As the housing market wrestles with high mortgage rates and affordability pressures, the question of who’s steering the ship—federal or state leaders—has never felt more urgent. In 2024, real estate is caught in a push-pull between national policies like interest rate hikes and tax changes, and state-level actions on zoning, rent control, and affordable housing. The result? A market shaped by overlapping forces that don’t always move in sync. With a new Trump administration incoming in 2025, the balance of power could shift again. But already, renters and buyers alike are feeling the effects of decisions made in both capitols and city halls across the country.

Federal Influences on Housing

Rising Mortgage Rates and Homebuyer Costs

To combat inflation, the Federal Reserve sharply raised interest rates starting in 2022, which in turn drove up mortgage rates across the country. The average 30-year fixed mortgage rate climbed from historic lows around 3% in early 2021 to around 7% by late 2023. This jump had a dramatic effect on home-buying affordability.

By the time mortgage rates peaked near 7.8% in October 2023, the monthly principal-and-interest payment on a typical median-priced home was 78% higher than it had been in 2021. For example, a buyer purchasing the median home with a standard down payment in 2021 would pay roughly $1,360 per month on their mortgage, but by late 2023 that payment exceeded $2,890.

Such a surge in financing costs priced many families out of the market. Home sales cooled significantly nationwide as a result – existing-home sales fell to an annual pace under 4 million units in late 2024, the slowest sales rate since 2010. Would-be sellers also stayed put to hold onto their cheap existing mortgages, creating a “lock-in effect” that kept housing inventory unusually tight.

Federal Tax Policy and Homeownership Incentives

Tax policy set in Washington also shapes housing demand, particularly via the mortgage interest and property tax deductions. The 2017 Tax Cuts and Jobs Act capped the state and local tax (SALT) deduction at $10,000 and limited the mortgage interest deduction on new loans.

Research indicates these changes had a measurable impact on home values in high-tax, high-cost states. By increasing the after-tax cost of owning an expensive home, the SALT deduction cap specifically cut into price growth in affected markets. One study found that home price appreciation in high-SALT counties slowed by nearly 0.8 percentage points per year due to the new SALT cap – about a quarter reduction in the normal growth rate.

Expensive homes in pricey, high-tax areas saw an even larger hit, with annual price growth rates almost 1 percentage point lower than they would have been without the cap. This is a clear example of a federal tax policy directly tempering housing prices in certain states.

Federal Housing Programs and Spending

During the pandemic, unprecedented federal aid helped both renters and homeowners – for example, emergency rental assistance programs and mortgage forbearance protected millions of households. By late 2022, however, most pandemic-era housing aid was winding down.

The 2023 federal omnibus budget included $85 million in HUD grants to help cities reform zoning and increase housing density. Additionally, HUD continues to fund affordable housing via programs like the Housing Choice Voucher (Section 8) and Low-Income Housing Tax Credit. Yet these programs reach only a fraction of those in need – only about 1 in 4 income-eligible renter households nationwide actually receives federal rental assistance.

New Directions Under the 2025 Administration

With the start of the new Trump administration in January 2025, federal housing policy appears to be pivoting toward deregulation and boosting supply via market mechanisms. Early in 2025, President Trump issued directives aimed at lowering housing costs by cutting red tape.

A January 22, 2025 presidential memorandum ordered federal agencies to identify and eliminate regulations that “unnecessarily increase the cost” of housing construction. The administration signaled a shift away from heavy federal intervention and toward encouraging private sector investment.

There is also a new initiative to leverage underutilized federal land for housing. HUD officials noted that the government owns hundreds of millions of acres that could potentially be used for building affordable homes. The idea is to transfer or repurpose some federal properties to increase housing supply.

State and Local Policy Impacts

Zoning Reforms to Boost Housing Supply

Historically, land-use and zoning laws have been the domain of local governments. However, more states are now intervening to loosen restrictive zoning, recognizing that local rules limiting housing density have contributed to a national housing shortage.

Since 2019, pioneering states like Oregon and California paved the way by banning single-family-only zoning in many areas. This trend accelerated in 2023: Montana and Washington passed sweeping housing bills that override local zoning to permit multi-unit homes on lots previously reserved for single-family residences.

Massachusetts now requires communities served by public transit to zone at least one area for multifamily housing development, pushing suburbs around Boston to accommodate apartments near train stations. By late 2024, about 60% of affected Massachusetts towns had already created the required multifamily zones.

States are coupling mandates with incentives too: Colorado launched grants for localities that reform zoning and streamline permitting. And in Florida, the 2023 “Live Local Act” actually preempted local zoning rules in certain cases to speed up development – it gives developers the right to build high-density affordable housing in any commercially zoned area, regardless of local zoning, if certain affordability criteria are met.

Rent Control and Tenant Protection Laws

On the rental side, some states have focused on stabilizing rents and protecting tenants from sharp increases. As of 2024, a handful of states including California, Oregon, New York, and New Jersey have some form of rent control in place.

The momentum for rent regulations continued into 2023-2024: lawmakers in 32 states introduced rent control bills in 2024, although most did not pass. According to the National Apartment Association, over 218 rent control-related bills were tracked at the state level in 2024, with 22 new measures enacted into law.

States are taking divergent approaches. While some debate capping rent hikes at a certain percentage, Florida went the opposite direction: in 2023, Florida’s legislature passed a law preempting local governments from adopting rent control under any circumstances.

On the other hand, Maryland’s Montgomery County approved a local rent stabilization ordinance in 2023. The flurry of state activity reflects the pressure to address soaring rents seen in 2021-2022.

State Housing Investments and Incentives

Many states have put real dollars on the table to influence the market. During the pandemic recovery, states received federal funds that they could allocate to housing. By September 2022, state and local governments had budgeted $14.2 billion of their fiscal recovery funds for housing programs.

Beyond using federal pass-through money, some states are spending their own revenue on housing initiatives. Florida’s Live Local Act (2023) appropriated hundreds of millions of dollars to its statewide programs for housing development and homeownership assistance. The law boosted funding for Florida’s down payment assistance program, increased tax credits for developers building affordable units, and provided tax breaks to lower construction costs.

California has similarly made large investments and tried an innovative approach to help first-time homebuyers: in spring 2023, the state launched a “Dream For All” down payment assistance loan program that would share equity with buyers. The program was met with overwhelming demand – it exhausted its entire $300 million fund in just 12 days after launch, as thousands of applicants rushed for the limited aid.

Other states have offered more modest incentives: for example, New York in 2023 expanded a property tax break for new multifamily development in NYC to spur more construction, and Colorado and Utah set up state funds to back affordable housing loans.

Homeownership Trends: Policy Impacts

After a frenetic housing boom in 2020-2021, the market cooled considerably by 2023. Home prices nationally plateaued and even dipped in some regions in 2023, before regaining a bit of ground in 2024. The homeownership rate in the U.S. stayed roughly flat, around 65-66% through 2023, as high borrowing costs made it harder for renter households to become homeowners.

Federal interest rate policy was the dominant factor in these developments. The surge in mortgage rates drastically reduced what buyers could afford, essentially cooling off demand. In 2021, a household earning the median income ($69,000) would spend about 23% of their income on the monthly payment for a median-priced home. By late 2023, that same median home required well over 30% of the median income in payments – putting it out of reach for many.

The result was a slump in home sales. The National Association of Realtors reported that 2023 existing home sales were down around 18% from 2021 levels, hitting the lowest volume in well over a decade.

By contrast, state policies had less immediate impact on home buying in 2023, but they set the stage for future trends. For example, states that offered down payment aid or tax credits saw a modest uptick in first-time buyer activity. States with lower taxes or more flexible land use may attract more residents and builders in the long run.

Home price and sales trends varied by region, partly due to local policy differences. High-cost coastal states like California and New York saw slightly larger price corrections in 2023, and their high-tax environments combined with the federal SALT cap continued to exert downward pressure on luxury segments.

Meanwhile, some Sun Belt states with more permissive building policies (like Texas, Arizona) had an easier time with new construction, which kept their price growth more moderate. By 2024, as mortgage rates showed signs of stabilizing, many analysts predicted that pent-up demand would re-emerge strongly in markets where supply is tight.

Rental Market Trends: Policy Impacts

After rents skyrocketed in 2021 (nationally up around 15% that year) and remained high in 2022, rent growth finally cooled off. In fact, by mid-2023, the trend had reversed in many cities: the national median rent was slightly lower than a year before – a remarkable change from the recent past.

Apartment List reported that year-over-year rent growth turned negative in June 2023 for the first time (outside of the early-COVID lockdown period) and by January 2024 national rents were about 1.0% below their level one year prior.

This cooling was not driven by rent control, but primarily by market forces – especially a boom in new apartment construction. Developers responded to the 2021 rent surge by building a huge number of multi-family units. As those projects were completed, renters suddenly had more choices, and vacancies crept up.

In 2023, roughly 440,000 new apartments were completed nationwide, the largest annual addition to rental supply since the mid-1980s. This record-high influx of units pushed the national apartment vacancy rate back to around 6% – similar to pre-pandemic levels, whereas it had been as low as 3-4% in 2021.

With supply finally catching up to demand, landlords lost leverage to raise rents, and many offered concessions to fill units. As a result, rent growth for 2023 was essentially flat: one industry measure showed rents increasing only 0.3% over the year, one of the weakest years for rent gains in decades.

How Policies Affected Rental Markets

Federal policy’s role was indirect but significant. The Fed rate hikes that slammed homebuyers also affected developers – higher interest costs starting in late 2022 made it more expensive to finance new apartment projects, which is now leading to a slowdown in housing starts. But there was a lag: the buildings opening in 2023 were financed when rates were low.

State and local policies had more visible, localized effects on rentals. Rent control laws in California and Oregon meant that many tenants in those states were shielded from the full shock of market rent increases. Meanwhile, states that outlaw rent control (the majority of states) relied on other strategies to help renters – such as expanding voucher programs or enacting tenant protections.

Zoning reforms at the state level also affect rentals: by allowing more apartments to be built, states increase potential rental supply. The effects are gradual, but areas where apartment construction faces fewer regulatory hurdles can see more rental units come online over time.

Much of the 2023 rental market relief came from private-market dynamics responding to earlier conditions. By late 2024, about 40% of metro areas had seen rents actually decline year-over-year, particularly those with a glut of new apartments, whereas about one-third of metros still saw rents rising 3% or more annually – mostly places that lacked new supply.

Nationally, nearly half of renter households are “cost-burdened” (spending over 30% of income on rent) and about 24% spend more than 50% of their income on rent and utilities. To address this, some states increased funding for rental assistance or launched their own subsidy programs.

Balancing Federal and State Influence

Both federal and state policies play critical roles, but in different ways and time frames. In the short term, federal policy has been more influential, largely through the Fed’s control of interest rates which immediately affects mortgage costs nationwide. The 2022-2023 rate hikes were arguably the single most powerful factor cooling home sales and price growth across all 50 states.

No state policy could have replicated that broad impact. Likewise, federal fiscal policies like tax changes or spending packages set the overall climate – for example, the SALT cap altered long-run price trajectories in high-tax states.

On the other hand, state and local policies are proving decisive in the long run, especially for housing supply and affordability at the community level. Federal levers tend to influence demand (through financing and subsidies) more than supply. But the actual availability and price of housing in a given city hinges on how much and what type of housing gets built there – which is heavily determined by state-local zoning, land use, and development incentives.

While a higher Fed interest rate can pause a housing boom, only changes in local rules can permanently raise the baseline level of housing stock. States that remove zoning barriers and invest in housing will likely see more construction and a better match between housing supply and population needs in the long term.

Conclusion

In essence, federal policies set the “macro” conditions – influencing interest rates, nationwide tax incentives, and funding levels that affect all housing markets. State policies address the “micro” structure of the housing market – what can be built, how rentals are regulated, and who gets assistance in a particular area.

As of 2024, the surge in mortgage rates (federal influence) arguably had the most immediate effect by cooling demand, but the reason this didn’t lead to a housing crash was that supply was so constrained (a state/local issue).

Going forward, experts suggest that a combination of federal and state actions will be needed to fully address housing affordability. Federal initiatives can provide funding and incentives and maintain economic stability, while states and cities must continue to reform laws that limit housing creation.

In the delicate balance of U.S. housing, neither level can solve problems alone. The post-2020 period has illustrated that federal and state roles are complementary – and only by working in tandem can they ensure a stable, affordable home for every American.

References

• Data Spotlight: The Impact of Changing Mortgage Interest Rates – Consumer Financial Protection Bureau
• Existing Home Sales Fall to 14-Year Low in September – National Association of Home Builders (Eye on Housing)
• The Impact of the State and Local Tax (SALT) Deduction Cap on U.S. Home Prices (WP-2021-02) – Office of the Comptroller of the Currency
• THE STATE OF THE NATION’S HOUSING 2023 – Joint Center for Housing Studies, Harvard University
• NAA’s Rent Control Outlook – National Apartment Association
• CS/SB 102 — Housing – 2023 Bill Summaries – The Florida Senate
• $300M program aiding California home buyers ran out of cash in 2 weeks – San Francisco Chronicle
• Rent growth in winter chill – Yield PRO
• Rents Remain Flat Under Supply Pressure in December – RealPage Analytics Blog
• Executive Order Includes Housing Affordability Reform – Navigate Housing
• Trump admin unleashes plan to end America’s affordable housing crisis – Fox Business