Jenny Schuetz on Why America Can't Build Housing

The Empirical Problem

US housing starts have run below demand growth in major metros for nearly two decades. The shortfall is concentrated in the metros with the strongest labor markets — San Francisco, Boston, New York, Seattle, Los Angeles — where housing prices have risen far faster than incomes. The shortfall is the structural cause of the affordability crisis, and explanations that focus only on demand without addressing supply miss the point.

The Schuetz Framework

Jenny Schuetz's Fixer-Upper (2022) argued that the US housing system has three structural problems that compound each other: an inadequate supply system, a poorly targeted subsidy architecture, and federal subsidies that primarily benefit homeowners rather than renters. Fixing one without addressing the others produces partial relief at best.

The supply system: local zoning that systematically blocks new construction in high-demand areas, environmental-review processes that can delay projects for years, and design-review requirements that raise costs without proportionate benefits.

The subsidy architecture: the Low-Income Housing Tax Credit (LIHTC) is the primary tool but is small relative to the need and poorly targeted. Section 8 vouchers reach some renters but do not expand supply. Public housing is small and contracting.

The federal subsidy mix: the mortgage-interest deduction is the largest federal housing subsidy and is highly regressive. The homeowner-favoring tax structure shifts demand toward owner-occupied single-family housing, which is the form most resistant to density.

The State-vs-Local Debate

The 2010s and 2020s have produced multiple attempts to override local zoning through state-level legislation. The major examples:

California SB 9 (2021): allows duplexes on lots zoned for single- family housing statewide. Implementation has been disappointing — the law's additional procedural requirements have produced few duplexes. Subsequent legislation (SB 423, AB 2097) has tried to close loopholes.

Minneapolis 2040: eliminated single-family-only zoning citywide in 2018 and allowed triplexes throughout. Implementation has been modest in raw numbers but has produced more diverse housing in affected neighborhoods. A court challenge produced a 2024 ruling against the plan that the city is appealing.

Oregon SB 100 (2019): eliminated single-family zoning in cities over 10,000 population, allowed triplexes statewide and quadplexes in larger cities. Implementation is still being phased in across cities.

Washington's 2023 middle-housing law: similar to Oregon's framework, allowing 2-6 unit buildings in most residential zones.

Each of these reforms is a partial step. None has produced a substantial increase in housing production in its first few years. The structural obstacles — local procedural delays, financing challenges, construction labor shortages — operate even after zoning permits the new units.

The Tokyo Comparison

Tokyo metropolitan area produces roughly 150,000 housing units per year for a population of 37 million. New York metropolitan area produces roughly 25,000 units for a population of 20 million. The per-capita difference is substantial and has been sustained over decades. Tokyo housing prices have been roughly stable in real terms since the 1990s; New York and San Francisco have risen multiple times over.

The Tokyo difference is structural. Japanese zoning is national rather than local — twelve standardized zone types apply nationally, with cities determining only the geographic boundaries. Construction permits are typically issued in weeks rather than months. The existing residents have less ability to block neighbor's construction than US residents do.

The Japanese system is not perfectly transferable to the US — the political-institutional differences are substantial. But it illustrates that the supply problem is not technical or economic; it is institutional. Countries that have designed differently produce different outcomes.

The Investment-Demand Question

Private equity acquisition of single-family homes for rental has grown substantially since 2008. Whether this is a marginal factor or a major driver of price escalation is contested. The empirical work suggests PE share is under 5% of the housing stock in most metros, but their share of acquisitions in some neighborhoods has been much higher.

The deeper question is whether the demand for housing-as-investment has crowded out housing-as-shelter. The aggregate evidence is mixed. In some markets (Phoenix, Atlanta, Jacksonville), PE acquisitions have been a meaningful share of recent activity. In others (San Francisco, Boston), the activity has been negligible. The political salience of the issue has run ahead of the empirical evidence in both directions.

The Mortgage-Market Lock-In

The 30-year fixed-rate mortgage, dominant in the US, produces a substantial lock-in effect when interest rates rise. Existing owners with 3% mortgages cannot afford to move because their replacement mortgage would be at 7%. The 2022-2024 rate rise produced exactly this effect, dramatically reducing housing turnover. Listings fell to multi-decade lows. Prices for the limited supply that did come to market rose sharply.

This is a US-specific feature. Most other countries use shorter- term or variable-rate mortgages that adjust with rate changes. The 30-year fix is generous to borrowers in stable conditions but produces the lock-in problem in tightening cycles. Reforming the mortgage market is not on any political-action agenda, but the structural problem is real.

The Honest Reading

The US housing supply problem is institutional, not technical or economic. The countries and regions that have produced better housing outcomes have done so through different institutional design — particularly in how land-use authority is distributed and how easily new construction can occur. The US has begun to address this through state-level zoning reforms, but the early implementation has been disappointing. The deeper structural fixes — substantial public-housing investment, mortgage-market redesign, federal subsidy reform — have not had political traction. The 2030s will likely see more incremental reform without resolution of the underlying supply gap. Whether the next major political-economy shift produces space for more ambitious housing policy is the open question.

Reading List

• Jenny Schuetz, Fixer-Upper (2022)
• Conor Dougherty, Golden Gates (2020)
• Edward Glaeser and Joseph Gyourko, Rethinking Federal Housing Policy (2008)
• M. Nolan Gray, Arbitrary Lines (2022)
• Daniel Aldana Cohen on green housing politics