In cities and states long considered Democratic strongholds, voters are turning against the party they once reliably supported. The reasons, analysts suggest, go beyond shifting national politics. Instead, they reflect growing frustration with the failure of local and state governments to deliver on basic needs—most notably, housing.
“Whatever the case may be, the electorate in fact has plenty of reasons to be unhappy with the quality of American governance, especially in big cities and its richest ‘blue’ states,” write law professors David Schleicher and Nicholas Bagley in their new paper, “The State Capacity Crisis.” Housing stands out as a central failure. “Housing prices remain stubbornly high because new housing is so hard to build,” the authors note.
That housing shortage, the paper argues, is no accident. It is the predictable result of eroded capacity at the state and local levels—governments that once fueled America’s rapid expansion are now paralyzed by procedural hurdles, special-interest power, and budget constraints. The result is a deepening crisis of affordability, displacement, and homelessness in communities nationwide.
While much of the emerging debate over “state capacity” has focused on Congress and federal agencies, Schleicher and Bagley argue that this misses the mark.
“In contrast, state and local governments provide almost all government services that people depend on—schools, police, fire, etc.—either mostly independently or in partnership with the federal government,” they write. “State and local governments build and operate almost all infrastructure, and fund most of it.”
Housing, in particular, is overwhelmingly a local concern. Yet, according to the paper, local governments have created complex webs of administrative law that make building new homes exceptionally difficult.
“State and, in particular, local governments have extremely powerful rules requiring lots of public participation in administration,” the authors write. “Because small groups with members that care intensely about state and local decisions are much easier to form than groups representing a diffuse public interest, unrepresentative private interests—whether that’s the Chamber of Commerce or neighborhood NIMBYs—overwhelm administrative process at the expense of majoritarian preferences.”
NIMBYs use these procedures to block new housing, often citing neighborhood character or environmental concerns. But the result, critics say, is a system that favors the well-connected while worsening the region’s housing crisis.
The fiscal side of the crisis is just as troubling.
Schleicher and Bagley highlight the structural financial limits that bind state and local governments. “Every state (save Vermont) is legally required to balance its budget, no state can print money to inflate away its deficits, and all states face both legal and market limits on their capacity to borrow,” the authors explain.
That constraint, they argue, creates a vicious cycle: “When a recession depletes tax revenue, states have few choices except to increase taxes or reduce spending—right when public services are needed most. States’ limited fiscal capacity thus contributes mightily to poor governance, especially during recessions.”
Housing and homelessness programs are among the first casualties of those limits. As healthcare costs—especially Medicaid—consume larger portions of state budgets, investments in affordable housing, shelter expansion, and supportive services often get pushed aside.
Visible homelessness is one consequence.
“Homeless encampments in public spaces—parks, sidewalks, subway stations—have proliferated in urban centers,” Schleicher and Bagley observe. The paper cites federal data showing an 18% increase in homelessness between 2023 and 2024.
While some voters may blame national politics for these failings, the authors insist that the root cause lies closer to home.
“If we have a crisis of state capacity, its roots are in state and local governments,” they write. Yet this critical level of governance is largely ignored in most discussions of America’s institutional failures.
The paper is sharply critical of both progressives and conservatives who focus exclusively on fixing Washington, D.C., while ignoring the procedural and financial barriers strangling housing development at the local level.
“Ignoring states and localities leads to a misunderstanding of why the American state lacks capacity—and to solutions that are unlikely to address the problem fully,” the authors argue.
One emerging bright spot, they note, is the growing “abundance” movement—grassroots groups advocating for reforms to zoning and permitting rules to enable more housing development. Schleicher and Bagley describe them as “foot soldiers in the war for stronger state capacity.”
But even those efforts face long odds without structural changes. As the paper warns, “The excessive strictures of state and local administrative law, and the sharp limits on state fiscal powers—dull officials’ incentives to govern well, privilege narrow interest groups at the expense of the majority, and frustrate efforts to build capacity.”
The scale of the challenge is reflected in the worsening cost of living. According to the Pew Research Center, 31.3% of American households were cost-burdened by housing in 2023. In major metro areas, that number is far higher.
The authors caution that focusing solely on federal reforms like ending the filibuster or fixing federal permitting laws, while necessary, will not be enough to solve the nation’s housing crisis. “We just want to be realistic about how far that will get us if we don’t also address more meaningful drivers of the deficiencies in American governance: the nationalization of state and local politics; the excessive reliance on procedures, litigation, and public participation in state and local regulation; and the challenges of state and local fiscal affairs.”
In the end, Schleicher and Bagley argue that fixing America’s housing crisis—and restoring faith in government more broadly—means grappling with the very governments closest to the people. “To improve the quality of government, we must examine the right governments and ask the right questions.”
Until then, high housing costs, rising homelessness, and deepening voter disillusionment are likely to persist.
Interestingly-enough, the video below claims that the “housing crisis” is directly due to “de-regulation”, not “regulations”.
Such as the relatively new creation of secondary markets for mortgages.
In this video, it’s also noted that one of the (economists?) had a direct interest in claiming that there’s a “lack of supply”.
https://www.youtube.com/watch?v=woz4KgUbIMc&t=1s
You’re responding to a peer-reviewed report with a youtube video?
Bagley, Nicholas and Schleicher, David, The State Capacity Crisis (January 01, 2025). Available at SSRN: https://ssrn.com/abstract=
That link doesn’t lead to an abstract, but here’s one that does:
“Although various studies indicate that the nation has a shortage of anywhere from 2 million to 4 million units, Census data show little evidence of a shortage. Household formation did exceed the growth of households from 2010 to 2020, but that does not take into account the large surplus of housing produced during the previous decade. From 2000 to 2020, housing production exceeded the growth of households by 3.3 million units. Of the nation’s 381 metropolitan areas, only four experienced a housing shortage during this time, as did only 19 of the nation’s 526 micropolitan areas. Even though the stock of housing is adequate in most markets, the mismatch between the distribution of incomes and the distribution of housing prices results in housing affordability problems, especially for extremely low-income renters.”
https://www.tandfonline.com/doi/full/10.1080/10511482.2024.2334011?src=exp-la
But did you actually watch the video? Research studies are quite limited in “scope” and don’t examine all factors.
That channel has almost 2 million subscribers, and I suspect it has more influence than any single research study.
This is the same article you’ve been citing?
You wanted a research study.
But again, did you watch the video before dismissing it? Including the actual statistics they present?
I think you’ve now cited it more than it’s been cited in actual academic research
Well, as soon as you find one that arrives at a different conclusion, maybe we’ll stop talking about it.
The problem being that research studies are usually not directly-comparable with each other.
Perhaps you can evaluate my article which was not published in response to yours then rather than keeping referring to external information. They can out with some interesting things, but you’re not reacting to it, you’re just posting something else that really has little to do with their point.
But I’ll take that as a “no”, in regard to your interest in the video.
Almost 2 million subscribers.
Not impressed. Sorry. Total crap videos on YouTube gets lots of hits/ subscribers.
But I did find this amusing: “Second Thought is a channel devoted to education and analysis of current events from a socialist perspective.”
David says: “Perhaps you can evaluate my article which was not published in response to yours then rather than keeping referring to external information.”
Again, one has to examine ALL of the articles by first determining whether or not there’s actually a shortage of “supply”. Your article starts off with an incorrect assumption.
(That’s what the video also addresses. And that’s not the only source which concludes that there is no shortage.)
Then talk about that, posting a counterlink is frankly lazy and uninteresting, especially when we’ve already hashed it out.
Referring to statistics in a research article as “boring” is not an argument against them.
Almost all of your articles are based upon what someone else has written. And you asked me for external research evidence in the first place.
Below is another (lengthy) article which discusses multiple research studies related to the inability of “upzoning” to lower housing prices. (More closely-related to your article.)
But truth be told, none of this (other than the first article I cited) actually examines if there’s a shortage of “supply” (actual buildings) in the first place. It has to start with that. You cannot conclude that “rising prices” are the same thing as “lack of supply”.
In any case, here’s the title line from the lengthy article below:
“Supply sophistry: How academics miss the point on the cost of urban housing”
“There is still no good evidence that upzoning leads to more affordability—in New York or in San Francisco.”
https://48hills.org/2022/04/suppy-sophistry-how-academics-miss-the-point-on-the-cost-of-urban-housing/
And here’s one of the research studies referenced in the 48 Hills article, which directly challenges the claims made in your article:
“Urban economics and branches of mainstream economics – what we call the ‘housing as opportunity’ school of thought – have been arguing that shortages of affordable housing in dense agglomerations represent a fundamental barrier to economic development. Housing shortages are considered to limit migration into thriving cities, curtailing their expansion potential, generating rising social and spatial inequalities and inhibiting national growth. According to this dominant view, relaxing zoning and other planning regulations in the most prosperous cities is crucial to unleash the economic potential of cities and nations and to facilitate within-country migration. In this article, we contend that the bulk of the claims of the housing as opportunity approach are fundamentally flawed and lead to simplistic and misguided policy recommendations. We posit that there is no clear and uncontroversial evidence that housing regulation is a principal source of differences in home availability or prices across cities. Blanket changes in zoning are unlikely to increase domestic migration or to improve affordability for lower-income households in prosperous areas. They would, however, increase gentrification within metropolitan areas and would not appreciably decrease income inequality. In contrast to the housing models, we argue that the basic motors of all these features of the economy are the current geography of employment, wages and skills.”
https://www.brooklinema.gov/DocumentCenter/View/24315/Andres-Rodriguez-Pose-and-Michael-Storper—Urban-Studies—2020
As someone familiar with Sacramento County’s process, I call (bs). Public input, whether NIMBY or YIMBY, is regularly ignored. The Sacramento Region has a 20-year supply of unbuilt infill, never mind the land available for multi-family housing in the shopping center parking lots. Parking lots in sprawl shopping centers are sized for the busiest shopping day of the year and are most often 2/3 vacant.
One factor in land speculation: low (prop 13) taxes mean owners can hold the land off the market indefinitely without penalty. That’s right, higher taxes would make land more affordable (cf. Henry George)
Anyway, there’s plenty of unbuilt land. As for financing, a public bank would take care of that. The East Bay is just now opening theirs (https://www.publicbankeastbay.org/pbeb-basics). Most people think banks lend their deposits. Not true. By extending credit they create money. Creating credit for public purpose would be essential to solving any public problem, and half the cost of such projects is interest that could be recycled into public purpose.
As for homes for the homeless: nationwide there are more vacant homes than homeless. I’ve read San Francisco has five times its homeless population in vacant houses. We need better distribution too.
Incidentally, the bulk of the homeless problem isn’t addiction or mental illness–although homelessness reportedly produces a variety of PTSD. Nope. The problem is poverty. Rents have been rising faster than incomes, meanwhile rental support and rent control languishes.
The feds used to build affordable housing. Nixon stopped that. And Reagan, as he was cutting taxes on the wealthy roughly in half, cut HUD’s affordable housing budget by 75%.
The “housing crisis” is a public policy failing, and one contributed to by both parties. See https://ggwash.org/view/78164/how-public-housing-was-destined-to-fail for more.
Finally, I’d suggest Trump is the answer to the systemic failings that show up as a large and growing homeless population. The “wrecking ball” presidency is evidence the population would rather blow things up than submit to the grossly mismanaged current system.