Increasing the Supply of Affordable Single-Family Homes
Innovations in building technology and construction techniques can make single-family housing less expensive to build as well as more resilient. Photo credit: Cullen328, CC BY-SA 4.0, via Wikimedia Commons
Homeownership can offer significant benefits compared with renting, including building generational wealth and promoting household stability. Yet challenges — including obstacles to new construction, difficulties maintaining aging housing stock, high interest rates, racial inequities, and climate change — conspire to undermine the supply of affordable single-family housing. On November 14, 2023, the Urban Institute and the National Community Stabilization Trust cohosted an event to examine the impact of those headwinds. One panel discussed policy solutions to equitably improve the affordability of single-family homeownership by increasing overall housing supply and included Laura Arce, senior vice president for economic initiatives at UnidosUS; Matthew Josephs, senior vice president for policy at the Local Initiatives Support Corporation; and David Sanchez, special policy advisor in the Federal Housing Administration. Michael Neal, equity scholar and principal research associate at the Urban Institute, moderated the discussion.
Strategies for Creating Single-Family Homeownership Opportunities
Arce notes that homeownership is positively correlated with other social outcomes thanks to the stability and asset-building that it facilitates. Secondary benefits accruing to homeowning households include higher levels of educational attainment, health, and civic engagement. To distribute those benefits more broadly and make progress toward racial wealth equity, policymakers must prioritize increasing the housing supply, said Arce. She identified five policy focus areas that could make meaningful progress toward this goal. Increasing density through zoning reform can help ease affordability pressure, particularly in high-cost areas. Innovations in building technology and construction techniques can make housing less expensive to build as well as more resilient. Broader adoption of different homeownership models such as co-ops, land trusts, or shared equity approaches can preserve long-term affordability. Immigration reform can help ensure the availability of a workforce able to satisfy the growing needs of the construction industry. Expanding public investment in housing and infrastructure can help increase needed subsidized housing for lower-income households.
In practice, solutions can address several of these areas simultaneously. For example, Sanchez and Arce described the potential for manufactured housing to increase the overall supply of affordable housing following recent moves in several jurisdictions to embrace accessory dwelling units (ADUs). To encourage ADU development, policymakers have pursued zoning reforms and are helping to change public opinion about small, factory-built homes in general. On the financial side, policymakers can ensure that financing tools available for chattel property (as most manufactured housing is classified) operate on terms as favorable as those currently available for real property, said Sanchez. Barriers remain to manufactured housing, however, in local regulations found across the United States that limit the formation of new manufactured housing communities.
Maintaining Existing Housing Supply
Ensuring that existing homes are well maintained will help keep the stock of single-family homes online, preventing loss of overall housing supply. Some homeowners, however, find it difficult to secure financing for needed repairs and upgrades based on the present-day value of their homes, said Josephs. Creating financing or subsidy products that account for the after-renovation value, for example, can help bridge this appraisal gap. This issue is particularly acute in areas with low-income households and low home values; in rural areas where these characteristics combine with high development costs, some form of subsidy is necessary to arrest cycles of depreciation. Sanchez pointed to HUD’s Section 203(k) insurance program as one federal program that allows buyers or owners of properties to finance repairs through a single long-term, fixed, or variable-rate loan that likely has more favorable terms than the short-term loans with higher interest rates typically available for rehabilitation projects. For smaller repairs, such as those identified by a home inspector or Federal Housing Administration inspector, homebuyers can turn to a Limited 203(k) loan.
Josephs identified other priority areas for policymakers to consider, such as creating a national network of land banks to support local land bank initiatives, increasing funding for homeowner rehabilitation and weatherization assistance, increasing funding for housing counseling to help people prepare for homeownership, and ensuring that the activities of real estate investors do not harm the communities in which they operate.
Although the price of homeownership reflects myriad factors, including interest rates, land costs, and the cost of materials and labor, panelists emphasized that the primary obstacle to meeting the demand for affordable single-family homes is inadequate supply. Inadequate supply, in turn, is an equity issue. The current cost barrier to homeownership has meant that members of historically marginalized groups, who are more likely to lack the intergenerational wealth to help finance the purchase of a first home and continue to face gaps in income, are further stymied from building wealth in the first place. Finding ways to increase housing supply, as panelists demonstrated, is an important component in achieving racial equity and the foundation for advancing other socially desirable goals.