Unlocking Federal Levers to Boost Housing Supply and Expand Affordable Homeownership

Introduction

In the current economic landscape, the United States faces a profound and persistent housing shortage. This crisis touches nearly every corner of the country, driving up rents, pushing homeownership out of reach for middle- and low-income families, and widening racial and generational wealth gaps. While much of the policy response to housing affordability has traditionally fallen to local zoning boards and state legislatures, a growing consensus points to the critical role of the federal government.

The document “Federal opportunities to build housing supply and advance affordable homeownership” lays out a strategic roadmap for how federal agencies, programs, and financing tools can be realigned to tackle the supply crunch head-on. This summary distills those opportunities, focusing on actionable levers to build housing supply, lower barriers to production, and expand pathways to affordable homeownership.

The Scale of the Housing Supply Deficit

Before diving into solutions, it is essential to understand the problem’s magnitude. The document estimates that the U.S. is underbuilt by roughly 3.8 to 5.5 million housing units relative to long-term demand. This shortfall is not uniform; it is most acute in entry-level, starter homes and rental units affordable to households earning below 80% of the area median income. For decades, the production of for-sale homes under 1,800 square feet has plummeted, while construction has tilted toward luxury units. Consequently, build housing supply has become a national imperative. Without a significant increase in the stock of modestly priced homes, even robust down-payment assistance programs will struggle to achieve sustainable affordable homeownership.

The federal government already touches every aspect of the housing market from mortgage finance through Fannie Mae, Freddie Mac, and the FHA, to community development via HUD’s block grants, to infrastructure investment through the Department of Transportation. The document argues that these systems, designed in a different era, often inadvertently restrict supply. By modernizing their rules, federal actors can unlock millions of new units without massive new appropriations.

Reforming Federal Financing to Encourage Starter Homes

One of the most powerful levers to build housing supply lies in reforming federal mortgage policies that currently disincentivize the construction of smaller, lower-priced homes. The document points to the Qualified Mortgage (QM) rule and the pricing structures of government-sponsored enterprises (GSEs). Under current models, it is often more profitable for builders to construct a $500,000 home than a $250,000 home, even when land and labor costs are similar. Why? Because fee structures and secondary market requirements do not adequately reward affordability.

To advance affordable homeownership, the document recommends that the Federal Housing Finance Agency (FHFA) direct Fannie Mae and Freddie Mac to create a “Starter Home” loan product. This would feature reduced guarantee fees for mortgages on new construction homes priced below the area median purchase price. Additionally, the document suggests expanding duty-to-serve rules to explicitly require GSEs to purchase loans on homes built on smaller lots or using manufactured housing techniques. By creating a robust secondary market for entry-level product, the federal government would send a clear signal to developers: build smaller, build cheaper, and the financing will be there.

Another financing bottleneck is the cost and availability of acquisition, development, and construction (AD&C) loans. Community and regional banks, which have historically funded smaller-scale infill projects, have retreated from this space due to regulatory capital requirements. The document proposes that the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issue guidance clarifying that AD&C loans for affordable build housing supply projects receive favorable risk-weighting. Coupled with a new guarantee program from HUD’s Risk-Sharing initiative, this could reignite the pipeline of small-to-medium-sized developments that produce missing-middle housing duplexes, triplexes, and small lot subdivisions.

Leveraging Federal Land and Assets for Affordable Homeownership

Perhaps the most direct federal opportunity does not involve money at all it involves land. The federal government is the largest landowner in the United States, controlling over 640 million acres. While much of that is set aside for conservation, defense, or natural resources, the document identifies significant surplus or underutilized parcels former post offices, military bases closed under BRAC, federal office buildings no longer needed due to telework, and land managed by the Bureau of Land Management on the urban fringe.

The document calls for a new interagency council to identify “housing-ready” federal land. The model is straightforward: convey or lease this land at nominal cost to states, localities, or nonprofit developers, with a binding covenant that at least 30% of the resulting units must serve households at or below 80% of area median income, and that a meaningful share be dedicated to affordable homeownership (as opposed to rental).

By removing land cost often 20-30% of a home’s final price, developers can build homes that working families can actually afford. Success stories from the Denali Commission in Alaska or the recent conveyance of the West Baltimore MARC station land show that this model works. The document urges Congress to pass a Federal Land for Housing Act, creating a fast-track environmental review and transfer process.

Modernizing the Low-Income Housing Tax Credit (LIHTC)

The Low-Income Housing Tax Credit is the nation’s primary tool for building housing supply for renters, but it has historically done little for homeownership. The document highlights recent innovations, such as the LIHTC Homeownership Pilot, which allows credits to be used for for-sale homes rather than rental apartments. However, the pilot is small and temporary. The recommendation is to make the homeownership LIHTC permanent and scale it significantly.

Under this expanded model, developers would receive tax credits to build single-family homes, townhouses, or condominiums, provided that the homes are sold to first-time buyers earning no more than 80% of area median income, and that the sales price does not exceed strict cost caps. Crucially, the document warns that LIHTC for homeownership must include anti-flipping provisions and shared-equity mechanisms (like community land trusts) to preserve affordable homeownership for future generations. Without such protections, subsidized homes could quickly convert to market rate after a few years. By pairing LIHTC with funding for permanent affordability covenants, the federal government can ensure that its investment yields long-term social returns.

Expanding Access to Capital Through Community Development Financial Institutions (CDFIs)

Many of the most innovative build housing supply efforts occur at the grassroots level land banks, community land trusts, resident-owned communities, and small-scale developers of color. However, these entities often cannot meet the underwriting standards of large banks. The document spotlights CDFIs and minority depository institutions (MDIs) as critical conduits for federal capital.

The recommendation is threefold: First, increase funding for the CDFI Fund’s Rapid Response Program to provide pre-development grants. Pre-development costs site control, environmental studies, architectural drawings are the graveyard of affordable housing projects. Second, expand the Federal Home Loan Bank’s (FHLB) Affordable Housing Program to allow direct equity investments in shared-equity homeownership models.

Third, create a secondary market for CDFI-originated mortgages on affordable starter homes. Currently, CDFIs often hold these mortgages on their balance sheets, limiting their capacity to lend. By offering a federal guarantee or a purchase commitment from a GSE, the government can recycle capital, allowing CDFIs to lend more and lend again. This directly advances affordable homeownership by ensuring that community-based lenders have the liquidity to serve first-time buyers of modest means.

Addressing Regulatory Barriers at the Local Level (with Federal Incentives)

The federal government cannot change local zoning codes or building standards directly. However, it can use conditional grant programs to incentivize pro-housing reform. The document points to the success of the “fair housing” rule under the Affirmatively Furthering Fair Housing (AFFH) mandate, and more recently, the Pathways to Removing Obstacles to Housing (PRO Housing) grant program. These programs reward localities that have taken concrete steps to build housing supply, such as eliminating single-family-only zoning, streamlining permit approvals, reducing minimum lot sizes, or allowing accessory dwelling units (ADUs).

The document recommends scaling PRO Housing from a small pilot to a multi-billion dollar annual program. Additionally, it suggests tying existing infrastructure formula funds especially from the Department of Transportation and the Environmental Protection Agency, to pro-housing metrics. For example, if a metropolitan planning organization cannot demonstrate that it has rezoned transit-adjacent land for higher density and mixed-income use, it would face a reduction in federal highway dollars. This approach, sometimes called “connectivity conditioning,” is controversial but highly effective. It respects local control while creating a powerful federal lever to remove exclusionary barriers that suppress build housing supply.

Supporting Innovative Construction Methods: Manufactured and Modular Housing

One of the most overlooked opportunities to lower costs and build housing supply quickly is manufactured housing. For decades, manufactured homes have been stigmatized and regulated differently than site-built homes, despite being built to rigorous HUD codes. The document argues that treating manufactured homes as “chattel” (personal property) rather than real property has starved them of mortgage financing, forcing buyers into expensive chattel loans with interest rates 3-5 percentage points higher than conventional mortgages.

To advance affordable homeownership, the document recommends that Fannie Mae and Freddie Mac expand their Duty-to-Serve plans to include robust purchase commitments for manufactured homes titled as real property. Additionally, it calls on HUD to modernize the Manufactured Home Construction and Safety Standards (the HUD Code) to allow for multi-story units and higher wind zones, making these homes viable in more markets.

Similarly, the document champions modular and panelized construction. The federal government, as a large property manager (military housing, VA hospitals, national park housing), could use its procurement power to create demand for off-site construction, driving down costs through economies of scale. A federal “Moonshot for Modular Housing” prize competition, funded through the Department of Energy’s Building Technologies Office, could spur innovation in robotics and materials.

Protecting and Expanding the Existing Stock of Affordable Homes

Building new supply is critical, but preserving existing affordable homeownership is equally important. The document notes that millions of naturally occurring affordable homes (NOAH) are at risk of being purchased by institutional investors, renovated, and flipped at higher prices. This is particularly true in lower-income neighborhoods and communities of color. Federal policy can counteract this trend.

One recommendation is to expand the Neighborhood Stabilization Program, which provides grants to land banks and nonprofits to acquire and rehabilitate distressed properties, then resell them with permanent affordability covenants. Another is to create a federal “Right of First Refusal” for tenant associations or community land trusts when a landlord decides to sell a multi-family property. While this is more common for rental properties, the document extends the concept to for-sale condominium conversions, ensuring that existing owners have the first chance to buy their units at a fair price.

Finally, the document urges the Consumer Financial Protection Bureau (CFPB) to crack down on predatory contract-for-deed sales, which often target aspiring homeowners who cannot access traditional credit. By regulating these instruments as mortgages, the CFPB can ensure that buyers gain legal title and build equity, advancing true affordable homeownership rather than rent-to-own exploitation.

Data, Transparency, and Accountability

Finally, the document emphasizes that none of these opportunities will work without better data. The federal government currently does not have a real-time, parcel-level dashboard of build housing supply permits, starts, and completions broken down by affordability level. The Census Bureau’s data is useful but lags by months. The document calls on the White House Domestic Policy Council to establish a National Housing Supply Clearinghouse, integrating data from HUD, the Census, the FHFA, and local building departments. This tool would allow policymakers, investors, and advocates to see, in near real-time, which policies are working and where supply shortages are most acute.

Moreover, every federal agency that administers a housing or community development program should be required to conduct a “supply impact analysis” before finalizing new rules. For example, a new energy efficiency standard for mortgages is laudable, but if it adds $20,000 to the cost of a starter home, it may suppress build housing supply. The document advocates for a housing lens on all federal rulemaking, similar to the existing regulatory impact analysis.

Also Read: 28 Post-Neoliberal Housing Policy Ideas

Conclusion: A Coherent Federal Strategy

The document concludes that no single silver bullet will solve the housing crisis. Instead, what is needed is a coherent, multi-agency strategy that uses every available federal lever, financing, land, tax policy, regulation, procurement, and data, to build housing supply and advance affordable homeownership. The opportunities outlined above are not pipe dreams; they are reforms that are administratively feasible under existing law, or require only modest legislative changes. The cost of inaction, however, is immense: continued displacement, widening wealth inequality, and a generation of young families locked out of the American dream of homeownership.

By implementing these recommendations, the federal government can shift from being a passive observer of the housing crisis to an active partner with states, localities, nonprofits, and private developers. The goal is not just to build more houses, but to build a housing system that delivers lasting, affordable homeownership for millions of households. For policymakers, advocates, and industry leaders seeking a roadmap, the federal opportunities are clear, actionable, and long overdue.