(co-authored with Ben Preis and Michael Saadine)

For all its flaws and its failure to prevent the current housing crisis, federal housing policy has been relatively consistent and stable over the past 40 years. The Low-Income Housing Tax Credit program, established in 1986, has financed over 3 million affordable housing units. At any given time, in recent years, over 2 million households use Housing Choice Vouchers to afford their homes. Fannie Mae and Freddie Mac have underpinned the mortgage market for decades.

This federal housing platform is by no means perfect; our systems have proven to be insufficient in recent decades in response to the Global Financial Crisis, increasing costs, interest rate volatility, local housing opposition, and other challenges. The inadequacy of the system to combat an evolving market has been starkly highlighted in the last few years, as our housing crisis has metastasized into its current state.

However, the weeks since the government transition have signaled that the stable foundation of federal housing policy will likely be disrupted. Early administrative actions indicated an unprecedented challenge to the status quo, with attempts to curtail government spending causing widespread instability and having downstream effects on the function of our housing system. More recently, the arrow has been pointed even more directly, with rumors of massive staff reductions at the Department of Housing and Urban Development. [1] We have entered a new period of uncertainty, with implications not only for the housing sector writ large but also for local communities, the functioning of federalism, and more.

The housing sector is unusually vulnerable. The U.S. stands apart in how it divides responsibility across the federalist system. In most nations, responsibility for education and schools is nationalized while responsibility for housing is mostly localized. The U.S. is the reverse. Our education system is localized while the housing system is disproportionately influenced by federal policies, tax incentives and credit enhancements.

Given this uncertainty and exposure, states, localities and the private and civic sectors need to organize in unprecedented ways. Over the past 15 years, with the federal government largely unresponsive to changing dynamics, non-federal actors have begun to take the housing crisis into their own hands. Substantial zoning and administrative reforms are underway in a growing number of states and localities, and promising efforts on public asset disposition, construction and capital innovation and new institutional mechanisms are rising. These actions, bipartisan and multi-sectoral, now need to be rapidly accelerated: federal retrenchment, should it come to pass, will necessitate an historic volume of sub-national resources and actions that is theoretically possible but has never been seriously contemplated.

The housing industry needs a reality check; our national ecosystem — from the federal government to state and local government, to the role of philanthropy, to the incentives of the private sector — is likely to face an unprecedented restructuring. As we face more unstable federal support for housing, we must shift our focus to finding bipartisan federal consensus where possible, elevating scalable and impactful local innovations, and rethinking the national – not just federal – housing ecosystem.

The effect on localities

Localities, already beleaguered by the existing affordability crisis and increasing climate disasters, were forced into damage control mode when federal funds were frozen on January 27th. The freeze was rescinded a couple days later, but cities were forced to take stock of how they would be affected, both in that two-day period and going forward, now that the aforementioned decades of stability have shown to be susceptible to upheaval.

Local players emphasized the funding freeze’s effects on three main components of their local housing ecosystem — public housing authorities, Section 8 landlords, and lenders — while also emphasizing housing’s ultimate reliance on workforce availability, infrastructure investment, and energy efficiency investment.

Public housing authorities were the most affected public entities. Over 4 million households receive some form of rental assistance from HUD across public housing, Housing Choice Vouchers, and project-based vouchers. Anecdotes from localities estimated that public housing authorities’ annual rental payments could account for approximately one third of certain cities’ general funds. The vast majority of public housing authorities’ budgets is allocated by the federal government. Changes to federal policy have seismic effects; these level of funding are impossible to simply backfill.

The Section 8 market relies heavily on the willingness of landlords and lenders to participate. Given the stigma and operating complexities of Section 8 housing, many landlords and lenders are already reluctant to invest in the space. Those who invest do so due to the reliability of federally backed payments. Even two days of disruption can completely change the way these private sector partners may evaluate the program going forward.

Even the localities that have been the most proactive when it comes to housing were rocked by the actuality and possibility of seismic changes to federal funding. They see even more urgency to diversify revenue streams and reinforce relevant balance sheets for affordable housing programs.

The seven pillars of the housing ecosystem likely to be disrupted

With some early cards shown, we believe that seven pillars of the U.S. housing ecosystem as we know it are — in a worst-case scenario — at existential risk. If even just a portion of this scenario comes to bear, we are facing down a radical change in the housing ecosystem as we know it.

First, construction costs are set to spike due to broad-based tariffs and deportation of migrants. Tariffs are already anecdotally substantially increasing the costs of essential building materials, and deportation would diminish an already insufficient construction workforce.

Second, the federal tax code could be altered in ways that undermine the production of new housing. Proposed corporate tax changes could have follow-on effects to key programs like the Low-Income Housing Tax Credit (LIHTC). Lower corporate tax rates could reduce demand for the tax credits underlying LIHTC, which has been the primary vehicle for producing affordable housing in the U.S. since 1986. We may also see changes to tax exempt bonds, the mortgage interest deduction and the SALT deduction.

Third, key HUD programs are likely to be significantly underfunded or eliminated, as demonstrated during the freeze. Community Development Block Grants, housing vouchers, and certain programs may all be on the chopping block. Preservation of existing affordable housing could be significantly underfunded. Continuum of care and homeless service providers could see significant decreases in federal support.

Fourth, scaling back other key federal investments will have indirect effects on housing. Housing solutions are deeply affected by investments in non-housing entitlements, appropriated programs and tax incentives. The retrenchment of federal investments that range from Medicaid to transportation loan programs to support for Community Development Financial Institutions to tax incentives for energy efficiency would have a deleterious effect on housing production and preservation.

Fifth, privatizing government-sponsored entities (GSEs) like Fannie Mae and Freddie Mac is likely to increase mortgage costs for homebuyers and apartment owners alike, by increasing the cost of capital and reducing secondary market liquidity. A private Fannie and Freddie could also stray from their “Duty to Serve” — ensuring liquidity in the marketplace for cooperatives, manufactured housing communities, and other important sectors of the housing market.

Sixth, Fair Housing and Community Reinvestment oversight is already under threat. The Fair Housing Act of the Civil Rights Act of 1968, the Home Mortgage Disclosure Act in 1975 and the Community Reinvestment Act in 1977 have been mainstays of the more than half century battle against housing discrimination and redlining, which persists in the country. Changes to the regulatory interpretations of these laws or lack of enforcement could make it more difficult for renters to find homes and for homebuyers to access mortgages.

Seventh, and finally, massive reductions in the federal workforce, focused on housing and otherwise, will have significant effects throughout the system. We have never seen a reduction of the scale contemplated for HUD. The housing system as we know it relies on disparate, invisible roles played by the federal government. For instance, mass layoffs at the Consumer Financial Protection Bureau almost inadvertently eliminated the team that sets average prime offer rates, which could have frozen the mortgage markets. Many more invisible, connective strings in our complex system are liable to be snipped.

These pillars, in aggregate, could drive a de facto capital shift, requiring states and localities and private and civic institutions to backfill to compensate for lost federal investments.

Opportunities for some progress at the federal level

In spite of the turbulent initial weeks and volatile outlook for HUD, there may yet be opportunities to advance pro-housing reforms at the federal level. Tax legislation, at a minimum, is an inevitability given the expiration of many of the provisions from the first Trump administration’s tax bill. There may also be some chances at pro-production administrative action, as previewed in former Secretary Carson’s “Eliminating Regulatory Barriers to Affordable Housing” [2] publication.

Given the confirmation of Scott Turner as HUD secretary and the ascension of lawmakers like Senator Tim Scott, it is a decent bet that Opportunity Zones will again be a focus of Trump’s administration. Opportunity Zones have appeared to genuinely impact production of housing in certain places. We believe there is an opportunity to further align the Opportunity Zones program and housing production: incentivizing workforce and affordable housing, picking census tracts with housing needs, sparking intentional neighborhood-wide revitalization plans, and relaxing certain regulations in the case of office-to-residential conversions.

Removing obstructive regulations to housing production should be a genuinely bipartisan issue. Proposals like authorizing disposition of federal land and assets for development should be aligned with the administration’s goals. There is a natural alignment between the theme of government efficiency and some of the issues of bloat and middlemen ailing our housing system.

Finally, many influential actors in the administration should be firmly in favor of housing construction innovation. We must prioritize technological advancement in housing the way we have in industries like renewable energy, defense, and manufacturing.

Rethinking the entire housing ecosystem

Against the backdrop of potentially meaningful shifts, it becomes doubly important to identify, codify, and, most importantly, catalyze the scaling of the most promising state, local and private innovations. Widespread adoption of housing innovations could spur production and preservation of hundreds of thousands of housing units, irrespective of federal actions.

However, simply scaling innovations will not fully solve our housing shortage, which already represents a massive deficit of homes, is only getting worse and is at risk of significant federal upheaval. Evolving conditions require a platform for a radical remaking of the housing ecosystem. The country must formulate new models to develop, finance and deliver housing production. We must also look to adapt proven institutions and practices from abroad.

It is imperative that the United States, while federal reforms are contested, consider more substantial reforms than those that have emerged to date. We must investigate the underpinnings of the most innovative housing ecosystems globally to identify further strategies for addressing the US housing crisis. Japan and Sweden have large modular housing industries. The UK and Denmark have supersized nonprofit organizations that own and manage tens of thousands of affordable housing units as well as public asset corporations that place publicly owned land and buildings in the service of housing production and preservation. Canadian and Danish pension funds routinely offer low-cost capital for a range of housing projects and solutions.

We must understand the existing problems and latent power that exist within the current structure of the national housing ecosystem. Stakeholders like community foundations, national philanthropies, national financial institutions and private equity firms, multifamily developers and single-family homebuilders, labor, local housing authorities, technology firms, national intermediaries, and more need to examine, question, and rethink their roles.

A vision must be put forward for the housing ecosystem we need and deserve. This requires practitioners from the fragmented, compartmentalized system we know today to zoom out and be creative as to what meaningful change looks like. We can no longer rely on half-effective solutions in the current system, many of which reaffirm and exacerbate the structural issues we have not taken the time to reevaluate in years.

The housing crisis has long been at a boiling point and is worsening every day. The shift in federal power will, one way or another, shake up our housing systems as we know them. State and local actors are valiantly trying to plug the hole in the dam. Addressing the scale and breadth of the crisis will require the country to push sensible federal reform, improve at scaling the best of local innovations, and rethink our ecosystem as a whole.

[1] https://www.npr.org/2025/02/14/g-s1-49177/hud-employees-are-bracing-for-what-they-hear-will-be-drastic-staff-cuts

[2] https://www.huduser.gov/portal/publications/eliminating-regulatory-barriers-to-affordable-housing.html

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Ben Preis is the Director of the National Housing Crisis Task Force and a Senior Research Fellow at the Nowak Lab. Michael Saadine is a Senior Advisor to the Nowak Lab and Managing Partner at Invisible Group, an interdisciplinary real estate investment platform.