Regulatory Structure to Promote Market-Rate Housing Affordability


Almost 20 million households headed by someone age 50 and over are housing cost-burdened. That is, they spend more than 30 percent of their income on housing. About half of them are severely cost-burdened. This means they spend more than 50 percent of their income on housing. Many people who are housing cost-burdened do not receive a housing subsidy. As a result, it is important to address the affordability of market-rate housing. 

A key focus has been on increasing both the types of housing available and the overall number of units. Communities with a variety of housing options and an ample supply of housing are most likely to be able to offer units to people in a wide range of income levels. Such places also enable people to remain in the community as they age. It can allow them to stay in their homes or move to housing that meets their changing needs. Both options promote housing stability. 

Some communities are promoting the construction of “missing middle housing.” These are smaller residences that are interspersed in neighborhoods with single-family detached homes. They might include attached homes, duplexes, and accessory dwelling units (small residences that share a lot with a larger dwelling). They are considered “missing” because, after World War II, zoning typically allowed only one type of building in a given neighborhood. Many suburban neighborhoods were zoned to allow only single-family homes. Other types of housing were excluded or missing. 

Reducing regulatory barriers: Reducing regulatory barriers to the construction of housing helps increase the number and types of housing units offered. These, in turn, lower the cost of housing for residents. The following are among the options for doing so: 

  • Communities can update zoning to allow buildings of varied sizes while maintaining the community’s character. 
  • They can also reduce or eliminate off-street parking requirements. This can be especially helpful in transit-rich neighborhoods with robust public transportation offerings, which reduce the need for private vehicles. 
  • They can reduce or eliminate impact fees in areas already served by infrastructure. These fees are intended to cover the cost of roads, sewers, fire stations, and other infrastructure and public facilities needed to serve new residents. One option is to charge impact fees based on the size of a unit rather than as a fixed fee. Doing so can reduce the cost of housing for consumers, as impact fees are typically rolled into housing costs. 

Encouraging innovation: Innovations in construction can bring down the cost of housing. For example, modular housing is constructed off-site using the same materials, codes, and standards as traditional on-site construction. Different modules or sections of the home are built in factories. They are then put together on-site on a traditional foundation. As such, they are considered real property subject to local building codes and structural inspection. Buyers receive the same financing options, legal rights, and tax treatment as homes built on-site. Modular housing can reduce the time to build a home by one-third to one-half. It is, therefore, less expensive than site-built housing. 

Green construction involves the use of building materials and processes that are energy-efficient. It can lower the costs associated with housing over the long term. For example, energy-efficient windows can reduce the need for heating in the winter and air conditioning in the summer. Likewise, low-flow toilets can reduce water and sewer bills. 

Green construction is most helpful when it is integrated into construction up-front because consumers do not have to pay to replace working infrastructure. Sometimes, however, consumers may want to incorporate energy-efficient features into an existing home. For example, those with drafty windows may seek to weatherize their homes with new energy-efficient ones. The up-front costs of doing so are high. However, they may be made up for with lower energy bills over the life of the home. Households with low and moderate incomes may be unable to afford the up-front costs of doing so. Subsidies and low-cost loans can help these households do so. 

Manufactured housing: Manufactured homes, like modular homes, are built in factories. However, unlike modular homes, they are transported in their own steel frame with attached wheels. Once they get to the site, the wheels are removed, but the frame stays in place. They are not placed in a traditional foundation. Manufactured homes are not subject to local building codes. Rather, they are subject to federal regulation from the Department of Housing and Urban Development. There is no requirement for structural inspection. 

Manufactured housing provides a major source of unsubsidized housing that is affordable for households with low and moderate incomes. This includes many older adults. According to the Census Bureau, 5.1 million older adults lived in a manufactured home in 2022. The Consumer Financial Protection Bureau found that older owners of manufactured homes are more likely to have low and moderate incomes. They are also more likely to have a mobility-related disability than older adults who live in other housing settings. 

Manufactured housing, therefore, plays a critical role in serving the housing needs of older adults. Without this option, many would find it difficult to afford housing. Nevertheless, manufactured homeowners face important challenges. One relates to financing. Lenders typically treat manufactured homes differently from site-constructed homes and modular homes. Financing is more expensive in part because manufactured homes tend to decrease in value over time. 

Eighty percent of manufactured home residents own their homes. However, they typically do not own the underlying land. This creates unique challenges that other homeowners don’t face. They may face steep rent increases that create a housing-cost burden. Alternatively, they may have to move when the land is sold or when it changes uses. In areas with high-value housing markets, manufactured home developments can be particularly vulnerable to conversion to other uses. This risks the displacement of current residents, who are often challenged to find equally affordable housing elsewhere in the vicinity. 

Unfortunately, manufactured homes are not easy to move. Alternative sites are often hard to come by. And even when they have a place to move, manufactured homeowners must obtain permits and use licensed and bonded professionals for the move. Moving is thus burdensome and expensive, and most manufactured homes do not move from their original site. 

Manufactured homeowners who own the underlying land are much more housing secure. Those who rent the land can form resident associations to improve their bargaining power. However, they sometimes fear retaliation from community owners for doing so. Consequences can include eviction. 

Policymakers can help manufactured homeowners by: 

  • providing more favorable financing options, 
  • supporting the creation of resident-owned communities, 
  • changing zoning to enable more manufactured home communities to be sited, and 
  • providing support to manufactured homeowners who are forced to relocate their homes. 

Rent control: Some localities have attempted to rein in steep rises in the cost of housing through rent control laws. These limit how much property owners may charge for renting out real estate. Studies show that rent control increases disparities in rent burdens over time, does not offer a long-term solution to affordable housing, and can limit supply. This is partly because homeowners choose not to rent out their homes when the amount they can charge is capped. As such, rent control does not effectively solve the affordable housing problem in many parts of the country. Promoting market-rate housing affordability requires a different approach. Expanding the supply of housing and the types of housing that can be built are more effective ways of lowering the cost of market-rate housing. 



Removing regulatory barriers

State and local policymakers should encourage the construction of more housing units to ensure that people of all incomes and ability levels can afford to live in a community. 

This includes encouraging the construction of accessory dwelling units and other missing middle housing, infill housing, and cohousing communities. They should reform land-use regulations and zoning to remove barriers to doing so. They should also increase the use of incentives for building denser multifamily units on smaller lot sizes, particularly in neighborhoods near transit hubs. An example of such an incentive is reduced permitting fees. 

Among the policies they should consider are: 

  • removing or decreasing height and density restrictions, 
  • permitting development on smaller lot sizes, 
  • requiring developers of market-rate housing to set aside a portion of the units for people with low and moderate incomes (known as inclusionary zoning), and 
  • eliminating or reducing parking requirements, especially in areas that are walkable or well-served by public transportation (see also the section on Parking in Chapter 13, Livable Communities). 

The private sector should offer financing options for alternative housing models, including cohousing and accessory dwelling units, that include strong consumer protections. 

Inclusionary zoning units should include deed restrictions to ensure permanent affordability. 

Policymakers should support shared housing programs that expand access to affordable, stable housing options. 

Encouraging innovation

State and local policymakers should encourage innovation in housing construction. This includes increased use of modular construction with appropriate consumer protections and safety standards. 

Policymakers and the private sector should promote building construction and renovation with materials and technologies that decrease energy and water use (see also Chapter 13: Disasters and Extreme Weather, as well as Chapter 12: Energy Affordability). They should target such programs to households with low and moderate incomes. 

Promoting stability

Policymakers and researchers should study and put in place successful policies to keep housing costs affordable for existing residents, particularly in neighborhoods where housing costs are rising rapidly. This includes considering implementation of a Right of First Refusal law with an affordability requirement. This would enable tenants or nonprofits to buy a property in order to ensure affordability over the long term. 

Rent control

If state and local governments end rent controls, they should provide a transition period during which rent increases would be limited. Rent protections for households with low incomes should be continued. 

Existing rent controls should frequently be reviewed to evaluate their effectiveness, including the extent to which they create disincentives to affordable housing and maintenance. Such controls should also permit a reasonable return to owners, minimize disparities in rent burdens among households, and prevent exploitation of such controls by those who do not need this assistance.