The conventional supply-demand housing economics toolkit has proven insufficient.
In November 2023, I wrote about the American housing shortage in the context of Boston City Council elections. At the time, I highlighted Boston policies that fit neatly into the Econ 101 supply-demand toolkit: revamp zoning regulations and rethink city planning, facilitate commercial to residential conversions, cap rent increases. Nine months later, Governor Healey signed the Affordable Homes Act into law, a comprehensive five-year, $5.2 billion program incorporating 50 distinct policy initiatives. The fact that we need to throw 50 darts at the wall to improve housing availability made me appreciate the importance of out-of-the-box thinking for what remains a pressing challenge locally, nationally, and worldwide. Today, I want to zoom out from Boston to visit the nationwide supply-demand conversation, and showcase several innovative out-of-the-box solutions that don’t fall neatly into either camp.
Supply: No One is Building
Brookings, in line with consensus, found the US had a 4.9-million-unit housing shortage in 2023.
One reason construction has lagged is cost, particularly since the pandemic. The Producer Price Index for Construction Materials grew 34.8% year-over-year in 2021, relative to a pre-COVID average of 3.4%. Rising material costs, coupled with a shortage of qualified labor, make the bar for a financially viable residential development prohibitively expensive.
Developers have made the math work by building higher-priced units. Per Freddie Mac, starter homes (single-family homes under 1,400 square feet) comprised 10%+ of new builds from 1999 to 2012. In 2023, that figure was just 2%, while 3,000+ square foot homes represented 24% of completed units. At the same time, as moderately sized affordable units are being deprioritized in new construction, many once-affordable units are being marked up to higher price points or falling off the market. Tax credits, direct public subsidies, and financing schemes like Community Development Block Grants seek to tilt the economics in favor of a more equitable housing mix, but critics argue developers, rather than low-income renters, typically capture the majority of benefits from these programs.
Even when developers want to build, zoning restrictions — sometimes for better, sometimes for worse — make that hard. A 2019 New York Times study, for instance, found that “it is illegal on 75 percent of the residential land in many American cities to build anything other than a detached single-family home.” Most zoning reform initiatives aim to (1) increase density via compact development (e.g., fewer parking requirements, lower property line setbacks, infill housing) and mixed-use zoning (commercial alongside residential); or (2) ensure the benefits of new developments are equitably distributed via inclusionary zoning (e.g., requiring a certain percentage of newly built units be designated as affordable housing). Governments are also reevaluating public land management: roughly 25% of land in Greater Boston is publicly owned, of which 40% is vacant and not reserved for conservation. Per The Boston Foundation’s Greater Boston Housing Report Card, “if only 5% of the identified vacant land is developed at the minimum density required…85,000 units would be constructed.”
Demand: No One is Moving In
In September 2024, Pew found 69% of Americans were “very concerned” about the cost of housing. Roughly one third of American households (41 million) are cost-burdened, spending at least 30% of their income on housing.
Thanks largely to aforementioned supply constraints, housing prices continue to climb relative to incomes. Per Freddie Mac, mortgage rates remain stubbornly above 7%, the highest sustained levels since the turn of the 21st century. This is despite the Fed gradually moderating its target interest rate downward since September 2024, with the current 4.25-4.50% range a full 100 basis points below the July 2023 peak. Consequently, fewer people want to move into a new unit, as doing so would likely mean trading a cheaper mortgage for a more expensive one.
Rent vouchers, cash transfers, down payment assistance, and tax deductions are among the most popular policy tools to help Americans afford housing. Housing and Urban Development’s Housing Choice Voucher program (also known as Section 8) helps over five million people across 2.3 million low-income families afford rent. However, the National Low Income Housing Coalition finds that only one in four families eligible for assistance actually receive it, due to bureaucratic delays and underfunding. Tax breaks, too, are imperfectly structured. For instance, 2022 tax returns show that only 7% of Americans claim the mortgage interest deduction: many cost-burdened families cannot access this benefit when buying a home because of the relatively high standard-deduction.
Often neglected by these conventional policy approaches are operating costs — insurance, taxes, utilities, maintenance — many of which have risen even faster than home prices. As the Center for American Progress points out, “even a free home is not affordable if families pay more than 30 percent of their income on basic operating costs.” Here, retrofitting or building to prioritize “energy efficiency and climate resilience” can decrease long-term cost of ownership.
Creative Solutions: Expand the Toolkit
Not surprisingly, I think we should both build more housing and make housing easier to afford. On top of that, I think we should spend more time on three out-of-the-box ideas: (1) alternative ownership models, (2) public-private partnership and mixed-use projects, and (3) new construction materials and processes.
First, alternative ownership models facilitate inclusive development and reasonable prices. Community Land Trusts (CLTs), for example, are defined by the World Economic Forum as “non-profit organizations that acquire land and remove it from the speculative real estate market, typically through renewable long-term ground leases.” Communities can purchase, own, and steward property tailored to their particular needs — be that affordable housing, green spaces, or gathering places. Dudley Neighbors Incorporated is a CLT formed “to promote development without displacement and long-term control of the land.” Managing 30 acres in Boston’s Roxbury and North Dorchester neighborhoods, the CLT manages 227 units of affordable housing, plus a community greenhouse, urban farm, parks and commercial space. Comparable with CLTs are housing cooperatives and resident-owned communities, both of which prioritize shared wealth building and permanent, non-speculative residential stewardship.
Second, who doesn’t love Costco? In Baldwin Village, Los Angeles, developer Thrive Living is planning to build a first-of-its-kind 800-unit affordable housing complex with a Costco store on the ground floor. 184 units will be designated as affordable apartments, with Costco’s rent anchoring the complex’s economics and reducing the need for Thrive to rely on government subsidies. In fact, Thrive is intentionally avoiding government funding where possible (e.g., the Low-Income Housing Tax Credit) to avoid delays, and will instead leverage California’s Assembly Bill 2011, which offers a “streamlined approval pathway for affordable multifamily housing developments on commercially zoned property,” per Holland & Knight. In contrast, Los Angeles has also seen more collaborative public-private partnership just down the road: in 2022, the Housing Authority of the City of Los Angeles (HACLA) partnered with Avanath Capital Management and Kaiser Permanente to acquire Baldwin Village, a 669-unit affordable housing community. For new developments, a typical public-private partnership might involve a city government providing land, development rights, and subsidies or tax breaks to private actors who then manage the financing, construction, and operations.
Third, reimagining construction processes and materials will increase supply by decreasing building costs and shortening timelines, while decreasing cost of ownership by improving efficiency and sustainability. Modular construction — pre-fabricating components off-site and assembling on-site — is an increasingly popular process choice. Builders capture the efficiencies of standardized and controlled production plant conditions, and free up project managers to run parallel processes (e.g., site and foundation work), shaving off 30-50% of the timeline. Thrive Living’s Costco development is projected to open in 2027, a quick build made possible by modular design. Per the World Economic Forum, 3D-printing also shows promise, with “industrial-sized 3D printers which follow a digital blueprint to ‘print’ the property layer-by-layer using cement, concrete and other building materials.” 3D-printed properties are estimated to be 20% cheaper than traditional homes, and can be printed in less than two days. The Wolf Ranch community in Georgetown, Texas — a collaboration between construction firm ICON, homebuilder Lennar, and architecture firm Bjarke Ingels Group — offers the world’s largest amalgamation of 3D-printed properties, with 100+ 1,500-2,100 square foot units selling for up to $600,000. Part and parcel with process changes like modular construction and 3D-printing, builders are reevaluating their materials to be more sustainable and higher-performance — hempcrete, bamboo, advanced concrete (self-healing, carbon-capturing), recycled materials, and more.
Cross-sector entrepreneurs are developing innovative solutions that expand the traditional supply-demand toolkit for addressing America’s housing shortage, and Boston should embrace these innovations in deploying its $5.2 billion Affordable Homes Act funding.
Tim Ford (MBA ’25) is originally from New Jersey. He graduated from the University of Virginia with degrees in Commerce and Spanish, and completed an M.Phil. in Latin American Studies at the University of Cambridge. Prior to the HBS MBA, Tim worked in growth equity at TPG in San Francisco.
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