This piece is a guest contribution and does not necessarily reflect the views of Inclusive Abundance.
YIMBY activists across America are closely and hopefully watching the continued progress of federal housing legislation like the Housing for the 21st Century Act and ROAD to Housing. It’s for good reason, as they stand to unlock desperately needed new housing by clearing out regulatory riffraff, making needed new public investments, and – for the first time – tying funding for cities to housing production. Fixing state and local decision incentives is probably the biggest thing the federal government can do to address zoning and permitting.
A needed first step? Yes. Mission accomplished? No. While the ROAD incentives are novel, we can and should go farther when we have the opportunity. In recent months, the Institute for Progress, Searchlight Institute, and Center for American Progress have all released housing plans, with the latter two aimed squarely at ambitious Democrats.
But even if a fervent YIMBY is elected in 2028 and prioritizes housing legislation, the nature of Congress is that there will only ever be one big bite at the pro-housing apple. (See: the Affordable Care Act.) If we’re going to close our housing gap, it’s going to require not just ambitious reforms, but the right reforms.
The plans
Three big plans have come onto the scene in roughly the last year (and Economic Innovation Group is set to release a fourth):
CAP’s “Build Baby Build” takes a bold first step, rewarding cities for passing pro-housing policies in year one and then rewarding housing starts (the beginning of new construction) in subsequent years
Searchlight’s plan similarly proposes federal rewards for households but tied to high production growth or high per capita production of housing, not to specific policies
Institute for Progress (IFP) and Niskanen Center’s plan conditions access to Low Income Housing Tax Credit (LIHTC) funding on local governments adopting rigorous pro-housing policies and permitting more housing
Each of these approaches recognizes the core problem of incentives and offers money to counterbalance NIMBY politics. But these approaches demonstrate four core mistakes.
The problems
The first mistake is rewarding policies instead of outcomes. It may sound straightforward to “reward cities for passing pro-housing policies,” but evaluating what policies are truly pro-housing is labor-intensive and easy to game. The most serious flaw is the specter of malicious compliance — fake policies that check a box but don’t meaningfully increase supply.
The last decade of YIMBY reform has shown how creative cities can be at frustrating even their own programs. Minneapolis’s widely hailed missing-middle upzoning legalized duplexes and small apartment buildings, but allowed them to be no larger than the single-family homes they replaced. You could build more units, but you had no more space to build them than before, making denser development legal but impossible. California’s effort to legalize ADUs has faced similar gamesmanship: cities that don’t want to comply can impose exorbitant fees — as high as $100,000 per unit — for water and sewer hookups. Evaluating the sincerity and efficacy of pro-housing policies is difficult and slow, as shown by California’s perpetually strained Housing Elements program.
Paying for policies also exposes taxpayers to business-cycle risk. Even a sincere local government can pass reforms and then see housing starts fall during a downturn. Canada’s $4.4 billion Housing Accelerator Fund, a program that pays for policies and was launched in 2023, illustrates the problem. In the years before the fund existed, many of the provinces that later signed HAF agreements were pursuing major rezoning initiatives, and permits and starts in those areas were rising. But as interest rates climbed in 2023 and 2024, permits and starts declined in Toronto and across Ontario, yet large payouts were still made for policy changes that were already underway and that failed to insulate housing supply from the downturn. That doesn’t make sense.
The second mistake is targeting incentives to the wrong actor. Under CAP’s proposal, eligible cities would receive $1,000 per renter household, with later payments contingent on housing start targets. The theory is that renters, motivated by the payment, will organize to support pro-housing reforms.
This raises questions. Who will pay the enormous coordination costs this strategy would incur? Who are the community organizers that are going to find out about this program, inform renters about when and where to contact their representatives, and then follow up to make sure they send emails or show up at public hearings? This incentive won’t work in jurisdictions where renters lack political power — in other words, in most jurisdictions. In the most exclusive, high-opportunity jurisdictions, where new housing is most needed, the share of homeowners is particularly high. The Searchlight plan offers cash to all residents, renters and homeowners, which avoids the problem of renters being particularly politically powerless, but the coordination problems remain.
And though the IFP/Niskanen plan doesn’t directly pay households, it still misunderstands the local political economy of housing. It creates incentives for low income people* and affordable housing developers to advocate for pro-housing policies – but the unfortunate reality is that low income people have not historically had much say in housing debates1, and those developers are already housing advocates.
Fundamentally, land use decisions are made by elected officials balancing budgets and responding to fiscal incentives. If you want results, those are the people to incentivize.
The third mistake, present to different degrees in all of the plans, is for the reward (or punishment) to be based on a large, discrete action or a jump in housing production. Housing shortages are continuous; they can get a little worse or a lot worse, a little better or a lot better. They’re not suddenly solved once a certain level of production is achieved. Localities do not fit into two distinct categories. They cannot go from definitively anti-housing to officially pro-housing, per the IFP plan. Therefore cities that produce a little more housing than they would have otherwise should be rewarded a little bit. And cities that produce a lot more should be rewarded a lot.
The fourth and final mistake is relying too heavily on sticks. While thankfully maintaining a role for outcomes-based evaluation, the IFP/Niskanen plan would withdraw much sought-after LIHTC funds from cities that underproduce housing. But few elected Democrats will vote to endanger funding that many of their constituent nonprofits depend on. We want a good housing plan, and we want a plan that can pass.
What the ideal plan looks like
Cities know best how to accelerate building locally – no blanket federal policy will ever anticipate the full universe of local reforms that might unlock supply. So rather than paying a lot of money to evaluate and reward policies, the federal government should reward outcomes: permits, starts, or completions above an expected trend line. Most cities have projects languishing in their permitting pipeline, whose approvals can be achieved with discretionary votes or administrative changes within weeks, without waiting for a new policy or upzoning.
A better approach than incentives for households would be unrestricted grants to a pro-housing city’s general fund. Research finds that when housing is fiscally beneficial, elected officials are more likely to permit it. Direct payments to city budgets rewarding housing permits immediately addresses the officials we’re trying to influence, rather than spending a lot of money on an indirect message.
We need a plan that can pass Congress. The IFP plan was written to appeal to conservatives seeking to spite big blue cities. The other plans were written for liberals and include rent assistance programs that many conservatives would hate. A more generative, bipartisan vision would work best. General operating grants would not only get results but broaden political support. These grants won’t feel like an expansion of the welfare state, with many towns likely favoring education and infrastructure investments. Eligibility could easily be structured to include fast-growing cities in the sunbelt and Midwest, ensuring that not only coastal, blue areas benefit.
It may seem premature to already be critiquing the next plan when the current one hasn’t passed. But while we can’t live without ROAD / 21st Century, we can’t settle with them. Victories build on each other, and the new focus on supply over subsidies suggests the political winds have shifted in our favor. The rent will still be too damn high come next year. Let’s make sure, as the window opens, that we have the right, big idea to fix that.
* Low income individuals – just like high income individuals – are usually opposed to high density housing in their neighborhoods. They dislike construction noise, traffic, and general community disruption as much as do higher income residents. However, we can see from existing land use patterns that local governments are much less responsive to the anti-housing advocacy of low income residents than to the same advocacy of high income residents. It’s in high income neighborhoods that zoning is the most restrictive. Prohibiting new housing is one of the most prized luxury amenities a local government can provide, and they mostly provide it to their highest income residents. Therefore, even if the coordination problems could be overcome, incentivizing lower income people – or the organizations that purport to advance their interests – to be pro-housing in order to save their LIHTC subsidies wouldn’t result in any change in the local politics around housing. Local governments already upzone low income neighborhoods, and low income residents aren’t the political force interfering with upzoning high income neighborhoods.