Thirteen housing policies to save the middle | Part 4
Proposals optimized for the success of young, productive, middle-income, family-forming households
The housing crisis in America — to the extent there is one — is fundamentally a crisis of policy design. In parts one, two, and three of this series, we documented how the current regime achieves a perverse equilibrium: it gives incumbents preferential treatment and subsidizes poverty management for the bottom decile, all while systematically excluding the productive middle from both benefits and protections.
The following thirteen proposals offer a path forward — a path conducive to the growth of the cohort with the highest social (and fiscal) multipliers: young, educated, middle-income families. They are designed around a single principle, which is that we should measure policy success not by units produced or poverty headcount, but by life outcomes — household formation, fertility, wealth accumulation, clustering in high-productivity cities, and intergenerational mobility.
Furthermore these proposals target not income brackets (which create cliffs and exclusion) but life events (birth of a child, relocation to opportunity, household formation). They leverage existing market mechanisms (filtering, agglomeration, employer incentives) rather than creating new bureaucracies. And they are calibrated to be fiscally sustainable, politically durable, and countercyclical to the current regime’s perverse incentives.
Some would require new appropriations. Many do not. Some are supply-side reforms (zoning, financing, regulatory pre-emption). Others are demand-side investments (credits, vouchers, tax advantages). Some are structural/institutional (tax code, property tax reform). But taken together, they offer a comprehensive framework for building a housing system that treats middle-income family formation as the foundational public investment it ought to be — not as a luxury good.
Demand-side
1) The family formation grant
A refundable tax credit of up to $15k available to first-time homebuyers aged 25–40 — covering peak fertility and household formation years — for down payment and closing costs on a primary residence. The credit is triggered specifically by the presence of a dependent child (or pregnancy) in the household.
Unlike current programs, we suggest eliminating the 80% AMI cap — and extending eligibility for the full $15k up to 120% AMI, tapering to zero between 120–180% AMI (hard cliffs are political and behavioral poison). This explicitly targets those who earn too much for aid but too little to buy a home.1
2) The “demographic dividend” principal reduction
For families holding the family formation grant, the birth of subsequent children triggers a “principal reduction bonus.” The federal government pays down $7.5k of the mortgage principal for a second child and $10k for a third. This directly links fertility to housing equity, turning children from a financial liability into an asset-building event.
To wit: lifetime family formation grant and “demographic dividend” benefits should be capped, per household, at something like three children and a maximum of $25k over the life of the mortgage.2
3) Student loan DTI carve-out for parents
Debt-to-income (DTI) ratios currently block millions of educated, high-earning but debt-laden millennials from getting approved for mortgages. Federal lending guidelines (Fannie/Freddie) currently treat student debt exactly like credit-card debt.
We believe that student debt should be treated as a separate risk bucket — that guidelines should be amended to exclude up to 50%3 of student loan payments from DTI calculations if the borrower has a dependent child. This acknowledges that human capital debt should not prevent the housing stability required to reproduce that human capital.
4) Tax-advantaged “home & family” savings accounts
Create a federal tax-advantaged savings vehicle (modeled on HSAs/529s) specifically for down payments and family-related housing costs. Contributions should be tax-deductible and withdrawals tax-free if used for a primary residence purchase or expansion (e.g., adding a bedroom). This signals that saving for a home is as socially valuable as saving for retirement. To avoid a simple upper-middle-class subsidy:
Households between 80–120% AMI could receive a public match (e.g., 25–50% match on contributions up to a modest annual limit),
Above 120% AMI, households retain the tax advantage but no match, and
Employers could offer automatic payroll enrollment, akin to a 401k, to normalize home-and-family saving as a default behavior.
Symbolically and practically, this puts family housing on the same policy pedestal as retirement savings.
5) Mobility & opportunity bonus
The family formation grant and demographic dividend credits should be amplified when households choose locations that maximize their productivity and their children’s prospects.
This could entail increasing family formation grant amount by 25% if the household relocates to a “high-productivity metro” (defined by wage growth and GDP per capita).4
The idea is, in part, to reverse the current trend where families are pushed to low-opportunity exurbs, incentivizing them instead to cluster in economic engines where their labor is most valuable and where outsized returns for children may be unlocked.
Supply-side
6) The family-oriented housing tax credit (FOHTC)
We propose new federal tax credit parallel to LIHTC, but designed to support middle-class family formation. This “family-oriented housing tax credit” will subsidize the construction of rental housing for households at 80–120% AMI. Crucially, to qualify, projects must meet “family specs” (minimum of 30% of units must be 3BR+).
It should also be stipulated that FOHTC-eligible developments are located in school districts with above-median child upward mobility (relative to state average) as measured by the Opportunity Atlas or some comparable state-level metric, updated biennially.
Included in this tax credit shall be no rent caps, only income-eligibility caps, ensuring the market genuinely serves the middle. This recognizes that even when luxury or market-rate supply hits the market, the more affordable supply down the stack becomes freed up through filtering.
7) Zoning for life cycles (the bedroom bonus)
Inclusionary Zoning (IZ) income mandates should be replaced with “typology mandates,” aligning developer margins with typologies that are conducive to family formation in urban cores. Under such reform, developers would receive automatic density bonuses (higher floor-to-area ratios, or FARs) in exchange for building family-sized units (3BR+). The scale could look something like:
10% of units 3BR+ → 10% FAR bonus
20% → 25% FAR bonus
30% → 40% FAR bonus
This could also be paired with reduced parking minimums automatically when those thresholds are met.
8) Pre-emption of anti-family zoning
Federal highway funds and HUD grants should be withheld from municipalities that enforce “unrelated occupant limits” (which ban co-living/nanny shares) or ban Accessory Dwelling Units (ADUs). This is precisely how the feds already enforce seatbelts, DUI limits, etc. — and these bans have disparate impacts on families, young adults, and multi-generational households.
For this to work, the federal government would need to define something like a minimum “ADU legalization floor”: by-right, no owner-occupancy requirement, reasonable size limits, and ministerial approval.
9) Streamlined “missing middle” financing
Currently, banks hesitate to lend on 2–4 unit properties (duplexes/quadplexes) because they fall between “residential” and “commercial” underwriting buckets. FHA and the GSEs already nominally allow 2–4 unit owner-occupant mortgages; but the real gap is small, repeat infill developers who do 2–10 units at a time. To fill this gap, the FHA could guarantee a new class of “Infill Construction Loans” specifically for small-scale developers building 2–10 unit properties. Such loans should:
Be federally guaranteed for projects up to, say, 20 units,
Require middle-income-oriented rents (80–140% AMI bands) for some share of units, and
Have relatively stringent underwriting standards.
This would be a powerful yet minimally-distortionary way to re-legalize the mid-20th-century pattern of small builders doing duplexes/fourplexes.5
10) Priority for families in rent stabilization
In jurisdictions where rent control persists, if it must — it shouldn’t, but alas — “vacancy decontrol” should be suspended only if the new tenant is a family with dependents or a young household (under 30), especially for tenants who are both. Conversely, landlords should be allowed to terminate leases for “under-utilization” if a large rent-controlled unit is occupied by a single retiree in a high-demand school district, provided relocation assistance is paid. This prioritizes efficient use of family-sized stock.
Structural and institutional reform
11) The empty nest mobility incentive
Instead of locking empty-nest boomers into 3-5 bedroom homes via property tax freezes (like Prop 13) and capital gains rules, policy should pay them to move in ways that free up family stock without punitive measures.
At the federal level, this could come in the form of offering a one-time, subsidized capital gains tax exclusion boost (up to $750k tax-free) for seniors who sell a home with 3+ bedrooms to a family with children and downsize to a smaller unit. And then at the state/local level, Prop 13-style protections should be gradually eroded for high-value properties owned by older, childless households unless they downsize or take in dependents. Additionally, some of the fiscal space could be redirected to enhanced homestead exemptions or credits for families with children in moderate-income brackets.
These incentives would serve to unlock existing family-formation inventory without building a single new wall.
12) Institutional build-to-rent parity
The stigma and regulatory hurdles should be removed for institutional investors building single-family rental communities. Institutional investors largely need long-term, stable yields; young families need stable, professional management and school district access without a down payment. Institutional capital is already moving into single-family rentals — policy should encourage BTR specifically in high-quality school districts.
A constructive approach would look something like offering favorable tax treatment or cheaper public financing for BTR communities that:
are located in high-quality school districts,
serve households in the 100–200% AMI band, and
commit to long-term holds (e.g., 15–20 years).
Policy should also encourage models where tenants can, over time, convert to ownership or share in appreciation (e.g., right-of-first-offer, shared equity structures). If designed properly, this allows institutions to own stable, income-generating assets while families get professionally managed, stable tenure in neighborhoods they might never otherwise access without a down payment.
13) Housing funds for critical industries and employer housing assistance programs
Create preferential access (and below-market financing) for hospital systems, universities, school districts, and other “critical infrastructure” employers to develop housing specifically for their workforce. These entities can issue bonds backed by future rent/ownership payments from employees, creating stable, long-term rental/ownership communities.
There’s evidence that this model works: universities (Yale, MIT) have been doing this for decades with high success. Hospitals (Cleveland Clinic) are increasingly doing it. With the employer essentially becoming the anchor tenant, it guarantees occupancy. This is private-sector-led urbanism without public subsidy. Thus, we propose providing these institutions with below-market federal or state financing and streamlined local zoning for employer-led housing projects.6
Additionally, any employer offering housing assistance to employees aged 25-40 with dependent children (or planning to have them) receives a dollar-for-dollar tax credit, up to $8k per employee annually. The assistance can take the form of down payment grants, mortgage interest buy-downs, rent subsidies, or relocation bonuses to move to high-opportunity metros. This leverages the fact that housing-constrained employees have lower retention rates and lower productivity. The tax credit makes employee housing an industrial policy tool — human capital retention — rather than a pure benefit.7
To keep this from turning into a compliance circus, the credit could be made fully available upon documented birth/adoption and partially available (e.g. 50%) at closing if pregnancy is certified, with reconciliation at tax filing. Additionally, it should require minimum owner-occupancy (e.g. 3–5 years) or clawback if they sell quickly without hardship. Otherwise it will welcome some gaming.
Additionally, if someone has kid #2 before they’ve bought, they should be allowed to “activate” the bonus when they subsequently buy their first home within some window, rather than penalizing those who had kids before the program started. Finally, in the interest of prudential risk management, the “demographic dividend” bonus should be tied to somewhat conservative underwriting standards.
The student loan carve-out should scale based on the extent to which: 1) the borrower is in good standing and 2) the borrower is enrolled in income-driven repayment or payments are capped at a sane share of income. This would be the most prudential approach.
“High-productivity metros” could be tied to a dynamic index updated every 3–5 years, based on measurable indicators: wage growth, productivity, employment density, school quality, child upward mobility, etc. (Opportunity Atlas style).
Austin’s HOME amendments are a real-world, recent (2025) example of this happening — allowing up to 3 units on single-family lots and removing unrelated occupant limits.
Participation should remain voluntary for employees to avoid “company town” dynamics.
The employee’s portion of housing assistance should be excluded from income as a “qualified housing fringe benefit” so that it doesn’t increase the employee’s tax burden
This is the first that I am hearing someone suggest a saving account for homeowners. A neat idea but we are getting carried away with all of these tax-advantaged accounts.
401ks, HSAs, IRAs, 529s, FSAs, Trump accounts…etc. Each has their own set of rules that become so byzantine, most people don’t want to even bother.
The tax code is trying very hard to become a consumption tax by exempting savings…without actually becoming a true consumption tax.
Better to rip the bandaid off and just abolish income tax and replace with a consumption tax. Or establish large tax advantaged accounts that can be used for anything.
I appreciate what you guys are doing here. To throw out another idea regarding student loan debt: extend Public Service Loan Forgiveness to cover time spent out of the workforce caring for a dependent child, which would reduce the marriage and family penalty for someone (usually a woman) who feels like her student loan debt precludes starting a family.