“We need housing prices to fall; we also cannot afford for them to fall. Thus, we are trapped.” With these words, Charles “Chuck” Marohn and Daniel Herriges summarize the quandary of US housing policy. At bottom, they say, we have “a broken market that is more responsible to capital flow than to local demand.” Thus, for example, the overwhelming majority of new homes built today have three or more bedrooms even though two-thirds of American households consist of one or two people. This diagnosis might seem like the setup for an anticapitalist screed, but in fact, Marohn and Herriges issue a welcome call for market-friendly reforms to increase both the quantity and variety of the housing stock while also making it more affordable.

Marohn is the cofounder and president of Strong Towns, a nonprofit that began in 2008 as a simple blog, but now influences urban and transportation policy discussions across North America. His first book, Strong Towns: A Bottom-Up Revolution to Restore American Prosperity (2019), laid out the “growth Ponzi scheme” to which most municipalities have fallen prey; the maintenance costs of previous generations of infrastructure expansion now threaten to overwhelm many cities’ budgets. His Confessions of a Recovering Engineer (2021) argues that the engineering profession writ large is guilty of malpractice because its road design standards encourage unsafe driving and lead to many accidents that otherwise would not occur. Now with his Strong Towns colleague Daniel Herriges, Marohn has written a fresh analysis of the problems facing the housing market with suggestions for how municipalities can begin to alleviate them.

Escaping the Housing Trap is organized into three parts. The first two, “Housing as Investment” and “Housing as Shelter,” examine the tension between the two public conversations surrounding housing carried on by two different groups who overlap very little. Marohn and Herriges write that “housing as a financial product” has become “the foundation of the American economy.” The constituencies who benefit from high and rising housing prices are many and powerful: local governments that use the property tax for revenue, banks and insurance companies that hold mortgage-backed securities as part of their required reserves, developers and contractors who get bailed out of bad projects by a rising real estate market, pension funds and conservative investors who maintain large stakes in the housing market, and, of course, existing homeowners whose equity increases as prices rise. A general fall in housing prices would be painful or even catastrophic for these entities.

The process of financialization in the housing market took nearly a century and transformed beyond recognition the practices of the early twentieth century. In 1900, barriers to construction were low, as was the quality of most housing. Homeowners needing financing for these relatively cheap structures might be required to pay a 50 percent down payment in order to receive an interest-only loan with a balloon payment due at the end of five years from a local lender. Cities and towns followed an organic process of development in which, as the population grew, the land underneath existing cheap buildings nearer the town center gradually rose in value and provided a “natural redevelopment pressure.” New, cheap buildings went up on the edge of town; the more valuable city core gained new or improved public infrastructure and increased its housing density.

Marohn and Herriges argue that, over the next half-century, successive legislative and regulatory reforms broke this sometimes chaotic but sustainable development pattern. New building codes increased health and safety standards, but also made housing unaffordable for many. New Deal legislation sought by various means to counteract that problem, enabling lenders to offer amortized mortgages for longer terms at relatively low-interest rates and with lower down payments. In the process, “housing finance went from a hyper-local undertaking to a nationally supported endeavor.” These permanent federal interventions in the market, in turn, enabled municipalities and developers after World War II to pursue “the suburban experiment,” a vision of “permanent prosperity” that involved building new neighborhoods all at once to a finished state out on the urban edge.

Unfortunately, the planned stasis of these newer developments led to inevitable decay. Houses in neighborhoods that were built quickly to a finished state all needed maintenance around the same time—roofs, paint, plumbing, etc. When the developer-built streets, sidewalks, and drainage systems needed maintenance or replacing, cities found that the property taxes generated from the neighborhood’s homes weren’t nearly enough to cover those costs. As the quality of life in the neighborhood declined, the wealthier homeowners often moved away, leaving their less affluent neighbors behind to deal with the deteriorating conditions. Even worse, the developments lacked traditional neighborhood mechanisms for incremental redevelopment, these having been largely taken away through regulation, e.g., zoning, and the now-stagnant land values under the houses.

Beginning in the 1970s, America experienced a series of financial crises connected to the housing market and the way in which it is financed. From the mortgage system’s distress during the years of stagflation up to the COVID-19 pandemic, Congress reacted in predictable ways with legislation that doubled down on the system first created during the Great Depression, most dramatically by bailing out the banking system in the wake of the subprime mortgage crisis of the 2000s. Along the way, Wall Street and large banks, which accurately discerned that the housing market had an implied federal backstop, developed all sorts of investment vehicles intended to populate the “safe” levels of the risk pyramid. This process both brought more capital into the mortgage market to drive up home prices and made the health of nearly every financial institution dependent on that market. Marohn and Herriges recount these episodes in methodical fashion to establish the conclusion that the federal government simply cannot allow the housing market to fall by any significant degree. To do so would be to allow all sorts of “too-big-to-fail” institutions to collapse.

The corollary of this policy is that housing in most markets is more expensive than ever when compared to median household income. Not only federal policy, but restrictive zoning and NIMBY (“Not-In-My-Back-Yard”) activism keep housing supply tight in many major metropolitan areas. The authors predict we are heading for federal approval of a 50-year mortgage as the logical next step in the decades-long policy of keeping housing prices high, even as levels of household indebtedness reach record levels; “in the 1930s, financially sound homeowners sought short-term loans from fragile local banks. In the 2020s, national too-big-to-fail banks seek long-term mortgages from fragile homeowners.”

The narrative Marohn and Herriges provide in these chapters is basically sound. Perhaps its most significant missing piece is the role of monetary policy in distorting the housing market. From the Great Depression to the asset bubbles of the twenty-first century, the booms and busts the authors describe can be explained in large part through the actions of the Federal Reserve, but that entity is conspicuously absent from Escaping the Housing Trap, not even making an appearance in the book’s index. Marohn knows enough macroeconomics to lay blame where it belongs, but he chooses not to in this case. Perhaps he would respond by saying that a focus on the Fed would be a needless distraction in a book targeting local policymakers and investors, who might struggle to understand it and would have no power to influence it. Even if true, a nod toward the reform of monetary policy as a long-term goal for a healthy housing market would have been appropriate.

The book’s final section lays out the Strong Towns organization’s recommendations for addressing the housing crisis. Marohn and Herriges insist that none of the tools available in the current paradigm, e.g., Wall Street investments or federal programs, will provide sufficient new housing units at affordable prices without adversely affecting the existing housing market, nor will they increase net investments in communities while growing cities’ tax bases without adding to their liabilities. They call instead for a completely new paradigm.

The authors propose a set of guiding principles for a new housing policy. Among these are cheap entry-level housing (think multitudes of 600-square-foot homes) and the insistence that every neighborhood be allowed to change incrementally (but not radically); an example would be a policy of allowing any property owner in a neighborhood of predominantly single-family homes to convert a house into a duplex by right. A corollary of this openness to incremental change is the cultivation of “neighborhood-level economic ecosystems” in which small-scale commercial and retail units are incorporated into existing neighborhoods as their density increases.

The usual suspects of big corporate developers and the banks that finance them make their profits largely from economies of scale and do not wish to operate on this level. Marohn and Herriges suggest that the existing system of financing, permits, and regulations continue as is for these entities while municipalities undertake a drastic deregulation of smaller-scale projects. They urge local officials to study how codes and regulations interact to create unintended consequences that often sabotage small-scale development projects such as converting unused bedrooms into studio apartments and adding accessory dwelling units (granny flats) to lots with single-family homes. These regulations include, among other things, height limits, parking requirements, setbacks, and commercial stormwater requirements imposed on residential buildings, not to mention zoning restrictions on single-room occupancy and mixed-use developments. To make incremental development both legal and financially viable, local governments need to cut through this “Gordian knot of regulatory complexity.” Moreover, they should prioritize getting empty lots in the urban core into the hands of people who are prepared to pull permits and begin building immediately, giving these lots away for free instead of auctioning the tax liens off to speculators.

This new paradigm, Marohn and Herriges argue, will bring new capital off the sidelines in the form of a “swarm” of incremental developers. They point to South Bend, Indiana, as a case study of this phenomenon. Following a disastrous decade in the early 2000s during which the municipality lost 7.5 percent of its households, an informal network of small-scale developers began to work with the city on zoning reform that would make more infill development possible. The network has a low barrier to entry and now collectively controls more property than the largest corporate developer in the area. South Bend’s planning director claims that the city’s new zoning code requires merely a high school education and an hour of reading to understand and use.

Taken as a whole, this Strong Towns strategy is neither NIMBY nor YIMBY (“Yes-In-My-Back-Yard”). The authors have little patience with NIMBY-ism, viewing it largely as an attempt by affluent elites to insulate themselves from ordinary society while also—even if unintentionally—making life more difficult for the have-nots. They have more sympathy for YIMBYs, but express frustration at their one-size-fits-all approach to housing, according to which any new housing is good housing. Marohn and Herriges argue, by contrast, that construction that is not an organic extension of existing neighborhoods can result in a net negative impact. Nevertheless, they insist that most of the energy spent against such construction would be better employed in facilitating the bottom-up infrastructure of incremental development so that the perceived need for the harmful construction would be reduced.

Some libertarians and other free-marketers will look askance at a handful of Marohn and Herriges’s suggestions. For instance, they urge local governments to create new financing tools such as down-payment assistance and construction loan guarantees for incremental developers. Although these and other subsidies would not exist in a truly free market, the authors can plausibly make the argument that they are a necessary counterweight to insulate local housing markets from the unpredictable ebb and flow of Wall Street capital and the federal interventions that have destroyed local mortgage financing since the 1930s. Escaping the Housing Trap is a welcome addition to the housing debate, which has too often devolved into moralistic grandstanding. Marohn and Herriges studiously avoid telling a story with heroes and villains, opting instead for a big-tent strategy at the local level that has the potential to sidestep the contentious issues of national politics. The Strong Towns strategy for housing seems a significant improvement over business as usual. Hopefully, enough municipalities will adopt it to provide sufficient evidence of its viability.