3 Significant Barriers to Affordable Housing Production

This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. A new article is added each week – read all of MACo’s Policy Deep Dives.

Unlike most other subject areas, housing overlaps with almost everything. While often seen as a local issue, many regional and national trends impact housing markets and production. Considering the national conversation around housing, stakeholders must have a deeper understanding of what is constraining supply. While the items below do not represent the whole picture, their impact cannot be understated.  


Financing is the single most referenced barrier to affordable housing production, and it is one where state and county governments have limited influence. Two typical sub-themes in financing are the Great Recession and high-interest rates. Pre-recession and post-recession data from the Maryland Department of Planning show a steep decline in the number of units produced, with an average at about half of what it was before the slump.  

 Chris Herbert, managing director of the Joint Center for Housing Studies of Harvard University, commented in a Washington Post piece examining the first decade after the Great Recession,  

“That pain has left them (builders and lenders) more risk averse, so lenders are more cautious when providing financing to consumers and builders. At the same time, we’re seeing housing starts lower than they should be, which is a sign of risk aversion among builders.” 

Interest rates are also limiting development. To help fight inflation, the Federal Reserve (Fed) raised interest rates 11 times since March 2022. A significant downstream effect of this policy has been increased costs of building and buying homes. For context, the interest rate on a 30-year fixed mortgage currently sits at roughly 7.7 percent. The nexus between a 3 percent rate (where rates were at the start of 2022) and a 7 percent rate (almost half a point to a point lower than where they are today) equates to roughly $1000 extra per month for homeowners.  

In response to the Fed’s rate hikes, the Mortgage Bankers Association (MBA), National Association of REALTORS® (NAR), and National Association of Home Builders (NAHB) wrote a letter to the Fed Board of Governors and Chair Jerome Powell imploring the body not to raise rates any further. The group cited, 

“…concern shared among our collective memberships that ongoing market uncertainty about the Fed’s rate path is contributing to recent interest rate hikes and volatility. This has exacerbated housing affordability and created additional disruptions for a real estate market that is already straining to adjust to a dramatic pullback in both mortgage origination and home sale volume.”

 … the uncertainty-induced mortgage-to-Treasury spread is costing today’s homebuyers an extra $245 in monthly payment on a standard $300,000 mortgage. Further rate increases and a persistently widespread pose broader risks to economic growth, heightening the likelihood and magnitude of a recession.” 

Labor & Material Costs 

Like counties, home builders are contending with an ever-shrinking labor pool and soaring material costs. According to the Urban Institute, single-family residential construction employment is nearly 40 percent below its peak of 635,800, set in 2006. The main drivers of this employment slump are not within the influence of state and local governments, i.e., immigration policy and shifting worker attitudes. Historically, immigrants represented a significant percentage of the builder workforce, but recent federal policy decreased the number of new candidates. Furthermore, younger individuals have expressed increasingly little regard for work in the trades and blue-collar fields generally.  

To make the situation more complex, the cost of building materials has increased exponentially. The National Association of Home Builders estimates that between 2020 and 2022, material costs have increased nearly 30 percent. The Association of General Contractors of America states that between March 2021 and March 2022, diesel fuel rose by 64 percent, while aluminum and steel rose by 43 percent.   

These escalating labor and material costs pose significant challenges to affordable housing development, especially compared to market-rate alternatives. Affordable projects often lack the flexibility of rent increases, meaning continued cost increases (or the expectation thereof) reduce the incentives for developers.

Short-Term Rentals 

Short-term rentals (STRs) such as Airbnb and Vrbo have been a massive economic unlock for property owners and certain renters alike. In many instances, the ability to rent out an extra room or an entire dwelling has helped many meet mortgage payments or even become entrepreneurs. But STRs have also proven to be a double-edged sword, as once-affordable units are taken off the market and repurposed for tourists. The Economic Policy Institute outlines the cost-benefit analysis of short-term rentals, 

“Rising housing costs are a key problem for American families, and evidence suggests that the presence of Airbnb raises local housing costs. The largest and best-documented potential cost of Airbnb expansion is the reduced supply of housing as properties shift from serving local residents to serving Airbnb travelers, which hurts local residents by raising housing costs.”

A 2015 Institute of Geography and Spatial Planning IGOT study found that when STRs expanded to Barcelona’s city center, rent prices increased by 9 percent.  


Unlike other policy areas, housing cannot be siloed and must be considered with a broader and more holistic mindset. A key takeaway for stakeholders is that while state and county governments have many tools to address the housing crisis, many barriers lie outside their sphere of influence and/or are yet to be sufficiently addressed. Furthermore, the above list is substantive but by no means exhaustive. There are many additional barriers not mentioned but worth further review, including infrastructure capacity and regulations, to name a few.