As the new year unfolds, there are few issues attracting as much attention at the city, county and state level as housing. Housing policy is having one of those rare moments: a consensus across communities large and small, markets hot and cold, Democratic and Republican administrations alike, that the housing challenge must be solved and must be solved from the ground up given the unreliable and inconsistent actions of the federal government.
The question on the lips of most city, county and state policymakers is “What should we do to solve the housing crisis?” That’s the wrong question. It is too downstream.
In a country as big, complex, and varied as the U.S. the right question is “Which housing crisis are we solving?”
Here it is best to heed the words often attributed to Albert Einstein: “If I had an hour to solve a problem, I would spend 55 minutes defining the problem and only five minutes finding the solution.” This argument is not that we should wistfully admire problems, but rather that solving big problems requires clear thinking and planning, starting with defining the problem being solved.
For many advocates and policymakers, this guidance seems nearly absurd. The housing problem has already been defined … ad nauseam: Housing is too expensive and we don’t have enough of it. Or, as Ezra Klein neatly put it, “The core of the problem is simple: Too much money chasing too few homes.” The U.S. doesn’t have a sufficient supply of housing because it hasn’t been building at a sufficient scale. And it hasn’t been building because of a hodgepodge of state and local regulatory barriers that stifle housing production and make the cost of building prohibitive. Remove these barriers and adequate production will follow.
Klein (and the broader Abundance movements’) point is correct. We need more homes that people can afford. Yet the neatness of the point obscures the difficulty of actually getting to this outcome. The more one gets to the brass tacks of solving the housing supply problem, the more one realizes it is not just one problem but multiple intersecting problems – some of which are in tension, some of which require specialized domain knowledge, and some of which are simply siloed from the others.
“The core of the problem is simple: Too much money chasing too few homes.” — Ezra Klein
Getting clear about the problem(s) we are trying to solve is especially important given the sheer volume of housing solutions we will see proposed this year by state and local governments. In a country as large as the United States is dangerous to over-index on one problem statement and, by extension, one set of housing reforms. The need for this clarity is urgent as we chart a new course forward on this area of domestic policy. As Prime Minister Mark Carney said this week at Davos on international policy, “The old order is not coming back. … Nostalgia is not a strategy.” We would be wise to heed that wisdom in domestic policy as well.
As we begin the year, there are seven different, but intersecting, housing challenges we’re thinking about.
Each builds up to partially answer the question of “how do you build more homes that people can afford,” but none provides a comprehensive answer. Moreover, each challenge demands a slightly different set of solutions. Addressing the national housing crisis requires being clear about which challenges are most important to address first or are likely to have higher impact and which lend themselves best to be addressed by different sectors and institutions. Here are the 7 challenges that deserve attention.
1. Zoning and permitting first is not zoning and permitting only.
While it seems obvious, it’s important to say that zoning, land use, and permitting reform will not automatically produce more homes. These are necessary changes to support new homes, but not enough by themselves to do so. Someone — a builder, a property owner — needs to take affirmative steps to build a home or apartment building. And often laws passed on the books still require people and administrative agencies and their staff to implement them effectively. The advocates driving these reforms understand this. They know that reforms set the platform for production and other market forces follow to enable homes to be built. Crucially, other interventions, discussed below, help those homes to be built faster and less expensively and boost the renting or buying power of households. It’s important not to lose sight of this central point in the year ahead.
2. Location, location, location!
It is a truism of the real estate industry, but not always the housing policy world, that the location of housing is fundamental. Location gives residents access to employment and educational opportunities and transportation options (even having knock on effects on public health, community satisfaction, and the like). Housing charts often treat housing production in the aggregate. Even our main term for talking about housing, “units,” treats it like a uniform and interchangeable object distinguished primarily by land cost and square footage. While this is not wrong in the abstract realm of economic theory, there are social and policy reasons to more clearly focus on location. Blindly following the “build baby build” mantra without some attention to geography not only can distort spatial development patterns but trade one affordability challenge (housing) for another (transportation costs).
The United States has ample experience with this reality, particularly in the post WWII era where housing production (and transportation investments) enabled the radical decentralization of metropolitan areas. There is obviously a tradeoff here, since that era is also when we built the most housing as a country. The key for decision makers is to be clear about where they are landing on the tradeoff. As a guide, the Center for Neighborhood Technology invented a Housing and Transportation Affordability Index to help with this by showing the interplay of two of largest expenditures in a typical household’s budget.
3. Regional difference matters. A lot.
Housing markets are local and involve people moving from one place to a different one (and vice versa). This means that housing challenges and solutions vary regionally. As many researchers have shown, metropolitan areas in the Sunbelt and Mountain West have very different housing markets than the Midwest, Northeast, and West Coast. The Sunbelt and Mountain West dominate housing production in the country and already experience higher than normal vacancy rates and rent relief. In these markets, the appropriate policy solution in the near term should be to take advantage of market softness, acquire lagging properties and provide affordability restrictions for the long haul.
Similarly, in slow growth markets and those with ample older single family housing stock, the renovation of existing homes might be as relevant a focus of state and local action as new production. Diagnostic tools that can quickly and accurately discern the market conditions of disparate metropolitan areas and set the foundation for aligned policy responses are fundamental to solving the nation’s myriad housing challenges.
4. The devil’s in the details of operations and maintenance.
Our current focus on building more housing hides a problem in plain sight. Many homes and apartments built with public funding to maintain their affordability are at risk of being lost, or falling into disrepair, due to the absence of long-term funding mechanisms to sustain their operations as costs rise. For a variety of reasons, long-term planning is an unnatural act in many sectors of American policymaking. This is true in housing, but with more pronounced challenges due to the age of housing stock, the limited resources available for operating and repairing homes, and the variety of life challenges and service needs that face its tenants. The result is that many cities are struggling to maintain affordable housing units that already exist while putting most of their emphasis on adding new ones. This can create challenges for the availability of homes for the lowest-income tenants if not addressed, as recent research from Georgetown has shown. Solutions here range from allowing a broader mix of tenants in apartment buildings that receive government support (which enables healthier cash flows) as well as designing repair and renovation funds for the long haul.
5. It takes a long time to build housing; this results partially from our construction methods.
The housing sector has been slow to adopt innovations in housing construction used in other countries which means that costs are higher than necessary for a good portion of newly built inventory. The modular and offsite construction industry in the US is particularly small and challenged. The federal government began efforts to try and change this starting in the 1970s, under HUD Secretary George Romney. But for a variety of reasons, efforts have stalled out. We are at a critical inflection point right now given the mix of high construction costs and a shortage of construction workers. Many states and cities — from California to Cleveland, and Maine to Minneapolis — have set up commissions, or are exploring ways to bring the modular industry to scale in the U.S. A broad solution here would involve combining tried-and-true procurement methods used by energy utilities and the defense sector paired with changes to statewide building codes and upfront financing for building or renovating factories. The development of markets could be jumpstarted by using the predictability of purchasing power.
6. Starter homes are important; getting more of them requires different solutions.
Much of the housing policy world over-indexes on apartments built for rent as the most impactful solution to the housing crisis. It’s important to remember that most Americans are homeowners (and many more want to be). Homeownership is in a unique crisis, with the median age at which a person buys their first home rising to the highest level ever (nearly 40 years old).
The reasons homeownership is increasingly out of reach are varied, including historically low interest rates during COVID, low supply, larger home sizes, and a rapid increase in interest rates over the last 5 years. This has knock-on effects, causing would-be homeowners to stay in rental apartments for longer (making them unavailable for others).
Addressing this challenge requires a mix of federal credit enhancements and other demand-side support to help first-time buyers afford homes. It also requires new production of “starter homes” that are available for purchase at a certain affordable price-point. Unlike more common, demand-side support for homeowners (e.g., FHA insurance), supply-side support for starter homes is less frequent in housing policy. But states are leading the way. Utah has led a pathbreaking starter home initiative, which provides low-interest loans to developers who build homes for sale below $450,000, and which is paired with downpayment assistance. Other states like Maryland are introducing similar types of starter home initiatives. This is an emerging area to watch for state innovation.
7. The cost of building homes comes partially because financing is complicated.
Finally, the housing sector is in dire need of capital innovation. As Ezra Klein notes, the complexity of financing for government-supported housing is nearly prohibitive and drives up the cost for many developers (so much so that organizations like the San Francisco Accelerator Fund are creating innovative workarounds). The dominant financing in the affordable housing sector is the 1980s era low-income housing tax credit, which is effective at producing homes that are income restricted, but which comes with inefficiencies that drive up cost. There is a dramatic need for innovations in the financial instruments and capital stacks that support mixed-income housing. To that end, we are heartened by the creation of new institutions (e.g., Atlanta Urban Development Corporation), new funds (e.g., Montgomery County’s revolving Housing Production Fund) and new ways of organizing equity capital (e.g., Opportunity Alabama). But there is more work to be done in this space to make it easier to build and operate housing that is affordable at all price points.
Where next?
As we piece through these interlocked challenges we are left with a big question: why is all this coming to a head now? While we have our theories about this, it’s hard to answer definitively. What we can say with confidence is that the uncertainty and idiosyncratic nature of federal programs — which have often been a bedrock and gap filler in housing — has caused a systemwide re-assessment and triggered a wave of local innovation.
As with other areas of domestic policy, the Trump Administration’s impact on the housing sector has been decidedly mixed. While tax incentives like Opportunity Zones and the low-income housing tax credit received favorable treatment last year in the One Big Beautiful Bill, the reductions in the federal housing workforce, uncertainty around federal housing appropriations and the loss of reliable housing data will surely take a toll. The response is not only to shift the responsibility of solving the housing crisis to the state and local level but to enable the innovative problem solving of these levels of government to flourish.
Played right, this shift can be harnessed for a better housing system. It can allow the local (rather than the federal) to be the starting place rather than the ending place for housing solutions. But getting here requires enough administrative capacity in state and local governments to seize the moment: streamlined processes to free up time, governance reforms to harness their full powers, and intermediary organizations to support technical assistance and policy innovation. This is certainly an easier task when the federal government is setting the terms, scaling the best practices, and providing a convening platform. However, this is not the world we are in. Responding to the moment requires a more creative approach and set of organizations.
As Matt Yglesias observed in a recent missive, “2026 is the year of housing.” In the past three weeks alone, a slew of pronouncements by President Trump, numerous governors and NYC Mayor Mamdani have amply proven that point. Pronouncements aside, success in the housing arena will be determined by the smart design, finance and delivery of multidimensional housing strategies that fit solutions to problems in ways that can repeat themselves across the country. Housing’s moment has arrived. A bit more problem definition upfront will ensure that we don’t blow it.
Bruce Katz is Founder of New Localism Associates and a Senior Advisor to the National Housing Crisis Task Force. Colin Higgins is Executive Director of the Task Force.
MORE FROM THE NOWAK METRO FINANCE LAB AND NEW LOCALISM