How the next President can solve the American Housing Crisis

The 2024 presidential race has catapulted housing policy into the top tier of American politics.

And for good reason. U.S. housing costs are out of control. The median home for sale was rarely more than four times the median household income throughout the 1980s and 1990s. But by 2022, it had risen to nearly six times. Renters have not fared better. In 1980, around one third of renters were cost burdened, meaning they spent 30 percent or more of their income on housing. Fully half of renters are cost burdened today.

The main reason housing is too expensive is that we don’t build nearly enough of it. The most recent estimates from Freddie Mac place the national shortfall at a staggering 3.8 million housing units. This gaping hole in the country’s housing supply negatively impacts nearly every aspect of American life, reducing economic growth and hindering workers and families from achieving the lives they desire.

How did we get here? After all, buyers want to buy and builders want to build. The answer is found in a labyrinth of local zoning rules, building codes, and land use regulations that shape the map of what gets built and where. Thanks to the proliferation of local red tape, it is now impossible for the market to deliver the housing supply Americans need at prices that are broadly affordable. In other words, the U.S. housing market barely functions as a market at all.

This is a challenge worthy of presidential attention. Yet the hyperlocal nature of housing regulations has led many experts to dismiss the idea of a meaningful federal role in solving the supply crisis. And neither candidate has cracked the code on how the federal government can actually help.

Vice President Harris’s plan, for example, includes down payment assistance to first-time homebuyers. This is well-intentioned but misguided. Housing is a supply problem. Subsidizing demand, as Harris’s proposal would do, is simply a costly way to make the existing crisis even worse. For his part, former president Trump has yet to release a detailed housing plan.

Encouragingly, both candidates recognize that excessive local regulations — which Trump correctly calls “a killer” — are at the heart of the problem. Most notably, Harris has proposed creating a $40 billion “innovation fund” designed to “empower local governments to fund local solutions to build housing.”

This is a promising idea. But the necessary solution is quite simple: a dramatic reduction of local regulatory barriers. The tough part is convincing local governments to act. That's why, rather than having taxpayers fork over money in the hopes of local “empowerment,” the next president should stimulate reform by directly rewarding tangible results at scale — an idea that we call “Density Zones.”

Here is how it would work. First, the federal government would establish a standardized zoning and building code drawn from best practices nationwide and designed to allow builders to meet local housing demand without having to navigate onerous bureaucratic hurdles.

Second, municipalities would be given the opportunity to adopt this code for specific areas within their jurisdiction, be they individual blocks or neighborhoods, or entire redevelopment districts. Developers in these Density Zones, in turn, would have clear and predictable rules within which to operate, eliminating the interminable delays and setbacks that currently drive up costs and reduce the number of units that come onto the market.

In communities with significant housing shortfalls, this deep and geographically targeted deregulation would lead to exactly what is desperately needed: a surge in supply, which has been proven again and again to reduce local housing costs.

Third, any place that adopts the national zoning rules and meets the program’s construction targets would be awarded a “Density Dividend” proportional to the number of new housing units completed — a direct reward to housing supply.

Municipalities could use the dividends for four primary purposes: the construction of sewer, roads, or other infrastructure needed to support new housing developments; education funding enabling school districts to serve growing K-12 enrollment; public transit projects that serve local residents; or loans, grants, or other subsidies to support construction of affordable housing. Each community gets to decide for itself which needs to prioritize.

This approach aligns the interests of all parties. Local governments get to identify specific areas where there is the greatest consensus on the need for development, and receive funding to offset any temporary strain such development may place on local infrastructure, transit, or education systems. Developers, rather than seeing a direct financial subsidy, enjoy the benefits of regulatory certainty and simplicity, allowing them to operate at higher speed and lower cost. Local residents gain access to a wider array of housing options at more affordable prices. Those who wish to move to opportunity-rich areas can now afford to do so.

And all Americans benefit from the stronger economic growth and greater social mobility that would ensue.

By creating pro-housing national zoning and building codes from scratch and incentivizing local buy-in, a Density Zones program would sidestep the complex local regulatory and bureaucratic morass currently preventing changes that move the needle on supply. While broad local “upzoning” is the ideal way to increase housing supply, there are some neighborhoods that are simply always going to resist new development — even within municipalities that know they need to build more.

Instead of expending political capital only to enact shallow reforms across an entire jurisdiction, this more-targeted approach would reward local leaders for picking their battles where the need and upside are most clear.

Vice President Harris has set a goal to build three million new homes across the country. Using the $40 billion she proposed, a Density Zones program could award participating communities grants of $10,000 per new housing unit and still have money to spare for other pro-housing policies. Best of all, such an approach guarantees that taxpayer dollars only get spent if places choose to participate and deliver meaningful results.

To some, the word “density” conjures up visions of gleaming apartment towers, one after another, extending beyond the horizon. But the reality is that an increase in density will look different from place to place. Density Zones don’t mandate any particular kind of building. In some places, like those near transit stops in the biggest cities, the gleaming towers will be appropriate. Other places may simply need duplexes, townhouses, accessory dwelling units, or small apartment buildings.

Diversifying an area’s housing to include these options would represent a meaningful increase in supply, as it is currently illegal to build anything other than a detached single family home on the vast majority of residential land in countless American cities — and there is no way to solve the country's housing crisis unless this changes.

We recognize the many details that need filling in before Density Zones can be an actionable program, one ready for the legislative process. Especially important will be identifying the right benchmarks for success across the many different kinds of communities. (Stay tuned, we’re working on it.) But it is worth noting that in other contexts, establishing a special economic zone with its own streamlined bureaucracy has been successful. In some regions of the world these areas are literally called Special Economic Zones, and their success has been evident in developing countries trying to adopt pro-growth institutional reforms.

Density Zones represent a pragmatic, sensible convergence of the two parties’ political inclinations — one that Trump and Harris alike could embrace. Republicans generally favor light regulation, strong property rights, and respect for local control wherever possible. Democrats typically want the federal government to show active leadership on pressing national issues. And both parties need an answer for voters who are fed up with the status quo.

The solution to America’s housing woes is ultimately in the hands of a disparate network of thousands of local officials. That’s not a reason for despair, but rather evidence that a powerful federal catalyst for supply-boosting housing reforms is badly needed. The next president should make enacting this program a signature priority.

Adam Ozimek and John Lettieri are the chief economist and CEO, respectively, of the Economic Innovation Group.