Can you give a sense of just how bad the market has been recently for home sales?

Jason Ward The market for buyers remains really tough because of the combination of high prices and high interest rates. For example, consider a $400,000 home (so, not in California or many other high-cost areas). If you made a 20 percent down payment and got a 3.5 percent interest rate, which was available as recently as perhaps late 2021, you’d have a monthly payment (principal and interest) of around $1,440. At an average rate today of around 6.5 percent, that same home would cost roughly $2,020 per month, or around 40 percent higher.

That math simply puts homeownership out of reach for a lot of people, depressing demand. This might lower prices if sellers had to meet buyers at prices where a transaction can occur, but many sellers have a low interest rate locked in, so they have chosen to stay put, reducing the supply of homes for sale. Because of this dynamic, price growth has only moderated in most markets, rather than prices actually coming down.

The market for buyers remains really tough because of the combination of high prices and high interest rates.

And for renters?

Ward For renters, things have gotten less bad. The rate of increase in rents has flattened in most local markets and has even declined slightly in some areas. This is, in part, because the rent growth was so high over mid-2021 through mid-2023 that there was perhaps nowhere to go but down in terms of the rate of increase. But, it also appears to be the case that a relatively large supply of new apartment construction coming online has moderated rent growth, providing some critical relief to cost-burdened renters. That said, a record number of renters are experiencing housing cost burden—defined as spending more than 30 percent of gross income on housing costs—in the United States as of 2022.

What are the current federal and state initiatives aimed at increasing the supply of affordable housing?

Ward At the federal level, there are relatively few levers that can be pulled to facilitate housing production. The largest one, at roughly $13.5 billion per year, (PDF) is the federal Low Income Housing Tax Credit (LIHTC) program. LIHTC is the predominant source of funding for the production of privately developed income-restricted, subsidized housing across the country. Aside from that, there are some other much smaller funding programs, but mostly the federal government is quite constrained in terms of influencing housing production.

Land use and zoning regulations are virtually always made by local governments. In general, over the last 30 or so years these rules have evolved toward increased restrictiveness in terms of land where multifamily housing is allowed, the density of such buildings, requirements for energy efficiency, aesthetics, and parking. All these factors drive up costs.

What measures are being taken to address homelessness at both the local and national levels?

Sarah Hunter This year the Biden-Harris Administration awarded the largest amount of annual federal funding to date to address homelessness, $3.16 billion. This money goes to over 7,000 projects across the country that provide housing assistance and/or supportive services to people experiencing homelessness, as well as costs related to data collection and planning. The dollars are allocated through the Continuum of Care programs, which support states, Indian Tribes or tribal designated housing entities, local governments, and nonprofit providers to rehouse individuals, families, persons fleeing domestic violence, dating violence, sexual assault, and stalking; to promote access to and utilization of mainstream programs and services; and to optimize self-sufficiency. There is also $136 million set aside for funding the Youth Homelessness Demonstration program, which is designed to prevent and end youth homelessness, including unaccompanied pregnant or parenting youth.

In addition to federal dollars, many states and local governments have also allocated specific funds to address homelessness. For example, in Los Angeles County, a one-quarter cent sales tax measure was passed in 2017 that results in approximately $355 million a year for 10 years in homelessness prevention services and supportive services for the homeless. This measure was coupled with a City of Los Angeles Proposition (HHH), a voter-approved $1.2 billion dollar bond measure to help build supportive housing.

Surely homelessness it is not a full-blown crisis everywhere, right?

Hunter The greater Houston region is upheld as a model of how to address homelessness. The region reduced homelessness by over 63 percent in 10 years by better coordinating across agencies. It also invested in a housing-first approach, which provides permanent supportive housing to people experiencing homelessness without requiring people to be sober, take medications for their mental health condition(s), or meet other criteria to qualify.

Ward But it is important to note that Houston also has one of the most permissive land use/zoning regimes of any major metro area in the country, which has led it to having a relatively low cost of housing. This has allowed important resources aimed at addressing homelessness—such as housing vouchers and other types of rental support programs—to go much farther and serve many more people effectively.

Other places have never really had a huge problem with homelessness, despite having many problems that are often thought to be related, such as substance addiction. For example, West Virginia, which has the highest rate of drug overdose deaths in the nation, had a rate of homelessness in 2023 that was around 7 per 10,000 residents. By contrast, Los Angeles County’s rate of homelessness was roughly 10 times that. The key difference is housing costs. Home prices in West Virginia are roughly 30 percent below the national average; home prices in California are roughly 90 percent above the national average.

Returning to the issue of LIHTC, how effective have policies like the LIHTC been in addressing the affordable housing crisis?

Ward Since its inception in 1986, the LIHTC program has provided funding for the production of around 3.5 million units of affordable housing, or around 100,000 per year. This makes it an incredibly important program, particularly since it has filled the gap left by the widespread move away from local governments directly producing public housing.

However, in the states where affordable units are most critically low, like California, the costs of producing housing through the LIHTC program have risen dramatically. This is, in part, because of a raft of regulations around minimum unit sizes, architectural and energy efficiency requirements, and restrictive labor standards. In California, studio and one-bedroom apartments using LIHTC funds can cost $1 million per unit. That means developers need five or six additional sources of funding (from, for example, state-run tax-exempt bond programs) to make a project financially viable. Some developers using this program lament the inability to produce small, simple, affordable apartments for families in need, as is being done by some affordable housing developers who eschew this and similar programs. Such firms are producing affordable units for reported costs of under $300,000 per unit.

How are current housing policies addressing issues like rising property prices and housing market speculation?

Ward There is an increasing focus on legislation aimed at corporate involvement in the rental housing market because large firms have acquired properties en masse and taken questionable legal actions to thwart laws aimed at limiting rent increases. Additionally, lawmakers are taking aim at algorithmic tools aimed at maximizing rental income. However, a considerable body of evidence suggests that the root cause of upward pressure on rents is scarcity driven by barriers to housing production and that new housing production directly reduces rental prices. These kinds of legislative attempts to limit certain business practices do not address this fundamental mismatch between the demand for affordable housing and decades of supply limitations.

What role do zoning laws and land-use regulations play in shaping the housing market, and are there any proposed reforms?

Ward It is difficult to overstate the role local zoning and land use regulations have paid in creating the affordability crisis in most urban areas of the United States. Decades of limitations have had substantial negative effects on the level of housing production and the cost of housing produced. That includes downzoning, dramatically increasing local discretion over project approvals, substantial growth of historic zones and other overlays that make redeveloping land more difficult, and building codes that add considerable complexity to projects.

As lawmakers have realized the housing supply problems such restrictions create, some local governments have begun to reverse course, sometimes voluntarily, sometimes due to state requirements or threats of legal action.

What are the arguments for and against rent control policies, and how are they being implemented across different states?

Ward Rent control policies have been around in the United States for at least 100 years. Proponents argue that these laws are critical to protect vulnerable households from excessive rent increases, allowing them to remain stably housed. Critics argue that these laws do not address the root cause of high rents and provide substantial disincentives to landlords to maintain buildings and, depending on how such policies are applied, may also disincentivize new rental housing production.

New York City has the nation’s strictest rent stabilization law (PDF). The city publishes annual allowable rent increases on affected apartments, which are subject to vociferous debate. Landlords also face strict limits on the amount of repairs and maintenance costs they can pass on, and they cannot reset rents to market levels between tenants, along with many other limitations. California has a statewide rent stabilization law (PDF) that limits rent increases to the inflation rate plus 5 percent or a maximum of 10 percent. However, landlords may reset rents between tenants, known as “vacancy decontrol.”

Recent research has shown that proponents’ claims that rent regulation keeps existing renters stably housed has some merit, but that this comes at a cost of reducing the overall stock of rental housing because landlords opt to convert rental housing to owner-occupied housing.

One notable effect of rent control is that it creates a gap in rental prices between new and existing tenants. In recent RAND research, we documented that this gap was greater than $1,000 per month in 2021 in New York City and Los Angeles. These cities also had very low rates of annual residential mobility compared to other major cities without rent stabilization policies, limiting the kind of moves up the chain of neighborhood opportunity that have been shown to result from new housing production.

What protections are in place for tenants, and how are these policies evolving in response to current challenges?

Ward Policymakers have tended to increase the stringency of rental control in recent years, even as landlords say that’s forcing them to sell off their properties (often to larger, corporate landlords) and as evidence mounts that such policies lead to declining financial feasibility for affected properties. These policies likely protect the most vulnerable renters from abuses, but the longer-term effects they may have on housing affordability and the financial viability of smaller landlords is still an open question.

How are public housing programs and Section 8 housing vouchers being managed and funded—and should they be rethought/retooled?

Ward The Housing Choice Voucher (HCV) Program (often referred to as “Section 8”) is the nation’s most critical demand-side housing program. It supports the tenancy of around 5 million low-income renters in 2.2 million households. Yet this program faces major challenges. One problem is rising rents, which directly reduces the number of households served. Other issues include discrimination against voucher-holders by landlords, despite laws forbidding that in many jurisdictions. The U.S. Department of Housing and Urban Development (HUD) has recently proposed to study the efficacy of simply providing cash assistance to families rather than vouchers, which would potentially reduce this kind of discrimination. However, such a change would require major action by lawmakers.

Hunter It is also important to note that the HCV program only supports about one in four (PDF) individuals and/or families that are eligible. Unlike other federal entitlement programs, like the Supplemental Nutrition Assistance Program (SNAP) or Medicaid, that are available to anyone who meets eligibility criteria, there is not nearly enough funding to provide vouchers to every individual and family who qualifies for an HCV.

Ward Public housing programs also have substantial financial challenges related to aging, often poorly maintained buildings, and few available funds to meet these needs. HUD has programs that aim to support the rehabilitation and transition of public housing into privately managed housing (usually by area nonprofits) through its “rental assistance demonstration” (RAD) program. This program had not been widely used, but uptake by local housing authorities appears to be increasing rapidly. Advocates and activists are increasingly focusing on examples of so-called “social housing” in Europe as a path toward revitalizing the public housing sector, but the feasibility of these models in the United States is unclear.

Unlike other federal entitlement programs…there is not nearly enough funding to provide vouchers to every individual and family who qualifies for a Housing Choice Voucher.