The United States Senate just moved a bipartisan housing bill that promises to fix the national affordability crisis, but the celebration in Washington is premature. While the legislation focuses on expanding tax credits and cutting red tape for developers, it ignores the structural rot that has made homeownership a fantasy for the middle class. The bill treats a systemic supply-demand failure like a simple bookkeeping error. It assumes that by giving developers more money, they will suddenly decide to build the kind of entry-level housing that hasn't existed in meaningful numbers since the 1970s.
It won't work.
This legislation fails because it does not address the two monsters under the bed of American real estate: institutional investors buying up single-family homes and the local zoning laws that make it illegal to build anything other than a sprawling mansion or a luxury high-rise. If the government wants to fix housing, it needs to stop subsidizing the status quo and start breaking the monopolies that control the dirt.
The Tax Credit Trap
The centerpiece of this new bipartisan push is the expansion of the Low-Income Housing Tax Credit (LIHTC). On paper, this is a win. It encourages private investment in affordable rental units by offering a dollar-for-dollar reduction in federal income tax. Since its inception in the mid-1980s, LIHTC has been the primary engine for "affordable" housing in America.
However, there is a massive gap between "affordable" and "attainable."
Current tax credit structures often lead to the construction of massive, concentrated complexes that meet the bare minimum of government requirements. Developers take the credits, build the units, and then, after the compliance period ends—usually 15 to 30 years—they flip the buildings to market-rate, displacing the very people the program was designed to help. This isn't a long-term solution. It is a temporary band-aid that costs taxpayers billions while padding the pockets of real estate investment trusts.
Furthermore, the bill does nothing to lower the actual cost of construction. Between 2019 and 2026, the price of basic building materials like lumber and copper has remained volatile, and labor shortages in the trades have reached a breaking point. Giving a developer a tax credit doesn't magically find five more plumbers to work on a job site. Without addressing the skilled labor vacuum, the money provided by this bill will simply be eaten up by rising overhead, leaving the final price tag for the consumer unchanged.
The Invisible Ceiling of Local Zoning
Washington loves to pass bills because it makes senators look productive. But the federal government has very little say over the one thing that actually determines where houses go: zoning.
In most American suburbs, it is literally illegal to build a duplex, a townhome, or a small apartment building on the vast majority of residential land. These "exclusionary zoning" laws were designed decades ago to keep neighborhoods low-density and, historically, segregated. Today, they function as a barrier that prevents the "missing middle" housing from ever being born.
The Senate bill offers some small grants to cities that promise to update their zoning codes. It’s a carrot in a world that needs a sledgehammer. Municipalities that are controlled by NIMBY (Not In My Backyard) interests have no incentive to take a small federal grant if it means allowing an apartment building at the end of a cul-de-sac. They would rather keep the property values of existing homeowners artificially high by ensuring that no new supply ever enters the market.
Until the federal government ties major infrastructure funding—the billions used for highways and sewers—directly to the legalization of multi-family housing, these local barriers will remain. A bipartisan bill that "encourages" reform is just a polite way of saying it won't happen.
Wall Street is the New Landlord
Perhaps the most glaring omission in the current legislative framework is any mention of institutional buyers. In the decade following the 2008 financial crisis, private equity firms realized that the American dream was for sale at a discount. They began buying thousands of single-family homes, turning them into a permanent rental class.
In some markets, institutional investors represent over 20% of all home purchases.
When a family goes to put an offer on a starter home, they aren't just competing with another family. They are competing with an algorithm-driven hedge fund that can pay all cash and close in seven days. This bill does nothing to disincentivize this behavior. It doesn't implement a tax on large-scale corporate ownership of single-family residences, nor does it provide any meaningful edge to first-time homebuyers.
If the Senate is serious about "access," they have to decide who they are protecting. You cannot have a healthy housing market when the people living in the houses are permanently transferring their wealth to shareholders in Manhattan. We are witnessing the "subscription-ification" of shelter, and the current bipartisan bill is essentially silent on the matter.
The Infrastructure Illusion
The bill also allocates funds for "housing-related infrastructure." This sounds technical and boring, which is why it usually passes without a fight. In reality, this is often a giveaway to large-scale developers who want the public to pick up the tab for the roads and pipes leading to their new luxury developments.
Instead of subsidizing sprawl on the outskirts of cities—which increases commute times and puts a strain on the environment—the focus should be on "infill." This means building on the vacant lots and underutilized spaces already tucked into our existing urban footprints. Infill is cheaper for the taxpayer in the long run because the infrastructure is already there. But infill is hard. It requires dealing with existing neighbors and complex local regulations. Developers would much rather pave over a cornfield forty miles from the city center, and this bill makes it easier for them to do exactly that.
A Better Path Forward
If we were actually serious about fixing this, the strategy would look radically different.
First, we would create a National Land Bank to purchase distressed properties and hold them specifically for community land trusts and first-time buyers, cutting out the private equity middlemen.
Second, we would implement a Federal Zoning Mandate. Any city receiving more than $10 million in federal transit or infrastructure funds should be required to allow at least four units on any residential lot by right. No hearings. No "neighborhood character" assessments. Just the right to build.
Third, we would reform the Low-Income Housing Tax Credit to require permanent affordability. If you take public money to build, those units should stay affordable for the life of the building, not just until the developer’s tax liability is settled.
The Shortfall of Bipartisanship
The reason this bill is bipartisan is that it doesn't offend anyone who matters. It doesn't hurt the banks. It doesn't anger the big developers. It doesn't threaten the suburban voters who want their home values to skyrocket while their children are priced out of the neighborhood.
It is a "safe" bill. And safe bills do not solve existential crises.
Real estate in America has become a speculative asset first and a human necessity second. As long as the tax code and federal law prioritize the "investment" side of the equation over the "shelter" side, the numbers will never add up for the average person. The Senate can pat itself on the back for "reaching across the aisle," but until they are willing to reach into the pockets of the lobbyists who benefit from the scarcity, the housing crisis will only deepen.
Check your local zoning map. If it's dominated by light-yellow "R-1" single-family designations, your town is part of the problem, and no amount of federal tax credits will change that.
