Five Actions States Can Take to Improve Housing Affordability

With a national shortage of homes for sale and rent, affordable housing is increasingly out of reach for a growing number of Americans. As the primary regulators of land-use and zoning policies, local governments are perhaps best positioned to reform policies that limit the supply of housing. However, state governments can also play a significant role in increasing housing production and preservation and improving housing affordability. Below are five meaningful actions that states can take.

1. Coordinate affordable housing financing across multiple funding sources.

Financing for affordable housing production relies on a complicated matrix of funding sources, often called the “capital stack.” These sources can include tax credits, housing bonds, private equity, and grants. Accessing these financing options often requires separate and complex applications and administrative processes. By serving as a clearinghouse for these various funding options, a state can help expedite the application process and enhance the ability of developers to formulate a successful capital stack. Examples of how states have implemented this clearinghouse function include:

• Creating a consolidated application to access available funding sources. Massachusetts is often cited as a model for its consolidated application and its statewide agency that coordinates financing support.
• Signing memorandums of understanding (MOUs). Instead of creating a new government office or agency to facilitate financing, some states use MOUs. In an MOU, a state can formalize a framework for stakeholders to coordinate application requirements and share developers’ documentation.

2. Leverage tax incentives, grants, and other funding to spur office-to-housing conversions.

The pandemic, with the attendant rise in remote work, has underscored the overcapacity of office space in many cities and towns and revealed a potentially valuable source of new housing. Yet many of the buildings most likely to be suitable for conversion to housing have aging components or hazardous materials such as asbestos and lead, making remodeling complicated and cost prohibitive. States can support office-to-housing conversions through financial incentives such as tax credits and grants. In fact, some states are drawing upon American Rescue Plan Act (ARPA) monies to provide needed financing for office-to-housing conversions. For example, Pennsylvania is working with local officials in Pittsburgh, PA to use ARPA money to support these conversions. In December 2021, the District of Columbia government issued a request for information on suggested incentives that would encourage renovating commercial properties to residential. California has a provision in its historic renovation tax credit that allows developers to claim a 25% tax credit against personal income and corporation taxes for qualified rehabilitation expenses for projects that will contain affordable housing.

3. Create a clearinghouse of programs that support home repairs and improvements.

Preservation through home improvement is an important way to maintain an affordable housing supply. Localities, states, and federal agencies—including the Departments of Housing and Urban Development, Energy, Agriculture, and Veterans Affairs—have a myriad of programs in place to support weatherization, disaster resilience, aging in place, and other home repairs and improvements. New federal legislation, particularly the Infrastructure Investment and Jobs Act and the Inflation Reduction Act, provide additional funding for these efforts and new programs, which may make it even more challenging for individuals, landlords, nonprofits, and communities to navigate all available funding and financing assistance options and secure resources for home improvements and repairs. However, states are uniquely positioned to help. In addition to better coordinating the programs they manage, states can establish one-stop shops to advertise available funding and financing options, provide valuable technical assistance, and help residents in locating and applying for these programs.

4. Work with industry and academic institutions to support home construction innovation.

Innovative construction designs, materials, and processes have the potential to lower the costs of home construction and boost housing affordability. States can provide incentives to encourage universities to work with innovative design and manufacturing firms, to develop and evaluate new construction materials, or work with manufacturers on commercializing emerging building products. Linking construction and design firms to existing trade schools and community colleges would also ensure a fresh wave of skilled workers, educated in the newest techniques. For example, states like Oregon and Washington have programs focused on researching and piloting forestry-based building products. In Oregon, state legislation established the TallWood Design Institute, a collaboration of Oregon State University, the University of Oregon and private sector organizations that help support research, testing and commercialization of mass timber products and construction practices. Virginia Tech University collaborates with the construction sector to research and pilot innovative technologies. States can also work with industry leaders and academic institutions to identify any regulatory barriers that would inhibit the broad deployment of home construction innovations.

5. Provide technical assistance to local jurisdictions to expedite the permitting process.

In addition to streamlining their own permitting processes, states can provide a mix of incentives, including grants for technical upgrades and training, to local jurisdictions to promote more coordinated, efficient, and predictable permitting processes. Many local jurisdictions are understaffed, causing delays that add to the time and cost of homebuilding, or need greater technical knowledge to develop and implement efficient land-use and permitting policies and procedures. To improve permitting processes, for example, Washington and Massachusetts have offices that provide technical support to localities, track permit processing flows and times in different jurisdictions, and help resolve issues and conflicts that arise in the permitting process. Florida passed legislation in 2021 to encourage public agencies to respond more promptly on permits and make permits and their status more readily available online to the public. Importantly, these efforts provide greater transparency, predictability, and efficiency in the permitting process while preserving environmental protections.

Conclusion

States have an important role to play in responding to our nation’s housing affordability crisis. Taking these five steps would help to expedite new housing production, preserve the existing stock of affordable homes, and improve housing affordability.