Housing Reform in the States: A Menu of Options for 2027

Although state legislatures took great strides toward releasing American housing supply from its regulatory straitjacket in 2026, most pro-housing policies have not yet been adopted in most states.¹Finishing the work of restoring the right to build housing for everyone will require widespread adoption of best practices.

Rents and home prices rose sharply in 2021 and 2022 amid high general inflation and a unique postpandemic macroeconomy. In cities such as Denver and Austin, flexible regulations and speedy approvals enabled supply to respond rapidly to demand while interest rates were low, bringing rents back down. Between 2020 and 2025, the number of homes in Denver and Austin increased by 9.5 percent and 23.6 percent, respectively. In cities with less flexibility, construction responded less and rents remained high. These less flexible cities included Philadelphia and Providence, where the housing stock increased by 3.7 percent and 2.5 percent, respectively. Figure 1 shows the contrast between flexible Denver and Austin and less flexible Philadelphia and Providence.

The fundamental cause of America’s housing shortage is restrictive local zoning that prevents builders from meeting housing demand. To counteract these restrictive tendencies, states can put guardrails around local zoning, fix building codes, and reform the processes that make land use regulation a source of frustration for so many local officials and citizens.

In this policy brief, we offer a menu of proven housing policy reform options for lawmakers around the country to consider in the upcoming 2027 legislative sessions. These reforms fit into three categories:

1. Reverse regulatory overreach to legalize more homes in more places, as Texas did by relaxing minimum lot size restrictions in major cities.

2. Improve legal frameworks to expand housing opportunities, such as by protecting cities from antihousing lawsuits, Wisconsin-style.²

3. Update construction standards to enable more housing types, as North Carolina did by adjusting its building code to allow less expensive three- and four-unit buildings.³

Reverse Regulatory Overreach

Cities and counties have employed their state-delegated zoning power to outlaw certain housing types or to impose costly mandates on builders for land or parking. States can roll back this regulatory overreach with legislation specifically targeting critical local impediments to housing production.⁴The following suggested interventions would make more housing possible at a lower cost.

Option 1: Permit accessory dwelling units

Twenty-two states have passed laws permitting homeowners to build and rent accessory dwelling units (ADUs), which can take the form of backyard cottages, basement apartments, or garage conversions.⁵In California, the push to allow ADUs statewide began in 1982, but it took a recent series of laws eliminating remaining barriers to their construction, such as excessive fees, owner-occupancy requirements, and parking minimums, to open up the market.⁶California has built upon these changes by allowing ADUs to be sold as well as rented.⁷Policymakers in other states, including Arizona, Iowa, and Maine, have learned from California’s trial-and-error process and passed stand-alone bills that address many of the common barriers to ADU construction.⁸AARP has published an excellent model ADU law as part of its effort to promote communities that are convenient for people of every age.⁹

Option 2: Allow residential uses in commercial zones

States can pass legislation allowing housing on sites zoned primarily for commercial uses. The COVID-19 pandemic and the normalization of remote work have resulted in long-term office vacancies. Some poorly located retail buildings have equally dim prospects. Most commercial buildings are ill-suited to residential conversion, but many commercial sites—or their parking lots—can easily be redeveloped. Turning this simple idea into a statute turns out to be tricky, however. A 2024 policy brief analyzes the various approaches states have taken and offers best practices for future statutes.¹⁰Texas’s House Bill 840 (2025) offers a similar road map to enacting an effective policy.¹¹

Option 3: Enable starter homes on small lots

Minimum lot size mandates present a major obstacle to entry-level housing construction because they force builders and buyers to purchase more land than needed for a single home.¹²State policymakers can set a ceiling on local minimum lot sizes, particularly where sewer and water services are available.¹³Houston’s successful minimum lot size reform provides one potential model. In 1998, Houston legalized residential lots as small as 1,400 square feet, which led to the construction of tens of thousands of small-lot single-family houses.¹⁴Texas and Maine are among the seven states that have enacted minimum lot size reforms at the state level, capping lot size mandates at 3,000 and 5,000 square feet, respectively, where the laws apply.¹⁵

Option 4: Unlock urban infill with process reforms

To welcome small-scale housing in existing neighborhoods, states and cities need low-cost procedural approval pathways. One model is in Nashville, Tennessee, where a unique state homeowners association (HOA) statute¹⁶has opened up the city’s duplex zones to tens of thousands of new homes.¹⁷Some states have no HOA statute; others have overly complex ones designed for large subdivisions. The simplicity of the Tennessee law allows two-home and other small-scale HOAs to flourish and unlocks conventional mortgage financing.

Another model is Oregon, which allows existing urban lots to be subdivided for two to four new homes using a much simpler approval pathway than would be required for full-scale subdivisions.¹⁸

Option 5: Limit parking mandates

Off-street parking, frequently mandated by cities, occupies valuable land and can add tens of thousands of dollars to the cost of each home. Excessive parking also increases stormwater runoff into local waterways. Recognizing these costs, legislators in North Carolina eliminated government parking mandates almost statewide in 2026.¹⁹Policymakers in cities from Bridgeport, Connecticut, to Corvallis, Oregon, have done the same, leaving parking decisions to builders and owners.²⁰

Option 6: Allow HUD Code manufactured homes

HUD Code manufactured homes are those inspected and certified by the US Department of Housing and Urban Development (HUD). HUD Code housing is one of the most important sources of houses affordable to low- and moderate-income people without subsidy. But far fewer of these homes are shipped today than during the peak of factory-built housing in the 1970s.²¹Local zoning codes have contributed to this decline by often limiting manufactured homes to mobile home parks or prohibiting them entirely. States can require that HUD Code homes be allowed on any residential lot that allows a single-family home without being subject to additional construction standards or redundant inspections. Making manufactured housing feasible for use on all residential lots will often require preempting local dimensional or design requirements.²²Several states have already enacted legislation adopting some or all of these recommendations, most recently Florida and Virginia in 2026.²³

New federal legislation, the 21st Century ROAD to Housing Act, will expand opportunities to use HUD Code housing by eliminating a requirement that these units sit on a permanent steel chassis. To take advantage of the expanded flexibility, state policymakers must ensure their definition of HUD Code housing covers units built both with and without permanent chassis, revise all relevant statutes and regulations to give equal treatment to both types of HUD Code housing, and certify that parity to HUD.

Improve Legal Frameworks

In addition to targeted interventions in zoning policy, state lawmakers have the authority and responsibility to develop an overarching land use framework that safeguards individual property rights and recognizes the importance of robust housing production to all state residents. To this end, state legislation can provide broad protections for all property owners and offer less uncertainty and greater flexibility for builders.

Option 7: Require “specific and objective” approval criteria

A typical zoning ordinance allows many uses only “with conditions,” “by special permit,” or conditional on “site plan review.” All three types of review are often subject to discretionary votes by a council or board or to discretionary decisions by administrative staff with little or no advance guidance to assist the applicant. This discretionary system of approvals creates uncertainty and is susceptible to corruption.²⁴

To reduce opportunities for self-dealing, states can require that development approvals—especially site plan reviews—be linked to clear, published criteria. If an application satisfies these criteria, approval must be granted. Rhode Island passed reforms that require “specific and objective” criteria for a variety of permits.²⁵Tennessee followed by requiring specific and objective criteria for certain special exceptions.²⁶Legislators in other states should identify confusing or discretionary land use processes and craft bills requiring predictability and clarity.

Option 8: Remove arbitrary occupancy limits

Local governments often tightly restrict the number of unrelated persons who may live in a single home, while exempting from the cap those related by blood, marriage, or adoption.²⁷This discriminatory treatment is often intended to target college students, but it has the effect of preventing flexible and economical use of housing, such as house-sharing among single adults or renting of spare bedrooms.

Recognizing that these restrictions impede cost-sharing arrangements that can reduce the burden of housing expenses, states such as New Hampshire and Colorado have enacted reforms that include prohibiting identity-based discrimination and requiring that local occupancy rules adhere to uniform criteria derived from health and fire codes.²⁸Other states can look to these examples in implementing their own occupancy reforms.

Option 9: Block zoning that makes existing conditions illegal

In older areas of many cities, zoning has become so restrictive that most existing buildings are noncompliant. Boston audited its own zoning and found that less than 1 percent of residential buildings in the entire city complied with its zoning code.²⁹Zoning that doesn’t reflect reality can make it infeasible to redevelop vacant sites and replace decayed buildings. To address this problem, states can invalidate restrictions on siting, use, parking, or bulk on blocks where at least one-quarter of the buildings don’t comply.

Option 10: Adopt protections against downzoning

In 2006, Arizona voters passed a ballot initiative that requires municipalities to compensate landowners if a new land use restriction lowers their property’s value. Restrictions that preserve public health and safety are exempt, as are preexisting restrictions. Affected landowners must submit a claim for compensation to their local government and bear the burden of demonstrating any property value decrease.³⁰The initiative places citizens and cities on a more equal footing before the law without changing any existing regulation. The law has discouraged local policymakers in Arizona from adopting new land use restrictions, such as multifamily bans or historic districts, that could lead to widespread reduction in property values.³¹Policymakers in other states should consider similar measures.³²

Option 11: Limit objectors’ standing to sue

Many states have enacted legislation that gives opponents of development special privileges in filing lawsuits. These laws may allow objectors to sue to block housing even if they cannot demonstrate an injury to themselves or their property, greatly expanding the pool of potential plaintiffs and increasing the likelihood of litigation. Litigation, in turn, can delay the timeline for housing production by many months or even years. In Virginia, for example, lawsuits recently halted zoning reforms in Roanoke and Charlottesville.³³

To address these issues, Wisconsin now requires objectors to demonstrate personal damages, as opposed to damages against the public at large, in their court challenges of land use approvals.³⁴With lawsuits of questionable merit capable of tying up housing approvals in years of litigation, states should consider amending rules that grant special legal rights to opponents of new housing.

Option 12: Secure zoning rights at application time

In many states, a locality can change its zoning requirements even after a developer has obtained permits and arranged financing, pulling the rug out from under the developer. This creates political uncertainty that can chill investment in housing. To address this problem, Maryland enacted legislation providing that owners’ entitlement to current zoning is secured at the time of a development application.³⁵

Option 13: Limit rent control and inclusionary zoning

Some localities and states have attempted to keep rent affordable by fiat—either limiting how much rents can rise across the board (rent control) or requiring that builders reserve a percentage of newly constructed homes to be rented below cost to tenants with low incomes (inclusionary zoning). Although well intentioned, these policies often do more harm than good by discouraging construction and thus worsening the scarcity of homes.³⁶In 2026, Oregon legislators required Portland area localities to fully compensate builders for the cost of inclusionary zoning, but at the cost of some tax revenue. ³⁷Montana law provides a model for preventing price controls entirely.³⁸

Update Construction Standards

Where the developer’s work ends, the builder’s begins. In places where land is inexpensive, construction costs are the key determinant of new home prices. Policymakers should review and update their building codes to ensure that cost-effective types of housing remain available across their states. A first step is to check whether building codes are adopted statewide or locally in one’s own state.

Option 14: Eliminate aesthetic mandates and materials bans

Neither zoning authority nor building code enforcement should extend to home aesthetics. Materials bans should be justified only by unique climate or health and safety conditions. States can follow the lead of Arkansas and Washington and eliminate aesthetic requirements except in existing historic districts, which can continue to require period aesthetics.³⁹

Option 15: Allow single-stair multifamily design

The International Building Code, used across most of the United States, requires that multifamily buildings with more than three stories include two staircases that are accessible from each unit. This requirement leads to multifamily buildings that have long corridors with units on each side.⁴⁰Such buildings require large sites. A new study commissioned by the state of Minnesota shows that single-stair buildings with a small number of units per floor, built up to seven stories plus a garden level, pose less fire risk than the buildings with many units on each floor, long hallways, and two egresses that are allowed under current US codes.⁴¹

States that allow local building code customization can follow Tennessee’s model, which gives local governments the authority to adopt single-stair liberalization.⁴²States with a uniform building code can follow reforms underway in Virginia’s Department of Housing and Community Development that may allow taller single-stair buildings across the commonwealth, following legislation that directed the agency to consider reform.⁴³Bills that would advance single-stair reform have been introduced or passed in 33 states.⁴⁴

Option 16: Allow lower-cost elevators

Installing an elevator costs about three times as much in the United States as in high-income countries in Europe and Asia, owing to rules that require excessive cabin size and exclude elevators and components produced for global markets.⁴⁵State policymakers should revise their building codes to allow smaller elevator cars in small multifamily buildings.⁴⁶In 2026, Washington enacted a bill to allow smaller elevators to be used in some apartment buildings up to six stories, complementing the state’s single-stair policy.⁴⁷A new law in Maine will exempt elevators in the state from having to provide video communication equipment in cabins and from requiring elevator fire partitions, eliminating two sources of rising costs.⁴⁸

Option 17: Reduce code costs for small multifamily buildings

While states and localities generally apply a model code called the International Residential Code (IRC) to single-family houses and duplexes, they usually use the International Building Code (IBC), which is much more expensive to build to, for all other housing. Some states and localities are experimenting with expanding their residential codes to cover more units, or with creating a code in between the IRC and the IBC intended for small apartment buildings. North Carolina has a single statewide building code. There, policymakers have adopted a statute requiring the state’s Residential Code Council to expand the IRC to cover buildings up to four units.⁴⁹In Tennessee, where localities adopt their own codes, Memphis leaders wrote a cost-saving Middle-Scale Housing Appendix for buildings with 3 to 24 units.⁵⁰

Option 18: Allow third-party reviews of building plans

Developers submit a variety of documents in their applications for permits. Backlogs or understaffing at city permitting departments can result in long delays. Many cities allow developers, at their own expense, to hire third-party reviewers—private companies or other cities—to ease the city’s workload. Third-party reviewers are subject to auditing and licensing requirements.

Some cities do not allow third-party review, however, which contributes to slower permitting processes. Florida and Tennessee are among several states that have passed laws to ensure that builders have recourse to third-party reviewers.⁵¹

Conclusion

As the US economy responds to a changing world, state legislatures can ensure that their housing markets are a source of economic strength and opportunity. Limiting the scope of local zoning authority preserves local leadership in land use planning and allows cities to creatively address unique local challenges while curbing abuses of regulatory power.

About the Authors

Salim Furth is a senior research fellow and director of the Urbanity Project at the Mercatus Center at George Mason University. His research focuses on housing production and land use regulation. He frequently advises local governments and testifies before state and federal legislatures. He earned his PhD in economics from the University of Rochester.

Emily Hamilton is a senior research fellow and director of the Urbanity Project at the Mercatus Center at George Mason University. Her research focuses on urban economics and land use policy. Hamilton has testified before several state legislatures and the US House of Representatives. Hamilton serves on the advisory boards of Up for Growth, a national network tackling the housing affordability crisis, and Cityscape, a journal published by the Department of Housing and Urban Development. She received her PhD in economics from George Mason University.

Charles Gardner is a research fellow at the Mercatus Center at George Mason University. His research focuses on planning law and housing affordability, and he has testified before state legislatures and advised policymakers on housing matters. Gardner has also worked on zoning and land use issues as a local elected official and as an active participant in state policymaking, where he has served on the Connecticut Advisory Committee to the US Commission on Civil Rights and on the Commission on Connecticut’s Development and Future. He received his JD from Vanderbilt University Law School.