How business innovation can help solve the housing crisis

The U.S. housing market is sorely in need of a makeover. Prices are high, supply is tight, and it’s tougher than ever for the average American to own a home. In terms of affordability, the U.S. faces a shortage of nearly 7 million homes accessible to lower-income residents, according to the National Low Income Housing Coalition.

Even so, housing advocates are feeling hopeful that next year may finally bring change. 

“Come January 2025, we’ll have a new administration, and there will be pressure and an opportunity for, hopefully, major housing legislation. Because the reality is that we haven't had major housing legislation in nearly 40 years,” said Priya Jayachandran, CEO of National Housing Trust. 

In a keynote address at the MIT World Real Estate Forum in June, Jayachandran attributed part of the problem to restrictive zoning that limits the amount of room for new housing. 

“The statistic I like to use is that the city of Los Angeles is home to 10 million people, but current zoning would allow for 4 million,” Jayachandran said. “Zoning has become a weapon of exclusion in this country." 

Compounding the problem are cumbersome regulations that can slow the development process — which currently averages about five to 10 years from inception to move-in day, Jayachandran said. “Not only are there usual hoops that you have to jump through — water permits, sewage lines — but there's a lot of NIMBY opposition. All of those approvals that are needed, every one of those is an opportunity that invites neighborhood opposition,” she said. 

But Jayachandran said she feels the timing is finally right to make real progress over the next few years. A confluence of factors are working in the sector’s favor. 

“We finally have the political winds at our back to do something about this problem,” she said. “We've got partners in the tech sector [and] in the academic sector. Venture capital is finally interested in fintech for housing.” 

Innovation can help drive the sector forward, Jayachandran said. Some of her recommendations: 

Embrace modular housing to help address demand 

There’s a desperate need to update the affordable housing stock in the U.S. Jayachandran said, with many properties now decades old “and showing their wear and tear just like any home that we live in is.” 

Part of the problem is that productivity in the construction industry has declined by half since 1968, despite the fact that nearly every other industry has become more productive.

Enter modular building, a way to lower construction costs and speed up the building process by fabricating buildings off-site at a factory, then transporting those components to a construction site where they’re assembled.

“We have now several factory-built construction companies that are serving the affordable housing market, some in Europe, some in the U.S., and you’re finding more affordable housing owners experimenting and trying it,” Jayachandran said.

Build ADUs to ease the housing shortage 

Accessory dwelling units are small secondary living areas that can be built in a backyard or attached to a primary dwelling to help ease the supply crisis. In 2020, there were 1.4 million of them in the U.S., located mostly in California, Florida, Texas, and Georgia, according to Freddie Mac, and they continue to grow in popularity.

While ADUs are not a silver bullet, Jayachandran said, they’re still “a real opportunity,” particularly for housing single people. 

“The reality is that it doesn't work well for a family,” Jayachandran noted. “It doesn't usually work well for children. [ADUs are] one potential solution for the supply crisis, but we need a whole lot more.”

Develop software to facilitate the search for affordable housing

As people search for affordable housing, software innovations can improve the user experience in two immediate ways, Jayachandran said. They can make it easier for people to apply for affordable housing online and help them build a credit score so that they can qualify.

Jayachandran said that in the D.C. area, no regional portal exists where you can apply for affordable housing. If you want to be added to the waitlist for housing, you have to show up in person and put your name on a waitlist, property by property. 

“Those offices are open nine-to-five, so you would have to take time off of work to go and physically apply to each of those communities,” she said. “Software finally is coming and trying to do something about that.”

Software can also help on the financial side. One example is Esusu, which offers credit scoring for renters so that affordable housing owners can connect their resident’s on-time rent payments with the three credit reporting agencies to develop a credit profile and a credit score.

More solutions are hopefully forthcoming, Jayachandran said, citing as one example the Terner Center at UC Berkeley, which has created an accelerator for new housing and affordable housing innovation. 

“You're seeing a lot of tech money — CZI [the Chan Zuckerberg Initiative] and the Ballmer Foundation, [run by] the former CEO of Microsoft, and others — putting money into housing innovation. It’s finally accelerating, and it's exciting,” Jayachandran said. 

Create different housing programs for different segments of the market

On the policy front, Jayachandran said she hopes for more program design innovation. The Low-Income Housing Tax Credit, first passed in 1986, is an “amazing” program, but it’s “become our answer to every affordable housing problem,” she said, noting that the tax credit “hasn't kept pace with our need.” 

“The Low-Income Housing Tax Credit is one program, but the reality is we need lots of different housing programs,” Jayachandran said, whether that’s permanent supportive housing, single-family homeownership, or the “missing middle.” This refers to middle-income folks who earn between 80% and 120% of the area median income; these households don’t qualify for traditionally subsidized low-income housing but still struggle to find homes they can afford. 

“We haven't seen as much innovation on housing programs really meeting people where they are,” Jayachandran said. “I'm excited and hopeful for this opportunity over the next couple of years to rethink the future of affordable housing.”

Watch the keynote presentation