Hearing on “Housing Roadblocks: Paving a New Way to Address Affordability”

Submitted on behalf of the Niskanen Center, Social Policy Housing Team
Alex Armlovich, Senior Housing Policy Analyst
Kaj Gumbs, Social Policy Government Affairs Manager
Andrew Justus, Housing Policy Analyst

March 12, 2025

Chairman Scott, Ranking Member Warren, and members of the Committee, thank you for the opportunity to submit this statement for the record of today’s hearing on addressing housing affordability challenges. The Niskanen Center appreciates the Committee’s focus on this critical issue that affects millions of American households.

The current state of housing affordability

The cost of housing continues to be a significant burden for American families, hindering economic mobility and opportunity. The fundamental challenge persists: a severe shortage of housing supply, historically in high-demand areas but increasingly across the entire country, is driving up prices and rents. This is largely the result of accumulated government policies, particularly at the state and local level, that restrict the construction of new housing.

As of early 2025, we are still facing an estimated nationwide housing shortage of millions of units. The affordability crisis continues to disproportionately impact low- and moderate-income households. The primary driver of this shortage remains restrictive land-use regulations, especially exclusionary zoning. Minimum lot size requirements, single-family-only zoning, height restrictions, and lengthy permitting processes artificially constrain the supply of housing.

Policy recommendations

There are a variety of incremental steps available to Congress to address housing underproduction and support state and local reform efforts:

  1. Require improved regulatory barrier transparency reporting from municipal CDBG grant recipients: Support policies similar to the Identifying Regulatory Barriers to Housing Supply Act (formerly the YIMBY Act) that would create much-needed transparency and data collection. By requiring CDBG recipients to track and report on their land-use policies, the bill would create essential transparency and data collection necessary for developing effective policy solutions.
  2. Direct HUD to assist states and localities in reducing regulatory barriers: Support policies like the Housing Supply and Innovation Frameworks Act, which would direct HUD’s PD&R to use existing resources to establish model state and local zoning frameworks to encourage jurisdictions to identify, assess, and address the regulatory barriers on the books in their local community.
  3. Build on these foundations with federal incentives for zoning reform: Congress should explore mechanisms to incentivize state and local governments to reform their zoning and land-use regulations. This could include further leveraging federal funding to actively incentivize jurisdictions to implement pro-housing reforms.
  4. Streamline permitting and approvals: The federal government can promote best practices for streamlining permitting. Permitting reform for HUD multifamily lending would remove onerous procedural reviews of activities the private sector performs harmlessly in great volumes every day. FHA multifamily loans are subject to NEPA review, but single family loans are not—nor should they be. Congress should review these incidentally different permitting requirements to ensure they reflect Congress’ actual housing policy goals.
  5. Reform and leverage the Low-Income Housing Tax Credit (LIHTC): Based on recent Niskanen Center and Institute for Progress joint research, Congress should consider reforms to the Qualified Allocation Plans (QAPs) used by states to allocate credits.  The federal government could incentivize localities to reduce regulatory barriers by allocating more tax credits to jurisdictions that have eliminated exclusionary zoning or streamlined permitting processes.Specifically, QAPs should:
    • Reorient LIHTC to reward jurisdictions that implement pro-housing reforms: States should use their Qualified Allocation Plans (QAPs) to incentivize the reduction of regulatory barriers by allocating more tax credits to jurisdictions that eliminate exclusionary zoning or streamline permitting processes.
    • Prioritize cost containment and unit production: QAPs should be reformed to emphasize maximizing the number of affordable units produced rather than imposing costly design requirements or preferences that reduce overall housing supply.
    • Improve location efficiency: While maintaining a focus on high-opportunity areas, LIHTC should better balance proximity to jobs, transit, and services with affordability concerns, avoiding both extremely low-opportunity areas and extremely high-cost areas where fewer units can be built.
    • Remove QAP criteria that limit density or add unnecessary costs: Many state QAPs include requirements that significantly increase project costs or reduce unit production without corresponding benefits. These should be carefully scrutinized and limited.
    • Implement “direct pay” options to reduce transaction costs: Converting LIHTC to a direct subsidy would eliminate expensive and complex syndication processes that currently consume approximately 10% of program resources.
    • Reform compliance and accounting rules: Current regulations strongly discourage the construction of mixed-income LIHTC buildings. Revising these rules would allow for more integrated developments and potentially leverage private capital for additional affordable units.
    • Consider a “parallel track” allocation formula that rewards housing production: Congress should consider establishing an alternative allocation system that directs additional LIHTC resources to states based on their housing production rates, creating incentives for states to facilitate more housing development overall.

Department of Housing and Urban Development restructuring: A critical concern

While we would welcome a ground-up transformation of HUD to refocus the agency on bipartisan supply-side land use reform and demand-side income support and social insurance, the current proposal from the Department of Government Efficiency (DOGE) raises serious concerns. According to a widely-circulated internal spreadsheet from February 2025 and subsequent public reporting, HUD is preparing to downsize a large swath of its operational personnel.

The U.S. Department of Housing and Urban Development intends to terminate more than 4,000 full-time employees over the next 120 days pursuant to DOGE’s outline. HUD is on track to see a 50% reduction in force overall. Across HUD’s offices, the cuts range from 10% (at Ginnie Mae) to 84% (at Community Planning and Development).

Critical housing market functions at risk

These reductions would severely impact several critical functions that support housing supply and affordability:

  1. FHA Mortgage Insurance: Around 14% of new mortgages for single-family housing were FHA-insured. FHA insured approximately 160,000 units in the multi-family sector in 2022, corresponding to 30% of multifamily completions in a typical year. Private lenders will likely stop providing FHA insurance options to homeowners or developers without a responsive FHA. In some cases, the absence of this option will mean home construction or purchases cannot move forward.
  2. Data and Research Backbone: HUD’s Office of Policy Development & Research provides the data backbone that allows new construction programs like the Treasury’s Low Income Housing Tax Credit program and FHA multifamily mortgages to be promulgated. These commitments cannot be issued without pro-forma income statements that reflect Annual Median Income (AMI) and Fair Market Rent (FMR) statistics calculated by PD&R. If lenders or tax credit equity investors are unsure these statistics will be produced in future years, they will not originate these mortgages or provide that shareholder equity.
  3. Technical Assistance for Zoning Reform: HUD staff facing layoffs support key supply-side reform priorities, including technical assistance grants that support local government efforts to overhaul restrictive land-use regulations — like CDBG-PRO today — and future bipartisan and bicameral efforts to enhance HUD technical assistance on pro-growth planning. CDBG-PRO is functionally a pilot program that needs continuous improvement; the primary critique of it has been the inadequate number of supply-side housing staff at HUD to review the grants and implement the pro-supply intent of Congress.
  4. Rental Assistance Demonstration Program: This important program brings private and nongovernmental managers to repair and operate formerly Section 9 public housing complexes, improving efficiency and conditions for residents.

Baseline DOGE approach to HUD raises concerns

The current approach has begun cutting headcount before automating or streamlining workflows, rather than vice-versa. The Federal Housing Administration (FHA), the federal insurer of single family and multifamily mortgages, is an instructive example. HUD’s press office contests the possibility of the reported cuts at FHA, tweeting “HUD will focus on efficient & effective use of taxpayer dollars while prioritizing the critical role FHA plays in the mortgage market.” Internally, however, the approach has begun cutting headcount before automating or streamlining workflows, rather than vice-versa.

There are conflicting reports that the “skeleton crews” remaining at HUD after these proposed cuts may be permitted to outsource key functions to external contractors and consultants to maintain the current capacity needed to meet its statutorily required obligations to Congress and the public. While outsourcing can be performed effectively, it poses risks and benefits that must be weighed seriously. The immediate burden of proof rests on DOGE and the administration to proactively demonstrate that any such plan will not disrupt the delivery of HUD’s core functions in supporting the housing supply. 

Key questions for congressional oversight

Given these proposed reductions, we urge the Committee to inquire whether HUD can fulfill its statutory obligations, including:

  • Can the Community Planning and Development office process CDBG grants with an 84% reduction in staff?
  • Can the Office of Policy Development & Research calculate Fair Market Rents & Area Median Incomes, and other core statistical inputs with a 76% reduction?
  • Can PD&R continue conducting/managing congressionally mandated or requested research on HUD programs?
  • Can FHA Multifamily underwrite & insure loans with the Office of Housing facing a 44% reduction?
  • Can FHA Single Family insure loans under the same constraints?
  • Can the Office of Manufactured Housing continue to support manufactured housing innovation and reform?
  • Recent news reports indicate Ginnie Mae has experienced actual cuts and losses from buyouts and probationaries of more than 20%, despite being originally slated for only a 10% reduction. How will this impact Ginnie’s operations?
  • Can the Rental Assistance Demonstration program continue effectively?
  • How will the administration of Section 8 Project-Based Rental Assistance and Housing Choice Vouchers be affected?

Additionally, we encourage the Committee to examine whether HUD can fulfill potential future statutory goals that Congress has recently considered or might soon consider, such as:

  • Proposals to enhance CDBG-PRO grants for pro-housing reforms and technical assistance
  • Proposals for PD&R to research work requirements for Housing Choice Vouchers
  • Proposals for PD&R to develop model state and local regulatory frameworks
  • Other ideas, discussion drafts, and existing proposals that depend upon specific HUD offices continuing to exist and function

Targeted HUD reforms

New caselaw and the executive order on CEQ have opened up a world of possible permitting reform. HUD need not be subject to the punitive, old-fashioned NEPA process for ordinary lending activities. Fannie, Freddie, and private banks make or insure multifamily loans every day without NEPA review, and there is no compelling reason why HUD’s multifamily loans should be treated differently.

Additionally, Congress should consider whether the Consolidated Plan Document could be substantially supplanted by supply-oriented reporting. It is worth examining whether the existing process is actually effective in driving deep, change-catalyzing deliberation between the public and elected officials, or if it is mostly producing “consultant-authored book reports” that neither the reporter nor HUD actually reads very closely at high levels of decision making.

While we believe significant reforms at HUD are possible, they must be approached thoughtfully to avoid disrupting critical housing market functions. As noted in our March 2025 assessment, potential reforms could include:

  • Consolidating multifamily asset management functions across the Offices of Public and Indian Housing and Multifamily Housing Programs under one departmental roof.
  • Expanding the Rental Assistance Demonstration program to fully fund repairs of legacy public housing structures by converting Section 9 public housing to Section 8.
  • Upgrading software and process workflows throughout the agency to improve productivity and employee satisfaction while generating headcount reductions.
  • Reforming HUD’s legacy IT platform for the Continuum of Care Program, which has drawn bipartisan Congressional attention, in addition to staff and stakeholder complaints, for a desperately needed overhaul. The Senate Innovation Caucus, for example, showed significant interest during the Biden Administration in pursuing a “Pahlka-style overhaul” of IT procurement for Continuum of Care coordination.
  • Modernizing FHA’s multifamily underwriting workflows and software, which are archaic, taking nearly twice as long to underwrite a loan compared to a Fannie or Freddie multifamily loan.

However, even aggressive reforms would require a thoughtful and deliberate handoff of key process knowledge and build leaner workflows before staff skills and user experience histories are lost, not after. The current approach puts at risk the numerous bipartisan housing initiatives this Committee has worked on, including recent pro-supply proposals from Chairman  Scott and other members.

Conclusion

We welcome the Committee’s attention to housing affordability challenges and the important consideration of how HUD’s capabilities support market-based solutions to the housing crisis. While we support efforts to make government more efficient, we urge a more deliberate approach to reforming HUD—one that preserves and improves its critical functions in supporting housing supply and affordability.

The Niskanen Center remains committed to working with both sides of the aisle to develop and implement solutions that increase housing supply, improve affordability, and enhance economic opportunity for all Americans. We appreciate the opportunity to submit this statement and stand ready to assist the Committee in its important work.

If you have any questions or wish to engage further, please contact our Government Affairs Manager, Kaj Gumbs, at kgumbs@niskanencenter.org or 678-237-8512.

Respectfully submitted,

Niskanen Center Housing Policy Team