Regulatory Structure to Promote Market-Rate Housing Affordability

Over 21 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 essential 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 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.

Missing middle housing: This term refers to a range of multiunit or clustered housing types that are compatible in scale with detached single-family homes. It includes townhouses and other attached houses and accessory dwelling units (units built on the same property as a single-family home). They exist in the middle of the continuum between detached single-family homes and large apartment buildings. This type of housing is considered “missing” because very few have been built in the U.S. since the early 1940s because of zoning constraints and development patterns (see also Land Use and Zoning). Missing middle housing provides size and affordability housing options that people of all ages—including older adults—need but often cannot find. The housing type can enable family members to live with or near one another while having their own space or residence.

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. Policymakers can:

• Update zoning to enable the construction of missing middle housing. This can expand the size and types of housing offered while maintaining the community’s character.
• 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.
• Minimize or remove 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.

These policy options complement existing developer mandates (like inclusionary zoning) and incentives (such as density bonuses) to expand the number of subsidized housing units (see also Subsidized Rental Housing).

Encouraging innovation: Innovations in construction can bring down the cost of housing by lowering the time required to construct a home and reducing labor costs. For example, 3D printing is now being used to construct homes. A computer-aided design software creates a blueprint, and the building material is prepared. Then, a large-scale 3D printer—often a large robotic arm—constructs the foundation, walls, and other structural elements layer-by-layer according to the digital blueprint. The industry states that 3D-printed homes can be built up to 20 times faster than traditional homes.

Modular construction likewise offers an innovative approach to construction. Construction takes place in a factory setting, similar to an assembly line. Standard designs can be built in larger quantities, making the process less expensive and more efficient. Customized designs can also be built. Once the components are built, they are assembled on-site on a traditional foundation. Modular housing can reduce the time to build a home by one-third to one-half.

Houses built through 3D or modular construction are considered real property. This means they are subject to the same building codes and inspection standards as traditional on-site construction. Buyers receive the same financing options, legal rights, and tax treatment as homes built on-site.

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.

State and local governments can review and amend building codes or zoning ordinances to permit and promote these construction technologies. Demonstration or pilot projects and competitions can also encourage innovative ideas that can generate new housing options at a lower cost than traditional construction.

Rapidly escalating rents: Renters are especially likely to be housing cost burdened in communities experiencing rapidly escalating rents. In addition to expanding the supply of housing through land-use and zoning reforms, these communities sometimes implement other programs to expand housing options for renters with low and moderate incomes. Some options include:

• Community land trusts (CLTs): A nonprofit or government entity owns the land and leases it to families with low and moderate incomes. This separates the cost of land from the cost of housing, which is especially important in gentrifying communities, where the cost of land increases rapidly. CLTs ensure that housing units remain affordable in perpetuity (see also Shared-Equity Homeownership).
• Right-of-first-refusal (ROFR) law with an affordability requirement: Tenants, governments, or nonprofits have the right to buy a property at fair-market value before it is offered on the open market. The sale is contingent on creating and maintaining affordable housing over the long term.

Regulatory oversight is needed to ensure that these programs function effectively and achieve their goals. For example, oversight prevents property owners from setting unreasonably high prices in ROFR programs, ensuring that the sale price reflects fair-market value. Oversight is also essential to ensuring that CLTs and ROFR properties are accountable for maintaining affordability and adhering to their mission.

Rent regulation: Some localities have attempted to rein in steep rises in the cost of housing through rent control or rent stabilization programs. Rent control programs typically set maximum rents, while rent stabilization programs limit the rent increases. Studies show that rent regulation increases disparities in rent burdens over time, does not offer a long-term solution to affordable housing, and limits housing supply. This is partly because homeowners choose not to rent out their homes when the amount they can charge is limited. 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 (see also OPDI Policy Interpretation Memo – Rent Control and Stabilization).