AEI Report Proposes Reforms to Boost U.S. Housing Supply by 1.6 Million Homes Yearly

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WASHINGTON / Sept. 10, 2025/ BPALiveWire — A new report from the American Enterprise Institute's Housing Center calls for common-sense flexibilities to address America's housing crisis, projecting that flexible lot sizes and other changes could add up to 1.6 million homes annually.

"Strong Foundations: A Playbook for Housing and Economic Growth," released jointly with the U.S. Chamber of Commerce estimates a national shortage of about 6 million homes, driving up prices and limiting economic mobility. It urges state and local leaders to prioritize smaller lots to build more affordable starter homes, emphasizing that "small lots, small lots, small lots" are key to unlocking supply.

The report outlines four main options: allowing smaller lots in new subdivisions for 414,000 additional single-family homes per year, permitting duplexes, townhomes and accessory dwelling units on existing lots for 482,000 net new homes, enabling residential development in commercial areas near jobs for 587,000 homes and selling Bureau of Land Management land in the West for 146,000 homes.

"With small-lot flexibility and by-right zoning, we can cut red tape and make housing more affordable without subsidies," said Edward Pinto, the report's author and co-director of the AEI Housing Center. "This isn't about overhauling communities—it's about giving families a real shot at homeownership."

The playbook argues that restrictive zoning inflates land costs, pushing median new home prices to $520,000, far above the $375,000 median for financed homes. It promotes the "KISS" principle, keep it short and simple, to streamline permits, reduce parking mandates and avoid micromanagement like rent control or inclusionary zoning.

Developers say such reforms could transform the market. "As a builder, I've seen how larger lot sizes force us into luxury homes that few can afford," said Mike Burkentine, owner of Burkentine Real Estate Group in Hanover, Pennsylvania. "Smaller lots mean more starter homes for working families, boosting our economy and reducing commutes."

Burkentine continued, “Townhomes still remain a home style that meet many American family needs. These homes offer the ability to have a nice home that is larger than an apartment but smaller than a single family. This happy medium to have space but also save some money is optimal for new home buyers. The demand for this transitional product remains very high and for very good reason.”

The report highlights how housing shortages exacerbate homelessness, with high price-to-income ratios correlating to rising displacement. It dismisses institutional investors as a minor factor, owning just 1% of single-family homes.

Backed by data from sources like the U.S. Census Bureau and Bureau of Labor Statistics, the playbook provides location-specific insights for officials. The playbook is available online at https://aeihousingcenter.org/playbook