U.S. Housing Crisis: Money≠Solution

Executive Summary:

Severe Housing Supply Shortage: The U.S. has faced a significant housing supply gap since the 2007-2008 financial crisis, exacerbated by underbuilding by approximately 500,000 units per year. This shortage has driven home prices and rental rates to record highs, outpacing income growth and worsening affordability, especially in metropolitan areas.

Challenges of Subsidies: Government subsidies, such as down payment assistance, may offer temporary relief but often lead to unintended consequences like inflating housing prices. These measures fail to address the root cause—an undersupplied housing market—and could distort demand without increasing supply.

Need for Market-Based Solutions: The report advocates for tax incentives and regulatory reform to stimulate affordable housing development. Reducing legal barriers, such as restrictive zoning and complex permitting, and offering targeted tax breaks to developers, can help alleviate the housing crisis by increasing supply more sustainably than reliance on subsidies.

The Problem

Home prices and rental rates in the U.S. have reached record highs, which led to deteriorating housing affordability, as they were not met by an equal increase in incomes. On average, U.S. House prices more than tripled and rental rates more than doubled between 2000 and 2024. In addition, affordability indicators suggest that while in the 2000s, the typical U.S. family earned more than enough income to qualify for a mortgage on a median-priced home, today the same family would not be able to qualify under the current market conditions.

The COVID-19 pandemic might have turned the spotlight on the housing affordability crisis, as the changing market perception and remote work trends skyrocketed the demand for housing, while on the other hand supply chain distortions hindered housing developments, pushing prices to record high levels. The housing market also saw a drastic increase in speculative buying during this period, with institutional investors taking advantage of low-interest rates and favorable mortgage conditions. Many investment firms bought properties at scale, converting single-family homes into rental units, contributing to reduced availability and increased pricing competition for individual buyers.

Nevertheless, the supply shortage in the U.S. housing market, which is the major driver behind the affordability crisis, has been brewing in the background for several years prior to the pandemic. The shortage was driven by a lack of home building after the 2007-2008 global financial crisis. According to Freddie Mac, home building was on average 500,000 units per year below where it should have been given the population growth.

As well, housing markets have struggled to keep pace with growing populations in key metropolitan areas, particularly as zoning restrictions have limited the development of multi-family units. In addition, the regulatory framework in many urban areas favors low-density housing, which has constrained the development of affordable, high-density residential projects that could have alleviated the strain on housing supply.

This article will study the problem of the U.S. housing affordability crisis, looking at its trends and disentangling its major drivers. We will then discuss the recent reforms at the Federal and State levels and the envisioned way forward, looking at recent efforts and proposals to alleviate supply constraints and improve housing affordability.

The U.S. Housing Market: A Historical Trend of Price and Rental Appreciation

While the U.S. housing market has been characterized by several boom-bust cycles since the 1980s, home prices have steeply trended upwards over the past four decades (Figure 1). Prices hit record highs in 2024, a two-fold increase over their 2010 values, and almost four times their 1990 values. This steady appreciation in housing prices has often been driven by multiple factors, including the persistent underbuilding of new housing units, demographic changes, and evolving market conditions that favor real estate as an investment asset. Notably, during periods of economic growth, developers often shifted focus toward luxury and high-end developments, which offer higher margins, leaving a gap in affordable housing development. In addition, the rising costs of land acquisition, labor, and materials have further limited the construction of more modest, affordable housing.

Figure 1 – S&P CoreLogic Case-Shiller U.S. National Home Price Index, 1987-2024 (2000=100)

Source: Federal Reserve Bank of St. Louis (FRED) database.

Looking at the regional distribution of housing values and increases, these are not uniform across the U.S. As shown in Figure 2, states such as California, Massachusetts, Washington, and Colorado, in addition to D.C., particularly stand out. In these regions, a combination of job growth, population influx, and limited land availability has intensified the housing supply-demand mismatch. For instance, Silicon Valley in California and Washington’s tech hubs have attracted thousands of high-income professionals, significantly increasing demand for housing in areas with already limited inventory. This influx has led to sharp increases in housing prices, further exacerbating affordability issues for long-term residents and lower-income families.

Figure 2 – Zillow Home Value Index for the U.S. and Top 10 States

Source: Zillow Research Housing Data.

Similar patterns are also observed when looking at rental rates (Figure 3). The median monthly rents in the U.S. have continuously increased since the mid-1990s, to reach record-high levels in 2024. The median monthly rent in the U.S. is estimated to have doubled from $602 in 2000 to over $1,300 in 2024. The rental market has been particularly hard-hit by the influx of institutional investors, who have capitalized on the rising demand for rental properties. These large entities often acquire multi-unit residential buildings or large swaths of single-family homes, driving up rental prices as they prioritize maximizing returns for shareholders. Moreover, increased costs associated with maintaining and renovating aging rental stock have been passed on to tenants, contributing to higher monthly rent rates across the nation.

Figure 3 – Median Monthly Rent Rates in the U.S., 1940-2024

Source: iProperty Management, based on Census Bureau Data.

One common driver behind the surge in the average rental rate could be the general increase in apartment sizes. However, this is not the complete story of the U.S. housing market. Although the rental space for large rentals (two- and three-bedroom apartments) has increased over the last decade, the size of small rentals (studios and one-bedroom apartments), which are the dominating floor plans among new apartments, has actually shrunk (Figure 4). In the most recent years, the rise in the size of the two- and three-bedroom apartments has even shown some stagnation.

Figure 4 – The Evolution of the Average Size of New Apartments by Unit Type

Source: RentCafe.

As a result, a particular feature of the rise in average rental rates in the U.S. has been the parallel increase in the average rent per square foot, which witnessed a more than 2-fold rise since 2013 (Figure 5).

Figure 5 – Average Annual Rent per Square Foot

Source: iProperty Management.

The U.S. Housing Affordability Crisis

The rise in home and rental costs with soaring mortgage rates in the U.S. has resulted in a drop in housing affordability over the last decade. This affordability crisis has particularly impacted young professionals, middle-income families, and low-income renters, who have seen their housing options dwindle as prices outpace wage growth. A major contributor to this has been the stagnation in real wage increases; while housing costs have continued to climb, wage growth has not kept pace, leading to a significant erosion in purchasing power for many American families. The ripple effects of this have also been seen in the economy, as housing affordability is closely linked to economic mobility, access to education, and overall financial stability.

Figure 6 shows the historical housing affordability index for a typical U.S. family that earns the median income. A value of 100 indicates that a family earning the median income has exactly enough income to qualify for a (fixed) mortgage on a median-priced home, while values above (below) 100 indicate that the typical family has more (less) than enough income to qualify. Despite the rise in housing affordability before the global financial crisis, the post-crisis era (2012-2018) and the post-pandemic years (2021-2022) particularly witnessed significant declines in affordability. The post-pandemic years are especially concerning, with the affordability index falling below 100 since the second half of 2022.

Figure 6 – Housing Affordability Index

Source: Y-Charts, based on National Association of Realtors Data.

In the wake of the skyrocketing housing prices, a major factor behind the deterioration in affordability has been the inability of income growth to keep up. The ratio of home price to income hit record highs in recent years (Figure 7). In 2022, the median price for a single-family home was 5.6 times the median household income in the U.S., compared to around 3.5 in 2011 and 4.1 before the pandemic. This growing disparity between home prices and income has forced many families to rely on more precarious financial solutions, such as subprime loans or variable interest rate mortgages, which can increase the risk of default and foreclosure. Furthermore, for those unable to buy, the rental market offers little relief, as soaring rental costs have made it increasingly difficult for renters to save for a down payment or accumulate wealth over time.

Figure 7 – Home Price-to-Income Ratio

Source: Harvard Joint Center for Housing Studies.

Rental costs have also increased relative to household’s gross income (Figure 8) as income growth failed to keep up with surging rental rates. Rental affordability hit its lowest in decades, with the annual median rental cost for single-family homes exceeding 40% of gross median household income in 2022 and 2023, compared to below 35% in 2019. As a result, the growing portion of household income dedicated to rent has left many families struggling to cover other essential expenses, such as healthcare, education, and transportation. This phenomenon has further widened wealth inequality, as homeowners continue to build equity while renters face an increasing financial burden.

Figure 8 – Annual Rental Cost to Gross Income Ratio

Source: Core Logic.

How Did the COVID-19 Pandemic Contribute to the Affordability Crisis

The rise in housing costs and loss in affordability have been particularly steep during the COVID crisis. On average, the annual growth rate of home prices in the U.S. tripled from merely 0.5% during 2017-2020 to 1.5% between January 2021 and June 2022, before slightly stabilizing more recently (Figure 9). This surge can largely be attributed to an unprecedented spike in demand for homes, particularly larger, suburban homes, as millions of Americans transitioned to remote work. The shift in lifestyle needs prompted families to seek homes with more space for home offices, children’s study areas, and outdoor space. These pandemic-induced changes further strained an already undersupplied housing market, amplifying price pressures.

On the affordability side, the housing affordability index fell from close to 200 in mid-2021, to below 100 in recent years, indicating that following the pandemic impact, the same U.S. family, which had more than enough income to qualify for a mortgage loan on a median-priced house, is unable to qualify under today’s prices. In addition to supply shortages, the economic uncertainty brought on by the pandemic created financial pressures for many households, making it more difficult for first-time homebuyers to enter the market. Furthermore, the low-interest-rate environment during the pandemic, which was meant to stimulate economic activity, ironically made it easier for wealthier individuals and institutional investors to purchase homes, further pushing prices out of reach for average buyers.

Figure 9 – Housing Price and Affordability Indices during the Pandemic

Source: Federal Reserve Bank of St. Louis (FRED) database and Y-Charts.

The pandemic essentially shifted market perceptions, pushing up prices, as shown in Figure 10, to levels that even exceeded the most severe housing bubble that led to the 2008 global financial crisis (GFC). This shift was largely driven by the availability of cheap credit, as historically low mortgage rates created a frenzied buying environment. Homes became hot commodities, and buyers were willing to bid above asking prices to secure properties, particularly in high-demand areas. The housing market became speculative, with buyers expecting continued price appreciation, which only served to inflate the bubble further.

Figure 10 – Housing Price Rises During the Pandemic and 2000s Housing Bubble

When the pandemic hit, families and individuals were pushed into lockdown, which restricted most of their leisure and entertainment avenues. With remote work and home-schooling needs, came the need for more space. Not only did this increase demand for larger homes, but it also spurred migration from densely populated urban centers to suburban and rural areas, where housing was historically more affordable. This domestic migration pattern caused property values in suburban areas to skyrocket, especially in regions that previously had not experienced such demand. Many urban dwellers relocated permanently to more spacious and less expensive areas, thus amplifying the nationwide housing supply-demand imbalance.

This pushed up the demand for single-family homes, with more green space and lower population densities. A recent study, by economists at the Federal Reserve Bank of San Francisco and the University of California, shows that U.S. areas where remote work was more common experienced higher home price increases. In particular, a 1 percentage point increase in the share of workers engaged in remote work was estimated to add almost 1% to home prices during the pandemic. Overall, remote work is estimated to have increased U.S. home prices by close to 15%. Similar effects were also found for rental rates.  

In addition, following the Great Recession, the loose monetary policy and lower interest rate environment led to low mortgage rates, which fueled higher demand for homes (Figure 11). On the supply side, this was met by a shrinking pool of houses, especially as the pandemic-related supply chain distortions pushed up material costs (e.g., lumber, concrete, gypsum, and steel) and led to construction labor shortages, which limited construction expansion. According to the Bureau of Labor Statistics, in mid-2021, there were 263,000 unfilled construction jobs.

Figure 11 – 30-Year Fixed Rate Mortgage Average and Home Price Index

Source: Federal Reserve Bank of St. Louis (FRED, 1, 2) database.

All those factors pushed up house prices, especially for single-family units. Interestingly, however, the effects haven’t been uniform across U.S. cities. With the option of remote work came the opportunity of domestic migration to more favorable spots across the country. The rise in house prices has been higher in the Sun Belt region, with cities in Florida, Texas, Idaho, and Utah witnessing the highest price increases (Figure 12).

Figure 12 – Single Family Home Price Surge in US Metros with the Largest Increases

It’s not Just the Pandemic, but Essentially an Ingrained Supply and Demand Problem

Although pandemic-related factors did exacerbate the problem, more ingrained issues have been brewing long before the COVID years. The affordable housing problem is essentially a significant supply shortage issue that started developing following the GFC in 2008-2009 and set the stage for the pandemic effect, as house developments have been unable to keep up with the increasing demand. This shortage has been driven by a variety of factors, including restrictive land use policies, which have limited new construction in many areas. Additionally, many developers have focused on building luxury or high-end housing that offers better profit margins, while neglecting affordable or middle-tier housing markets. This has created a widening gap between housing supply and demand, particularly in urban areas with high job growth but insufficient housing stock.

It is estimated that the U.S. was short of more than 3 million homes in 2022 (Figure 13). Moreover, according to the National Association of Realtors (NAR), the supply of homes for sale in the U.S. dropped to an all-time low of 1.6 months in January 2022, falling short of the housing demand, despite a relative pick up recently. This severe housing shortage has far-reaching consequences, not only for potential homebuyers but also for renters, as a lack of available housing units leads to increased competition and higher prices across the board. Many families are forced to remain in rental housing longer than anticipated, which reduces mobility in the market and further inflates demand for homes.

Figure 13 – Existing House Units Relative to Population Demand in the U.S.

Source: Axios.

While the U.S. housing market has seen a number of boom-bust cycles over the past four decades, three periods particularly stand out. First, the formation of the housing bubble and surplus of housing in the 2000s, heading into the GFC. Second, the burst of the housing bubble following the GFC. Third, the exacerbation of the shortage during the coronavirus pandemic.

During the early 2000s, the low regulations in the financial sector, credit excess, and growth in subprime mortgages all fueled the formation of a housing bubble as easy money supported both developers as well as high-risk buyers and resulted in inflated housing prices. This period of reckless lending encouraged unsustainable development practices, leading to a surge in new home construction and an oversupply of housing in certain markets. When the bubble burst in 2008, many developers were left with unsold inventory, and the resulting financial losses made them more risk-averse in the following years, slowing the pace of new construction, particularly in affordable housing segments.

After the housing bubble burst in 2008, prices initially fell, but quickly began rising again as demand recovered in the aftermath of the recession. However, the supply of new homes lagged behind, as developers and builders adopted a more cautious approach to housing projects. Former Federal Reserve Chairman Ben Bernanke wrote about this shift in his memoir, stating, “Normally, a rapid rebound in home construction and related industries such as realty and home improvement helps fuel growth after a recession. Not this time. Builders would start construction on only about 600,000 private homes in 2011, compared with more than 2 million in 2005.”

Moreover, the stricter financial regulatory environment and risk-aversion of lenders, led to tighter credit post-crisis, which further stalled construction. According to Rob Dietz, chief economist of the National Association of Home Builders (NAHB), “We have been underbuilding for years. We expect(ed) to start about 900,000 single-family homes in 2018, when the market could absorb about 1.2 million houses.” Some experts even argue that the seeds of the housing supply shortage have been sown even before the GFC.

The National Association of Realtors warned of an “underbuilding gap” of approximately 5.5-6.8 million housing units since 2001. A major problem with the U.S. housing supply is the fact that most of the new houses being permitted today are single-family rather than multi-family units, thanks to zoning restrictions. Almost two-thirds of all the homes built since the GFC have been single-family units (Figure 14).

Figure 14 – Share of Total Homes Permitted by Type

Source: The White House, based on FRED Data.

Moreover, data from the National Association of Home Builders suggest that most of the single-family units being built today target high-tier homebuyers. Of all the newly built single-family homes across the country in 2020, none were priced below $100,000 and only 1% were in the range of $100,000-$150,000. This pattern led to affordability losses and squeezed a big proportion of home buyers out of the market. While prior to the global financial crisis, excess credit allowed buyers along the income scale to access the market, the following credit tightening and inadequate supply of housing at the lower-tier end of the scale cut their access.

Another major factor that exacerbates the supply shortage problem stems from the dominance of large-scale institutional investors, who purchase a major chunk of the U.S. housing stock, out-bidding individuals and families with scarce resources. In the first quarter of 2024, real estate investors absorbed almost 19% of all U.S. homes, or around 44,000 homes, and 26% of low-priced homes. By purchasing the most affordable housing and re-selling or renting them out, institutional investors add to the housing shortage, pushing up both home prices and rental rates.

In addition, as mentioned earlier, zoning laws and restrictive regulations are among the major drivers behind the housing affordability crisis, including restrictions on square footage, building height, and exclusions for multi-family housing. According to Wesley Doss of the Home Builders Association in San Angelo, “Building codes, energy codes, storm water runoff codes, they all affect the price of a home. So anytime you see regulations change, it almost automatically triggers a price increase.”

The Proposal to Alleviate Supply Constraints and the Housing Supply Action Plan

To address the affordable housing crisis, in September 2021, the Biden-Harris Administration proposed an agenda of administrative and legislative reforms to alleviate the housing supply constraints. This aimed to urge reforms to reduce housing costs and accelerate the construction of affordable housing, especially multifamily units. Proposals included:

1. Making use of the available administrative opportunities to create and preserve the supply of both single-family and multifamily housing, in coordination with Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), Department of Housing and Urban Development (HUD), Treasury, and State and local governments.
2. Ensure that single-family homes held by the Federal government eventually go to owner occupants, or to community-oriented non-profits committed to rehabilitating homes and selling them to owner-occupants. Efforts include increasing the period through which only such owners can make offers on homes (as opposed to investors) and cutting through red-tape to ensure that federally held homes quickly get on the market.
3. Increase financing for manufactured homes and 2–4-unit properties.
4. Increase the affordability of financing for building multi-unit dwellings, particularly those targeted at low- and moderate-income renters.
5. Incentivizing investment in the construction of affordable housing units, the relaxation of restrictive zoning and helping income-burdened renters.

In May 2022, the Biden-Harris Administration introduced the Five-Year Housing Supply Action Plan (HSAP), marking the most comprehensive government initiative to date aimed at closing the housing supply gap. The HSAP essentially aims to build over 2 million new homes, support renters who struggle with high costs, build and preserve rental housing for low- and moderate-income families, and enact legislative reforms to reduce price pressures. Figure 15 summarizes the main pillars of the HSAP.

Figure 15 – Biden-Harris Administration Housing Supply Action Plan

Source: Department of Housing and Urban Development.

New Actions in 2024 to Cut Red Tape and Build More Housing

To build on the progress of the HSAP and accelerate its implementation, in August 2024, the Biden-Harris Administration announced further actions to reduce housing costs and cut red tape. Those included:

1. Making more funding available to remove barriers to affordable housing development and preservation, including $100 million through HUD’s “Remove Obstacles to Housing Program,” which will provide grants to communities.
2. Providing after-construction interest rate predictability for housing development, by implementing a floor and cap (collar) on the benchmark treasury rate that is used to calculate the financing rate for state and local housing finance agencies.
3. Streamlining requirements for transit-oriented development projects.
4. Incentivizing communities that receive Community Development Block Grants to invest in transformative housing. Up to $250 million in loan financing will be provided for adaptive reuse, commercial-to-residential conversion, rehabilitation of existing housing, and enabling infrastructure (e.g. water and sewer line installation).
5. Enabling more housing types to be built under the HUD code, including enabling duplexes, triplexes, and fourplexes to be built under the HUD Code for the first time
6. Expediting housing permitting, through Reforms to streamline permitting processes
7. Accelerating historic preservation reviews for federal housing projects, which would help reduce development costs.
8. Streamlining and clarifying requirements for transit-oriented development projects, including streamlining the requirements for Department of Transportation loans for residential development near transit and commercial-to-residential conversions.

What the Harris Campaign Promises to Address the Affordability Crisis

 In August 2024, Vice President Kamala Harris announced several proposals for her first 100 days in office, including those to address the housing affordability crisis and lower the costs of homeownership and renting. Her proposals called for:

1. The Construction of 3 million houses over the next four years. This includes coordinating with stakeholders in the industry to build more housing for rental and ownership, in addition to removing barriers at the state and local levels. The agenda proposes: (1) a first-ever tax incentive for developers who build starter homes sold to first-time buyers, (2)the extension of the existing tax incentive for businesses that build affordable rental housing, including through a new $40 billion innovation federal fund (surpassing the $20 billion Biden-Harris administration proposal), and (3) cutting red tape and bureaucracy, building up on the  Biden-Harris administration’s efforts.
2. Reducing the rental rates by regulating corporate landlords. This includes a proposal to pass: (1) a “Stop Predatory Investing Act”, to curtail institutional investors’ bulk buying by eliminating key tax benefits, and (2) a “Preventing the Algorithmic Facilitation of Rental Housing Cartels Act” to discourage corporate landlord collusion that pushes up rents.
3. Providing $25,000 down-payment support for first-time homeowners. The down payment assistance will be available to working families with on-time rental payment history of two years.

A Case in Point: Minnesota’s Fund for Housing Development

In 2023, Minnesota lawmakers announced that they would dedicate $1 billion of new funding to address the State’s affordability crisis. In addition, the state created the first-ever dedicated funding source for housing by raising sales taxes on shoppers by 0.25%, which is estimated to raise over $350 million in revenue. These programs were supported by both Democrats and Republicans.

The new funding aims to address the various problem areas of the affordability crisis in Minnesota. On the supply side, the funding will support developers in building more affordable apartments. On the demand side, it will provide rental assistance and help low- and moderate-income residents to buy their first homes. The bill includes:

• $46 million for rental assistance under the “Bring it Home” program. Eligible households (earning 50% or less of the area median income) will pay up to 30% of their income on rent with the state covering the rest.
• Over $130 million for homelessness prevention and housing stability. This includes providing up to 2-year rental assistance for the homeless, outreach efforts to connect them with services, rental vouchers, and rental assistance for the mentally ill. 
• Over $350 million to support building new affordable housing, particularly focusing on rental properties, with some support for manufactured housing and single-family units.
• More than $100 million of grants to support the rehabilitation and maintenance of affordable rental units.
• $15 million for public housing rehabilitation
• $5.5 million to support home renovations by low- and moderate-income owners
• $200 million in down payment assistance, including $150 million to first-generation homebuyers

Besides the subsidies:

• Make it difficult for cities and suburbs to stop the construction of duplexes, triplexes and fourplexes in single-family areas.
• Require cities to allow apartment buildings, especially those that provide affordable housing, in commercial zones.
• Lessen the opportunity for public comment meant to halt housing development in cities.

What the Trump Campaign Promises to Address the Affordability Crisis

In the lead-up to the 2024 presidential election, former President Donald Trump outlined several housing proposals aimed at addressing affordability, supply constraints, and regulatory burdens. These policies reflect his broader economic approach of reducing government intervention and promoting market-driven solutions.

1. Streamlining Regulations: Trump proposes a significant reduction in regulatory hurdles that slow down housing development. His plan seeks to cut federal regulations by 50%, focusing on streamlining the permitting process, reducing environmental regulations, and expediting construction timelines. Trump believes this will encourage developers to build more homes at a faster rate, especially in high-demand areas. These reforms build on his previous administration’s efforts to roll back environmental and zoning regulations, which developers have long argued contribute to rising construction costs and delays.
2. Zoning Reform for Suburban Development: Trump has also advocated for zoning reform to allow for more suburban expansion. This policy seeks to counter restrictive zoning laws that limit the development of higher-density housing, particularly in suburban areas. Trump’s approach would make it easier for developers to build multi-family units in areas traditionally zoned for single-family homes, thereby increasing housing supply.
3. Market-Driven Solutions Over Subsidies: Unlike some of his Democratic opponents, Trump’s plan does not emphasize housing subsidies or direct government intervention in the market. Instead, his proposals focus on tax incentives for developers and deregulation, encouraging private-sector solutions to the housing crisis. Trump’s belief is that by reducing regulatory costs and opening up more land for development, the market will naturally increase the supply of affordable housing.

Trump’s housing proposals reflect his commitment to a market-based approach, aiming to address the housing crisis by boosting supply through regulatory reform and reducing government intervention in housing markets.

Wrap Up

While the U.S. affordable housing crisis has been exacerbated by various market and policy factors, addressing it requires a strategic shift in the way government interventions are designed. Subsidies, while well-intentioned, often result in distorted market dynamics and unintended consequences. For instance, subsidies such as down payment assistance may temporarily boost purchasing power, but they can also inflate housing prices, much like student loans have driven up tuition costs. This approach does little to address the core issue of housing supply, and may even exacerbate affordability challenges over time by encouraging speculative market behavior.

Instead of relying heavily on subsidies, policymakers should focus on providing tax incentives and reducing regulatory burdens to stimulate construction and reduce costs. Tax incentives for developers, particularly those aimed at affordable housing, can encourage the private sector to invest in building homes that cater to middle- and lower-income families. By reducing the tax burden on builders and creating incentives for affordable housing development, states can increase the housing supply without the negative side effects of subsidies.

Moreover, reducing the regulatory costs and legal barriers that delay construction and drive up prices is essential. Zoning laws, building codes, and complex permitting processes significantly contribute to the high costs of housing development. By streamlining these regulations and cutting red tape, particularly for high-density and multifamily housing, the government can foster a more robust housing market. States and local governments must also confront NIMBYism (Not In My Backyard), which often blocks essential housing projects, by simplifying approval processes and limiting public objections that can stall developments for years. Parts of the Minnesota housing plan attempt to address these issues and should be watched carefully for impact.

Ultimately, focusing on market-based solutions—such as tax incentives and regulatory reforms—offers a more sustainable path to addressing the housing shortage. While subsidies may provide short-term relief, they do not address the structural issues that limit housing supply. Reducing legal and regulatory burdens while incentivizing development can unlock new housing opportunities and make homeownership more accessible to millions of Americans.