The 100-Year-Old Bank That Could Solve Our Housing Crisis

Mr. Hughes is an economist and the author of “Marketcrafters: The 100-Year Struggle to Shape the American Economy.”

Right now, congressional leaders continue to wrangle over the 21st Century Road to Housing Act, a bipartisan effort to lower housing costs by making it easier to build. But while such legislation is urgently needed, there’s a way to build more homes without extensive new regulation or funding.

America is short at least four million homes. The typical first-time buyer is 40 years old, a decade older than in 2010. That leaves a lot of younger renters, many of whom pay more than 30 percent of their income for housing. The rate of new housing construction has stagnated; and without new homes, prices will only continue to rise.

One promising solution is already on the books. The Federal Home Loan Bank System, a network of 11 regional banks owned cooperatively by some 6,400 members, was chartered by Congress in 1932, in the depths of the Great Depression. The system’s mission then was to channel credit to thrift institutions — especially the local savings and loan associations that were central to American mortgage lending — to spur home buying during the Depression.

For decades, that’s what the system did. Today, though, it specializes in providing cheap funding for the country’s largest financial institutions. Only 10 percent of its net income goes to the mission it was intended to serve. That needs to change. The system should be rechartered to help make housing more affordable.

One segment of the housing market is in particular trouble. While single-family homes and luxury high-rises continue to be built, medium-size multifamily condominiums of five to 50 units are so rare that housing experts have come to refer to them as the “missing middle.” Too small to attract high-rise developers given the expensive per-unit cost of construction and too large to finance with a conventional home mortgage, these buildings often don’t get built.

If we want to build more housing quickly in the United States, we have to make “missing middle” housing cheaper to build. In the F.H.L.B. system, Congress has an easy, no-cost solution that could spur the construction of 200,000 new homes every year, roughly 40,000 of them below market in midsize buildings.

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