America’s housing crisis has reached a tipping point. As the country climbed out of the pandemic, the cost to rent or own a house reached record levels across the country and spread far beyond the coasts. Most Americans – regardless of geography, party affiliation, or whether they rent or own – feel that housing is too expensive. Calls for reform to increase housing affordability have reached a fever pitch and addressing the crisis is increasingly the top issue for elected leaders (mayors, governors, members of Congress) across party lines.
The country has seen moments like this before. But they happen once-in-a-generation. The last time that the housing shortage was so widespread and so deeply felt was after WWII, leading to marquee federal legislation that set the foundation for American life as we know it today. The country again finds itself in a historic moment to make big changes to address the nation’s housing shortage and affordability.
In prior generations, federal government took the lead and built the US housing system we have today — program by program, policy by policy, brick by brick. The architecture that was put in place by Congress and federal agencies set a common platform for the country, with rules, products and mechanisms applying across the entire nation.
History is unlikely to repeat itself. As we write this, the Federal government is shut down. Since January, federal actions have been an erratic mix of the positive (e.g., ROAD to Housing bill, Low Income Housing Tax Credits expansion), negative (e.g., dramatic cuts to the federal workforce, reduced enforcement of fair housing laws) and just plain chaotic (e.g., uncertainty over annual appropriations and the future of the GSEs and interest rates).
Today, change must happen from the ground up. And it is: over the last 7 years more than 20 state governments have taken substantive actions to alleviate their housing shortage. Myriad cities and counties are innovating how they allow more types of housing to be built in more places – driven in no small part by the unique coalitions built by the YIMBY movement. Financial institutions, start-ups, and established companies are experimenting with new ways to build, finance, and operate housing.
This generational moment is thus qualitatively different from prior periods. It forces us to think more clearly not just about what reforms are necessary but about who delivers them and how they are then diffused across the country. The decentralized and grassroots nature of the change compels us to unlock the full powers of a federated republic and imagine the mission, structure and capitalization of entities that can bring local innovations to nationwide scale and impact.
How America Has Solved Prior Housing Crises
A brief review of the history of America’s big windows of housing policy change helps set the context for what’s unique about this moment. The nation has faced housing crises before. In most of these eras, housing has been at the root of a different national crisis – one facing the economy, the financial system, or public safety and social cohesion – but has nonetheless become a key lever for federal reforms at scale. The federal government, in each case, has stepped in with new housing products, programs and institutions, aiming to respond with solutions fit to the moment and equal to the task.
- New Deal 1933-1938 (capital markets stabilization): In the wake of the Great Depression, President Roosevelt and Congress federalized mortgage and lending regulations and capital (creating FHA, HOLC, Fannie) while catalyzing a network of public housing authorities with the aim of (among other things) shoring up the construction industry.
- Post WWII 1946-1949 (across-the-board Housing production): After suppressed production and a national housing shortage, public pressure to house veterans led President Truman and Congress to outline and pass a series of housing programs that dramatically expanded federal investment in public housing, mortgage insurance and urban renewal. These programs gave the federal government a muscular role in production along heavily racial lines and set the foundations of our contemporary housing policy. This period also created the modern, decentralized metropolis, stimulated by major transportation investments.
- Great Society 1965-1968 (fairness & racial reconciliation): In the wake of the Watts Riots, which raised the national salience of deep racial segregation, President Johnson pushed already-existing legislation through Congress to create HUD (subsequently appointing Robert Weaver as the first Housing Secretary and Black Cabinet Official), experimented with early forms of rental assistance and community planning, and then implemented the newly-passed Fair Housing Act in 1968.
- New Federalism 1970-1974 (low-income renter mobility emphasis): With bipartisan agreement about the mounting costs of the Great Society, paired with high profile scandals in housing production programs, the Nixon Administration paused some programs and experimented with different ways of providing housing assistance. This culminated in Congress passing a 1974 law that created the Section 8 Program and the Community Development Block Grant Program, with the aim of more cost-effectively supporting low-income tenants finding decent housing. During this era President Nixon also signed emergency legislation creating Freddie Mac to expand competition and financing in the secondary mortgage market.
- New Federalism 1986 (tax code reform to spur investment): The Reagan Administration, following efforts to reduce federal budgets paired with the general retreat from direct federal subsidies for new housing production, was faced with a problem of plummeting investment in As part of broader tax reform, Congress created the Low-Income Housing Tax Credit (LIHTC) program to shore up housing production and more cost effectively subsidize low-income households.
- Urban Neighborhood Revitalization 1989-1996 (HOPE VI & HOME): Emerging out of a series of congressional committees in the late 80s and early 90s, the HOPE VI and HOME programs were designed and then deployed over the Bush and Clinton presidencies. These programs aimed to not only revitalize distressed public housing properties (HOPE VI) and help build low-income housing (HOME) but to transform the neighborhoods around them by replacing public housing that was falling apart with new mixed-income housing.
- Subprime Crisis 2009 (capital markets oversight): President Obama, in the aftermath of a subprime mortgage crisis caused by lax financial oversight, increased the restrictions and requirements for mortgage lending while placing Fannie and Freddie into conservatorship. Still grappling with the problem of public housing properties needing repair, the Obama Administration pushed through the Rental Assistance Demonstration (RAD) program to allow public housing properties to access private capital markets to finance rebuilding.
Each of these federal interventions are distinct, as was the role of housing in the crises that prompted them. Yet they share a common approach. The federal government –through extended negotiation between Congress and (often multiple) Presidential Administrations– put in place a series of rules, products, and programs that applied nationwide and has attempted to enable:
- homeowners to access affordable mortgage credit nationwide;
- developers to access housing financing across the entire country;
- banks to sell mortgages to secondary market, to ensure readily available funding for mortgages market-wide;
- states and localities, whether urban, suburban or rural, to have a pool of resources to apply to their housing challenges; and
- people to be protected against housing discrimination based on race, religion, gender, disability, national origin, or familial status, irrespective of the state they lived in.
Prior generations, in short, created a stable foundation for national housing policy that, in turn, created a common platform for local innovations that are more customized to local priorities, challenges and preferences. Equal treatment and common application were ensured by top-down statutory provisions, regulatory promulgation and enforcement and product design and delivery.
Today’s Housing Challenge
Our housing challenges today have historic precedents. Like 1949, the shortage of housing, whatever the origin, is driving the importance of housing reform on the national agenda. But that’s where similarities end.
On one level, the evolution of Congress in the past 30 years has meant there are fewer big, bold, federal bills that aim to reshape American life. Each president in the 21st century has passed only one or two marquee bills (e.g. No Child Left Behind, the Affordable Care Act, the Tax Cuts and Jobs Act, the Bipartisan Infrastructure Law, the Inflation Reduction Act) that were, often, undone by their successors. The housing system – spread across federal agencies, deeply impacted by federal tax legislation, and exceptionally siloed – is not likely to see a law on the scope and ambition of the Housing Act of 1949 for the foreseeable future.
This structural reality is further compounded by this period of radical federal upheaval. On one level, federal tax legislation has dramatically boosted investment incentives for housing production through enhanced Low-Income Housing Tax Credits and extended Opportunity Zones. And the bipartisan momentum of the ROAD to Housing Bill as it heads to the House is promising and impressive (though it does not yet have appropriations attached to it). On another level, federal actions have exacerbated housing challenges by increasing the costs of labor and construction materials, reducing the HUD workforce, and dramatically reducing the enforcement of the nation’s fair housing laws. Still further, the Trump Administration has yet to declare their intentions around the future of Fannie Mae and Freddie Mac and Congress has yet to finalize appropriations for key housing programs for the upcoming year.
Given this uncertainty, irrespective of rhetoric or pronouncement, the federal government has de facto devolved responsibility for housing. As a practical matter – and for all who are focused on making tangible progress to address the country’s shortage of homes that people can afford – this means we need to change the way we build housing at scale with the urgency this moment demands.
Put simply: we need to drive change from the ground up.
Driving Change from the Ground Up: Connecting A Nation of Local Innovations
What does it mean to build a system from the ground up? Designing and delivering a national housing ecosystem is a decidedly different exercise than designing, ratifying, and implementing a piece of federal housing legislation. There are 50 state legislatures, thousands of local city and county councils, myriad housing agencies that are not uniform in power, jurisdiction, or responsibilities, and a decentralized network of public, private and civic actors.
Achieving the scale of change necessary to address the country’s current housing challenges across a sometimes-atomistic system can feel daunting. We believe it is not only doable (and in-progress), but can, if embraced, also build a more responsive and stronger system. Here we begin to lay out a roadmap for change that embraces the messiness and variety of this challenge.
1. Channel the grassroots momentum at states, cities, and counties
Unlike other areas of domestic policies, states and localities and their private and civic allies not only have the authority but also appear ready to lead and build a new housing system. Since the sub-prime housing crisis, sub-national actors have become quite adept at designing innovations that align with their priorities, challenges and preferences.
This state and local momentum is a marked departure from the past, where localism in housing was more a challenge to building than the solution. Many localities, worried about the changes of fairly-effective national policy to enable new apartments and new family mobility, created a massive set of restrictions that limited the production of housing across the board. These local “innovations” in land use restrictions are in many ways the root of the supply challenges we have today and were only compounded by the shocks to capital and construction markets during the Great Recession.
The shift from NIMBY to YIMBY is not just clever branding. It reflects how a metastasizing housing crisis has fundamentally altered the politics of housing, across partisan, ideological and jurisdictional lines. Groups like the Welcoming Neighbors Network, California YIMBY, and others are doing innovative years-long work to build effective grassroots coalitions around these new lines and mobilize them to get results.
We believe that in success, the policies, practices, and products that effectively solve problems are those which thinkers and practitioners –policy entrepreneurs, as one of us has noted—will take across locations to build a new system that achieves scale.
2. Design and test a broader array of housing solutions
The American public is asking for housing that is more affordable. Achieving this aim will require more homes being built, more quickly, and more cost effectively. The strong base of legislative and policy wins — focused mostly on reforms that streamline and simplify regulatory restrictions — provide a necessary, but not sufficient, pathway to the ultimate goal of more affordable homes.
This aspiration will require a set of new tools that support lower cost construction, innovative use of publicly owned resources, and creative approaches to address today’s operational challenges, and more. A few of these tools are emerging and will require further development as the challenges, and the dynamics of solving them, come more clearly into focus. Outlining just a few drives home the point:
- Low-cost construction through technology: New construction techniques that exist today like factory-built, panelized, and modular housing represent a promising set of tools to lower the cost of building housing (in some cases by up-to 30%). Yet these new technologies face persistent challenges to widespread adoption. Overcoming these challenges to get new technologies to scale and social acceptance will require a complex intersection of policies, markets, and consumer behavior. The challenge and opportunity become even larger when put into context of the technological acceleration, ranging from artificial intelligence to additive manufacturing to radical advances in materials, disrupting whole sectors of our economy. Applying next generation technologies must become a central rather than peripheral part of the housing landscape if we are serious about lowering costs.
- Innovative uses of publicly owned resources: Providing lower cost, publicly backed, capital or land can also drive down costs. The revolving loan fund developed in Montgomery County is an example of capital innovation, and is beginning to scale with the support of the Center for Public Enterprise. Using publicly owned land and buildings in the service of housing production is an emerging solution that needs to become a norm rather than an exception. Recent advances in Atlanta and Chattanooga could become widely adopted if the disposition of public assets received a focused level of organizing and field-building.
- Tools that respond to today’s Operational challenges: The housing sector, like real estate in general, faces a unique set of challenges. Not only is it costly to build housing today, but it also is increasingly costly to operate over the lifetime of the home or apartment. These facts create a set of very real operational challenges that, if not addressed, will mean that we lose dramatic numbers of units that are affordable as we build more. Creative solutions are needed to contend with a few big dynamics that are emerging challenges for affordability. Maintenance costs compound and older apartments fall into disrepair; elevated energy costs have been passed along to housing owners and operators; and insurance costs have risen with increasing natural disasters across the country. These challenges can be addressed through adoption of international and creative models (such as the Danish Building Fund), collaboration between state utilities and apartment operators to fund and incorporate energy generating, storing, and saving technologies into design, and new financing products and building techniques that enable resiliency.
These are just three of a handful of the housing challenges where new solutions, experimentation, and creative thinking are needed –and are emerging around the country. Meeting the moment to deliver affordability will require that states, counties, and cities –the famous “laboratories of democracy” – actually run with that approach on the tailwinds of current success.
3. Codify what is working, repeat it
As state and local innovations amp up, the nation needs to build, intentionally and purposefully, a national system for codifying and spreading innovative practices throughout the country. The good news is states and localities are playing their historic roles as laboratories of democracy and innovation. The challenge is that the country hasn’t perfected ways to take an innovative practice invented and deployed in one place and diffuse to 5 or 50 or 500 communities.
Let’s be frank about this system-wide gap. The federal government, so central to creating products or programs that worked the same in Phoenix or Pittsburgh either no longer seems capable of or interested in engaging in the diffusion business. States and localities, for their part, are not in the business of codifying and diffusing innovative housing practices; they are, rightfully, in the business of solving their jurisdictional problems.
National housing constituency groups are highly fragmented, representing discrete segments of the housing ecosystem (e.g., state and local policymakers, state and local agencies, private and civic capital providers and developers, housing advocates) rather than the whole. This is largely because they are set up as federal advocacy groups for a defined set of dues-paying members (with some exception). While this model has gotten real federal results, the emphasis on federal advocacy has left a vacuum for shaping national innovations across different levels of government and across sectors.
Taken together, this picture is one of a country whose national infrastructure for engaging the whole system of housing production and operation has grown less effective than is needed for the moment. If the nation is going to be serious about addressing its housing shortage, it needs a fuller and more empowered set of organizations focused on identifying, codifying and diffusing proven and meaningful housing innovations.
A National Institute for Scaling State and Local Housing Innovation, across all segments of the market and all regions of the nation, does not exist. But it should.
The Work Ahead: Seizing the Generational Moment.
Over the next 14 months, we are working on more fully building out the roadmap we outlined above. Through our work with the National Housing Crisis Task Force and partners across the country, we will be working with a network of Governors, County Officials, and Mayors to implement the State and Local Housing Action Plan that was released earlier this year. Through this work we hope to respond to the “now” of the housing moment that the country is going through – diffusing, codifying, and learning from meaningful housing solutions and the people who drive them to turn experiments into norms.
Our focus is not limited to the “now.” As we outline above the nation needs a clear agenda for the “next” to truly respond to this moment and set the foundation for a 21st Century housing system. This agenda should grow from the ground up – and that is what we plan to build, and how we plan to build it, over the next year.
In short: we see the work of meeting our generational moment as not just channeling the momentum of the pro-housing movement but challenging it to create a new housing architecture for the United States. We don’t view this as easy per-se – it will require an evolution of policies, embracing productive tensions within coalitions, and emphasizing change that starts from the ground up in a way that is informs and is enabled by a federal platform– but it is necessary for a system that is dynamic, stronger, and delivers housing that’s affordable for Americans.
In success we will help state and local institutions go from removing constraints to creating catalysts for housing. Join us on this journey?
Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Colin Higgins is Executive Director of the National Housing Crisis Task Force. Michael Saadine and Ben Preis are Senior Advisors to the Task Force.