Construction is slowing despite high demand for housing, while housing costs are squeezing families, making the dream of owning a home feel further away than ever. As Rahm Emanuel once said: “You never want a serious crisis to go to waste.” When it comes to housing, we did.
After the 2008 foreclosure crisis, the country rightly focused on stabilizing the financial system. But in doing so, we set the stage for another kind of housing crisis — one of chronic underbuilding and skyrocketing unaffordability. Overly restrictive zoning, cautious lending and anti-development politics created a long freeze in housing production, and now we’re paying the price.
In a November paper for the Aspen Economic Strategy Group, we reveal deep-seated flaws that predated the crash — and why zoning reform alone won’t fix today’s shortage. The downturn in construction that followed the foreclosure crisis was longer and deeper than any prior housing cycle, worsening existing shortfalls.
Meanwhile, demographics were shifting. Millennials entered their homebuying years just as housing supply collapsed. Demand rose, but construction never fully recovered. Even as foreclosure rates hit record lows, lenders — scarred by the crisis and potentially constrained by new rules — became far too conservative in financing new housing of any kind.
This underbuilding drove up both rents and home prices. Just 20 percent of rental units now rent for under $1,000, down from 55 percent in 1980 (inflation-adjusted). Because the U.S. has no comprehensive housing safety net — relying instead on underfunded vouchers and public housing — more families are being pushed into homelessness.
For younger renters, the dream of ownership is slipping away. In 90 percent of metro areas, a median-income household can no longer afford the median-priced home, according to Zillow data. And the National Association of Realtors recently reported that the median first-time homebuyer is now 40 years old.
This does not need to be our reality. To fix this crisis — and prevent the next one — we need to address today’s shortfall and make the market resilient through future downturns. Four steps would help:
- Make it easier to build. Policymakers can jump-start housing supply by cutting zoning red tape, supporting smarter density and expanding financing for multifamily construction. Allowing for higher density near transit, reducing minimum lot sizes, and expediting reviews for affordable housing are all quick and easy wins that will allow for more housing production during all periods of the economic cycle.
- Give families a fair shot at homeownership. Stimulating demand alone — through tax credits or longer mortgages — may only drive prices higher. Smarter credit and tax policy can make ownership attainable without necessarily inflating costs. For example, we can replace the regressive mortgage interest deduction with a targeted credit for first-time homebuyers. We can also curb investor tax breaks that crowd out families trying to purchase homes. And in a moment where homeowners are locked into their low interest mortgage rates, we can make mortgages portable or assumable to help homeowners move. There is also an opportunity to make new credits, like the Neighborhood Homes Investment Credit, that will spur affordable for-sale housing.
- Build a real housing safety net. Unlike unemployment or food assistance, the U.S. lacks a true housing safety net. Only 1 in 5 eligible households receives rental aid. Expanding Housing Choice Vouchers to all who income qualify, offering direct rental assistance options, and creating a permanent emergency rental program would help families stay housed, both reducing life-altering flows into homelessness and facilitating exits from streets and shelters if people do lose their housing.
- Keep financing flowing through the cycle. Interest rates are freezing new construction even as housing needs soar. The federal government can step in by providing steadier, more affordable financing for multifamily projects, much like the system that supports single-family loans. Expanding and streamlining these programs would keep construction moving through volatile conditions. Moreover, if federal incentives automatically increased during downturns, we could smooth out the boom-and-bust cycles that have long plagued housing construction.
Today’s housing crisis is a chance to finally tackle the largest expense most Americans face. Encouragingly, states and cities are beginning to act — reconsidering outdated zoning, experimenting with new financing tools and treating housing supply as essential infrastructure. In New York, a new state-funded revolving loan program will spur the creation of multifamily rental housing, while Utah’s Home Investment program will catalyze the construction of for-sale single-family and condominium developments.
At the federal level, bipartisan bills have progressed in both the Senate and House that encompass a range of initiatives, from establishing a federal housing supply accelerator fund to facilitating transit-oriented development and making it easier to finance and build manufactured housing.
But momentum will fade if we treat this as just another temporary shock. We must confront the structural barriers — financing, regulations and politics — in ways that ensure we accelerate affordable housing supply now and not dig ourselves into another hole.
If we want young people to build wealth, families to find stability, and communities to thrive, we can’t let this crisis go to waste again. This next housing boom should be built on expanding opportunity.
