Why Trump’s housing 401(k) mortgage idea was unlikely to lower costs

The Trump administration’s quick about-face, pitching 401(k) retirement plans as a path to homeownership, was never likely to work because it ignores the deeper forces driving the housing crunch, some economists are now arguing.

Experts pointed to two key factors doing the most damage: restrictive zoning and regulatory policies that have choked supply, pushing home prices out of reach. Restrictive zoning controls what gets built; regulatory policies determine how hard it is to make it happen.

Ben Harris, vice president and director of economic studies at the Brookings Institution, said policies that don’t directly increase housing supply are unlikely to lower prices.

“Anything that doesn’t answer the question, ‘Are we going to have more homes at the end of this?’ is going to be an insufficient response,” Harris told Digital.

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Harris noted that while cities in the South, for example, once saw rapid homebuilding — including places like Houston, metro areas in Florida and Phoenix — new construction has slowed sharply in recent years, contributing to rising prices.

That resistance to new construction, experts say, is why restrictive zoning and regulatory barriers sit at the top of the list of forces driving America’s housing crisis.

“There are just many, many ways to halt and stop development,” explained Joseph Gyourko, a professor of real estate and finance at the Wharton School at the University of Pennsylvania.

“And we’ve gotten very, very good at it in the United States.”

Jim Tobin, president and CEO of the National Association of Home Builders, added that the cost of regulations alone plays a massive role in housing affordability.

Tobin explained that roughly $94,000 of the cost of a new, single-family home is inflated by regulations at “all three levels of local, state and federal government.”

He added that some local governments intentionally restrict growth, adding time, uncertainty and cost to the process. 

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Mounting costs on builders ultimately get passed on to buyers, pricing many out of the market. (Mario Tama/Getty Images)

“Time is money in real estate,” he said. “You own the land, you’re paying taxes and, while you wait for local approvals, costs keep rising. Then many communities require developers to install sewer, water, roads and electrical infrastructure and all of that gets folded into the final price of the home.”

Those mounting costs on builders, economists say, ultimately get passed on to buyers, pricing many out of the market.

California offers one of the clearest examples of how those pressures play out, where strict zoning and environmental review laws have severely limited new construction.

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California has some of the strictest zoning laws in the country. (David Paul Morris/Bloomberg/Getty Images)

Wayne Winegarden, a senior fellow in business and economics at the Pacific Research Institute, told Digital that the state’s regulatory framework has created an enormous housing shortfall.

In practical terms, economists say that when housing construction fails to keep pace with population growth and demand, buyers end up competing for a limited number of homes, driving prices higher.

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Winegarden said that California’s strict zoning laws make it more difficult to build homes, like the California Environmental Quality Act (CEQA), a five-decade-old law that requires builders to “look before they leap,” according to Gov. Gavin Newsom’s Office of Land Use and Climate Innovation. 

The framework requires environmental reviews that can significantly delay development and raise costs.

“And we have what is a million-home shortage, something just astronomical like that,” Winegarden said. “That’s just basic economics. When supply is inadequate to demand, prices go up. And now the median home price in California is roughly twice the median in the United States.”