice of funding opportunity for $1 billion in Safe Streets for All grants—a new program that pays for safety improvement projects—also looks at applicants' land use policies.

The first two notices of funding opportunity make frequent mention of rewarding grant applicants that have policies encouraging "mixed-income residential development near public transportation." And the primary way an applicant would create those mixed-income residential developments would be through having an inclusionary zoning policy.

Elsewhere, these notices of funding opportunity express preferences for rewarding projects in areas with "fiscally responsible land use" or "location-efficient housing." Those terms could plausibly be read as references to more deregulatory zoning policies that allow market-rate multifamily housing. They're nevertheless pretty vague.

Those references also come sandwiched between a lot of other factors that DOT staff will consider when scoring grant applications. For instance, the notice of funding for the RAISE grant program asks applicants to detail how their project will improve economic growth. In particular, applicants are asked to:

describe the extent to which the project and local and regional policies related to the project will contribute to the functioning and growth of the economy, including the extent to which the project addresses congestion or freight connectivity, bridges service gaps in rural areas, or promotes greater public and private investments in land-use productivity, including rural main street revitalization or locally-driven density decisions that support equitable commercial and mixed-income residential development.

If the goal is to use transportation dollars to incentivize productive housing reforms, making land use just one of many factors to consider weakens that incentive.

Other Biden White House-endorsed plans to spend money incentivizing local zoning reform have received similar criticism: they focus on too many different policy priorities all at once. They, therefore, become less a means of increasing housing supply through deregulation and more of a general subsidy to local governments.

Indeed, legislative efforts to use federal transportation dollars on spurring local land use reform have been more explicit about the land use policies they are trying to encourage.

Rep. Scott Peters (D–Calif.)'s More Housing Near Transit Act, for instance, rewards jurisdictions that don't give local bureaucrats discretion to shoot down housing projects near transit stops. The 2019 HOME Act, sponsored by Sen. Cory Booker (D–N.J.) and Rep. Jim Clyburn (D–S.C.), explicitly details the "transformative activities" jurisdictions receiving federal road and rail funding could adopt.

On the campaign trail, then-candidate Joe Biden explicitly endorsed Booker's bill.

Marc Scribner, a transportation researcher at the Reason Foundation (which publishes this website), says that competitive grant programs that give the executive branch a lot of discretion in picking awardees have a storied history of sending pork to political allies.

A report from earlier this year from the Reason Foundation found that 41 of the 90 RAISE grants awarded in 2021 went to districts or states represented by lawmakers on Congress' various transportation and finance committees. The Trump administration used the same program to shower money on rural Republican areas.

Scribner says that the Biden administration's consideration of land use policies when steering this money is just another way for Democrats to funnel money to areas where their supporters live.

"I expect dense urban cores are going to receive a disproportionate share" of transportation funds, he says. "These are earmarks by another name."

Scribner is skeptical of explicitly tying federal transportation dollars to local land use policies. Prioritizing transportation projects with higher ridership projections will already send money to roads and rail being built in areas that are favorable to development, he says.

The Biden administration has been remarkably consistent in criticizing local and state barriers to housing construction. On that point, they're in agreement with libertarian policy wonks.

Whether the federal government can be a force for good in trying to fix that problem all hinges on the details of its policy problems.

And the details released thus far on the White House's plans to link federal transportation spending and local land use aren't particularly encouraging.