How Housing Policy Restricts the Market

A Tale of Two Cities

With a chronic housing shortage in every state of our nation, city legislators considering initiatives to help alleviate this shortage and reduce homelessness might consider fewer regulations, lower fees, streamlined planning, and less rent control. Because despite good intentions, regulation can have a souring impact on housing over the long run.

Consider a tale of two cities: Over the last three years, the number of new apartments under construction in San Diego County rose 10%. At the same time, new apartment construction in Los Angeles County tumbled 33%. (CoStar 4Q:25)

How is San Diego expanding its apartment pool so dramatically? With the city’s business-friendly real estate development policies — including updated codes and zoning laws along with streamlined approval and permitting processes — there are no extended delays as owners and developers await discretionary approvals, public meetings, etc. If a program complies, it may proceed.

How Restrictive Regulations Discourage Housing Projects

Regulations that protect renters and limit rent increases shift costs to developers, reducing profit on new construction, as well as to owners who must maintain existing apartments. In fact, across restrictive markets, we see more than just high costs. Low production and declining housing quality are a direct result of overregulation.

But rent control is not the only regulation at the center of this debate. Regulations squeezing property owners extend to fees, mansion tax, union mandates, lengthy approval processes, eviction protections, and environmental compliance.

Turns out that political ideology, which typically shapes housing outcomes more than economics, can end up hurting the same people they are trying to help.

Post’s Observations

Effective housing policy can encourage capital flow, expand supply, and leverage private sector capacity. Rather than rigid mandates, programs that blend market efficiency with public missions can scale housing more sustainably:

• SB 79 (CA) overrode restrictive zoning and streamlined approvals to encourage housing near transit where jobs and infrastructure already existed.
• LIHTC programs are the nation’s most successful affordable housing tool, balancing profit with social impact. Since 1986, over 3.7 M homes have been built without heavy taxpayer outlay.
• Tenant vouchers provide portable assistance that moves with renters, ensuring greater tenant choice and reducing poverty concentration, while efficiently relying on existing private stock.
• Tax-exempt bonds, which lower borrowing costs, account for 50%+ of affordable housing production in some states.
• Public/private ventures combine public land or incentives with private capital and expertise, resulting in shared risk, accelerated delivery, and faster realization of public goals.
• Fannie & Freddie underwriting standards mandate that 61% of multifamily units financed (2025–27) serve low-income renters. This keeps capital flowing into affordable projects even when private markets tighten.