How to solve the housing crisis in the US?
Zoning reform is the necessary first move, but supply alone will not house the lowest-income families.
Friedman and Hayek agree that local zoning blocks supply by substituting a committee's preferences for what builders, buyers, and renters actually know. California's AB 2011 and Texas's state-level overrides show this is now politically achievable. Keynes adds that at 7 percent mortgage rates, private developers cannot close a 4 to 7 million unit gap without public counter-cyclical investment. Sen's entitlement argument, grounded in the 1943 Bengal famine, shows that aggregate supply figures can rise while the lowest-income households remain locked out by price.
The split is over sequencing and instruments. Friedman and Hayek would deregulate first and trust that cheaper land and faster permitting will eventually reach lower-income renters. Sen and Hirschman argue that waiting for trickle-down repeats a perversity argument that incumbent interests have used to block reform for decades, and that vouchers and inclusionary requirements must run alongside supply reform, not after it.
Confidence summary: High convergence on the diagnosis; genuine, unresolved disagreement on sequencing supply deregulation against targeted demand-side instruments.
1. The core argument
Start with what the council agrees is not in dispute: a deficit of 4 to 7 million units did not emerge from bad luck. It was constructed, incrementally, by local governments granted the power to prohibit density. The 1926 Standard State Zoning Enabling Act handed that veto to committees whose incentives pointed one way: protect the asset value of existing homeowners, at the cost of everyone trying to enter.
But the council presses further than diagnosis. The Federal Reserve's rate cycle after 2022 revealed a second structural trap inside the first. When mortgage rates crossed 7 percent, millions of owners with sub-3 percent loans chose not to sell, and developers could not pencil viable rents on new construction. Two independent mechanisms now suppress supply simultaneously: one regulatory, one financial. The council's core finding is that deregulation alone cannot unlock a market in credit freeze, and that counter-cyclical public investment alone cannot reach the scale a multi-million-unit deficit demands. Reform, finance, and targeted access instruments must run in parallel, not in sequence.
2. How each member frames it
Milton Friedman will not let the credit argument become an alibi for avoiding the harder political task. His point is that zoning reform costs governments nothing except the courage to override incumbent homeowners who profit from exclusion. State-level overrides in California and Texas show the veto can be broken. What the cards could not carry is his candid admission of the instrument's limit: he would accept that deregulation produces its fastest results at the middle of the income distribution, not at the bottom, and that this is a tolerable trade-off only if the political coalition for reform is not then captured by those same incumbent interests demanding "community standards" in the fine print of any new rule.
Friedrich Hayek sharpens Friedman's argument by insisting the target is the type of rule, not merely the quantity. His distinction between a general rule, say, structural safety codes applied universally, and a specific command, say, prohibiting apartment buildings on a named street, is not semantic. Specific commands require a planner to know what a neighborhood needs. Hayek's full position, which the card could not develop, is that trickle-down is the wrong framing. He would argue dispersed knowledge about where density is wanted resides in price signals, not in a housing authority's five-year plan, and that the correct role for government is to stop suppressing those signals, not to substitute its own forecast for them.
John Maynard Keynes reads the post-2023 rate environment as a textbook investment freeze, a situation where private actors face genuine uncertainty rather than calculable risk and therefore withhold capital even when demand is visible. His card stated the problem; the depth is in the remedy he would accept. Keynes would not advocate permanent public construction programs. He would advocate time-limited counter-cyclical public lending facilities and direct federal financing for mid-market construction specifically to bridge the period until private developers can close projects at rates households can afford. He is explicit that this is triage, not a template.
Amartya Sen challenges the council to hold two questions apart that supply advocates habitually merge: how many units exist, and who can access them. His entitlement framework, developed from analysis of the 1943 Bengal famine where food existed in aggregate while people starved, shows that access failures can coexist with apparent supply adequacy. Applied to Los Angeles or Atlanta, the argument is that a family spending 60 percent of income on rent in a deregulated market is not made housing-secure by aggregate construction statistics. Sen would insist vouchers and inclusionary requirements are not supplements to supply reform; they are the mechanism by which supply reform actually reaches the households most burdened.
Albert O. Hirschman takes the longest view of any member, and it is the most uncomfortable. He identifies that both coalitions in the housing debate deploy rhetorical strategies in place of evidence. The claim that new supply "only produces luxury units and never reaches working households" is a perversity argument. The claim that social housing "crowds out private investment and has never worked" is a futility argument. His irreversibility principle adds a distinct pressure: a zoning amendment can be revised in a council session; a concrete building stands for a century. That asymmetry does not argue against building but it does argue for getting the access rules attached to new construction right the first time.
3. Where the council agrees
The most surprising point of agreement is that state-level override of local zoning, long treated as constitutionally and politically radioactive, is now the realistic mechanism for change, not a reform fantasy. California's AB 2011 and Texas's parallel efforts have made this visible in real legislation, and no member of the council opposes it. The political economy argument Hirschman raises, that the workers and renters most able to organize for reform are also those most likely to be displaced from expensive cities by the costs reform would lower, gives state-level action a structural justification beyond convenience: local majorities are not neutral actors when homeowners dominate them. The council also agrees that demand-side subsidies injected without supply liberation simply push prices up, a finding that cuts against both pure voucher advocates and pure market advocates. And every member accepts that the current rate environment is a genuine constraint on private development, not merely a cyclical inconvenience to wait out.
4. Where the council splits
The real line is over sequencing. Friedman and Hayek argue that deregulation comes first, because incumbents will use any simultaneous demand-side program as cover to slow supply reform, and because the price signal from freed markets will eventually reach lower-income renters faster than any administered access program. Sen and Hirschman argue that "eventually" is doing enormous work in that sentence, and that waiting for trickle-down effects to reach the bottom quartile repeats precisely the futility and perversity moves Hirschman identified as the rhetorical weapons of incumbent resistance. Keynes sits between them: he accepts the supply case but insists the credit environment makes sequencing moot, since private construction cannot accelerate fast enough to matter without public intervention now. Neither side is wrong. They weight different time horizons and different distributions of political risk.
5. For a policymaker to decide on
The council cannot resolve this: should federal housing investment be conditioned on states first enacting supply deregulation, using access to capital as leverage to force zoning reform before releasing demand-side funding? Or should demand-side programs, vouchers, public construction lending, inclusionary mandates, run immediately and unconditionally, accepting that some jurisdictions will bank the subsidy without reforming zoning? The first option is more coherent but delays relief. The second is faster but may entrench the regulatory failure the council agrees is the root cause.