New home construction in Maryland is slumping. Can Congress fix it?

Maryland could soon record its worst year of homebuilding since the Great Recession, but Capitol Hill has called in the cavalry.

In a rare feat for housing policy, Congress passed a sweeping bipartisan bill aimed at jump-starting housing production across the country. The law went into effect earlier this month without President Donald Trump’s signature, yet Democrats and Republicans have hailed it as the most significant housing legislation in decades.

Public opinion polls consistently rank housing affordability as Marylanders’ top concern. Local and state leaders have tried to address the problem through a variety of proposals, but the new federal law amps up the pressure. It punishes state governments that stymie new housing production and incentivizes those that embrace growth.

In other words, millions of dollars in federal aid now hinge on how fast Maryland can build new housing — especially in dense and high-cost areas.

Here, that’s a heavy lift. This year, the state is on track to build fewer new housing units than in any year since the Great Recession, according to data collected by the U.S. Census Bureau. The number of permits issued for new housing steadily increased following the 2008 recession, then surged during the COVID-19 pandemic, when mortgage interest rates dropped to record lows.

In 2022, Maryland governments issued construction permits for nearly 23,000 new housing units. For the first time in years, permits for apartments and condos outpaced those for single-family homes. As interest rates climbed back up in 2023, the number of new permits plunged. Last year, permits for only 13,000 new housing units were issued, and more than two-thirds of those were for single-family homes.

Throughout this period, Maryland has been somewhat of an outlier. Even during the state’s heyday, permits for new housing construction have lagged far behind the rest of the country, census data shows.

The Maryland Association of Realtors said this month that the state continues to experience a dearth of “active inventory” and has seen drops in available supply and new listings. The association said Maryland’s housing shortage “stands apart” from the national market.

Denise Lewis, the association’s president, said first-time homebuyers and those at the lower end of the income spectrum are having particular trouble finding places to live in Maryland. Many are leaving for more affordable places, she said, including Delaware, Pennsylvania and southern states where “they can get more for their money.”

Lewis said the bill marks the federal government’s first acknowledgment of the urgency of the country’s housing shortage. How that translates to Maryland remains to be seen, she said.

“There are some things we could be doing a better job of to fix the crisis here locally,” Lewis said. “We are inching forward on a problem that is bulldozing forward.”

The bill includes several provisions.

• It blocks investors from buying large amounts of existing rental homes, but lifts restrictions on allowing them to create their own “build-to-rent” communities, new subdivisions of single-family and starter homes financed by private investors.
• It reduces the construction cost of manufactured homes by removing a requirement that they have a chassis.
• It removes a federal requirement that all housing choice voucher recipients’ units be regularly inspected, provided they’ve passed existing inspections.
• It creates a new pot of competitive grant funds for local governments and tribes that “innovate” solutions for housing supply, like a streamlined permitting system, density bonuses and zoning changes.
• It authorizes the federal government to help communities transform vacant and blighted buildings into affordable housing through a pilot program championed by U.S. Rep. Johnny Olszewski Jr. of Maryland.

To Salim Furth, a senior researcher at the libertarian-leaning Mercatus Center at George Mason University, the most consequential parts of the bill are the bonuses and penalties. Cities and counties that lag in housing production could lose up to 10% of their Community Development Block Grant funding. That carrot-and-stick approach could inspire more local action, Furth said.

“If you’re a city that doesn’t want to grow, you don’t need as much federal help,” he said.

Still, the bill only goes so far, Furth said. It does not touch other impactful levers like tax policy and mortgage lending, and it doesn’t increase the federal housing budget — all of which he described as the tectonic forces underneath the housing market.

If Maryland can’t figure out how to build more housing soon, there will be consequences for years to come, said Jennifer Vey, a vice president of the Greater Baltimore Committee, the region’s pro-business advocacy group.

The committee has called for more investment in transportation, vacant housing renovation and tech job creation in fields like data center development and artificial intelligence. If Baltimore wants to grow its economy, it will need more housing to attract companies and workers, Vey said.

Maryland has been struggling to attract new residents and retain current ones in part because of its slow approach to building, said Dan Reed, the Maryland policy director at Greater Greater Washington, a left-leaning advocacy group.

Housing is now an existential question for the Democratic Party, Reed said. This year, Maryland Democrats argued over congressional redistricting, but missing from that conversation was a much more important point, Reed argued.

People are leaving blue states to find cheaper housing in red states, Reed said, and when congressional seats are reapportioned in 2030, Democrats are expected to lose significant political power.

“We need to incentivize housing production, or we will continue to hand over our residents — and our voting power — to red states,” Reed said. “It really is that simple.”