The Department of Housing and Urban Development’s (HUD) new grant opportunity of $250,000–$500,000 for research on “Increasing Missing Middle Housing Supply” highlights yet another instance of government inefficiency and waste. While the country clearly needs more middle or light-touch density (LTD) housing, such as accessory dwelling units (ADUs), duplexes, and townhomes, the answers HUD seeks with the research grant are already available—and at no cost—from market-oriented organizations like the AEI Housing Center or Mercatus.

Unfortunately, HUD’s approach is likely to result in more bureaucracy, subsidies, and government intervention, rather than addressing the root causes of the problem. This stands in direct opposition to the principles championed by DOGE (the Division of Oversight for Government Efficiency), which emphasize deregulation and market-driven solutions. Ultimately, HUD’s efforts will fall short unless it shifts focus to empowering market forces as the primary driver of housing affordability and supply.

The root cause of housing scarcity lies in government regulatory failures. Restrictive zoning laws, originally implemented in the 1920s at the behest of the federal government, have effectively outlawed LTD housing types in many areas. Additionally, excessive regulations add layers of complexity and costs, further discouraging construction. According to the National Association of Home Builders, regulatory costs account for a staggering 24% of total single-family building costs. Small-scale builders—who are key to producing LTD housing—are disproportionately affected, as they often lack the resources and staff needed to navigate the labyrinth of permitting and compliance processes. This regulatory environment stifles innovation and prevents the development of much-needed housing in areas where demand is highest.

When governments have addressed these barriers, the market has responded by building more housing. We, along with others, have documented this through numerous case studies that cover a diverse set of cities across the country—from high-cost cities like Seattle and Denver to middle-tier ones like Houston and Nashville to recovering ones like Philadelphia. These examples demonstrate that when regulatory obstacles are removed, the private sector has the capacity to meet housing demand.

To unlock the full potential of market forces, governments should adopt what we call the Housing Abundance Success Sequence (HASS):

1. Increase Land Availability and Density:
   • Unlock underutilized land:
     • Release underutilized government-owned land for residential development.
     • Repurpose underutilized commercial/industrial zones by allowing residential mixed-use development thus transforming these areas into “Livable Urban Villages” that support walkability, jobs, and housing.
   • Use land more efficiently:
     • Allow smaller lot sizes and Light-touch Density (ADUs, -plexes, or townhomes) to increase the number of buildable lots, especially in single-family zones.
     • Allow greater density especially in walkable, amenity-rich areas.
   • Utilizing land at a higher and better use improves affordability.
2. Enable By-Right Zoning:
   • Allow development “by-right,” meaning homes that meet zoning requirements can proceed without discretionary reviews or special approvals, thereby reducing delays and uncertainty for developers.
3. Apply the KISS Principle (Keep It Simple, Stupid):
   • Simplify land-use rules, permitting processes, and regulatory standards.
   • Avoid excessive micromanagement and complex regulatory frameworks that stifle development and discourage small-scale builders and developers.

The primary focus for governments should be on getting their own house in order. Yet, HUD appears to have its priorities misplaced, fixating in its grant on a perceived lack of financing options for light-touch density (LTD)—a supposed market failure. However, as our case studies demonstrate, financing has consistently emerged to meet demand without the need for government intervention. For those skeptical of the private sector’s ability to address such needs, Seattle offers a compelling example. In that city, over 400 unique lenders arose to finance roughly 5,000 single-family-to-townhome conversions, with many specializing exclusively in these projects. Similarly, in California, nearly a quarter of new housing construction consists of ADUs, funded through a mix of private lenders specializing in ADU loans, shared equity agreements, and traditional construction financing.

These examples demonstrate that when barriers to housing development are removed, the market responds with increased light-touch density (LTD) construction. However, the reverse is also true: Imposing additional barriers undermines progress. Seattle’s Mandatory Housing Affordability (MHA) program, which incorporated inclusionary zoning (IZ) requirements, serves as a cautionary tale. After successfully building 20,000 townhomes over 25 years, the program forced builders in 2019 to either set aside units for lower-income residents or pay significant fees. The result? An 80% reduction in townhome permits, stifling housing production and halting progress.

IZ mandates disproportionately harm small-scale builders—the key drivers of LTD housing. These builders often lack the financial resources to absorb the costs of meeting income limits or paying hefty fees. Additionally, small-scale builders primarily construct owner-occupied housing for middle- and higher-income buyers, rather than rental units that IZ policies often target. As a result, these regulations create insurmountable obstacles for small builders.

Inexplicably, HUD’s Pathways to Removing Obstacles to Housing (PRO Housing) program, which claims to “supports communities who are actively taking steps to remove barriers to affordable housing” and offer best practices to others, awarded $5 million in fiscal year 2023 to Seattle specifically for its IZ program. Additionally, HUD distributed an additional $80 million to fund policies that are often ineffective or outright counterproductive, many of which also include IZ mandates.

HUD’s misplaced priorities highlight a broader issue: a pervasive distrust of market-based solutions among many bureaucrats, coupled with an overconfidence in government-driven interventions. Unfortunately, this grant will do little to shift that perspective. Market-oriented organizations, which champion proven deregulatory measures, are effectively excluded from the process because they refuse government funding. Instead, these grants overwhelmingly favor left-leaning organizations that advocate for subsidies, inclusionary zoning (IZ), and top-down planning—approaches that, far from solving housing challenges, often exacerbate them by increasing costs and stifling private-sector innovation.

Ultimately, all levels of government must focus on removing barriers that hinder housing production. At the federal level, efforts should focus on reducing unnecessary regulatory burdens, such as Occupational Safety and Health Administration (OSHA) rules, prevailing wage mandates, tariffs on building materials, and restrictions on logging. For instance, HUD’s recent energy code changes, which may add up to $31,000 to the cost of a new home, should be scrapped altogether.

Local governments should streamline permitting processes by enhancing efficiency within relevant departments or allowing third-party permitting. States should focus on injecting rigorous cost-benefit analysis into building codes, which are set by the International Code Council (ICC), an entity heavily influenced by special interests and environmental advocates. State and local leaders, including mayors and governors, must also elevate housing issues in their communities and build broad coalitions to implement effective solutions to increasing the housing supply.

While it may be too late to save taxpayer money on this particular grant, there is still hope. New HUD leadership or oversight from DOGE could redirect efforts toward stopping wasteful spending and reducing regulatory overreach. By embracing proven market-driven strategies, the government can finally remove the barriers it has imposed and allow the private sector to the housing Americans need.