Preemption of local zoning regulations by state governments is a good solution to the housing affordability crisis because it prevents neighborhood NIMBYs from setting restrictive zoning codes that hamper development. This has been California Senator Scott Wiener’s approach to the affordability crisis, and while his first major upzoning bill (SB 827) failed, new legislation he has introduced (SB 50) to set a local regulatory ceiling would go a long way to inject some sanity into housing market regulations.

Not to be outdone, Gavin Newsom, California’s new governor, is going for the jugular when it comes to local governments that fail to meet their local housing needs. From Liam Dillon of the Los Angeles Times:

The exact proposal would be to withhold state revenue for local transportation projects, including monies raised by 2017’s SB 1 (which raised California’s gas tax to improve public transportation systems), for municipalities that fail to meet their housing goals.

The proposal has generated predictable outrage but, in the words of Matt Schwartz, president of the California Housing Partnership, “This is exactly the kind of bold visionary leadership on housing issues that the state needs and frankly we have lacked for the last eight years.”

Bold is almost an understatement, especially considering this is one of Governor Newsom’s first acts in office. But there are two points to be made when considering this proposal.

First, while bills in the style of those introduced by Scott Wiener go a long way to reduce the land-use regulatory burden, there are still countless ways anti-development forces can restrict new housing construction. This proposal would make NIMBY cities suffer for their recalcitrance and light a fire under local governments to resist these entrenched interests.

But a second way to view Newsom’s proposal is by looking at how much money it would pour into directly subsidizing housing development and combatting homelessness–$2 billion. Reasonable people can disagree as to how much money would be necessary to address these problems in a more liberalized housing market, but it’s clear that local governments have created the crisis.

State funds to combat homelessness are, in a way, a subsidy for NIMBYism. Hopefully by forcing localities to meet their housing goals or pay the price, the Governor’s proposal will curb this form of moral hazard in the Golden State.