Inside the Housing Supply Act

Episode 41 | The Construction Lending Podcast

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In this can’t-miss episode of The Construction Lending Podcast, we sit down with Congressman Sam Liccardo—a policymaker who’s no stranger to the frontlines of America’s housing crisis. Representing California’s 16th district, Liccardo gets right to the heart of the matter: the persistent lack of housing affordability, the thorny realities of municipal zoning, and the barriers that stop good projects from breaking ground.

This episode is more than a diagnosis—it’s a prescription. Liccardo details the new bipartisan Housing Supply Act that he’s championing, focusing on how it will empower lenders by unlocking innovative financing for accessory dwelling units (ADUs). Crucially, this legislation would bring Fannie Mae, Freddie Mac, and FHA into the ADU game, opening up new, secondary-market-backed mortgage products and fueling a wave of small-scale construction nationwide.

Hear firsthand how proposed changes could drive demand for construction lending, lower barriers for borrowers, and open a potentially lucrative and scalable new market, all while keeping taxpayers off the hook.

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Questions Answered

• What are some of the primary barriers to increasing housing supply, and how do local and federal policies influence these challenges?
• How might expanding Fannie Mae, Freddie Mac, and FHA-backed products change the landscape for middle- and lower-income families?
• What other cities or countries offer models for ADU integration, and what lessons can be learned from their experiences?
• Where have you seen bipartisan efforts succeed—or fail—on housing in your community or at the national level?
• Critics have raised concerns about the stability and future of Fannie Mae and Freddie Mac. How important is it to resolve these issues before proceeding with housing reforms like the bipartisan Housing Supply Act?

Episode Recap

Unlocking Backyard Housing:
How the Bipartisan Housing Supply Act Could Change Affordable Housing in America

Ground Zero of the Housing Crisis
Housing affordability is top-of-mind in communities across the country, but nowhere is it more acute than in places like California’s Silicon Valley and San Jose. Once considered a land of boundless opportunity, the region now finds itself facing a deepening crisis: rents have soared, supply cannot keep up with demand, and working families increasingly struggle to find a place to call home.

In this episode of The Construction Lending Podcast, Congressman Sam Liccardo—former Mayor of San Jose and now a representative for California’s 16th district—sat down with us to unpack the roots of the crisis, share hard-won lessons from city government, and introduce listeners to a promising piece of bipartisan legislation that could unlock new solutions nationally: the Housing Supply Act.

Why America Gets a Failing Grade on Housing Affordability
When asked to grade the nation’s current efforts on housing affordability, Congressman Liccardo didn’t mince words: “Somewhere between a D and an F,” he stated.

The challenges are staggering. While 2.3 million families currently benefit from Section 8 housing vouchers, Liccardo notes, that number only covers about a quarter of those in need—leaving roughly 11 million extremely low-income Americans without support. And that measure doesn’t account for millions more struggling at “very low,” “low,” and “moderate” income levels.

The message is clear: Today’s crisis is not limited to one corner of the country or one segment of the population. While it hits the most vulnerable the hardest, the lack of affordability is impacting everyone up and down the income scale.

From City Hall to the Halls of Congress: Local Solutions, Federal Challenges
Having spent eight years as mayor of San Jose, Liccardo knows the local challenges of housing intimately. Cities like his have attempted to tackle the shortfall by lifting zoning restrictions, enabling denser development, and accelerating the permitting process. At one point, San Jose let builders construct as high in the downtown as air traffic would allow.

These efforts matter, but local governments can’t go it alone. “Cities really need partners at the state and federal level,” Liccardo emphasizes. Yet for decades, he says, the federal government’s involvement has lagged. “We haven’t seen any significant changes in federal housing policy in that time.”

Case in point: One of the largest tools for building housing, the Low Income Housing Tax Credit (LIHTC), was created in the mid-1980s—and not much has replaced or supplemented it since.

A Surprising Bright Spot: The Rise of ADUs
Beneath the surface of well-publicized zoning battles, however, a quieter revolution has been brewing: the rise of accessory dwelling units (ADUs), sometimes called “granny flats” or backyard homes. When the pandemic hit, slowing multifamily construction and freezing many projects, San Jose saw the potential in making it easier for homeowners to permit and build these smaller, secondary homes.

Liccardo’s administration partnered with private modular home providers to pre-approve designs, streamlining permitting for homeowners. The results were striking: over a couple of years, annual ADU permit applications soared from around 15 to more than 800.

But that dramatic increase in permits uncovered a deeper problem. Many homeowners, especially those of modest means, never moved forward to build. The missing link? Access to financing.

Financing Barriers: The Hidden Obstacle for Homeowners
For wealthier homeowners, building an ADU is possible using savings or home equity lines of credit. But for more recent buyers, working families, or those with less equity, the hurdle is daunting—even as they may want and need a renter to help cover their mortgage.

Liccardo concluded that while mayors can cut red tape and stimulate demand, they can’t solve the financing problem alone. “As mayor, you do not have control of everything. This was something above our pay scale.”

Enter the Bipartisan Housing Supply Act
Back in Congress, Liccardo drew on local lessons. Together with co-sponsor Representative Andrew Garbarino, he introduced the Housing Supply Act, a bipartisan proposal laser-focused on solving the financing conundrum for ADUs—especially for modest-income homeowners.

At its core, the bill does three critical things:

1. Adds Fannie Mae and Freddie Mac to the Equation
   The bill would require federal mortgage giants Fannie Mae and Freddie Mac to develop new products for second mortgages—specifically to finance ADU construction. By purchasing and securitizing these loans, they’d free banks to offer more, at lower interest rates, with less risk.
2. Brings FHA into the Game
   The Federal Housing Administration (FHA) would begin insuring these second mortgages, providing even greater confidence and accessibility for lenders and borrowers alike.
3. Counts Future Rental Income and Property Value
   Perhaps most importantly, the bill would allow lenders to consider 50% of estimated rental income from the planned ADU, as well as the increased post-construction property value. This ensures the homeowner’s true financial profile—post-ADU—is factored into the lending decision.

By unlocking these federal resources, lenders are far more likely to offer affordable financing to everyday homeowners looking to turn their backyard into much-needed housing.

Addressing Criticism and Charting a Path Forward
Of course, no policy comes without debate. One fair critique: With looming discussions about the future of Fannie and Freddie, is it wise to place so much responsibility with them? Liccardo responds that while reforms to these mortgage giants may be years away, urgent action is needed now. In the meantime, “we ought to be using these entities for their design purpose, which is to help more folks get access to housing in a stable and well-regulated market.”

The Potential Impact: Could This Transform U.S. Housing?
If enacted, what could success look like? To answer that, Liccardo points north: In Vancouver, Canada, about 32% of single-family parcels already have an ADU. If California—and other states—matched that scale, the impact on national housing supply would be massive.

Unlike large, expensive multifamily developments, the ADU approach spreads new housing across millions of lots, leveraging private investment by individual homeowners. This diffuses opposition, avoids direct costs to taxpayer-funded programs, and has the greatest potential to house working-class and moderate-income renters at affordable prices.

What’s Next? How Listeners—and Lawmakers—Can Help
Though the bill is gaining traction, more support is needed in a divided Congress—especially among Republicans, who control both chambers. Liccardo urges listeners: “If any listeners happen to live in districts where they’re represented by a Republican…please do mention your member of Congress, get on this bill.”

With additional bipartisan backing, the Housing Supply Act could be merged into larger Republican-led housing legislation and head to the floor for a vote. It may even move as a standalone bill.

Conclusion: Hope in a New Approach
America’s housing crisis is dire, but not without hope. By learning from local experimentation, eliminating hidden financing barriers, and leveraging federal innovation for backyard housing, transformative change is possible. The bipartisan Housing Supply Act could provide a scalable, taxpayer-friendly lever to help more Americans afford a home.

Connections
Want to connect with Congressman Liccardo or learn more about his work?
Visit his Congressional website or follow him on social media for updates, insights, and to take action in support of housing solutions.

Twitter/X: @repliccardo
Bluesky: @liccardo.house.gov
Instagram: @repliccardo
Facebook: facebook.com/repliccardo
YouTube: www.youtube.com/@RepLiccardo