Today’s housing market is the most difficult in four decades. The median home price in America is $420,000, an increase of almost $100,000 in just four years. Simply put, thanks to expensive home prices and high mortgage rates, buying a home is beyond the reach of most American families. To make matters worse, together, insurance and property taxes now cost more than many mortgages and utility costs and homeowners’ association fees are also on the rise.

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Although, in 2024, mortgage rates fell steadily from the spring through September, rates took a sharp turn and started to rise again. By mid-January 2025, mortgage rates passed 7 percent.

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Much of the problem comes down to supply and demand. The bottom line is that America has a deep housing shortage. In 1972, when the U.S. population was just over 200 million, nearly 2.4 million new homes were built. Fifty-two years later, in 2024, only 1.4 million homes were added – for a population of over 335 million.

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When you look at it that way, the answer seems simple: We need a combination of lower mortgage rates and more housing units, right? Yes, but there are many challenges, side effects, and unintended consequences that come with that answer.

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That said, the good news is that there are innovative ways we can make headway here. For example, Edward Pinto, co-director of the American Enterprise Institute’s Housing Center, offered two interesting ideas in a recent Wall Street Journal article. < He actually offered five, but we weren’t as sold on the effectiveness of the other three! >

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First, Mr. Pinto recommends the U.S. Bureau of Land Management (BLM) auction off land that can be used for residential housing development. In his estimation, 828 square miles would be enough land to build roughly 4.2 million new homes over the next ten years.

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He seems convinced that increasing land supply would decrease the cost of newly constructed homes and allow home-price appreciation to align more closely with incomes. Plus, he estimates that this one action would generate about $105 billion for the U.S. Treasury.

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To underscore his argument, he points to the Southern Nevada Public Lands Management Act of 1998, which made around 106 square miles of BLM land in the Las Vegas Valley available for sell to private bidders (Mr. Pinto says that one of the original functions of the BLM was to transfer federal land to state and private ownership). The sales in the Las Vegas Valley, he says, have since increased housing supply and generated over $4 billion in revenue.

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Second, Mr. Pinto recommends ending tax deductions for mortgage interest on second homes, which would inherently reduce the demand for them. He believes this would free up about 650,000 existing homes that could then be used for primary homes. He believes this to be the equivalent of roughly six months of housing construction. Based on his math, this one act could generate over $27 billion over the next ten years.

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Mr. Pinto also suggests that state and local governments can be a very helpful piece of the puzzle. He recommends they both endorse smaller lot size limits for new construction. He uses Florida as an example. Between 2000 and 2023, Florida built 1.8 million homes with a median lot size of 10,019 square feet. If the lots had instead averaged around 5,700-square-feet for single-family detached homes – and if they had used around 20 percent of the land for 2,000-square-foot townhouse lots – the number of housing units would have more than doubled, to 3.8 million. Additionally, houses would have sold for an average of, in 2023 dollars, $439,000 instead of $550,000.

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There’s another cool thing we can do! From May 1969 to the mid-1970s, the Department of Housing and Urban Development (HUD) executed Operation Breakthrough, a 3-phase demonstration that tested groundbreaking building materials and methods. The program was designed “to identify and demonstrate solutions to obstacles preventing large-scale housing production in the nation, with the goal of volume production of quality housing for all income groups.” The demonstration “sought housing system improvements, while at the same time, improved environmental quality and low-cost maintenance.”

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At the time, George Romney, who was Secretary of HUD in the Nixon administration, reiterated that Operation Breakthrough was “not a program designed to see just how cheaply we can build a house, but was a way to break through to total new systems of housing production, financing, marketing, management, and land use.”

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We should launch a modern-day Operation Breakthrough to harness the ingenious, creativity, and resourcefulness of Americans.

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In Phase One of the original program, for example, 22 “Housing System Producers” were chosen from over 200 competitors to visualize designs, create engineering blueprints, and develop and execute the construction of prototype housing units. The winners utilized housing models ranging from precast concrete- or wood-framed modules to units constructed from plastic or metal. Just imagine what those prototypes would look like today!

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These are all promising ideas but, as always, we need to anticipate and minimize the unintended consequences that can come with them. For example, one of the most helpful things we can do to make home ownership more accessible to Americans is to make it easier for them to purchase “small-dollar” homes – or homes that cost less than $150,000 – that already exist.

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However, from 2004 to 2021, the number of people receiving small-dollar mortgages fell by almost 70 percent. To put this spiral in perspective, in 1940, 70 percent of new homes were 1,400 square feet or less. In 2022, that number was just 8 percent.

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One of the main reasons for this is that, after the 2007-2009 Financial Crisis – which was sparked by the original sin of people receiving home loans they couldn’t afford – provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the legislation that was passed to prevent these kind of crises in the future) made it far less profitable for most banks to work with smaller loans. While, on one hand, this is understandable given what the country had just been through, these rules disproportionally hurt community banks, the very ones that usually serve lower-income buyers.

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To make this even more tricky, often these lower-cost homes don’t qualify for loans even when they are available because the homes are often old and in poor condition. This is a double whammy because, not only can first-time homeowners not buy them, but entire neighborhoods begin to deteriorate and eventually become stagnant. When it gets to this point, the only people who can afford to risk turning these neighborhoods around are corporate investors, whose plans for development further shut out Middle Class Americans.

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Analysis by the Urban Institute, a think-tank, found that, from 2018 to 2021, corporate investors bought almost 30 percent of homes under $100,000, compared with just 7 percent of homes that cost over $100,000.

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Another example of a plan that has huge negative consequences is one like Kamala Harris, the 2024 Democratic candidate for president, proposed in the last election. A key part of the plan was to provide first-time home buyers with $25,000 in down-payment support, at a total cost to the nation of $100 billion over four years. This perk would be available to over 4 million households.

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On the surface, this sounds like a nice thing to do for people. However, it would most certainly lead to higher home prices in the end, because one of the most basic laws of supply and demand is that an increase in demand without a corresponding increase in supply will result in higher prices. Although her plan did call for the construction of 3 million new housing units – both for rent and sale – over the next four years, it didn’t specify how that would actually happen.