Politicians have long tried to blame a whole host of actors for America’s housing affordability crisis, from corporate landlords to Wall Street investors to software data tools. But Washington finally appears to be acknowledging the fundamental source of the problem: America needs more homes.
A recently enacted bipartisan housing law, known as the 21st Century ROAD to Housing Act, takes aim at America’s housing shortage by introducing reforms intended to reduce barriers to construction, encourage innovation and help communities increase their housing supply. The message from the legislation is clear: long-term affordability means building more places where people want to live.
The bipartisan reforms in Washington stand in stark contrast to the approach taken by some state and local governments. In New Jersey and New York, as well as the cities of San Francisco, Philadelphia, and Minneapolis, politicians have moved to restrict pricing analytics software. The Biden administration long argued that revenue-management software and algorithmic pricing, were facilitating anticompetitive coordination among landlords and leading to rising rents. Politicians in these states and municipalities are taking up the Biden administration’s cause.
Of course, there is an important role to play for antitrust enforcement. If landlords or technology companies engage in illegal coordination, competition laws on the books can and should be fully enforced. But that’s a far cry from treating rental software as the cause of a broader affordability crisis.
A pricing algorithm cannot create housing shortages. Nor will banning one lead to the building of a new home.
That distinction matters because the housing problem comes down to an issue of scarcity. In markets where too many families are competing for too few homes, rents and purchase prices rise. Restrictive zoning, lengthy permitting processes, high construction costs and other regulatory barriers have made it difficult for the housing supply to respond to demand in many of the country’s most expensive markets.
If politicians’ goal is to reduce the pricing power of the landlord, then they must pursue policies that give renters more choices. When there are too few apartments, property owners gain the advantage. When new apartments are built and landlords have to compete, renters gain leverage. When housing stock is plentiful, vacancies become expensive, concessions to renters become more attractive and landlords have more incentive to compete, both when it comes to price and quality.
This is precisely why states and cities continuing the Biden era campaign against rental software risk swimming against the current. They remain far too focused on regulating how landlords calculate rent, while the federal solution is increasingly focused on why there aren’t enough homes in the first place.
This contrast is particularly important given that most of the important obstacles to housing construction are controlled locally. Politicians in Washington can pass legislation to encourage housing production, streamline federal programs, and provide incentives for reform. But local governments still have enormous control over things like zoning, density, permitting and development approvals. A city worried about high rents can scrutinize rental algorithms, but its own land-use policies may have far more influence over whether renters have enough housing choices. For example, in San Francisco, rental prices have gone up by 26 per cent since the city put all of its eggs in the “stopping software” basket.
None of this requires policymakers to give landlords or software companies a free pass. Of course, genuine anti-competitive conduct should be prosecuted. But antitrust enforcement should not become a substitute for good housing policy, nor should technology become a convenient scapegoat for decades of poor policy decisions that have constrained supply.
The 21st Century ROAD to Housing Act offers a better framework. If America wants housing to become more affordable, policymakers should make housing less scarce. That means speeding up approvals, fewer unnecessary barriers to construction and more apartments, townhouses, starter homes and other options in the places where people want to live.
For too long, the housing debate has focused too heavily on determining who is to blame for high prices. Congress is starting to recognize that the more important question is what it will take to build enough housing to bring those prices down.
State and local governments that keep pursuing yesterday’s fight over rental algorithms should take notice. There’s no way to regulate your way out of a housing shortage. It’s time to build.