How Zoning Created America’s Housing Affordability Crisis

This article is an excerpt from FREOPP’s policy handbook, “Affording the American Dream.”

To end the housing affordability crisis and underlying shortage, policymakers should:

• Significantly curb zoning regulations, which were originally intended to make housing unaffordable to low-income Americans and exclude them from most neighborhoods.
• Ground the building code in empirical evidence and cost-benefit analysis, so it does not add excessive cost to new housing or limit small multifamily projects’ viability.
• Implement rule-based permitting rather than deferring to bureaucratic discretion, so the process does not add unnecessary cost, delay, and uncertainty to development.
• Recognize that, despite good intentions, housing subsidies have major limitations, while rent control and inclusionary zoning make housing scarcer and less affordable.

American housing is punishingly unaffordable. As of 2024, nearly one-in-four American households was cost-burdened, spending more than 30 percent of its income just on housing.¹ That comprised about 20.7 million households, up almost one-quarter since 2019. Roughly one-in-ten households was severely burdened, spending more than half of its income on housing.²

The housing affordability crisis prevents many low-income families from pursuing their version of the American Dream: 2024 saw the share of households earning less than $30,000 annually that are cost-burdened rise to a record-high 75 percent.

The root cause of the crisis is a massive shortage, as housing supply has not kept up with demand. Home construction per household has fallen to about half of what it was 40 years ago, yielding fewer new homes in the 1980s, 1990s, and 2010s than in each prior decade, while the U.S. population grew by more than 50 percent from 1980 to 2025, based on Federal Reserve Economic Data and U.S. Census data.³

The pandemic compounded supply problems by prompting residents to flee the most expensive housing markets like California and New York, spiking home prices and rents in the rest of the country, especially in the Mountain West and Sun Belt.

Underbuilding was caused primarily by harmful regulations—zoning, building codes, and permitting—detailed in FREOPP’s housing policy primer and summarized below.⁴ Building more homes of all types, including multifamily housing and starter homes on small lots, is critical to making housing affordable to Americans of all income levels.

Housing abundance is the only durable strategy for low-income families to have the kinds of homes they need and desire. Filling the shortage will reduce costs for low-income Americans directly in the form of new housing they can afford, and also indirectly by preventing affluent people from bidding up less expensive housing.

Zoning regulations have restricted most residential land in the typical American city to detached single-family homes—the most expensive type of housing—and mandated large, expensive residential lots. This has restricted where low-income families can live by pricing them out of most neighborhoods.

Key zoning reforms would unlock low-cost housing types and enable abundance:

• Allow inherently less expensive multifamily housing to be built, from large apartment buildings that can quickly add lots of housing to a local market, to small multiplexes.⁵
• Cut minimum parking requirements so property owners can decide how much car parking to build. A 2025 University of Denver study estimated parking reform would boost home production by almost eight percent based on various scenarios.⁶
• Legalize accessory dwelling units (ADUs), such as backyard cottages and in-law suites. ADUs provide naturally low-cost housing for multigenerational families or renters. California’s ADU boom shows this is a scalable source of new housing.
• Enable starter homes by reducing minimum lot size requirements. Small single-family homes are likely to benefit young couples who wish to have children.⁷

Legalizing co-living includes allowing more unrelated individuals to live in existing homes and low-cost single-room occupancy (SRO) housing that has shared amenities like kitchens or bathrooms. Co-living survives in many forms, including college dorms, room rental platforms, and gray-market boarding houses, common among young adults. Co-living should be broadly available to low-income people as a foothold for a better life.

So-called “Golden Girls” reform would allow unrelated roommates to live under the same occupancy limits as related persons. Co-living does not sacrifice safety or impose significant externalities on neighbors. Nuisance laws and health and safety regulations still apply and should be enforced. Best practices to keep SRO buildings safe include screening tenants, clear leases, and laws to ensure the eviction of unsafe residents.

Building more housing creates “vacancy chains” that quickly make inexpensive homes available to many low-income families. The people who move into new housing vacate less expensive housing, which lower-income people move into, who vacate even less expensive housing, which lower-income people move into, and so on. A 2023 study by economist Evan Mast found that market-rate housing for 100 people leads 45 to 70 people to move out of low-income neighborhoods, mostly within three years.⁸

U.S. building codes’ excessive requirements add significant costs beyond what is needed to ensure safety and structural integrity. Prime examples include mandating large elevators and fire safety requirements that are not consistently grounded in empirical evidence. The expensive commercial building code applies to all new U.S. housing with more than two residential units—except for townhouses—limiting small multifamily housing that would help more families live in desirable neighborhoods.⁹

Building code reforms to expand multifamily housing would allow lower-income families to split the cost of residential lots in high-demand areas with abundant opportunity.

• The cheaper, non-commercial U.S. residential building code should be applied to buildings with up to eight units, making them much cheaper to build.
• Allowing single-stair apartment buildings up to six stories—rather than the current three or four—would allow much more housing to be built on small existing lots.

Local permitting is discretionary and often slow, imposing costly delays and unnecessary expenses on new housing. This dysfunction discourages, complicates, and even kills residential projects, worsening the housing shortage and raising prices.

• Local departments should coordinate and schedule multiple inspections in parallel.
• Architects and structural engineers should be able to self-certify, completing training with a building department to take responsibility for building code compliance.¹⁰
• States should enact “shot clocks” for local action on permit and inspection requests.
• Certified third-party reviewers should be allowed to examine and approve or deny a permit application that the government has not acted upon in a timely manner.

Deregulating housing would directly address the shortage by enabling new supply, so its benefits are fairly straightforward. By contrast, government attempts to directly reduce housing costs have significant limitations, often worsening the shortage and affordability.

Abundant supply would make housing subsidies such as vouchers more effective, helping people who truly need them. Housing subsidies are a targeted tool for financial support, but not a scalable solution, because they subsidize demand and raise prices. All subsidized housing has this limitation, including committed “affordable housing.”

Other demand-side interventions are even more damaging. Rent control is popular but worsens shortages and housing quality.¹¹ Rent stabilization in Montgomery County, Maryland, for example, dramatically reduced multifamily housing production.¹² “Inclusionary zoning” requires that some share of a multifamily building’s units be income-restricted. The policy dramatically raises costs, resulting in far fewer homes.¹³

The American Dream is, at its core, the opportunity to build a better life, which requires being able to choose where to live. Rather than being a financial burden holding them down, housing should be a stable foundation on which Americans build a better life.

Endnotes

1. Joint Center for Housing Studies of Harvard University. The State of the Nation’s Housing 2026 (Cambridge, MA: Joint Center for Housing Studies of Harvard University, 2026), Page 5, https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2026_0.pdf.
2. Joint Center for Housing Studies, State of the Nation’s Housing 2026, Page 5. The report says 24 percent of U.S. households, at 20.7 million, were cost-burdened in 2024, and 9.6 million were severely cost-burdened. The report gives no percentage for the second metric, but the other figures imply 11.13 percent, about one-in-ten.
3. U.S. Census Bureau; U.S. Department of Housing and Urban Development via FRED, “New Privately Owned Housing Units Complete: Total Units/Total Households; New Privately-Owned Housing Units Started: Total Units/Total Households,” retrieved from FRED, Federal Reserve Bank of St. Louis, accessed September 3, 2026, https://fred.stlouisfed.org/graph/?g=1pdN2#; Wikipedia, s.v. “1980 United States census,” accessed September 3, 2026, https://en.wikipedia.org/wiki/1980_United_States_census; U.S. Census Bureau, “Slow Growth Impacts Nation’s Largest Counties Hardest,” press release, March 26, 2026, https://www.census.gov/newsroom/press-releases/2026/2025-popest-metro-micro-counties.html#:~:text=Table%201.%20Population%20and%20Population%20Change%20by%20County%20Size%20in%202025%3A%202023%2D24%20vs.%202024%2D25.
4. Luca Gattoni-Celli, “The U.S. Housing Shortage and How Zoning, Building Codes, and Permitting Created It,” FREOPP (Foundation for Research on Equal Opportunity), accessed September 3, 2026, https://freopp.org/whitepapers/the-u-s-housing-shortage-and-how-zoning-building-codes-and-permitting-created-it/.
5. Yonah Freemark, “Which Neighborhoods Have Added the Most Housing Units in the Past Five Years?,” Urban Institute, June 18, 2026, https://www.urban.org/urban-wire/which-neighborhoods-have-added-most-housing-units-past-five-years.
6. University of Denver and Terner Labs, Examining Relationships between Eliminating Parking Minimums and New Housing Construction Using a Terner Housing Simulator Tool (July 2025), https://law.du.edu/sites/default/files/2025-07/Examining%20Relationships%20between%20Eliminating%20Parking%20Minimums%20and%20New%20Housing%20Construction%20Using%20a%20Terner%20Housing%20Simulator%20Tool%20-%20August%202025%20r2.pdf.
7. Wendell Cox and Lyman Stone, “Homes for Young Families: A Pro-Family Housing Agenda,” Institute for Family Studies, March 2025, https://ifstudies.org/report-brief/homes-for-young-families-a-pro-family-housing-agenda.
8. Evan Mast. 2023. “JUE Insight: The effect of new market-rate housing construction on the low-income housing market.” Journal of Urban Economics 133: 103383. https://www.sciencedirect.com/science/article/abs/pii/S0094119021000656.
9. Sam Naylor and Luc Schuster, “Unlocking Small Multifamily Housing through Building Code Reform,” Boston Indicators, July 14, 2026, https://www.bostonindicators.org/building_codes.
10. City of Chicago Department of Buildings, “Self-Certified Permit Application Program,” City of Chicago, accessed September 3, 2026, https://www.chicago.gov/city/en/depts/bldgs/provdrs/permits/svcs/self-cert-permits.html.
11. Jen Sidorova, “Unintended consequences of rent control,” Reason Foundation, December 26, 2024, https://reason.org/commentary/unintended-consequences-of-rent-control/.
12. Adam Pagnucco, “MoCo Multifamily Permits Drop 96 Percent with Rent Control,” Montgomery Perspective, January 6, 2026, https://montgomeryperspective.com/2026/01/06/moco-multifamily-permits-drop-96-percent-with-rent-control/.
13. Illinois Policy Institute, “Report: Chicago lost out on 43,000 homes because of zoning mandates,” October 1, 2025, https://www.illinoispolicy.org/press-releases/report-chicago-lost-out-on-43000-homes-because-of-zoning-mandates/.