The Rules Starving Housing Supply
How policy choked homebuilding, and the reforms fixing it.
Guest:
Dr. Jenny Schuetz, Vice President of Infrastructure, Housing at Arnold Ventures
Episode 54 | The Construction Lending Podcast
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Home prices used to run 3 to 4 times household income. Much of the country is now at 5 times or higher, with California in the 10-to-12 range — and Dr. Jenny Schuetz argues the market isn’t what failed. The Arnold Ventures Vice President of Infrastructure, Housing and author of Fixer Upper explains how zoning locks neighborhoods into the form they took decades ago, and why the approval process is the part construction lenders should watch: timelines stretching to 10 or 12 years pile up carrying costs, and the length, complexity, and uncertainty of the process is what kills an awful lot of deals. The reforms she maps (by-right approval, front-loaded community engagement, and legalizing townhouses and missing-middle housing) are already moving through statehouses red and blue, with Florida’s Live Local Act alone showing more than 70,000 units in the pipeline.
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Questions Answered
Schuetz’s answer: not a market failure. The shortage is the result of layers of policies that state and especially local governments have chosen to adopt. Markets are being kept from working, which is why the fixes run through zoning codes, building codes, and approval processes rather than through the market itself.
The approval process, more than any single rule. Case-by-case discretionary review makes outcomes depend on who picks up the file, and the length, complexity, and uncertainty of that process is what kills an awful lot of deals. When permission and construction stretch to 10 or 12 years, carrying costs accumulate with no completed housing to sell or rent.
A permitting model where a developer whose plans meet the published rules pays the fee and receives the permit: no discretionary, project-by-project review. Schuetz notes this is how American permitting used to work, and that restoring it would shorten timelines and reduce the uncertainty that sinks projects.
Evening hearings structurally favor long-term homeowners with flexible schedules — older, wealthier residents invested in keeping the neighborhood as it is. Political science research suggests these no-change voices are often a minority even within their own community, while essential workers who are priced out have no vote where they work.
Estimates put the national shortage at roughly 4 to 7 million homes, though the figure varies widely by source. Schuetz argues the better measure is affordability: home prices historically ran about 3 to 4 times household income, and over the past 5 to 7 years more of the country has moved to 5 times or higher, with California in the 10-to-12 range.
Renters and would-be first-time homebuyers: in demographic terms, younger households. Rents have also risen relative to incomes, leaving renters less able to save for a down payment and making the transition to ownership harder.
Homeowners holding low pandemic-era rates have little incentive to sell, and some who do move keep the old home as a rental rather than listing it. Combined with an aging population staying in place longer, turnover falls: fewer existing homes come up for sale, tightening supply further.
The structures between a single-family detached home and a large apartment building: townhouses, duplexes, fourplexes, sixplexes, and small multifamily. Schuetz’s top pick is the townhouse — land-efficient, produced at scale by existing builders with existing floor plans, and workable for both rentals and entry-level ownership.
Parking requirements are the undersold example: a single structured spot can run $50,000, so a two-space requirement on a two-bedroom apartment adds $100,000 before any housing exists. Two-staircase egress requirements are another, making the single-stair apartment buildings that house hundreds of thousands of New Yorkers illegal to reproduce as they stand.
California, Oregon, and Washington have been active, and red states including Montana, Texas, and Florida have passed aggressive packages. Florida’s Live Local Act has more than 70,000 units in the pipeline (largely apartments on commercial corridors) and Texas’s 2025 reforms already show roughly 8,000 units in the construction pipeline.
Asked what she’d change with a snap of the fingers, Schuetz picks legalizing townhouses everywhere in the country, as of right, on relatively small lots — followed by hard-cost reforms like parking requirements.
Episode Recap
The Rules Starving Housing Supply: How State and Local Policy Blocked New Homes
America’s housing shortage didn’t happen because markets failed. Dr. Jenny Schuetz, Vice President of Infrastructure, Housing at Arnold Ventures and author of Fixer Upper: How to Repair America’s Broken Housing Systems, lays out the case that layers of state and local policy are keeping housing markets from working, and maps the reforms already changing that.
The Shortage Is a Policy Choice
Schuetz starts with the measure that matters more than unit counts: affordability. Home prices historically ran 3 to 4 times household income, the range where families can still cover food, transportation, and healthcare. Over the past 5 to 7 years, more of the country has pushed to 5 times income or beyond, with California in the 10-to-12 range. The burden lands on renters and would-be first-time buyers, younger households, many of whom now doubt they’ll ever own a home of the quality and location their parents took for granted. And because rents have risen relative to incomes too, staying a renter doesn’t escape the squeeze; it just makes the down payment harder to save.
Stuck in Place
Turnover is drying up from several directions at once. Homeowners holding pandemic-era rates have little reason to sell; Schuetz includes herself, a 2018 buyer who refinanced at 2.75%, and some who do move keep the old house as a rental instead of listing it. Layer on an aging population staying healthy and housed longer, often in larger homes than they need, and fewer existing homes come to market for the younger families looking to move up.
Zoning Locks Neighborhoods in Amber
Zoning’s core problem, in Schuetz’s telling, is that it freezes neighborhoods in the form they took when they were built. Subdivisions laid out in the 1940s and 50s as low-density single-family sit on land that has appreciated far past that use: parcels that today would support townhouse clusters, fourplexes, or mixed-use redevelopment of single-story shopping centers and their parking lots. The fix is not abolishing zoning; the UK has no zoning and a worse housing market, because every project requires discretionary review. Zoning’s legitimate job, separating homes from incompatible industrial uses, survives. What has to change is the codification of the single-family detached home as the only structure permitted on more than three-quarters of urban residential land.
Who Shows Up at the Meeting — and Who Can’t
Zoning changes run through a public process that structurally favors one constituency: long-term homeowners with time to attend a Tuesday-night hearing, older, wealthier, and invested in no change. Political science research suggests these voices are often a minority even in their own city. Meanwhile, the people who’d benefit most (evening-shift workers, parents of young kids, and the teachers, firefighters, and nurses priced out of the communities they serve) are absent by design or aren’t voters there at all. Schuetz’s answer: broad-based polling to show elected officials the fuller picture, and moving community engagement up front, to the comprehensive plan and citywide rezoning, so that compliant projects afterward proceed by right.
Why Timelines Are a Lender Problem
The stretch most relevant to this audience is about time. Schuetz addresses construction lenders directly: when permission and construction stretch to 10 or 12 years, carrying costs accumulate with no completed housing to sell or rent, and the length, complexity, and uncertainty of the process is what kills an awful lot of deals. By-right, ministerial approval is the counterweight: plans that meet published rules get a permit, regardless of which reviewer picks up the file. The predictability shows up as lower carrying costs and de-risked projects; and as Schuetz points out, it’s not a novelty. It’s how American permitting used to work.
The Reform Map Is Filling In
The last 5 to 7 years have turned housing reform from a purely local issue into a state one, as states realized housing shortages were constraining job growth. California (including Assemblymember Buffy Wicks, a recent guest on this podcast), Oregon, and Washington have pushed hard, and red states have moved fast: Montana, Texas, and Florida have all passed aggressive reform packages. Florida’s Live Local Act counts more than 70,000 units in the pipeline, largely apartments on commercial corridors; Texas’s 2025 reforms already show roughly 8,000 units in construction. The unfinished work is implementation: state laws often require local rewrites that take years, and career planning staff need confidence that approving projects faster won’t cost them their jobs.
The Next Frontier: Hard Costs
Beyond zoning, Schuetz points at rules that add cost without adding safety. Parking is the undersold story: a structured spot can run $50,000, so a two-space requirement on a two-bedroom apartment adds $100,000 before any housing is built, even near transit where residents own fewer cars. Building codes matter too: two-staircase egress requirements make the single-stair apartment buildings that house hundreds of thousands of New Yorkers illegal to rebuild as they stand, a housing stock America relies on but has outlawed replicating.
The Bottom Line
Asked what single change she’d make, Schuetz doesn’t hesitate: legalize townhouses everywhere, as of right, on small lots. Builders already know how to build them, the floor plans exist, and they work for rentals and entry-level ownership alike: a land-efficient structure at a neighborhood scale. For construction lenders, the throughline is predictability: reforms that shorten timelines and remove discretionary uncertainty don’t just add units to the pipeline; they change the risk profile of every deal in it.
Social Links
LinkedIn: https://www.linkedin.com/in/jenny-schuetz-535a17b/
Arnold Ventures bio: https://www.arnoldventures.org/people/jenny-schuetz
Book: Fixer Upper: How to Repair America’s Broken Housing Systems (Brookings Institution Press)
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