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How local governments can address the housing affordability crisis

Local governments can implement policies in four key areas to address the housing affordability crisis and ensure quality housing

In brief
  • Across the country, communities are facing a housing affordability crisis, with housing development stagnating and home prices skyrocketing.
  • Local governments are continuing to look for solutions to address the lack of supply and promote quality housing.
  • By combining data-focused analysis, public policy, and public-private partnerships, better urban communities can be built.

Over the past several decades, housing prices have risen while income growth has significantly lagged, and this widening gap has resulted in a housing market that is increasingly unaffordable. This economic disparity not only jeopardizes individual and family stability but also has far-reaching impacts on community health, economic mobility and societal inequity.

These trends are attributed to a significant gap between affordable homes and those who need them. According to the National Low Income Housing Coalition, there is a significant shortage of affordable rental homes across the United States. With a deficit of 7.3 million rental homes that are both affordable and available to low-income renters, only 34 affordable rental homes are available for every 100 extremely low-income renter households, affecting every single state and metropolitan area.

With the right analysis of the issue, the best set of policies and the proper strategies for implementation, city and county governments can fulfill their housing needs and tackle this important issue. Leveraging key areas of housing policy will address rising housing costs and build better urban communities for everyone.

How EY can help

Policies toward ensuring quality housing and reducing the housing affordability crisis

 

To address these issues, local governments can implement policies to address the crisis and ensure quality housing for their residents. These policies are based on four areas: zoning reform, developer incentives, tenant protections, and public-private partnerships.

 

Zoning reform

 

Much of the land in cities and counties is zoned for single-unit housing, meaning that developers are prevented from building housing with multiple units on those lots. Building smaller, lower-cost homes is essential to tackling housing affordability, and these types of zoning restrictions hinder the ability to properly decide what type of housing should go where.

 

Through a process called upzoning, local governments can rezone land from only allowing single-unit housing to allowing the option of denser construction with more units. In addition, this can be coupled with allowing more mixed-use zoning, meaning commercial activity and housing can coexist in the same parcel. This has the benefit of greater density while giving residents easier access to stores and restaurants in their community.

 

Zoning reform has been shown to reduce housing costs when implemented, as it increases housing supply while spreading costs among more units. Allowing for denser zoning in strategic locations near transit and economic capacity, decreasing zoning restrictions like parking minimums and building height caps, and increasing mixed-use zoning so commercial property can contain housing are all part of the broad effort of rezoning land to facilitate higher-density housing construction.

 

Developer incentives

 

A major obstacle for increasing the local housing supply is a lack of incentives for developers. The process of building housing is timely, expensive and complex. Because of this, delays and obstacles can become costly. Though a stable housing market requires robust standards for continued growth and development, certain policies can be used to keep those standards while incentivizing building.

 

To boost housing development, governments can reform their permitting process to expedite approvals. Currently, many localities use a discretionary approval model, which requires numerous approvals and hearings, delaying permits. By adopting a by-right approval model, developers can progress without special permissions, provided they comply with existing zoning and building codes. Accelerating the entitlement process and minimizing permit delays can encourage developers to increase production.

Discretionary approval

By-right approval
  • Involves individual review of each project
  • Takes longer for approval compared with by-right approval
  • Has more variation in approval times
  • Allows development without specific approval if it complies with existing laws
  • Promotes faster approval if complying with existing regulations
  • Less variation in approval times

Another major obstacle for developers is not having the proper infrastructure in place for developing housing complexes on otherwise suitable land. Strategic investments in infrastructure for sewage, broadband and transportation will increase housing investment potential and create more supply.

Finally, density bonuses are an incentive that encourages developers to not only build housing, but build more below-market-rate affordable housing. In exchange for cities allowing more density on housing parcels, developers commit to making a certain amount of affordable housing units available, promoting access to quality housing for residents across a wider income range.

Tenant protections

To address affordable housing issues, a balance between all stakeholders is essential. Renters should be protected from exploitation and negative externalities through legal mechanisms that guard against health hazards, displacement and discrimination, thus establishing equitable access to quality housing. Enacting a codified list of tenant protections can safeguard renter access to quality housing in an equitable manner.

Potential tenant protections can be:

  • Requiring written notice of tenant rights during a new lease
  • Establishing just-cause eviction as a standard
  • Mandating that the local government is notified of evictions and rent increases
  • Banning discrimination based on income source
  • Requiring tenants be given notice of rent increases
  • Providing reduced-cost legal counsel for evicted tenants

In addition, investment in housing code enforcement alongside tenant protections can help maintain access to quality housing, according to The Affordable City: Strategies for Putting Housing Within Reach (and Keeping it There), a book authored by Shane Phillips. Upgrading enforcement staffing and modernizing code databases can reduce long-term costs by preventing the replacement of blighted units.

Public-private partnerships

A core theme of addressing this issue is that both the public and private sector play a role. Local governments set the policies and legal processes to allow for construction, while private enterprise primarily funds and builds the housing. Working through partnerships between the two can function as the catalyst for increasing housing development.

Private financing can help governments fund affordable housing projects in their respective communities. Equity partnerships such as those involving the U.S. Department of Housing and Urban Development (HUD) form collaborations between public and private entities where both share the costs, benefits and risks of a housing project. For example, a local government might offer land and financing, while a private developer provides additional financing and construction expertise.

In addition, private firms can provide financial literacy for first-time homebuyers, teaching skills and concepts related to managing the property and the associated finances. This has the positive benefits of helping individuals make informed decisions, reducing the risk of mortgage defaults, and thus contributing to housing affordability and stability. HUD, for example, can pair prospective homebuyers with counseling organizations it has approved

All of this is centered around taking the existing relationship between the public and private sectors and realigning them toward strategic social impact, so that both sides benefit from addressing the housing affordability crisis.

Additional EY contributors to this article include Matthew Canter, Senior Manager at Ernst & Young LLP, and Kyle Madura, Associate at Ernst & Young LLP.

Summary 

Until this housing affordability crisis is addressed, housing costs will continue to be one of the most pressing policy issues for society. That is why more governments need to act to address this crisis, with the past few years seeing a substantive increase in focus on developing more affordable housing. As more cities and counties begin to rethink how to build better cities and communities for the future, housing policy and public-private partnerships should be integrated.

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