Five Ways States Can Strengthen Local Housing Markets

by Veronica Gaitán

As rental demand increases among all income groups, low-income households face dwindling options for safe, decent, and affordable housing. Although the long-standing shortage of federal assistance shows no signs of improving, states can do more to advance affordability than simply allocating federal tax credits and other housing resources. To end the affordable housing crisis, the nation needs subsidies and regulatory reforms. State governments can create additional subsidy programs to fill some of the federal gap, but their most promising role might be in local land-use reforms.

Based on efforts under way in California, Connecticut, Massachusetts, Minnesota, Texas, and Utah, a report from the Urban Land Institute has detailed five ways states can improve housing choice and affordability at the local level.

1. Ensure that localities and regions assess future housing needs.

States can support regional and local analyses of housing needs and zoning policies so that sufficient housing is built to account for future growth. In California, the state assesses housing needs for each region and requires localities to develop strategies for delivering their share of the housing need. A newer process in Virginia will present data on housing needs while emphasizing the connection between housing construction and economic development. The commonwealth has funded an assessment of regions’ housing needs based on job growth projections, as well as a housing gap analysis for each metropolitan area.

2. Provide incentives to local communities to zone for new housing.

Because communities have often used zoning to control rather than provide incentives for development, states could provide localities a zoning framework that encourages development of new housing along with technical and financial assistance. A Massachusetts law known as Chapter 40R, or the Smart Growth Zoning Overlay, was the first such effort to provide a monetary incentive–based policy to encourage localities to rezone for sufficient housing. Localities can receive state assistance and funding in exchange for adopting both inclusionary zoning and a streamlined development process for inclusionary zoning districts. States have also hindered local solutions by prohibiting rather than providing incentives for local inclusionary zoning policies.

3. Reduce regulatory requirements that increase costs and stifle development.

States can use policy challenges and provide other incentives for localities to amend regulations that add to the cost of construction. Such approaches might affect all residential development or waive requirements for a subset of development, such as developments offering below-market-rate rents near transit. One California law facilitates low-cost development of accessory dwelling units—small residential structures created on an owner’s existing lot but that previous zoning regulations strictly limited. Accessory dwelling units can be a significant source of affordable housing.

4. Authorize cities to invest their own resources linked to pro-housing land use.

Because cities and counties often need state approval to implement incentive programs to create below-market-rate housing, states can support rental affordability by allowing localities to target their resources as they see fit. For example, the Utah Neighborhood Development Act allows communities to use local redevelopment agency funding and tax increment financing for redevelopment activities such as affordable housing.

 5. Enable local communities to overcome unreasonable neighborhood opposition.

States can help localities assuage “not in my backyard” opposition to the production of new housing. Opponents to new housing can block developments by pressuring local officials in charge of approvals. One Massachusetts law, Chapter 40B, allows developers to appeal municipal decisions to a state committee if fewer than 10 percent of the municipality’s housing units are affordable to low- and moderate-income households.

States have the power to expand housing choice and opportunities within communities. The greatest benefits for local housing affordability may come when states pursue these strategies in combination.