Note: This newsletter summarizes a white paper released earlier this week by the National Housing Crisis Task Force — read the full paper.
The midterm election has ended, and voters have spoken with clarity about what concerns them. The number one issue, that united voters across all regions of the country, was affordability given rising prices, rising interest rates and rising costs.
For most Americans, affordability is, first and foremost, about housing given that housing is the number one household expenditure. The United States is facing its worst housing crisis in 75 years. No longer limited to the coasts or to very low-income households, communities across the country are experiencing housing shortages and rising housing costs that make housing increasingly unattainable.
The crisis is affecting diverse segments of the population: young households trying to buy a home for the first time, a broad mix of families and individuals struggling to rent apartments and homeless individuals and families desperate for temporary and permanent housing.
After years of neglect, elected officials in both political parties at all levels of government are scrambling to respond to voter unrest, making this an issue characterized by unusual bipartisan consensus. The crisis is generating a burst of policy and practice reforms to liberalize land use, expedite permitting, develop new construction methods, apply disruptive technologies and generate new pools of federal, state, local, private and philanthropic capital.
Amid this remarkable momentum, policymakers and practitioners are discovering that the housing crisis is a governance crisis. Responsibility for housing is highly federated in the United States — meaning that different levels of government have different powers, authorities and capacities to address the housing crisis. The housing regulatory regime comprises a financing and consumer protection regime (which has historically been disproportionately federal) and a land use regime (which historically has been quite local, although that varies state by state).
In the twentieth century, in response to a series of market and societal events, the federal government largely built the U.S. housing system we have today — institution by institution, policy by policy, program by program. The federal government played a dominant role, setting a common platform for the country, with data infrastructure, mortgage products, tax incentives, subsidized housing programs, safety net entitlements and market rules applying across the entire nation.
As the federal government’s role expanded, states and localities followed by establishing special agencies and authorities, often with their own financial resources, to administer federal programs while also retaining primary responsibility for establishing state and local rules that determine what kind of housing gets built in which locations (e.g., zoning, land use and environmental ordinances, building codes, permitting requirements). The result is a combination of interrelated roles and fragmented programs and an unclear central nucleus for housing leadership.
The balance of responsibility for housing, however, is now changing. The federal government has in some ways become an unreliable partner, undermining certain functions while retaining and expanding others. States and localities are, meanwhile, stepping up their actions to boost housing production and alleviate their housing shortages. Financial institutions, start-ups, established companies and philanthropies are experimenting with new ways to build, finance and operate housing.
The moment requires a clearer understanding of what we call “Housing Federalism,” including what reforms are necessary, who delivers them and how they are then coordinated, diffused and scaled across the country. To understand the future of housing governance, we must first understand what each level of government is responsible for and how the different aspects of the housing delivery system fit together. The decentralized nature of the change compels us to use 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.
Our longer paper explores these issues in three sections.
In the first section, we describe the role of the federal government within the system of Housing Federalism as it evolved from the 1930s through the present. To that end, we will define the five core platforms built by the federal government in the 20th century — credit and tax, program, regulation, data and safety net — and explain how these platforms informed state and local actions over multiple decades. After a period of drift and inaction following the Great Recession, the second Trump Administration is trying to reshape the five core platforms that have anchored the housing system for close to a century.
Second, we describe how the roles of state and local governments are shifting at a time of crisis and disruptive governance. States and localities are scrambling to fill the vacuum created by changes at the federal level, not only instigating reforms in areas historically within their remit (e.g., land use) but also stretching themselves to reform fragmented and parochial forms of governance and provide new capital tools and market-inducing incentives. This is a messy transition period, remarkable for its energy and momentum but also largely uncoordinated and regionally uneven.
Finally, we lay out a path for Housing Federalism. On one level, we argue for restoring the federal government’s role as a valued, trusted and indispensable partner. But we also contend that states, localities, and the private and civic sectors must realize their full potential as catalysts of housing production and preservation. To that end, our paper recommends a series of governance reforms at the state and local levels to enable collaborative efforts within government and across sectors, align with metropolitan housing markets and, most importantly, create a National Housing Solutions Exchange to accelerate the diffusion of innovative practices and policies, taking the “best to the rest.”
The stakes are very high. There are clear benefits to a more invigorated state and local sector. It is likely to engender more innovation around multiple housing policies, practices and products and enable interventions to be more customized to distinctive regional conditions.
But the federal government performs certain roles and functions that, for a variety of reasons, cannot and should not be devolved. Unless designed and implemented carefully, devolution of some federal functions could exacerbate interregional and intraregional disparities given the sheer level of variance between state and local powers, market dynamics, philanthropic wherewithal and the impacts of partisan divisions.
Our message is clear: the nature and scale of the housing crisis and its broader implications for economic competitiveness, social mobility and political cohesion require a new governance and institutional architecture — a new Housing Federalism — that builds on 20th-century foundations while taking full advantage of 21st-century tools and possibilities.
Bruce Katz is the Founder of New Localism Associates and a Senior Advisor to the National Housing Crisis Task Force. Sarah Karlinsky is Director of Research and Policy at the Terner Center for Housing Innovation at the University of California, Berkeley.