Housing in the United States is as simple as it is complicated. We know that when demand for housing, whether for purchase or rental, is high and supply is low, prices and rents go up. This is most painful for people who earn less money. But housing policy is not uniform. Thousands of local governments, zoning boards, planning committees, and housing offices and finance agencies, each with different values and agendas, determine our housing future. At the federal level, billions of dollars in subsidies create perverse incentives and inefficiencies. Efficiency is compassionate. Federal and state governments must take a more active role to rein in local excesses in spending and regulation.
The Low Income Housing Tax Credit (LIHTC) is a tax incentive created in 1986 originally to offset changes in depreciation rules in the tax code and to create incentives to build apartments. Over the four decades since the inception of the LIHTC, it has layered billions of dollars into multifamily projects using a complicated formula. Since 2001 cost burden in the United States has increased from 15 million households to 45 million households; that’s 30 million more households paying more than 30 percent of their gross household income after taxes on housing. That’s a 200 percent increase. Meanwhile, the LIHTC has increased as an expenditure by about 240 percent during the same period.
The cost of many LIHTC projects, particularly on the coasts, have risen up to $1,000,000 per rental apartment unit, enough to buy two or three single-family homes. These rising costs are due to market-wide inflation of materials and labor, but are more attributable to the many rules, fees, requirements, and holding costs associated with the complexity of using LIHTC equity. And project-level data consistently show that soft costs, financing friction, compliance, and extended entitlement timelines also account for a disproportionate share of total per-unit cost in LIHTC developments.
These rising costs are due to market wide inflation of materials and labor, but are more attributable to the many rules, fees, requirements, and holding costs associated with the complexity of using LIHTC equity.
Worse, when Congress adds more LIHTC expenditures, more ribbons are cut, and local officials can make zoning codes more restrictive, reducing supply, but can still point to LIHTC as the solution. The LIHTC ends up providing local officials something they can point to as progress while doing nothing to reduce zoning and land use codes that limit supply and push up the price of all housing which hurts people with less money the most.
Because of the Tenth Amendment, land use policy is left to states and local governments, and the federal government has limited direct power over zoning and development regulation. Decades ago, the federal government tied highway funds to creating laws to raise the drinking age to 21. At the time, the states and local government had a patchwork of drinking ages. Within a short period, every state in the union had a 21 and over age requirement for consumption of alcohol. This seems counter to conservative instincts that tend toward local control, but standardization would reduce expenditures, normalize production, and create a better market economy for housing.
And preemption by state governments of local rules and regulations is also often frowned on by conservatives and Republican legislators. But the landmark Dillon decision made it clear that states are the origin of local governmental units and their authority; legislatures created local government, and thus they have powers to limit local control. Why do this? Uniformity and predictability are good for business. When one jurisdiction imposes something like rent control, creating disincentives to build housing and operate it, then prices go up. Surrounding communities then feel the impact of people evading those high prices, then they see scarcity and high prices too. Those jurisdictions need more state resources for housing subsidies.
Producers of housing should be able to build whatever and wherever they can, provided what they build is safe and healthy, following the most basic science in the International Building Code.
It really is simple. Producers of housing should be able to build whatever and wherever they can, provided what they build is safe and healthy, following the most basic science in the International Building Code (IBC).
Meeting the requirements of the IBC is complex enough. Zoning, which is based on segregating uses and imposing aesthetic standards, is a 20th century solution to a 19th century problem big industrial uses next to housing. That simply isn’t our problem in 2026, but lack of supply is. Federal government can provide strong requirements for federal dollars conditioned on loosening and eliminating restrictive regulation and state governments can preempt local governments that choke housing supply with too many rules. We don’t need more affordable housing; we need more housing so that it is affordable.
Roger Valdez is the founder and Director of the Center for Housing Economics, where he researches, develops, and advocates for efficient and compassionate housing policies. The Center for Housing Economics also provides support to non-profits navigating the financing of affordable housing. He is from Albuquerque New Mexico and has a degree in Philosophy from the University of Puget Sound and a master’s degree in Religious Studies from the University of California Santa Barbara.