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ON AFFORDABLE HOUSING
Bridging the affordable housing gap and spurring economic mobility
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| Housing is the biggest line item in families’ household budgets, with some spending more than half of their income to own or rent a place to live. It is often a family’s greatest source of wealth, too. But unfortunately, housing acts as a barrier instead of a gateway for far too many.
Quality housing that is affordable enables access to everything that supports economic mobility: public education, transit, employment opportunities, and physical and mental well-being, to name a few. Housing is also fundamental to having autonomy and a sense of belonging. Do families have a say about what happens to them? Are they part of a community, and do they feel valued? Housing is impossible to separate from economic mobility.
With this in mind, the McKinsey Institute for Economic Mobility examined the forces behind the 8.2-million-unit affordable housing gap in the United States, which, without action, could swell to 9.6 million units in ten years. The economic payoff from closing this gap is substantial: an estimated $2 trillion in additional output over ten years and 1.7 million new jobs. All Americans would share these benefits, but because Black Americans have been disproportionately burdened by the housing crisis, they would benefit in particular.
There are things that work to alleviate the crisis, but they happen in piecemeal and isolated ways. The push of this research was not to say, “What are the new ideas?” but rather, “What is working and what are ways to unlock barriers and help those solutions work even more effectively?”
We identified the following five documented and researched approaches—chosen from 80 that we studied—that could help alleviate the housing crisis and improve economic mobility: exploring creative incentives and partnerships to free up land, augmenting programs to unleash private capital, scaling off-site home construction, reinvesting in public housing and shared-equity models, and revamping housing-choice vouchers.
Let’s dive into zoning. It is well documented that changes in zoning have an impact on what is built, how much, how quickly, and at what cost. Solutions include creating more multifamily zoning and changing parking and lot-size requirements. On paper, these seem like easy fixes. But in practice, zoning can be incredibly challenging to change. The question is how to combine carrots and sticks to motivate jurisdictions to adopt more housing-friendly zoning solutions.
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| | | “The economic payoff from closing the affordable housing gap is substantial: an estimated $2 trillion in additional output over ten years and 1.7 million new jobs.” | | | | |
| Another approach that stood out was off-site home construction, an idea that has been around for a long time. Modular construction, in particular, offers speed and cost-saving benefits. What was enlightening from the research was not the opportunity but rather the problem of well-meaning bureaucratic hurdles, including codes that differ from place to place that make it hard for off-site construction companies to scale production. This is an area where relatively small changes to the existing system could yield substantial gains to the cost and delivery of affordable housing.
Housing can sometimes feel like a wonky policy issue. And as such, it may not always get the airtime and attention that it warrants. But as American families know, housing is among the issues that we all deal with every day, in every community and part of the country. For change to occur, people must not lose sight of that.
Housing is a shared reality and challenge, but “zero sum” thinking has been hard to shake. While building affordable housing might be better for everyone, there are often entrenched perceived risks to neighborhood character, local traffic, and home values. This perception can impede action and create a sense of winners and losers.
But a mindset shift is possible. Housing is one of the truly universal challenges that all American communities are dealing with: rural and urban, Black, White, Latino, Asian, coastal, inland, young, and old. Solving this problem is urgent for the well-being of families everywhere and critical to unlocking the full potential of our economy. While it won’t be easy, progress is possible and necessary.
I believe that our nation can still do hard things. Systematically building and preserving more affordable housing will not be easy, but the return on investment is meaningful. Housing investments could put more Americans to work, support critical industries like the construction trades, and allow more families to invest in other products and services that improve their odds of achieving economic success.
Will the solutions we examined bridge the entire affordable housing gap? No. But reimagining and scaling them could create a better path to economic mobility for millions of Americans. If the nation commits to solving the crisis more holistically, it could do some real good.
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| | | | JP Julien is a partner in McKinsey’s Philadelphia office and leader within the McKinsey Institute for Economic Mobility. | | |
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