A wide sampling of sources agree that the United States is experiencing a national housing shortage of several million units, a total affecting renters and owners across a broad range of incomes and price points.

Congress last inserted itself into housing in 1986, nearly 40 years ago, when President Ronald Reagan authorized Low Income Housing Tax Credits (LIHTC) and coaxed corporate investors to place money in housing through beneficial incentives. Since enacted, LIHTC has delivered about 3.5 million rental units, available only to very specific qualifying low-income groups. As housing costs have increased significantly in relation to wages over the past several years, the U.S. housing shortage has moved beyond affecting low-income populations to become a middle-class challenge as well.

Historically, while influenced through LIHTC and a variety of smaller federal grant programs, housing initiatives vest primarily in the actions of state and local government. In some contrast to these established roles, both presidential candidates raised housing need as a substantive federal consideration in the weeks leading up to the 2024 U.S. election. Embraced as a major concern by both parties, the respective positions acknowledge the scale of the problem and signal an obvious interest in advancing new national strategies. Exactly what the options are remains to be seen.

The Housing Gap Is Wide

Estimates of the U.S. housing shortage vary as do data-collection methodologies—Moody’s estimates a gap of 1.5-2 million housing units while Freddie Mac data indicates that the U.S. is 1.5 million units below a balanced housing market.

While real estate markets are highly localized, U.S. housing shortages used to be centered exclusively in high-growth settings. That is no longer the case, as Figure 1.0 below illustrates.

Over an extended period, annual construction has rarely exceeded 1.5 million housing units, so a single year of peak production is unlikely to solve the problem. Compounding the issue, many LIHTC contracts will soon expire, shifting need onto the most vulnerable segments and removing designated affordable units precisely when housing is getting more expensive.

Contributing Factors

The housing and real estate industries involve extraordinarily complex systems. Analysts have no consensus about the preferred solution to the current shortage, but many agree that growth, regulations, industry participants, and the expectations of potential residents are major influences.

Growth

• The number of U.S. households has been growing faster than the number of new-home completions for many years. This phenomenon is not confined exclusively to high-growth areas where corporate ownership, losses to housing stock, and increased interest in second homes add nuanced challenges. Simultaneously, demographic shifts position younger, less affluent populations against older, more secure populations that are settled in their homes with high equity.

Regulations

• Land-use regulations can be barriers. While many regulations add value, they also raise the cost of production and deliveries.
• In booming Florida, as well as in a handful of other states with lower rates of population growth, regulations are deeply embedded in law. These regulations are not welcoming of innovation and diverse design. While more intensely developed urban and infill projects are preferred in most settings, they are more complicated, costly, and less effective in generating substantial short-term housing inventory.

Industry Participants

• Industry participants—comprising builders, developers, and private capital—are easy to criticize. Whatever their failures, private industry and capital have been essential to producing America’s housing inventory and the infrastructure that supports it. Our private land development industry is central to deploying solutions.
• Even with incentives, the industry faces challenges. Aside from a few years, there have been many years of decreasing rates of housing construction. This historically slowing pace was followed by some oddly higher years, prompted by easy credit. Then came the Great Recession of 2007. The collapse of housing yielded consolidation in the number of major builders. At the same time, the labor force largely exited construction and has not returned. Fractured conditions wrought by the recession were then reinforced by the COVID pandemic, when suddenly the procurement of construction materials and other resources became unreliable and more costly.

Expectations

• Social, economic, and cultural norms nurture a cozy sentimentality about our homes. These expectations have evolved over many years by favoring certain housing forms, investors, users, and tax treatment. For those preferred forms, prices increased modestly for some while imposing major disadvantages on certain populations. Having never experienced otherwise, younger buyers in particular envision a detached home, continuing low interest rates, and favorable underwriting on a similar platform as in decades past. This expectation is not achievable for a growing segment of our society today.

Re-Tool U.S. Housing Policies and Programs to Build for the Future

In the past, policymakers deployed ad hoc approaches to the systemic housing shortage problem. But delivering housing in terms of a few units on isolated sites is not going to fix the problem—several years of much-increased production across the industry are needed. Innovation and other strategies must remain in the mix. They will need support, but not to the exclusion of conventional housing deliveries. To elevate and retain the private interests that are integral to any solution, incentives or inducements are likely needed on a magnitude greater than current housing programs provide.

Possible Federal Government Strategies

• Whatever policies are implemented at the federal level, the options must be broader and easier to implement—not more challenging—to attract a deeper bench of local participants. One means of reducing challenges to is work within the established federal LIHTC framework, which is generally understood by many (as opposed to inventing a completely new system). This approach would not disrupt current initiatives nor discourage opportunities to explore and test entirely new options that might have promising scale.

  Given that LIHTC has been the foundation of the housing system for decades, an obvious approach is to expand that model aggressively. Current funding for LIHTC is based on a national pool of money allocated to the states. Although there are multiple criteria used as the basis of the annual allocation, population growth—not population—might be given elevated importance. At the same time, it would be a compelling strategy to simply increase the sums to be allocated, which would then flow through the same pipeline.

  Those using LIHTC have a strong preference for 9% credits, a substantively more valuable source of project funding, but one that is highly controlled. There is also a 4% program that is much less difficult to navigate and access so it can build inventory quicker. However, the 4% program is constrained by the challenge of acquiring additional capital that satisfies certain rules. This additional capital might be secured from funds currently flowing to local government for housing and by tasking local private sources to create a fund for the same purpose.

  LIHTC already makes adjustments for high-cost areas, but these adjustments do not appear to be adequate. Qualifying development may exclude the most income-challenged families as well as those families just outside the upper bounds of eligibility. Perhaps a program of 6% credits with other optional features might induce activity to target this group of households.

  More complex arrangements might enrich the value of the LIHTC credits by simply requiring the contracts stay in place for a time beyond the current 15-year compliance period when affordability and controls are difficult to enforce. Generally, added controls are the responsibility of the states, and it is not entirely clear how well the existing system functions.

  At the federal level, it may be time to examine the standard tax deduction, which is currently just below $30,000 per household. While every tax filer’s situation is different, the sums associated with the deduction largely include mortgage interest deductions, which are often touted as a benefit to homeowners. In reality, the mortgage deduction that was at one time an important consideration in purchasing a home has largely diminished as an incentive. What might be considered is that the value of the deduction be expanded by an additional $10,000 or some proportionate figure for households that experience certain threshold costs. Coupled with the typical down payment programs administered by many state and local governments, this change in the federal tax structure could be a major boost to the ownership segment.

  Any of these could add up to increased production numbers while working within known means.

Possible State and Local Government Strategies

• The differences among state and local government housing programs are too numerous for this discussion to describe even at a nominal level. Clearly, the cost of controls and regulations, whatever their value, imparts added cost. As local governments reflect on these costs, they must also recognize that the marketplace does not respect jurisdictional boundaries. A short- and long-term housing study sponsored by several governments in Central Florida recognized these phenomena in exploring policy.

  In effect, forward-looking local governments concerned with a series of competing priorities have shown a willingness to act affirmatively and creatively on housing issues. Others have not fully accepted the responsibilities of addressing housing, and for them, even a uniform system of new federal government programs will not be effective in returning their local inventory to a sufficient balance.

A Long-Standing Concern That Calls for Innovative Solutions

The current U.S. housing shortage developed over decades, and achieving meaningful change in the real estate industry and the programs serving it may take years rather than months. The implications of the problem and its likely trajectory suggest that a sweeping and comprehensive solution is necessary, and a range of options need to be on the table. Only then can the United States be on-track toward meaningful, long-term solutions for the nation’s housing needs.

Contact Senior Director Owen Beitsch, PhD, FAICP, CRE, 321.319.3131, for more information about the full range of the GAI Community Solutions Group’s community and parks planning, landscape architecture, and economics services. Message GAI and start the conversation about how our multidiscipline professionals can meet your unique project needs.

The views expressed are those of the contributors/authors identified and do not necessarily represent the position or views of GAI Consultants, Inc.

---

Owen Beitsch, PhD, FAICP, CRE has been active in the management and execution of complex studies for public and private clients for many years. His particular interest in special issues confronting urban areas is demonstrated in both his civic and business activities. A member of The Counselors of Real Estate and a Fellow in the American Institute of Certified Planners, Owen concluded several years of service as a member of the Orlando Housing Board of Commissioners. Owen is a faculty member in the urban and regional planning program at the University of Central Florida.