Reducing Housing Burdens While Creating a Longer-Term Affordable Housing Solution

In 2024, a growing number of Americans are unable to find affordable housing. This is reflected in the substantial number of homeowners and renters who are “cost burdened”—that is, those who spend at least 30 percent of their household income on housing costs.¹ Notably, this lack of affordable housing is more common among Black and Hispanic homeowners than among white homeowners.² Inadequate supply is the root cause of the affordability crisis. The general rate of production of new housing units has been too low for more than a decade, and the supply of entry-level single-family homes and affordable rental units has greatly lagged housing production, generally. Housing is also a larger barometer of attitudes toward and confidence in overall economic health, affecting not just those who are cost burdened: In a Redfin survey of 3,000 Americans published in March 2024, nearly two-thirds of respondents said that “housing affordability makes them feel negative about the economy.”³

Solving the nation’s housing affordability crisis requires dual-track policy action. The framework of policies outlined in this report will provide both near-term relief for acute problems and sustainable support for housing production and operating support. These combined efforts can reset the country’s systemic housing burden, which has long depressed opportunity for the most economically vulnerable families and now challenges the financial strength and ambitions of the middle class. The framework for the recommended policies is largely in place. While these recommendations are mainly federal, implementation is rooted at the local level. Affordable housing is needed across the country, but successfully addressing the needs of a particular community cannot come from a rigid, prescriptive policy. The challenge is to bring the economic resources of a nation to solve housing affordability across communities whose uniqueness and diversity should be preserved—and their common goal of affordability leveraged to make these changes more realistic.

Not only is housing a critical part of the nation’s infrastructure; it also affects the health, wealth, and opportunities of every American each day. Housing is not just shelter but a bundle of social and economic mobility factors, or lack thereof, that “home” has represented for generations. Taking steps to address housing affordability will be especially helpful to younger homeowners as well as nonwhite or Hispanic homeowners. As this report shows, the burden of housing costs is not equally borne by younger generations or nonwhite or Hispanic families.

Adequately increasing the housing supply will take time. But there are some immediate actions that can help cost-burdened households while production efforts begin to add to the affordable housing stock. This report includes the following short-term federal policy interventions:

• Increase rental assistance to low- and moderate-income (LMI)⁴ renters by expanding assistance through the Housing Choice Voucher program: Black and Latino/Hispanic renters, as well as renters of other or multiple races, make up relatively large shares of renters in general, as discussed later in the report, and of LMI renters in particular,⁵ and thus would benefit especially from the additional assistance.
• Provide rental assistance to LMI renters in existing low-income housing tax credit (LIHTC) units, where almost 40 percent of tenants are cost burdened despite past federal development subsidy.⁶
• Convert the income tax deductions for LMI homeowners’ mortgage interest and property taxes to income tax credits.

In the longer term, policymakers must substantially increase the supply of affordable units by taking the following steps:

• Provide direct federal funding to state and local governments to fund the construction of rental units and homeownership units that are affordable to LMI families.
• Increase incentives for state and local jurisdictions to reform zoning and land use rules to permit more multifamily and modular housing construction.
• Reform and expand the current Housing Choice Voucher system to serve more families with subsidies that are more readily available and acceptable to public and private landlords.

This menu of solutions clearly requires political will, but it avoids pitfalls of past housing efforts. The recommendations leverage existing frameworks, mix direct governmental expenditure with private incentives, place local communicates at the center of meeting their unique needs, and acknowledge the ongoing need for subsidized operating costs for very low-income families.

A generally accepted measure used by the U.S. Department of Housing and Urban Development (HUD) is that a household paying more than 30 percent of its gross income for housing expenses is termed “housing cost burdened.”⁷ Meanwhile, households that spend at least 50 percent of their gross income on housing are considered “severely cost burdened.”⁸

By almost any measure, housing is at its least affordable point in decades.⁹ Almost 41 million households—or just less than one-third of those nationwide—are cost burdened, including more than half of renters and 19 million homeowners.¹⁰ (see Figure 1) In 2022, one-third of consumer expenditures were for housing-related expenses, similar to during the past three years.¹¹

The burden is deepening as households that were already cost burdened are paying an even greater percentage of their income on housing. And the burden is widening as households making a greater percentage of median income are paying more than 30 percent of gross income on housing. For example, in 1999, 39 percent of renters were cost burdened,¹² and a household needed to make 58 percent of the median income to afford an apartment at the median gross rent.¹³ By 2022, however, almost 52 percent of renters were cost burdened, needing to earn 70 percent of the median income to afford a median-priced rental unit.¹⁴ The growing share of cost-burdened units shows a deeper problem; the higher required percentage of income shows a wider problem.

The growing cost burden of housing translates into larger financial insecurities and worries about the future. Housing costs are a widespread concern, with 30 percent of people indicating it as a top worry in a March 2024 FT-University of Michigan Ross School of Business poll.¹⁵ High housing costs consume money that people could use for other purposes, such as paying their bills and saving for retirement. Not surprisingly, then, worries about housing affordability—for instance, whether it is a good or bad time to buy a house—also correlate with low consumer sentiment. As of May 2024, more than three-quarters of people said that it was a bad time to buy a house in the University of Michigan’s Surveys of Consumers.¹⁶ Since mid-2021, a growing share of people have agreed with this sentiment, putting a damper on overall consumer sentiment,¹⁷ even as the labor market and the economy boomed. Housing worries likely trump other economic developments because housing costs make up such a large share of household spending.

Moreover, the racial and ethnic differences in homeownership rates reflect, in part, the persistent gaps in housing affordability between Black and Hispanic households and white households. High cost burdens for Black and Hispanic renters make it difficult to save money for a down payment to buy a house.¹⁸ At the same time, high cost burdens for Black and Hispanic/Latino homeowners make it difficult for people to save money for necessary repairs and eventual emergencies. Black and Hispanic/Latino homeowners typically have much smaller financial cushions and are thus less well prepared if something goes wrong.¹⁹ They are, then, also much more likely to lose their house through foreclosure. Accordingly, the growing housing affordability crisis puts a damper on homeownership growth, especially for Black and Hispanic/Latino households.

Overall decline in housing production

The principal cause of the housing affordability problem is a limited supply of new housing units. From 1970 to 2008, production of privately owned housing units averaged more than 1.5 million units completed per year. However, after accounting for the decline in production of homes following the Great Recession, the average since 2009 has been slightly more than 1 million units completed per year. Though production has increased over the past 10 years, it still has not returned to the long-term average.²⁰ (see Figure 3)

Economists at Freddie Mac have estimated that by the end of 2020, low housing production had created a shortage of 3.8 million units relative to demand.²¹ This shortage has contributed significantly to the overall rise in housing costs.

Disproportionate decline in affordable unit production

Supply has been especially problematic for obtaining affordable housing since the pre-Great Recession housing bubble. Many have cited overall production as the underlying problem to the housing supply situation.²² However, except for a five-year period from 2007 to 2011, the average total square feet of residential construction over the past 12 years is down less than 12 percent, compared with levels from 1974 through 2006. In fact, in 2023, the country saw almost 3 billion square feet of residential new construction—the highest total since 2007:²³

• Initially, there was a dramatic drop in both residential units constructed and total residential square footage. For the 33 years from 1974 through 2006, the average size of a new single-family residence—for both renters and owners—was 1,776 square feet. And on average, there were more than 1.5 million units produced annually.²⁴
• After the housing collapse, for the five years from 2007 to 2011, residential production dropped to slightly more than 930,000 units per year; but it was at this time that unit sizes began to grow. The average unit rose 22 percent in size, to 2,175 square feet.²⁵
• For the 12 years from 2012 to 2023, unit production was 27 percent lower than it was from 1974 to 2006—1.12 million units annually versus 1.52 million. But the average unit size was more than 20 percent larger than the 1974–2006 average, at 2,140 square feet.²⁶
• Overall residential production has grown in the past five years compared with 15 years ago, producing more than 14 billion square feet of residential space. That space has yielded only 6.7 million units, though—each with an average size of almost 2,100 square feet.²⁷
• Without the increase in unit size, and the associated increases in price, cost, and rent, the same building effort would have produced another 1.2 million moderate-sized homes.²⁸

From 1999 to 2012, single-family homes under 1,400 square feet—the definition of “starter homes” according to Freddie Mac—comprised at least 10 percent of newly constructed homes.²⁹ In 2023, only 23,000 such units were sold, accounting for only 2 percent of new homes constructed.³⁰ At the other end of the size spectrum, very large homes—those that are at least 3,000 square feet—represented nearly 30 percent of overall homes built in 2013, though they are now down to nearly 24 percent.³¹ (see Figure 4)

The supply of low-cost rental units—those with monthly contract rents of less than $600 a month, adjusted for inflation—has declined significantly over the past decade, falling by nearly 3.9 million units between 2011 and 2021.³² During the same period, rental units in the highest price tiers grew by just less than 7.9 million units.³³ This decline in low-cost rental units results from rent increases, conversions of rental units to other forms of ownership, and building demolitions that have not been counteracted by construction of additional affordable units.³⁴ It is impossible to overstate the significance of these two supply factors when taken together: 1) Affordable units of moderate size have become a minor fraction of newly constructed housing, while 2) formerly affordable units have left the market or been repositioned to draw a higher price.

Rising operating costs

The upfront costs of housing—the purchase of a home or development of apartments—are substantial, so much so that ongoing operating costs of housing are often not given sufficient attention when planning for affordability. Insurance, taxes, utilities, and maintenance are ongoing operating costs of any housing unit. Yet these operating costs are increasing faster than purchase or development costs in many areas.

While rising insurance costs are a problem for all housing developers, dramatic increases in insurance premiums are particularly challenging for affordable housing developers, many of which provide transitional housing for formerly homeless people.³⁵ According to a survey conducted by the National Leased Housing Association, nearly a third of affordable housing development insurance policy renewals for 2022–2023 had rate increases of at least 25 percent.³⁶ Affordable housing projects financed by government subsidies and tax credits are usually restricted in how much rent they can collect, so increased insurance costs may require accepting higher deductibles or foregoing needed repairs.³⁷ However, affordable housing is often situated on less desirable land that may be more vulnerable to climate change impacts, and with weather and climate disasters expected to continue increasing in number and severity, more creative solutions will be needed.³⁸

Nationally, homeowners’ insurance premiums increased 33.8 percent from 2018 to 2023, including an 18.2 percent increase from 2022 to 2023.³⁹ There are multiple states, such as Florida and California, where national insurers are no longer writing policies.⁴⁰ With rising valuations, median property taxes are up 23.6 percent from 2019 to 2023, an increase of $539.⁴¹

Rising insurance rates follow major claim payments after unusually strong and frequent hurricanes, floods, and fires. Insurers are pricing for losses following climate change disasters and recalculating future actuarial assumptions. The recent past has been costly for insurers, and the unknown future is being priced at a substantial premium—an insurance market disruption the Center for American Progress detailed in “4 Principles for Addressing Climate Risks in the Insurance Industry.”⁴²

Understanding the rapid, substantial rise of operating costs is critical for policy interventions to improve housing affordability. For decades, most housing initiatives have relied on subsidizing capital costs: for example, LIHTC subsidies, down payment assistance programs, and public housing replacement programs such as HOPE VI.⁴³ Yet even a free home is not affordable if families pay more than 30 percent of their income on basic operating costs. Construction or retrofitting for energy efficiency and climate resilience can lower future operating costs. Even with those efforts, though, future housing policies must account for costs—and subsidies for very low-income households—to achieve actual ongoing affordability.

Increasing mortgage rates

Increasing mortgage rates have also played a role. As of late May 2024, 30-year mortgage rates were slightly more than 7 percent.⁴⁴ In contrast, during the fall of the 2020 pandemic, mortgage rates were less than 3 percent.⁴⁵ This rate increase has hurt would-be homebuyers in two ways.

First, and most obviously, is higher mortgage payments. To illustrate, in fall 2020, 30-year fixed mortgage rates were averaging less than 3 percent and the median purchase price of an existing home was $313,000.⁴⁶ Assuming a 20 percent down payment, monthly payments would then be about $1,060. Since late 2020, however, the median sales price of existing homes has risen almost 26 percent, to $393,500 as of March 2024.⁴⁷ With current average mortgage rates, a standard down payment would be an additional $16,000 and the monthly payment would be almost $2,100.

Second, the rapid rise in mortgage rates has made homeowners who purchased or refinanced during the period of historically low rates less willing to sell their homes and prepay these mortgages.⁴⁸ The rates for 30-year mortgages doubled in the 18 months between December 2020 and May 2022.⁴⁹ High rates combined with the unusually low number of existing homes for sale have contributed to the rise in home prices.

There are several actions that can reduce housing cost burdens for LMI households. Housing affordability poses a challenge for both renters and homeowners, but the issue is more pressing for renters. The growing rental affordability crisis means that many low- and moderate-income renters—often young, Black, and Hispanic households—are caught between a rock and a hard place, struggling to pay their rent and associated costs. This, in turn, increases the pressure to move to a different rental or buy a house. Yet those same high costs make saving money for a new place increasingly difficult. Slowly growing homeownership rates suggest that those who could afford to buy their place have done so, with the pool of current renters remaining increasingly financially insecure.

Calculations based on the U.S. Census Bureau’s Household Pulse Survey show that more than half of Black renters (53 percent) and Latino/Hispanic renters (57 percent) as well as 56 percent of renters of other or multiple races are struggling to pay their bills in 2024. In comparison, 27 percent of white homeowners and 46 percent of white renters are struggling to pay all of their bills in 2024. Meanwhile, 13 percent of Asian renters, 20 percent of Black renters, 12 percent of Latino/Hispanic renters, and 15 percent of renters of other or multiple races have been behind on their rents in 2024, compared with just 8 percent of white renters.

The more widespread and growing financial insecurity among renters, especially among households of color, makes addressing the rental crisis a high policy priority in communities across the country.⁵⁰ (see Table 3) Specifically, the following steps should be taken immediately alongside bold, large-scale efforts to increase and reenvision housing supply—and that supply’s ability to meet financial and lifestyle needs.

Increase LMI rental assistance

With almost 22 million renter households cost burdened, providing additional rental assistance should be the first line of interim relief. Of those households, 12.8 million earn less than $35,000 per year.⁵¹

Current HUD rental assistance programs subsidize approximately 5.1 million households, or nearly 4 percent of all U.S. households.⁵² Generally, rental assistance programs pay a formula amount equal to housing costs minus 30 percent of the household income.⁵³ These programs are deeply skewed, however, for households making less than 30 percent of area median income (AMI).

HUD’s Housing Choice Voucher (HCV) program provides more than half of the agency’s rental assistance, currently available to 2.7 million households. (see Table 4) The Biden-Harris administration has recommended increasing the number of vouchers by more than 500,000, with a focus on low-income veterans and children aging out of foster care.⁵⁴ While an incremental increase in HCVs is warranted and logical given the number of renting households with such low absolute incomes, there are limits to vouchers’ use in the absence of additional supply or an increase in voucher payment standards by HUD. Notably, the agency reports that only 84 percent of available voucher holders can secure a housing unit.⁵⁵

Provide cost-burdened tenants with rental assistance for existing LIHTC units

Despite the name, the original intent of the low-income housing tax credit (LIHTC) was to produce rental housing for moderate-income families, such as those with incomes at or around 60 percent of AMI. No rental assistance or ongoing operating subsidy is automatically awarded to LIHTC units. Some LIHTC developments renovate or rebuild public housing or HUD project-based rental assistance properties, and many LIHTC tenants use a voucher—via HCVs—so that their housing payment is 30 percent of household income.⁵⁶

As the LIHTC program has been stretched to meet the affordable housing demands of lower-income households, LIHTC rent caps need to be revised to bring affordable housing to families well below 60 percent of AMI. In short, although rents and tenant income for LIHTC units are capped, they are not required to be affordable for tenants at 30 percent of total AMI.⁵⁷ The most recent LIHTC tenant data show that more than 40 percent of LIHTC residents pay more than 30 percent of their income on housing.⁵⁸

Current LIHTC properties present an opportunity to increase affordable housing by supplying rental assistance using tenant-based or project-based HCVs. In most cases, little or no legislative change would be required. In certain areas, HUD could waive the cap on project-based vouchers; in others, authorization of additional vouchers may be required. According to HUD data, there are slightly less than 3 million active LIHTC units.⁵⁹ If 40 percent of those units have tenants who are cost burdened, providing rental assistance could yield another 1.2 million units that are affordable to families making no more than 60 percent of AMI.

Restructure LMI homeowner subsidies

Through the tax code, the United States incentivizes and subsidizes homeownership in several ways. Two of the best known are the mortgage interest deduction and the deduction for state and local property taxes. There are 11.4 million owner households that are cost burdened and making less than $50,000. However, the vast majority of them cannot use these incentives due to their low income levels and relatively high standard deduction. The latest data from the IRS—returns filed in 2022 for tax year 2021—show that less than 10 percent of tax returns itemized deductions and only 7 percent claimed the mortgage interest deduction.⁶⁰ Estimates from the Tax Policy Center show that in 2024, less than 5 percent of the share of total benefits is going to those with an expanded cash income of $100,000 or less.⁶¹

Reconfiguring these current tax deductions to dollar-equivalent refundable tax credits for households below 80 percent of AMI would provide immediate housing affordability assistance for current and potential homeowners.

Housing affordability, availability, and suitability for all people and their families is a complex ecosystem; no single initiative can solve the housing problem. As policymakers come to understand the scale and urgency of the problem for millions of households, they should be creative in combining a range of solutions.

Augment the LIHTC program with direct public subsidies for affordable housing production

A comprehensive solution to the housing supply problem requires additional housing production. Overall housing production has been too low, with a dramatic gap in affordable housing production for many years while units that had been affordable in the past have been repositioned, further reducing the affordable housing stock.⁶² Housing that can immediately meet the needs of LMI families must be the production priority of any public program, rather than relying on filtering of older housing stock. This production should include truly affordable rental units and smaller starter homes for purchase—ideally in mixed-income properties and neighborhoods. For the purpose of this discussion, this will be referred to as the “Housing Development Subsidy” program.

Incentives for the private market to produce affordable housing have been insufficient. The market is currently meeting the needs of buyers and renters in the upper-middle and wealthy segments of the population. Still, those who want starter homes or basic rental units simply do not garner enough economic strength to move housing developers. Additionally, the existing subsidy programs to attract private development to the affordable markets have yet to produce the housing the country needs.⁶³

To meet the country’s affordable housing needs, the government must be the driver of production in the near term. Like many other types of essential infrastructure, government must create the demand to attract the development resources needed to serve the population. The cost of developing quality affordable housing has a true floor. Far too many households have incomes that do not support purchasing or renting this housing. These households have no meaningful economic participation in the housing market—other than accepting an unaffordable price. From a private sector standpoint, serving this market with quality housing makes little economic sense. That is not a value judgment on the private market; it may be capacity-constrained to the point that returns are higher in other market segments. Therefore, public funding interventions are needed to attract adequate development resources.

Financing affordable housing has become unnecessarily complex. This may explain the relatively small number of units being produced. Too many existing production programs, from LIHTC to Choice Neighborhoods, generally rely on multiple funding sources.⁶⁴ These sources often have conflicting goals and regulations—and very often different allocation schedules. This complexity and uncertainty drives up “soft costs,” including legal costs and substantial developer fees.

There are existing federal vehicles that could fund this development with relatively little statutory change, including HOME block grants and the standard Community Development Block Grant (CDBG) or CDBG Disaster Recovery program.⁶⁵ These programs make capital directly available for development, rather than through a syndication process, and use an existing network of more than 650 participating jurisdictions—cities, counties, metro areas, and states.⁶⁶ This funding structure is better suited to planning and implementing direct development than state-by-state allocation of funds. In addition, for proper implementation and oversight, robust technical assistance is critical. The U.S. Department of Transportation has organized one such vehicle around its implementation of funds from the Infrastructure Investment and Jobs Act that assists communities receiving an award to link transportation to housing, health care, and jobs. While HUD is the natural home for this funding, other agencies, such as the departments of Treasury and Transportation, should be fully engaged for cross-departmental funding opportunities.

Federal funding of development would create a larger market, the scale of which could interest contractors and allow ownership units to be sold below development cost and rental units, thus requiring ongoing subsidies only to meet operating costs. Ownership forms should ensure very long-term affordability or reinvestment of gains to support ongoing housing affordability efforts.

Housing Development Subsidy funds should be available to fund the construction, renovation, or conversion of rental units and ownership units for households making less than 80 percent of area median income. Funding for the development effort should be started as soon as feasible, but a ramp-up of unit development goals over a period of seven to 10 years is likely to produce better outcomes and, potentially, better cost savings as construction innovations and the residential construction industry adapt. Full funding for 250,000 affordable units, ramping up to annual production of 500,000, is needed. Over a decade, such a program should aim to produce a minimum of 4 million affordable housing units.

The production program recommended here need not replace LIHTC; it simply would meet needs where the current credit is insufficient. LIHTC is most suitable for mixed-income workforce housing, as a provider of rent-controlled units for an expanded HCV program, or as an acquisition vehicle to bring more of the current housing stock to rent for the income-constrained population

Incentivize better zoning rules

While this list of solutions is focused on federal actions to increase the supply of affordable housing, each level of government has an integral function in expanding production. In particular, the growing local movements to revise zoning and land use regulations are essential for expanding overall housing production and, importantly, making sure certain affordable units are not located away from areas of opportunity.

In 2019, The New York Times found: “Today the effect of single-family zoning is far-reaching: It is illegal on 75 percent of the residential land in many American cities to build anything other than a detached single-family home.”⁶⁷ Indeed, a March 2024 report from the Council of Economic Advisers listed land use and zoning restrictions as “two frictions restricting supply.” ⁶⁸

Many states and cities are proactively addressing revisions to zoning. To expedite the effort, HUD is funding $85 million in grants to local communities through the Pathways to Removing Obstacles to Housing (PRO Housing).⁶⁹ In addition to the pilot program, HUD could use its existing funding mechanisms to spur states and cities to take a closer look at their zoning restrictions. Jurisdictions receiving CDBG funds are currently required to submit a series of plans and reports to HUD, including an analysis of impediments to fair housing and documentation of steps to meet “affirmatively furthering fair housing” requirements.⁷⁰ An analysis of zoning and land use should be a required part of these plans.⁷¹

Another way policymakers could generate a substantial increase in housing supply—much of it affordable—is by encouraging accessory dwelling units (ADUs), sometimes called “granny flats,” on lots currently containing a single-family home. ADUs are ideal for multigenerational families or for adding low-density rental units to neighborhoods where traditional multifamily rental is nonexistent. ADUs have a compact footprint and flexible layout that is ideal for modular construction.⁷² The units can be small and rigid, making transport and assembly substantially easier than that of a larger home. As part of a larger set of housing policy reforms, California has made it much easier for homeowners to add ADUs to their properties.⁷³

Reform and expand housing assistance

Increasing the supply of affordable units would not eliminate the need for rental assistance programs. Through either the reform and expansion of the HCV program or new housing assistance efforts, holistic and long-term improvements to the housing system must contain a planned, dedicated stream of ongoing assistance to very low-income families. Too many housing programs have dedicated all financial assistance to development while ignoring the other housing-related costs that renters need help to afford. Any affordable housing program designed with the assumption that all tenants will be able to make payments to cover operating costs is suspect: Over almost any period, operating costs have outpaced income growth for the lowest-income households.

Policymakers should consider reform and expansion of HCVs within larger program reform. A broader reform of rental assistance is needed to ensure the affordability of the newly developed affordable housing stock. For instance, it is necessary to increase availability of the vouchers to a substantially greater percentage of households with qualifying income. Additionally, the program should be expanded—with a shallower subsidy—to households above 30 percent of AMI. Finally, program regulations must be reformed to substantially broaden acceptance of vouchers by landlords. Deploying only 84 percent of authorized vouchers is unacceptable.

Over the past 15 years, the country has produced significantly fewer housing units than the growing number of households has required. Exacerbating overall underproduction, the units that have been built have skewed away from affordable rentals and starter homes and toward substantially larger single-family homes or higher-end apartments. While income has grown over the past 20 years, it has failed to keep pace with rising rents or the purchase price of a home. Higher mortgage rates and rapidly rising operating costs—such as insurance, taxes, maintenance, and utilities—have converged in the past two years to push housing costs into an even more unaffordable realm.

Solving the housing affordability crisis requires a dual-track policy framework. The country can move away from a growing housing burden by concentrating on affordable housing development to ease supply-induced cost increases while simultaneously taking steps to partially relieve current housing costs as additional affordable housing is added to the market. Both sets of policies should be implemented.

The author would like to thank Jessica Vela for her research and writing support. Lily Roberts, Marc Jarsulic, Christian Weller, Jean Ross, and Alex Thornton contributed their guidance, direction, and review.