Key facts
- Housing affordability in the US is a major concern for policymakers.
- Reducing credit report requirements for mortgages is being considered to lower costs.
- Looser credit and lower interest rates are seen as increasing demand, not supply.
- Starter homes are defined as homes selling for less than four times county median household income.
- Smaller lot sizes could yield millions of additional starter homes at lower prices.
- State-level zoning and lot-size reform is essential to enable starter home production.
Housing affordability in the U.S. remains a critical issue, prompting discussions on various potential solutions. Federal Housing Finance Agency (FHFA) Director Bill Pulte is exploring ways to reduce mortgage closing costs, including potentially requiring fewer credit reports for a mortgage. The FHFA has also been working to increase competition among credit reporting agencies.
However, experts Tobias Peter and Ed Pinto argue that these measures, along with calls for looser lending rules or lower interest rates, are misguided. They contend that such actions would primarily boost demand without addressing the fundamental problem: a shortage of starter homes. This imbalance, they warn, would inevitably lead to higher home prices.
Peter and Pinto define starter homes as those priced below four times the county median household income. Their research indicates that while over 800,000 starter homes were built between 2015 and 2024, this supply is insufficient to meet demand. They suggest that utilizing smaller lots in new residential subdivisions could significantly increase the production of these affordable homes, potentially yielding millions more at 10% to 15% lower prices.
The authors emphasize that zoning and land-use regulations, often dictated by approximately 34,000 local jurisdictions, are a major impediment. They advocate for state-level intervention to pre-empt restrictive local rules, particularly excessive minimum-lot-size requirements that lack clear health, safety, or infrastructure justifications. States like Texas, Florida, Arizona, the Carolinas, Georgia, and Colorado are highlighted as areas where such reforms could enable greater production of attainable owner-occupied homes.