Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Government Land Banking Drives Up Housing Costs
Transcript
- Lucas: So the federal government is the largest landowner in the country — about 640 million acres, or 28 percent of all U.S. land. Most of that is out west, national parks, forests, rangeland. But here's the wrinkle a lot of people don't think about: a surprising amount of that land sits inside cities, right in the middle of housing markets that are desperate for supply. Luna: Yeah, I've driven through downtown Reno and you see these big empty lots with government signs. It's bizarre — prime real estate just sitting there. Lucas: Exactly. And that's our angle today: how federal land holdings in high-demand urban areas effectively act as a government-imposed supply constraint on housing. The Bureau of Land Management alone controls about 85 percent of the land within Las Vegas city limits. Think about that — the BLM, an agency people associate with grazing permits and desert tortoises, is the dominant landowner in one of the fastest-growing metro areas in the country. Luna: Before we go deeper — and I know this is a bit off the main trail, but it connects — if you find yourself thinking about how government land policy affects your own housing costs the way we do every day, it's worth knowing that this show stays independent because listeners chip in. If that's something you've been meaning to do, it's buy me a coffee dot com slash fexingo. Keeps us free of sponsored content. Lucas: Appreciate that. So back to the land. The BLM periodically auctions parcels for development, but it's infrequent and the process is slow. Between 2015 and 2025, the BLM in Nevada sold only about 5,000 acres in and around Las Vegas. That sounds like a lot until you realize the metro area added over 300,000 people in that same period. The result is that land supply is artificially scarce, which bids up the price of every available lot. Luna: And that scarcity doesn't just affect the buyers — it ripples into the rental market and home prices for everyone. I've seen estimates that if the federal government released just 10 percent of its urban land for development in high-cost metros, it could lower housing prices by 5 to 10 percent over a decade. Lucas: That's a huge lever. But the government doesn't have an incentive to sell. The BLM's mandate is conservation and multiple use, not maximizing housing supply. And selling land means losing control — plus there's no political upside. A senator from Nevada gets calls from developers who want land, but also from environmental groups who want to keep it undeveloped. Easier to do nothing. Luna: It's not just the BLM. The General Services Administration, the Pentagon, the Postal Service — they all hold urban land they don't need. The GSA's list of surplus properties runs into the thousands, but selling them is slow because agencies have to declare them surplus, negotiate with local governments, and often face NIMBY opposition. Lucas: Right. And the process is actually designed to favor local governments and nonprofits over private developers, which sounds good in theory but often means the land gets used for a park or a community center that doesn't add housing. There's a proposal called the Federal Land Asset Management Reform Act that would streamline sales and require that a percentage go directly to housing, but it's been stuck in committee for years. Luna: Let's talk about Nevada specifically, because it's the clearest case. Las Vegas is hemmed in by federal land on three sides. You literally cannot expand the city limits without the BLM signing off. That gives the agency enormous power over the metro's growth. Lucas: And that power has real consequences. In the early 2000s, the BLM slowed land sales dramatically during the housing bubble, which some economists argue exacerbated the spike in prices. Then after the crash, they held back again. Now, with another housing crunch, the BLM is planning a sale of about 2,000 acres this year — the Southern Nevada Public Lands Management Act allows for that — but 2,000 acres is a drop in the bucket for a metro that needs tens of thousands of new units. Luna: What about the revenue? When the BLM sells land, a portion goes to Nevada's education trust fund. So there's a fiscal angle too. Lucas: Yes, 85 percent of the sale proceeds go to those funds. So the state has a direct interest in land sales — but the BLM doesn't. In fact, the BLM spends about $10 million a year managing those urban parcels, so it's actually a net cost to them. They'd be better off selling, but the bureaucracy doesn't optimize for profit. Luna: Let's zoom out. Nationwide, how much federal land is developable urban land? Lucas: Hard to pin down precisely, but a 2023 GAO report identified about 800,000 acres of federal land within high-density urban areas that could potentially be developed for housing. That's roughly the size of Rhode Island. If even a fraction of that were turned into housing, it could mean hundreds of thousands of new homes. Luna: But there's the infrastructure question. Building on federal land often requires new roads, sewers, water lines — that's expensive and local governments don't always want to pay. Lucas: That's a real barrier. In many cases, the federal government transfers land at no cost to the city, but the city then has to fund the infrastructure. So they sometimes say no. There's a model in Nevada where developers pay for infrastructure as part of the auction price, but that works best when land prices are high enough to absorb those costs. Luna: So you need high land values to make it work, but the high land values are partly caused by the scarcity in the first place. It's a bit of a catch-22. Lucas: Exactly. And that's why some economists argue for a land value tax or for the government to simply lease land rather than sell it outright. That keeps the public asset in public hands while capturing the value from development. Luna: Leasing is actually how the BLM handles a lot of its land for solar farms in the desert. They get royalties. Could that work for housing? Lucas: Some cities have experimented with it — think of how the city of Baltimore leases land for ground rents. The federal government could do something similar on a massive scale: grant a 99-year lease for residential development, collect annual rent, and retain ownership. That creates a steady revenue stream and allows for long-term planning. It also prevents the speculative flipping of land. Luna: But I imagine the development community would push back. They want fee simple ownership to use as collateral. Lucas: That's a legitimate concern. Banks are less willing to lend on leasehold properties. But in places like Hawaii and the UK, leasehold is the norm and the financing markets have adapted. It would take time and probably federal backing of some kind — maybe the Federal Housing Administration could insure leasehold mortgages. Luna: You mentioned that the process is slow. How slow are we talking? Lucas: From the time an agency declares land surplus to the time a shovel hits the ground, it's often 7 to 10 years. Part of that is environmental reviews under the National Environmental Policy Act, part is the tribal consultation process, part is the local zoning and permitting. There's a bill called the BLM Land Sale Efficiency Act that would streamline some of that, but it hasn't passed. Luna: Let's talk about a success story. There's the former Fort Ord in California — that's a military base turned into a university campus and housing. Lucas: Fort Ord is a great example. The base closed in 1994, and over 30 years, they've built about 3,000 homes on the surplus land. But that timeline shows how hard it is — three decades for 3,000 homes. And that was a high-priority redevelopment with local champions. In less organized areas, it just sits. Luna: So what's the one thing you'd recommend if you were advising the next administration? Lucas: I'd say create a dedicated federal land for housing office, with a clear mandate to identify developable parcels, pre-clear environmental reviews, and auction them with a requirement that a significant portion be used for affordable housing. Tie a share of proceeds to local infrastructure funds to sweeten the deal for cities. And set a target — say, 50,000 acres in five years. That would be a tangible step. Luna: And it wouldn't cost taxpayers a dime upfront — it would actually generate revenue. Lucas: Exactly. The land is already owned. The main cost is political will. And that's the real bottleneck — not the land itself, but the inertia of a system that's designed to preserve the status quo.