State lawmakers are scrapping old zoning rules to expand the housing supply, betting that smaller, denser units can ease the affordability crisis without alienating multifamily investors. A new report from The Pew Charitable Trusts highlights policy shifts in Hawaii, Washington, and Colorado aimed at clearing the way for co-living, microunits, and other flexible housing types.
Pew estimates that there is a shortage of 4 million homes in the U.S. and that affordability is reaching crisis levels in many high-demand markets. Rental costs have soared in recent years and left policymakers under pressure to boost supply while addressing investor concerns about profitability, and roughly 22.4 million households spending more than 30% of their income on rent.
To tackle the housing shortfall, states are embracing creative solutions that push the boundaries of traditional housing models. From microunits to co-living arrangements, these approaches aim to maximize space and affordability without sacrificing the bottom lines of developers
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“This new crop of state laws—and emerging business models—are a sign that shared housing is on the rise,” Kery Murakami, the author of the report and a manager at The Pew Charitable Trust, said, also noting that the increase in housing could lead to a decline in the rate of homelessness.
Microunits — apartments often smaller than 400 square feet — are gaining traction as a cost-effective solution in urban centers. Cities like Seattle have embraced the model, allowing developers to maximize units per lot. Supporters argue that smaller units can lower rent costs, though critics worry they compromise livability.
Co-living spaces, where tenants share kitchens and common areas but have private bedrooms, are also being championed as an affordable alternative. The model has seen success in Hawaii, where lawmakers recently eased restrictions to encourage the development of shared living arrangements. By pooling resources, tenants can pay lower rents, while developers capitalize on higher occupancy rates.
House-sharing, where unrelated individuals rent out rooms within the same unit, is being highlighted as another affordable alternative. Hawaii recently relaxed zoning restrictions to encourage house-sharing as a viable option for workforce housing, especially in areas with high demand. Proponents see it as a way to increase density and affordability, while developers benefit from higher occupancy rates. Critics, however, have raised concerns about privacy and neighborhood opposition.
Lawmakers are also exploring zoning reforms to permit accessory dwelling units (ADUs) and "missing middle" housing like duplexes and triplexes in traditionally single-family neighborhoods.
While state-led zoning reforms aim to tackle the housing crisis with smaller, denser living arrangements, the persistent housing shortage and affordability pressures continue to funnel demand into the rental market. For multifamily investors, these policy shifts present both a challenge and an opportunity — navigating regulatory changes while benefiting from steady demand and occupancy growth in the years ahead.
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