Building Housing For The Missing Middle: Can Public Investment Unlock Private Capital?

America’s housing affordability crisis is no longer confined to the lowest-income households. Across the country, teachers, nurses, first responders, and other working families are increasingly finding themselves priced out of the communities where they work. As rents and home prices continue to rise, policymakers are searching for new ways to expand housing supply without relying exclusively on traditional subsidies.

That challenge was the focus of a recent Urban Institute webinar examining innovative state and local financing models designed to attract private investment into mixed-income housing developments. While the programs discussed varied from Massachusetts to Colorado and Tennessee, the panelists agreed on one central point: solving today’s housing crisis will require new partnerships between government and private capital.

The discussion highlighted four lessons that could shape the next generation of housing policy.

The first is that America’s housing crisis has grown well beyond traditional affordable housing.

For decades, affordable housing programs have focused primarily on serving the lowest-income households. But today’s market has created affordability challenges for many middle-income workers as well.

As Chrystal Kornegay, CEO of MassHousing, explained, “Market rate housing doesn’t actually work for enough people anymore.” She noted that even households earning more than $75,000 annually are increasingly becoming rent-burdened in many parts of the country, demonstrating that “we have a market condition that doesn’t actually work for enough people.”

That reality, she argued, fundamentally changes the role government must play.

“I think that is the point of government intervention in the market,” Kornegay said. Rather than simply subsidizing housing, governments increasingly need to think about how public investment can help reshape housing markets that are no longer producing enough homes affordable to working families.

A second lesson is that limited public dollars can go further if they attract private investment.

Several panelists described financing models that invest public funds alongside private capital instead of relying entirely on grants or subsidies. These revolving investment funds are designed to generate returns that can be reinvested in future housing developments while encouraging private investors to participate in projects they might otherwise avoid.

Kornegay said Massachusetts intentionally designed its BUILD initiative around co-investment.

“This is meant to be a way in which we can have private companies making investments alongside the public sector to really get deals going, so that we have workforce-level units that are happening across the state,” she said.

The goal is not to replace traditional affordable housing programs, but to create another tool that expands the production of mixed-income housing serving households that often fall between eligibility for affordable housing and the realities of today’s private market.

The conversation also made clear that financing alone cannot solve the problem.

Colorado officials emphasized that increasing housing supply requires both investment and regulatory reform. Zoning changes, faster permitting, parking reforms, and more coordinated development processes all play important roles in reducing costs and speeding construction.

“All of the above is needed,” said Hilary Cooper, director of Innovative Funding for Housing Programs, Colorado Office of Economic Development and International Trade, describing Colorado’s efforts to pair financing initiatives with broader housing reforms.

Cooper also warned that public financing itself can become unnecessarily complicated. Every additional funding source often brings its own application process, compliance requirements, and reporting rules. Citing research from California, she noted that each additional public funding source in a project’s capital stack can add roughly $20,000 per housing unit in administrative costs. As governments create new financing programs, she argued, they should also simplify existing ones so developers spend less time navigating bureaucracy and more time building housing.

The final lesson was that these new financing models require a different kind of public institution.

Unlike traditional grant programs, investment funds require sophisticated financial analysis and careful underwriting. Panelists stressed that public agencies must protect taxpayers while operating with enough flexibility to compete in fast-moving real estate markets.

Matt Bedsole, President and CEO, Invest Chattanooga, described intentionally keeping his organization small and nimble.

“We take a lot of our cues from private equity shops,” he said. “They often brag about how small their organization is, not how large.” Rather than building large bureaucracies, he argued, successful investment funds depend on experienced staff and direct oversight from boards with financial and real estate expertise.

As the discussion concluded, panelists turned to whether these state experiments could become a national model.

Kornegay believes the answer is yes, although she emphasized that any federal effort should allow flexibility for local housing markets.

“I think we have to have federal investment if we’re going to really have significant resources to address our national housing crisis,” she said. But she also noted that what succeeds in Massachusetts may not work in Colorado or Tennessee, making state partnerships essential to any broader strategy.