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Local and state actors have been taking stock of what the current moment in Washington means, assessing regional exposure to the effects of federal agency restructuring, spending cuts, workforce reductions and radical shifts in trade, immigration, health and science policies. For the most part, a broad array of federal grantees, borrowers and recipients are responding to the immediate impacts. Yet the interconnectedness of city and metropolitan regional economies — and the public, private and civic institutions that drive them — means that there will be longstanding, reverberating effects, with multiple, domino-like second and third order effects.

And so, it begins.

Amidst the daily noise and chaos, the US has begun a grand experiment, the radical defederalization of roles and responsibilities in the nation. We have seen versions of this movie before of course, particularly during the 1980s when the Reagan Presidency drove state innovations around health care and welfare reform. But this 21^st century version of defederalization is happening at an unprecedented speed and scale, with much less ideological consistency and coherence and no coordination — NONE — between layers of governments.

Earlier this week, the National Housing Crisis Task Force released the first tranche of tools in its State and Local Housing Action Plan for communities. The introduction to the State and Local Housing Action Plan summarizes all of the expected tools we plan to release in the coming months.

Our premise is straightforward: states and localities have more power than they know, more capital than they think, and more capacity than they have utilized to address the nation’s affordable housing crisis. State governments and their housing finance agencies regularly raise billions of dollars for housing development, housing preservation, and single-family mortgages through bond offerings. Local governments have created housing trust funds, new revolving loan funds, and new public development agencies. Community foundations and other philanthropies are investing in people, projects, and communities. While state and local zoning reforms have garnered the most attention, innovations to create faster, better, and more attainable housing have also occurred around land, construction, capital, regulation and governance.

The past 5 weeks have been painful to observe and experience. The Trump Administration has, in rapid fire fashion, moved to pause and condition federal funding, reduce the federal workforce, impose tariffs on trading partners and defy judicial orders. On Tuesday, the House passed a budget resolution that would continue tax policies enacted in 2017 (at a cost of roughly $4 trillion over the next 10 years) while reducing federal spending by $2 trillion over the next decade, with Medicaid and Supplemental Nutrition Assistance Program (SNAP) being the primary targets.

For all its flaws and its failure to prevent the current housing crisis, federal housing policy has been relatively consistent and stable over the past 40 years. The Low-Income Housing Tax Credit program, established in 1986, has financed over 3 million affordable housing units. At any given time, in recent years, over 2 million households use Housing Choice Vouchers to afford their homes. Fannie Mae and Freddie Mac have underpinned the mortgage market for decades.

I found myself looking for cinematic guidance as the chaos of the past few weeks played out.

I ultimately found it in one of the most compelling scenes in the first Godfather film. With guidance from Don Vito Corleone, Michael Corleone is plotting his audacious move to consolidate power among the warring Mafia families. One of the consequences of the anticipated bloodletting is the demotion of Tom Hagen from the Corleone family’s consigliere to its lawyer in Las Vegas.  As Michael explains: “You’re not a wartime Consigliere, Tom. Things could get rough with the move we’re making.”

Housing has dominated state and local headlines, the federal campaign trail, and even this newsletter of late. But you wouldn’t know it if you were moving within private capital circles. Rather, the talk of the town in the public markets, amongst lenders, and at private equity conferences is data centers: housing for chips.

Opportunity Zones (OZs) have emerged as a significant tool in driving investment into underdeveloped areas, offering a compelling case for their continuation and expansion. Since their inception in 2017, OZs have attracted nearly $100 billion in private capital, according to the Economic Innovation Group (EIG).

These investments have catalyzed the creation of more than 500,000 jobs, demonstrating their efficacy as a tool for economic development. Notably, multifamily housing developments have accounted for a substantial portion of these projects, addressing the nation’s 7-million-person housing shortage. As of early 2024, a full 20% of multifamily units under construction were located in Opportunity Zones. By bridging financing gaps, OZs have enabled the construction of thousands of units that might not have been built otherwise.

As we have written before, the U.S. is witnessing a period of rapid re-industrialization.

Perhaps no industry is more prominent in the United States’ nascent industrial resurgence than semiconductor manufacturing. Semiconductors are ubiquitous, powering everything from consumer electronics to advanced industry. They are also central to national security, earning a place on the Department of Defense’s list of Critical Technology Areas.

As states, cities, metropolitan areas and rural communities wrestle with the implications of the 2024 elections, Opportunity Zones have emerged as a core pillar of what might come next in housing and economic development.

Opportunity Zones emerged as a little-known provision of the Tax Cuts and Jobs Act of 2017. Focused on attracting private investment to distressed communities, the incentive allows people or corporations to defer taxes on capital gains if they park those gains in qualified Opportunity Funds that target their investments to state-designated Opportunity Zones.  If investors stay in a Fund for 10 years, any additional gains from Fund investments are also exempt from taxes on the capital appreciation.