The Kentucky Housing Corporation estimates that the state is short about 200,000 homes and rental units for people across all income levels. By the end of the decade that number could be as high as 287,000 units.
“I would say it’s a crisis… because the number has gotten so large and there’s nothing happening currently that would make us think the trajectory is going to change,” says Wendy Smith, the corporation’s deputy executive director. “We are still not building on average what we used to build in 2006, 2007.”
It was the next year, 2008, that the mortgage crisis hit the American housing market. Smith says that along with the foreclosures and recession that followed drove many homebuilders and related contractors out of the industry. Now more than 15 years later, she says some Kentucky counties still have trouble getting homebuilders to come into their communities.
But it’s not just a labor issue. Anetha Sanford, CEO of the Home Builders Association of Kentucky, says the industry also faces shortages of building materials, increased costs for those materials, higher interest rates, and regulatory burdens, all of which hamper new construction.
“All of that goes into the cost of the home that is ultimately passed down to that homebuyer and that renter,” she says.
While the shortage of homes and rental units impacts the entire state and cuts across all price ranges, some Kentuckians feel the pinch more than others.
“People who are working lower-wage jobs, elderly folks, disabled folks, those are the folks who are being priced out of the rental market and out of the home ownership market,” says Adrienne Bush, executive director of the Homeless and Housing Coalition of Kentucky.
The housing shortage doesn’t just affect those seeking a place to live. Smith says companies may be less inclined to locate in Kentucky if they think there’s insufficient housing for their employees. She says that puts economic development officials at a distinct disadvantage.
“This is a national issue and we are competing with all the other states to get more housing so that we can compete economically to keep jobs, keep population, and continue to be a vibrant, growing state,” says Smith.
Lawmakers Consider a Range of Policy Options
So how do you tackle a problem nearly two decades in the making and that stems from a complex web of causes?
“It’s going to take a concerted effort at local and state, public and private levels to build it back it back up,” says Smith. “We’ve got to have many, many, many approaches going all at the same time.”
During the 2024 session, the General Assembly created the Kentucky Housing Task Force to study the shortage and options for addressing it. Rep. Susan Witten (R-Louisville), a co-chair of that panel, says lawmakers should consider a range of housing-oriented legislation, including innovative funding mechanisms to spur construction as well as changes to zoning laws, building codes, and regulations.
“Nothing is off the table,” says Witten. “We’re compiling a really good group of bills and ideas that we can really make a difference here in Kentucky.
Here are some proposals the task force has discussed that could become legislation in the 2026 General Assembly session.
• Witten says several bills could look at homestead exemptions, which can help those over age 65 get relief on their property taxes, making it easier for seniors who have fixed incomes to stay in their homes. A bill proposed in the 2025 session would have frozen the property tax assessment on a home at the value it had when the owner turned 65. Such exemptions could also be made for veterans or individuals on disability.
• Rep. Joshua Watkins, a Louisville Democrat and member of the task force, says lawmakers should consider zoning changes that would allow for greater housing density. He says areas currently zoned for single-family homes could be rezoned to include multifamily units. Zoning regulations could also be amended to allow houses of worship to build housing developments on church-owned property. Watkins calls this idea YIGBY, or “Yes, in God’s Backyard.” Finally, he advocates for allowing homeowners to build accessory dwelling units (ADUs) on their property. These smaller cottages, sometimes called granny flats or in-law suites, can be used as rental units or to provide housing for an elderly relative.
Witten calls for greater flexibility in lot sizes for new subdivisions. She says creating smaller lots in a new development could allow for 6,500 more new homes to be built each year in Kentucky. Smaller lot sizes would also mean smaller homes, which she says would be more affordable.
• Nearly half of the existing homes in Kentucky are more than 45 years old. Witten says she’s developing a bill that would offer tax credits to individuals who are restoring a home that is 50 years old or older.
• Sanford says lawmakers should also look at residential building codes and energy requirements that she contends are too stringent. She says stricter codes can increase construction costs by as much as $12,000 per home. She also hopes lawmakers will work to streamline the approval process for new developments.
“Our developers and builders, they’ll come and build if the rules are very clear and the rules don’t change in the process,” says Sanford.
But Watkins cautions against reducing building standards. He contends low- and middle-class families deserve to have access to well-built, energy-efficient homes.
“It’s not simply building more housing for the sake of building more housing, but it’s the quality of the housing that we want our families to have,” says Watkins.
• The Kentucky Bankers Association has proposed a $20 million fund to encourage developers to build affordable housing projects around the state. Under the KBA’s plan, that money would be matched with a tax credit provided by the General Assembly.
“The thought behind this is that we can run to wherever the need is and we’ve got bankers on the ground present and willing and able to help with that,” says Timothy Schenk, general counsel for the Kentucky Bankers Association.
• New housing developments need water and sewer service along with roads, sidewalks, and streetlights. To help communities provide those services to new developments. Sanford proposes the state create a residential infrastructure fund (RIF), which would provide low-interest loans to cities and counties to help pay for infrastructure needed by new housing developments. She says a RIF program in Indiana has reduced per-lot housing costs in that state by $25,000.
“We like it the most because it has the community and the developers working together to bring the housing that that community needs,” says Sanford.
• Manufactured housing is another lower-cost option to provide housing. But such prefabricated homes have traditionally faced stigmas of being poor-quality residences and difficult to finance.
“A qualified manufactured home is not what you thought it was 20 or 30 years ago,” says Witten. “These are really wonderful homes that can be built quicker and less expensive than a site-built home and it’s just great to have options like that.”
Witten sponsored legislation last year to prohibit a local government from adopting or enforcing zoning regulations that treat manufactured homes differently than single-family homes. A watered-down version of the bill did pass, but Witten contends the state could use more manufactured houses to serve as starter homes for working families.
• Bush says the state needs to boost funding for the Kentucky Affordable Housing Trust Fund, which helps low-income individuals purchase, rehab, or build a home. That pool is funded by $6 levy on each house closing in the state. She says that fee hasn’t changed in decades and only generates about $3 - $4 million a year. She says lawmakers should modernize that funding model and charge at least $30 per closing.
• Another proposed bill will allow certain people who have suffered a prior eviction to have that action expunged from their records. Watkins says many landlords won’t rent to an individual who has been evicted from a previous residence. He also says children are sometimes listed on the eviction notice of a parent, which can unfairly follow that child into adulthood. Witten, who proposed a bipartisan expungement bill in the 2025 legislative session, says those who do pay their debts should be able to get an eviction removed from their records. Bush also calls for standardized landlord-tenant laws across the state, which she contends would help reduce the number of people facing eviction.
