There are few public policy stances that Americans agree on these days, but one of them is that the country is experiencing a severe housing crisis.
To meet Americans’ demand for inexpensive housing, the U.S. needs between 7 million and 8 million rental homes, two studies estimate.
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Without a massive construction boom in the nation’s housing stock, the chasm between what Americans want and what’s available will only grow. The country was short about 4.8 million homes in 2012, but by 2035 Americans are expected to need 9.6 million homes, according to a McKinsey Institute for Economic Mobility study.
That dire shortage has not escaped the attention of policymakers in Washington and state capitals.
This year, Congress permanently expanded two components of the federal Low-Income Housing Tax Credit (LIHTC) in its July reconciliation bill. Those changes, which will help affordable housing developers tap into more financing, could result in the creation of an additional 1.2 million affordable homes.
The tax credit program is a serious effort to address the problem, but it can’t match the demand for new units on its own. Instead, multiple states have passed zoning laws, tax incentives, and new funding to encourage developers to construct more homes and make them more affordable to middle-class and working-class families.
Solving the nation’s housing crisis won’t occur overnight. But developers say the new federal tax policy changes, in addition to the different incentives and programs available to them, could finally ease the nation’s housing crunch.
“There’s more of an all-of-the-above approach to building out now and finding opportunities to take cash from wherever to build a unit,” Jesse Batus, senior vice president for real estate development at owner and investor The Community Builders, said. “It’s more complex than it’s ever been, but the support from states is stronger than it’s ever been to build affordable housing.”
Big picture
The effects of President Donald Trump’s One Big Beautiful Bill are beginning to be felt across the nation.
Steep reductions in Medicaid spending and tax cuts for the ultra-wealthy have dominated attention, but the extension of subsidies for affordable housing developers are significant.
Beginning next year, the measure will boost funding by 12 percent for two types of credits: “9 percent projects,” which give a 9 percent credit to developers for new construction projects, and “4 percent projects,” which are financed by private equity bonds and typically used for housing preservation or jobs and some smaller sites.
The legislation will also reduce the amount of bond financing a developer needs for those 4 percent projects from 50 percent to 25 percent, a much lower threshold that will make it easier to obtain funding.
Affordable housing developers say that change will help a wider variety of projects become eligible to obtain tax credits.
“By lowering that standard, more people can qualify for more applicable costs,” said John Crotty, founding member of the affordable housing developer Workforce Housing Group. “The conditions of qualifications are pretty high, so if you were to change those conditions you would get relief.”
Batus, whose New York-based nonprofit utilizes LIHTC, said the credits are the “best vehicle” the industry has to construct new housing, though the investor pool is not as robust as it has been in the past.
“Banks still have a huge drive to invest in the places they are located, but in some places, such as rural areas, there’s less interest,” he said. “They’re investing in real estate, but they’re not looking for tax benefits. They’re looking for what kind of return they can get from their investment.”
Testing grounds
Beyond federal tax sweeteners, states are approaching housing creation much more directly. Three different states serve as sharp examples.
California has been a difficult place to build housing, but new legislation could begin to reverse years of underdevelopment.
In July, California Gov. Gavin Newsom signed a pair of bills as part of a state budget deal that will revamp the California Environmental Quality Act (CEQA). The law was originally designed to inform the public of the environmental effects of development, but it has often been used instead to block or delay residential construction.
“This isn’t just a budget. This is a budget that builds,” Newsom said in a statement at the time. “It proves what’s possible when we govern with urgency, with clarity, and with a belief in abundance over scarcity.”
Now that the reforms passed, the measures are expected to expedite housing permitting and approvals, freeze new residential building standards through 2031, and streamline environmental reviews for new infill housing. New exemptions included in the bills will allow developers to complete their infill projects, as long as they follow local planning and zoning standards and the sites aren’t located on brownfields or in sensitive natural areas.
This will mean that developers of most new apartment buildings won’t face the threat of years of litigation stymieing their progress, and they won’t have to predict and control for the different ways that new projects could affect air pollution, traffic, noise and groundwater in the area.
If only policymakers could agree on how drastic the state’s housing shortage is. Estimates of the housing shortfall in California range between 800,000 and 3.5 million units.
In Florida, it’s long been easier to build housing than in California, but the Sunshine State has been known for its deference to local rules that restrict affordable units.
That began to change in 2023, when Gov. Ron DeSantis signed the Live Local Act, which invested up to $811 million for low-interest loans for developers to build workforce and affordable housing projects as well as new incentives to produce more below-market-rate units. To qualify, at least 40 percent of the new units must have rents below the market rate and be reserved for tenants earning less than 120 percent of the area median income.
More significantly, the law also prohibited public hearings on rent-restricted workforce projects and overrode some development rules in cities and counties.
Some Florida politicians have criticized the law for hamstringing their ability to raise objections over new residential projects they believe are too tall and dense, out of sync with the neighborhood’s historic character, or contain retail businesses.
But, last year, DeSantis and his legislative allies further strengthened the Live Local Act by prohibiting local governments from restricting developments up to 150 percent of the existing floor-to-area ratio (FAR) and allowing tax incentives to apply to a property’s common areas. The revision also removes parking mandates for transit-oriented developments, and reduces parking requirements by 20 percent if the new developments are half a mile from a bus or train station.
In New York, Gov. Kathy Hochul won few fans in the suburbs when she proposed a housing mandate for municipalities two years ago.
But her new initiative that would invest $50 million toward creating 200 starter homes could gain more traction in rural and exurban areas.
The state program, Move In NY, would extend a pilot that built three three-bedroom homes upstate. Those 1,500-square-foot houses were built by Champion Homes, a national manufactured housing company, in its factory out of state and erected on vacant land owned by local land banks. Each home took about six months to complete and cost about $250,000 to build.
Announcing the program in Syracuse in September, Hochul said the initiative would address the rising cost of housing and “revolutionize the way we create high-quality, beautifully designed starter homes in New York.”
Tom Hardiman, executive director of the Modular Building Institute, applauded the program, but wanted to see it include modular homebuilders, which he says can offer sturdier models at a slightly higher price point. There are only three large companies that make manufactured housing, which adhere to federal standards, while modular homes must follow state and local building codes.
“We have requested they open it up to all forms of modular and manufactured housing,” he said. “Why limit the options? They can deliver the product, but we think it shouldn’t be limited. We haven’t heard back yet. We’re still inquiring.”