If you read the first two posts in this series (Post 60 and Post 61), then you should understand why housing affordability has been such a tough problem to solve. The basic issue seems simple enough: the cost of housing production and ownership needs to come down – or at least stay flat long enough for income growth to catch up. The multi-dimensional nature of housing construction cost components, however, means that there is no simple solution. Even addressing just half of the cost components will force some uncomfortable compromises.
With this post I’m going to throw out some ideas that – used in combination – might be enough to actually lower housing costs. They are unlikely, however, to be particularly popular and I will identify the likely objections as part of my discussion. To begin with, existing homeowners are unlikely to want housing construction costs to drop because that would, at the very least, interrupt the housing appreciation trend which has added considerable wealth to many homeowners. Many markets are starting to see modest price declines for existing homes as the over-inflated housing bubble starts to pop. If new construction options undercut prices further, then modest declines could turn into significant drops.
Aside from waving a magic wand that instantly raises the household income for middle-class families, significant drops are exactly what is required. The housing market is badly out of whack compared to income, and fixing it will result in some pain.
Solutions That Don’t Work
In addition to ignoring the “increase everyone’s income” type of solution, there are a few other popular “solutions” that I am not going to support because they are band-aids that don’t really solve the long-term problem. So let’s get them out of the way right up front:
Rent control. This is an idea that periodically surges in popularity when renters blame greedy landlords for rent increases instead of bothering to understand the economic forces that are at work in the housing marketplace. The latest advocate is New York City mayoral candidate Zohran Mamdani whose popularity is surging partly due to his calls to expand rent control of privately owned housing units. The problem is that I can’t think of a single example where this approach has been a successful long-term strategy. Rent control disincentivizes both housing maintenance and new housing construction which means that the existing housing stock spirals into decay and fewer new units are constructed which further warps the supply/demand balance. Renters might celebrate in the short term, but in the end it typically becomes a lose/lose solution.
Down-payment assistance for first-time homebuyers. This is an idea that was recently pushed by presidential candidate Kamala Harris when she proposed giving first-generation homebuyers up to $25,000 in downpayment assistance and other first time buyers up to $10,000 in tax credits. This idea at least has the advantage of being somewhat targeted toward segments of the population that arguably need help, and it might actually be beneficial for some recipients. It does absolutely nothing, however, to lower the cost of housing production which in my mind is the core problem. It would also be likely to lure people into homeownership who will ultimately fail and end up worse off financially than before. If a household doesn’t have sufficient income (or sufficient budgetary discipline) to save for a downpayment, what is the likelihood that they will be able to weather unexpected expenses such as a roof repair or HVAC replacement that can easily be in the tens of thousands of dollars? As I have argued previously, homeownership is a wise financial move for some households, but not for everyone. Spending a lot of tax dollars to give people the illusion that they are ready to be homeowners might be more cruel than helpful.
Convince the Federal Reserve to lower interest rates. This seems to be a popular option lately because it is seen as leading directly to lower mortgage rates. Unfortunately, the federal funds rate which the Federal Reserve controls is only loosely connected to mortgage rates. Long-term treasury notes/bonds are a much better predictor of mortgage rates and they are set by the market, which in turn is influenced by overall economic strength, inflation fears, and demand for U.S. debt instruments. Despite a recent rate cut by the Federal Reserve, mortgage rates have stayed relatively unchanged – likely due to concerns about stubborn inflation levels and a weakening job market.
Privatize Fannie Mae and Freddie Mac. Seventeen years ago these two organizations were placed under federal conservatorship in order to stabilize the housing finance industry which was in meltdown mode at the time. That action was successful, but what was considered a temporary measure at the time has now stretched to nearly two decades. [1] There is now considerable discussion about selling the government’s stake in Fannie and Freddie so that they can operate as a completely private entity without government interference or constraint. Some proponents have argued that privatization would make the organizations more efficient and innovative, thus benefiting home buyers and improving affordability. There are interesting arguments on both sides of this issue and I don’t know enough to take a position one way or the other, but I am skeptical of the suggestion that this will have any significant impact on housing affordability. I think the ultimate impact on mortgage rates will probably be minimal and the odds are probably about 50/50 whether rates would go slightly up or slightly down.
Build more housing. This is a popular solution that has the support of basic economic theory – build more supply and prices should fall. The problem is that this approach is too simplistic to be very useful. Yes, we need to build more housing, but building more of what we are already building won’t work. To begin with, no government agency in the U.S. has the ability to compel the private sector to build housing it doesn’t want to build. And if homebuilders or developers could profitably build more of what they are already building they would already be doing so. We need to build housing differently to supplement what we already build, with new construction and ownership options that have lower monthly costs.
Things Outside of Local Control
There are three factors that could have a significant impact on housing costs (either for better or for worse) which I am also going to largely ignore because they are federal issues that are wrapped up in other policy objectives. Consequently, I think they will be unaffected by pleas from local officials concerned with housing affordability. The first factor is the mortgage rate which is tied up with issues related to both the national and world economy. If the average rate for a 30-year fixed mortgage were closer to 5 percent it would make a huge difference but I think that is unlikely in the next few years.
The second factor is the tariff rate on lumber, cabinets, and other wood products. The Trump administration’s position on tariffs seems to yo-yo all over the place but the current path is likely to raise the cost of housing production which is obviously bad for housing affordability. Trump’s tariff strategy seems to be a long-term play to increase internal production and employment, but I think it will be painful in the short run and I’m doubtful of long run success as well. Again, I don’t think housing concerns will sway the tariff strategy.
The third factor is construction labor availability which has been strained for years and is likely to get significantly worse with the federal focus on deportation of undocumented residents. Efforts to recruit young people into the construction trades have not been successful enough to counterbalance retiring workers and increasing demand. Deporting workers will make that worse, which will increase housing costs. This is part of a much larger issue relating to border control and immigration which means that the impact on housing affordability isn’t likely to have much influence.
Actions Which Might Work
I have four general ideas (each with multiple parts) that I think could make a significant difference in housing production and ownership costs. As I mentioned earlier, none of them are likely to be particularly popular which makes me pessimistic about any real success. True improvements to housing affordability will require a community that is committed to making it a high priority, to the point where they are willing to shake up the status quo and implement unorthodox strategies.
Reduce Land Costs Per Unit
Land can account for 10 to 20 percent (or more) of the final cost of a housing unit so it is a logical place to start looking for potential savings. The price of land, of course, is set by the market and isn’t likely to drop unless the housing market and the broader national economy really go south. Thus, the key to reducing the land cost per unit is to increase the number of units allowed on a given parcel of land. Increasing housing density is rarely popular, however, because it is seen as an attack on the character of the community and on the value of existing housing.
Most single-family homes are surrounded by spacious yards that are rarely if ever used. Yes, there are exceptions for families with lots of kids or households that do lots of entertaining, but most yards rarely see a human presence outside of someone mowing the grass or trimming the shrubs. Required yard sizes could easily be reduced by a third, or perhaps even half, without materially affecting the lifestyle of most households.
The reality is that most communities use their zoning authority to limit the majority of their land to single-family homes on lots that are far larger than are reasonably necessary. This is being documented by an ambitious (but unfinished) effort known as the National Zoning Atlas. [2] For example, St. Charles, Missouri, is a city of 70,000 people located in the St. Louis metro area. Of the 88 percent of the land that is subject to zoning controls, 54 percent is limited to primarily residential uses, 10 percent is limited to mixed uses which include residential options, and 36 percent is limited to nonresidential uses. Single-family homes are allowed by right on nearly 70 percent of the residential land (and not prohibited anywhere) while no form of multifamily development from duplexes on up is permitted by right on more than 10 percent of the land. [3] As skewed toward single-family as this might seem, many communities are actually much worse. Take a look, for example, at Stamford, Connecticut, a city of 135,000 people: [4]
Housing Units Allowed - Stamford (by percent of land area)
1-family 2-family 3-family 4+family
Allowed (by right) 97% 11% 10% 10%
Conditionally allowed 2% 2% 2% 16%
Prohibited 0% 88% 89% 75%
There is a growing movement to create neighborhoods that blend duplexes or tri-plexes in with single-family homes. Given the shrinking size of American households, it would seem to be a relatively straightforward way to increase housing density and housing diversity. Several years ago, Minneapolis amended its zoning regulations in this exact manner to allow duplexes and tri-plexes in areas previously zoned for just single-family homes. While there has been political pushback and several lawsuits, early results are encouraging. Between 2017 and 2023, the housing stock grew by 12% (compared to 4% statewide); and rents increased more slowly at just 1% (compared to 14% statewide). [5]
So why isn’t this approach more common? The answer is that while we like to support the concept of affordable housing, supporting that reality is a different matter if it might impinge on the sanctity of our neighborhood. A recent study came to the following conclusion:
We show that the residents of neighborhoods with mostly single-family zoning, on average, have significantly higher household incomes and are much more likely to be white, much less likely to be Black or Hispanic, more likely to have a bachelor’s degree, and much more likely to own their homes than residents of neighborhoods where zoning allows for multifamily building construction. [6]
Having mostly single-family zoning seems to lead to mostly good things, but it does so by largely excluding middle-income households and households of color. NIMBYism is alive and well because most people don’t want to jeopardize the value of their home. These are the difficult trade-offs that housing affordability requires.
If the Minneapolis approach is too extreme, there are other approaches that can lower the cost of land per unit of housing. Examples include allowing accessory dwelling units in back yard areas, aggressively redeveloping vacant land controlled by urban land banks, and allowing denser forms of transit oriented development adjacent to commuter rail stations in suburban communities. If done correctly, all of these things can improve housing affordability without ruining the character of a community or neighborhood. At the very least, communities should amend their zoning regulations to provide for districts which allow small-lot development (e.g. 5,000 square foot lot sizes) and cluster development where several homes share common open space. This would enable new neighborhoods to be more dense without impacting existing neighborhoods.
Reduce Construction Bureaucracy
Part of the housing affordability problem is that we have skewed the building process to favor big companies that build big subdivisions of single-family homes or big apartment complexes. Small developers who might be more in touch with the needs of the community and more willing to build nontraditional housing tend to get lost in the shuffle. This isn’t intentional, but rather the inevitable result of community pressure for building departments to be as efficient as possible. Review and inspection processes get designed for big, complicated projects with requirements that big companies are used to but which small developers find burdensome or unnecessary.
In addition, the relationship between builders and the municipal building departments that regulate construction is often adversarial, particularly in larger cities. This probably isn’t surprising given the complexity of the building code and pressure on contractors to stay under budget (i.e. cut corners), but it can discourage small builders from entering the market and reduce their odds of being successful when they try something new.
Cities that are really committed to housing affordability should consider carving out a distinct approach for small housing projects. This is likely to be more labor intensive (i.e. less efficient), but growing the capabilities of ten or twenty small builders might be more productive in terms of increased housing diversity than luring another large developer who is going to build more of the same. For example, I would like to see a simplified building code created for housing units below a certain threshold (perhaps 2,000 square feet per unit). Most cities already have a separate code for 1- and 2-family structures, but I’m thinking of a step-by-step document that is heavily illustrated and focused on simple construction techniques. Builders wanting to do a more elaborate or exotic project could always opt for the standard code documents, but small scale builders would likely embrace a simplified approach that is easy to understand.
I would also like to see this simplified code focus on low-cost design requirements, even if this means somewhat lower performance in terms of energy efficiency or fire safety. I think we have excluded buildings that are “good” by insisting that everything be “excellent” and the cost of that approach has become counterproductive. To supplement this simplified approach, building departments need to have reviewers and inspectors that view their role as being collaborative problem solvers as much as code enforcers. Instead of just failing an inspection and letting the builder figure out what changes are needed, inspectors could explain the logic behind the requirement and suggest a possible solution. This would be more time consuming and it would also require a very knowledgeable staff – the type who are typically put on the most complicated projects, not the simplest.
Along the same line of reasoning, there is a new trend spreading across the country known generally as Pattern Zoning. Under this approach, cities pre-approve full building plans for modest single-family homes and duplexes and make those plans available to builders for a minimal fee in selected parts of the city. The approval process is entirely administrative in most cities, meaning that there are no public hearings, no neighborhood protests, and no extended review times prior to permit approval. The choices are limited, but it can result in homes under construction in record time and with a very low up-front cost. [7]
More Factory Production
There are three types of housing that are built entirely, or at least partially, in a factory: (1) manufactured housing (what used to be called a “mobile home”), (2) modular housing, and (3) panelized housing. Although the numbers fluctuate from year to year, in general terms all three types account for 10 to 12 percent of total housing construction. In my opinion, that percentage needs to at least double for there to be a significant impact on average home prices. There are, unfortunately, some obstacles standing in the way of that happening.
Manufactured housing has come a long way from its mobile-home roots, but its impact on the housing market is largely under the radar. Roughly 100,000 units are built each year – triple the amount for the other two forms of factory housing combined – and studies have estimated that it is 20% to 45% less expensive per square foot than site built housing. [8] Manufactured housing is subject to a federal building code (known as the HUD code) which is roughly equivalent to most local building codes. The standardization enabled by this single code has substantial advantages for factory production where the final product might be shipped to a wide variety of locations. There are, unfortunately, some significant limitations that the manufactured housing industry is subject to which limit the appeal of this housing option.
For example, the HUD code requires that manufactured units be built on a chassis or frame. This is a throwback to the days when it was assumed that the unit might be moved from place to place and wheels were often attached to the chassis so that it could be towed on the highway. In reality, manufactured housing is rarely moved once it is installed on a foundation and units are typically shipped on flatbed trailers, so the need for a chassis is obsolete. The requirement for a chassis, however, makes it more difficult to permanently attach to a normal foundation and it makes it almost impossible to stack units vertically. Proposals are actively being considered to remove this requirement, but they have not been formally adopted.
Another vestige from the past is the default treatment of a manufactured home as a piece of personal property with a title, much like a car. This stems from manufactured homes traditionally being placed in “mobile home parks” where the land is rented by the resident rather than owned. It is possible to convert a manufactured home to real estate if it is placed on property that is owned by the owner of the unit, but it requires additional time and paperwork. The industry needs to push for the default option to be real estate, rather than the other way around.
The third obstacle that keeps manufactured housing from being more popular is its appearance which traditionally has been long and skinny, with a very low roof pitch and virtually no overhangs (eaves). This distinctive look has been stereotyped as being cheap or insubstantial despite the fact that a well made unit can be as comfortable and modern as many site-built homes. The industry is addressing the issue with a new category of manufactured home known as a CrossMod. These units have much more normal roof designs and can incorporate additions such as porches, attached garages, and decks.
A CrossMod Home (Source: Clayton Homes)
The final obstacle is the local zoning code which in most jurisdictions limits manufactured housing to rarely used districts that are frequently located near floodplains, railroad tracks or industrial parks – sites that aren’t ideal residential neighborhoods. As the manufactured housing product improves, cities need to modify their codes and practices to find ways to locate manufactured home subdivisions in attractive residential areas near other types of housing.
Modular and panelized housing techniques are distinguished from manufactured housing in that they are designed to comply with local building codes. They also offer a great deal more flexibility in terms of the design of the final product, require more on-site finishing work, and yield somewhat less cost savings. The result, however, is often indistinguishable from site built housing. Unfortunately, neither type of construction has really caught on in the U.S. I think the problem is that, unlike manufactured housing, modular and panelized housing requires a third-party builder who does the site work, buys the modular/panelized components, does the on-site assembly and finish work, and then sells the final product. So far, there haven’t been enough companies willing to play that middleman role. Factories are expensive to build and to keep running, so there needs to be a steady stream of buyers (i.e. builders) to make them profitable.
Still, I think the potential is great and the skyrocketing cost of traditional construction might be enough to shake builders out of their comfort zone and into the world of modular and panelized construction. That world is different enough that architects and builders will need to think about housing design in a slightly different way. Successful builders will have to understand and tap into the strengths of modular and panelized construction so that the cost savings are as substantial as possible. In particular, builders will need to find designs that are smaller and simpler but still appealing to modern buyers. Designing modest homes specifically laid out with expansion in mind might be a start. In any case, building old house plans with new technology isn’t likely to yield the necessary cost efficiencies.
A New Form of Ownership
In the world of housing, you are either an owner or a renter, and there are troubling trends affecting both of those options. On the ownership side, I have already detailed the rapidly growing gap between the average cost of owning a home and the average income of a typical household. On the rental side, the share of total housing expenditures represented by rent has been trending higher for at least the past 20 years across all income levels, meaning that affordability is not just an ownership issue. [9]
Equally troubling, in my opinion, is that the ownership of rental housing is increasingly concentrated in large corporations that are often remote from the people who occupy those units. Large corporations are good at creating algorithms that maximize profits, but housing is an essential human need with a social aspect that is just as important as the economic one. Balancing the economic need for profitability with the moral imperative of being a responsible landlord is where impersonal corporations often fall short. Maybe AI will save us someday, but there currently isn’t an app or an algorithm that can replicate decision making based on a personal relationship.
What I would like to see more of is what I’m going to refer to as “co-owning”. This third category requires the participation of a housing-focused organization – most likely a not-for-profit, community- or faith-based organization that is willing to partner with individual households. The role of the co-owning organization is akin to the role of a traditional landlord, but with the profit motive of the landlord replaced by a mission to provide affordable housing, build wealth, and smooth the transition from renter, to co-owner, to traditional owner. Ideally, the co-owning organization would acquire multiple housing units in close proximity and maintain an active partnership with the residents in order to facilitate a sense of community.
From the perspective of affordable housing, the key advantages of a co-owning organization would be:
Reducing the financial impact of closing costs and down payments so that moderate income households could “own” housing without a huge up-front cost;
Building relationships with local lending institutions so that financing arrangements for first-time buyers would be less intimidating;
Developing a list of trusted repairmen, contractors, insurance providers, and similar local services that homeowners are likely to need;
Assembling a shared pool of tools, ladders, and lawn care equipment so that each owner doesn’t need to buy their own;
Providing short-term financial assistance to smooth over unexpected expenses at interest rates far below what a credit card or payday loan business would require; and
Facilitating the eventual sale of the residence if the household needs to move or wants to upgrade to a traditional ownership role.
In exchange, the organization needs to have a revenue stream to not only cover its costs but to also provide an incentive to expand its services. This revenue stream might be a monthly fee like dues for a homes association, or a differential in the interest rate between what the organization borrows at and what it charges the individual household buyers, or an agreement to split any appreciation in property values. Whatever the arrangement, the idea is that the co-owners split the financial benefits of owning a home while providing an opportunity for a moderate income household to not only have safe and sanitary living quarters but to also build equity and learn the ins and outs of home ownership.
This might seem like a Utopian dream, but it might not be as far-fetched as it seems at first glance. As an antidote to NIMBYism, there is a fledgling movement in several states known as YIGBY (or Yes in God’s Back Yard). It turns out that religious institutions own a great deal of undeveloped or underutilized land which could be used for residential purposes, and many churches view affordable housing as being consistent with their mission. [10] The YIGBY movement is distinct from my thoughts on co-ownership, but the two would seem to fit well together. In any event, what I am arguing for is a hyper-local, community focused approach to housing supply that bridges the gaps in what the private housing market provides.
The Bottom Line
For better or worse, we live in a capitalistic society and we occasionally need to face up to the fact that while capitalism does many things well, it does not do everything well. This is particularly true in a time when the income disparity between the top twenty percent of society and the remaining eighty percent seems to be growing larger. The prices for many of the necessities of life – food, housing, health care, transportation – seem to be rising faster than the wages of the middle class (not to mention the lower economic rungs). The “American Dream,” which motivated us to work hard in order to earn a good life, seems to be slipping from our grasp. If young families give up on the dream because they feel the economic deck is stacked against them, what does that mean for the future of our society?
With respect to affordable housing and the current economic climate, the primary point I'm trying to make is that I don’t believe that the private market can provide the quantity or quality of housing that the broad middle-swath of our society needs. I am convinced that the private market needs to be supplemented by efforts from local government, local community organizations, and local businesses working in tandem. No single actor will be sufficient because no single actor has the ability to pull enough levers to really address this multi-dimensional problem. And sadly, I’m convinced that the Federal government will be largely useless until their priorities change significantly.
A coordinated approach is needed because attacking just one slice of the affordability problem runs two sizable risks. First, a single actor addressing just one aspect of the problem is likely to have too small of an impact to be really noticeable. Many housing affordability initiatives have started with high hopes, burned through time and resources, and then petered out when the results were underwhelming. Second, a narrow approach to solving housing affordability can simply end up distorting the market through unintended secondary effects rather than really leading to the desired outcome. The housing industry involves a lot of moving parts and tweaking one part without understanding the others can be more negative than positive. Arguably, the whole subprime mortgage meltdown was started by efforts to relax mortgage qualification standards so that more families could buy a home. Juicing demand from households inexperienced with home ownership – at a time of falling interest rates – during a period of lax regulatory oversight – without increasing housing supply at the right place and the right price point – was a recipe for disaster.
I am basically an optimistic person, but the complexity of the housing affordability problem might be enough to change me into a cynic. I hope my ideas spur some effective action, but I’m not holding my breath.
Notes:
1. Willy Walker; “The future of Fannie Mae and Freddie Mac: Why this debate matters now”; March 2025; Walker & Dunlop; https://www.walkerdunlop.com/insights/the-future-of-fannie-mae-and-freddie-mac-why-this-debate-matters-now#:~:text=The%20problem%20with%20conservatorship,market%20that%20thrives%20on%20stability.
2. National Zoning Atlas; https://www.zoningatlas.org/atlas
3. National Zoning Atlas; St. Charles Zoning Snapshot; https://www.zoningatlas.org/snapshots/?jurisdiction=3067
4. National Zoning Atlas; Stamford Zoning Snapshot; https://www.zoningatlas.org/snapshots/?jurisdiction=304
5. Richard Kahlenberg; “Rallying the Voices of the Excluded for Zoning Reform: The Case of Minneapolis”; The Century Foundation; December 2023; https://tcf.org/content/report/rallying-the-voices-of-the-excluded-for-zoning-reform-the-case-of-minneapolis/
6. Yonah Freemark, Lydia Lo, Sara Bronin; “Bringing Zoning Into Focus”; Urban Institute; June 2023; https://www.urban.org/research/publication/bringing-zoning-focus
7. Mathew Petty and Mathew Hoffman; Pattern Zones Company; https://www.patternzones.com/
8. Chadwick Reed; “Comparing the Costs of Manufactured and Site-Built Housing”; The Harvard University Joint Center for Housing Studies; July 2023; https://www.jchs.harvard.edu/blog/comparing-costs-manufactured-and-site-built-housing
9. Lauren Bauer, et al; “Ten economic facts about rental housing”; The Hamilton Project; March 2024; https://www.hamiltonproject.org/publication/economic-fact/ten-economic-facts-about-rental-housing/#:~:text=Data%20from%20the%202021%20RHFS,(Goodman%20and%20Zinn%202023).
10. Frances Nguyen; “The YIGBY Movement – Unlocking Church-Owned Land For Affordable Housing”; Shelterforce; February 2025; https://shelterforce.org/2025/02/28/the-yigby-movement-unlocking-church-owned-land-for-affordable-housing/
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