We Need More Policy Entrepreneurs to Solve the Housing Crisis

This article is part of The Rooftop, a blog and multimedia series from New America’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.

There is no shortage of ideas to address the housing crisis in America. The Senate Committee on Banking, Housing, and Urban Affairs recently advanced The ROAD to Housing Act, which would advance regulatory and financial reforms to make building and financing housing easier, and is the first bipartisan housing bill to receive a markup in that committee in over a decade. States and cities across the nation are implementing a range of new policies and programs meant to increase supply, preserve existing housing stock, and provide stability for low-income households in the housing market. New companies aim to change how we finance and build housing.

There are also ample catalogs of these innovative ideas. The National Housing Crisis Task Force, where I serve as a senior advisor and was the founding executive director, recently published a State and Local Housing Action Plan with 15 innovative ideas from across the country. Local Housing Solutions has a housing policy library featuring more than 100 local policies. Ivory Innovations releases an annual prize for promising innovations in construction and design, policy and regulation, and finance. Terner Labs has incubated numerous companies through their Housing Venture Lab. But when it comes to implementation, while some innovative housing ideas spread like wildfire, others get stuck.

“When it comes to implementation, while some innovative housing ideas spread like wildfire, others get stuck.”

Take offsite construction, which can bring down construction costs through design standardization and faster timelines. While offsite and modular construction represent the vast majority of new single-family houses in Sweden and a substantial minority in Japan and the Netherlands, they represent a tiny fraction of the new units built in the United States despite numerous attempts to jumpstart the industry. Among the major obstacles is an incredibly fragmented regulatory framework: There are approximately 39,000 municipalities in the United States, most of which have their own zoning regulations. Building permits are overseen by more than 10,000 “authorities having jurisdiction,” which are either municipalities or counties, that determine if proposed buildings comply with building codes. Because of regulatory fragmentation across jurisdictions, modular companies often need to create bespoke solutions to comply with local building codes, eliminating many of the time- and cost-saving advantages of modular construction.

On the other hand, consider the innovation of the Montgomery County Housing Production Fund. Launched in 2021, the $100 million revolving loan fund in Montgomery County, Maryland has been used to create mixed-income housing developments throughout the county. This idea has since spread to other jurisdictions, with Atlanta, Chattanooga, Boston, and Chicago all launching some form of a housing production fund, as we highlighted in the National Housing Crisis Task Force’s State and Local Housing Action Plan.

How Housing Differs from Other Industries

Both modular housing and housing production funds are innovative solutions to the housing crisis. But one has spread around the country in a matter of years while the other has remained nascent in the United States for half a century, despite high-profile investments and wide-spread adoption in other countries. What explains the difference? While there are numerous reasons, regulatory fragmentation and policy entrepreneurs emerge as two crucial factors that can, respectively, constrain innovation or catalyze it.

What makes housing as an industry different from manufacturing or tech is that it is regulated locally, while most others are primarily regulated at the state or federal levels. Cities rarely, though occasionally, have a say about whether and how products manufactured elsewhere in the United States can be used in their geography. But housing is predominantly regulated locally: What may be legal to build on one side of the road could be illegal on the other side if neighboring jurisdictions have different zoning or building codes.

This means that regulatory fragmentation governs the housing industry, and as a result, innovative construction methods have a difficult time spreading from one place to another. Investments in construction innovation require a substantial capital investment that comes with a significant risk: that hundreds or thousands of municipalities would not allow such a technique in a reasonable timeframe. Until the regulatory framework that governs offsite construction can be simplified and allow for broader cross-jurisdiction cooperation, modular approaches will likely continue to struggle.

On the other hand, the housing production fund model has not been burdened by regulatory fragmentation, largely because in many places, the backbone for housing production funds are public housing authorities, which have similar powers across state lines. Typically these authorities have been established through state enabling legislation following federal funding and direction. Thus housing production funds are able to spread geographically, with local adjustments as needed, and are not stymied by a fragmented regulatory environment.

“Just because a good idea can spread doesn’t mean it will.”

Nonetheless, just because a good idea can spread doesn’t mean it will. For an idea to truly take off, others need to learn about it, decide it can solve a problem they have, and devote the time and resources to implement it locally. From that perspective, another key reason that the housing production fund model has spread is because of the work of the Center for Public Enterprise.

In his book Agendas, Alternatives, and Public Policies, professor John Kingdon defines policy entrepreneurs as “advocates for proposals or for the prominence of an idea” who are “willing to invest their resources…in the hope of a future return.” In essence, a policy entrepreneur is an individual or organization that has identified a solution to a problem and is willing to advocate to policymakers that their solution is also a solution to whatever problem the policymaker is trying to solve.

The Center for Public Enterprise is an organization that has become a policy entrepreneur for the Housing Production Fund model. It has worked with places like Atlanta, Chattanooga, and Chicago, to set up funds, including to provide technical assistance. Unlike a trade association or private-sector consultancy, they are a neutral entrepreneur in that they are advocating for an idea from which they won’t directly profit, but instead are furthering a systemic change to which they are committed.

Policy entrepreneurs are uniquely positioned to identify, advocate for, and implement solutions across local contexts. National pro-housing groups, such as the Welcoming Neighbors Network and YIMBY Action, are policy entrepreneurs for zoning and land use reform. The Center for Building in North America has emerged as a policy entrepreneur for building code reforms like allowing single-stair buildings.

While there are organizations that advocate for modular construction such as the Modular Building Institute, and organizations such as MOD X that provide advisory and technical assistance, regulatory fragmentation has still proved too large a hurdle for the modular industry. Perhaps what we need is a different approach.

Tackling Fragmentation Through Policy Entrepreneurs

Two solutions are needed to address the challenge of regulatory fragmentation. First, policy entrepreneurs should address the challenge of regulatory fragmentation. States, for their part, have the power to address the disparate building codes that govern housing construction, or to bring harmony or reciprocity to allow for innovative construction techniques to spread more rapidly. These changes would support not just modular construction, but new construction materials and techniques that could lower the cost of production, increase sustainability, and decrease long-term maintenance. A policy entrepreneur focused on state reforms could work in collaboration with many YIMBY groups that target this level of advocacy.

Second, there is a need for greater synthesis across the housing ecosystem to allow for more specificity in the applications of solutions. The incredible variety of America’s housing markets demands an entity, or entities, that can take the range of innovative ideas and identify which would address the housing crisis in a particular geography. In some places, the solution may be upzoning, building code reform, and permit streamlining. In others, it may be simpler capital solutions from a state or regional housing finance agency. Some of these ideas are about removing constraints, like regulatory fragmentation, while others are about creating catalysts, like housing production funds. Amid a growing wealth of good ideas to address the housing shortage, we need to make sure the right ones reach the right places.

Editor’s note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.