New findings: Transforming the Housing Sector through Green Industrial Policy

By Julia Wagner, Daniel Aldana Cohen, and Ruthy Gourevitch

This is the second piece in a CCI substack series exploring why the United States needs a Green Industrial Policy for Housing. This series will continue to feature CCI researchers, labor experts, and housing practitioners in the coming weeks.

Housing insecurity is one of the most pressing issues of our time, with nearly one third of US households being cost-burdened and a third living in homes in need of repair. The climate crisis makes the housing crisis even worse. But to reach carbon reduction goals and housing supply needs, the US housing sector will need to double the current housing construction pace and multiply the pace of retrofits 30 fold.

Our new report, Transforming the Housing Sector with Green Industrial Policy, examines the overarching challenges in the housing sector that prevent the delivery of sustainably built, energy-efficient, structurally resilient, and affordable homes. To address this market failure, we argue for a new approach that coordinates labor, manufacturing, capital providers, utilities, and residents to deliver affordable and sustainable new construction and retrofits at scale: a green industrial policy for the housing sector.

The problem: an abundance of market failures in the housing sector

There is so much more work to be done to transform the country’s housing stock to address the cost of living and climate crisis. Market analysts suggest that of the 125 million existing homes in the United States, approximately 92% will need energy upgrades to become “zero-carbon-aligned” or “electric-ready.” Millions of these upgrades will be relatively light-touch, involving the replacement of fossil fuel appliances (like hot water heaters) for electric ones. Approximately 75 million existing homes will require modest to significant retrofits to building energy systems, exteriors, ducts, and electrical wiring.

What’s more, demographers predict that the US will need about 11.3 million new units by 2035 to keep up with population growth. And as new units get built, they tend to be high-end, not affordable. Housing researchers estimate that the gap in deeply affordable housing is 7.1 million units. The price of building materials has also gone up—with prices for materials like gypsum, plastic components, lumber, concrete, brick, and clay have increased by 35 percent—posing additional strains on the building process.

The housing construction sector requires significantly increased scale and pace to deliver the necessary transformative green new builds and climate-ready retrofits. But meanwhile, the construction industry is on the decline, and without security, stability, and good pay and benefits, these critical construction roles will likely remain unfilled.

The traditional economics of the housing sector are not working to deliver secure, affordable, and stable housing and jobs, especially in a changing climate. The privatized and profit-motivated nature of the status quo fails to provide high quality, affordable housing to residents in need, and it fails to provide stable, gainful employment to workers—leaving the US housing sector unaffordable and undermaintained.

The solution: a green industrial policy for housing

Green industrial policy refers to sustainable supply-side solutions to problems of political economy; it endeavors to coordinate market actors and shape industrial change to deliver on public objectives. The interventions that might form part of a comprehensive green industrial policy include (but are not limited to) coordinated, sustained, and transparent actions such as grants and low-cost loans to support research and development; standardization and regulation; provision of supportive infrastructure; government contracts and subsidies to direct scaling and commercialization; low-cost, “patient” capital to innovators; direct procurement of goods and contract aggregation; and public development.

A key component of industrial policy is that the state absorbs some of the risks of developing new products, techniques, and markets while, ideally, ensuring that investment successes yield rewards that are redistributed to the public.

With green housing industrial policy, we can lower the costs of green housing materials; build coalitions across government, industry, labor, and residents; coordinate interventions to get things done; and stack policies to help those in greatest need reap the benefits of upgraded homes. A green housing industrial policy would enable the United States to assemble new coalitions by mobilizing capital to finance construction and building upgrades, increasing manufacturing of appliances and construction materials, bringing labor unions into a more active role in housing construction, and prioritizing innovation across the supply chain. And this approach will put public institutions front and center, enabling them to work better for the public good at the speed and scale required to bring down the cost of housing and address the health and safety issues associated with the climate crisis.

In this vein, we recommend policy measures that coordinate market actors through climate transition and deliver on social benefits including long-term housing affordability and high-road jobs. Even in the absence of federal leadership, however, there are opportunities to leverage industrial policy, coordinate markets, and drive green, climate-resilient housing. For example, coalitions of green banks, Community Development Financial Institutions, and local and state governments can still enact substantial policy measures at the regional or municipal level.

1. While developing and ramping up clean energy technology production, ensure sustainable life-cycles and family-sustaining labor standards

Despite the widespread need for new clean energy technologies, manufacturing faces challenging economic conditions. The COVID-19 pandemic laid bare fragilities in the globalized production ecosystem, and the cost of raw materials and everyday goods have barely recovered. The crisis showed the resilience benefits of strategic domestic and regional production redundancies that can mobilize when critical facilities are disabled due to biophysical or political crises.

The development of new technologies to improve energy use in homes will require significant investment in national production capacities. The US needs to ramp up its capacity to produce critical energy technologies such as heat pumps, insulation, and induction stoves. These investments are an opportunity to ensure that manufacturing facilities—and the products they produce—are as sustainable and socially beneficial as possible. Product innovations should consider the full life-cycles of the products, from raw material extraction, to use, to recycling and disposal. These considerations can minimize the chances that climate solutions for US homes do not create environmental crises elsewhere or in the future.

As producers develop the capacity to manufacture these goods, unions and communities should have a seat at the table to ensure that production supports family-sustaining jobs and relays benefits back to the neighborhoods in which the facilities are located.

2. Use public investments to amplify affordability and social returns

Public investments at the federal, state, and local scales offer ample opportunities to drive clean energy market development. Many interventions are already underway. For instance, the Biden Administration’s Greenhouse Gas Reduction Fund (GGRF) has capitalized dozens of green banks, community development financial institutions, credit unions, and nonprofits with the capacity to develop creative funding and financing mechanisms to invest in decarbonizing the built environment. These investments, should they be released from climate-denialist political obstruction, will drive transformative investments for clean energy technologies in housing. For instance, Climate United, a GGRF awardee, has provided a loan to enable a multi-family building in Portland, OR to install electric appliances, solar panels, and water conservation equipment while paying prevailing wages and preserving affordability for another 99 years. Power Forward Communities, another GGRF awardee, will build 900 new, energy-efficient homes across the US. Wherever possible, public funds should be strategically applied to enable social co-benefits such as reducing energy burdens on working-class households, improving local air quality measures, workforce development, and supporting affordable housing providers. Pairing green finance with other social goals can amplify impact, especially in a moment when affordability is desperately out of reach for so many families.

3. Labor is a key partner: Support unions to lead labor standards and workforce development

Rapidly improving the majority of US homes while building millions of new ones to mitigate supply challenges is no small undertaking for the housing construction industry, which has been severely understaffed since the Great Recession. While households’ moves to invest in clean energy technologies and the public sector’s investment in affordable housing have helped, there is still great opportunity (and great need) to further expand the construction workforce, improve laborer skills, and create career-sustaining jobs in construction.

Historically, unions have helped to coordinate well-functioning construction workforces by mediating labor agreements that retain and dispatch skilled workers to jobs. These labor protections help to stabilize communities and the sector itself. What’s more, unions serve a powerful function of drafting new members to the construction workforce and educating them on industry advances throughout their careers via pre-apprenticeship, apprenticeship, and continuing education programs. Investing in the workforce in this way means that consumers are better able to find affordable contractors who have the skills and confidence to complete clean energy upgrades. Finally, unions can even serve as additional investors in affordable housing, buoying the sector beyond public investments and expanding housing affordability.

The current construction workforce is far from reaching these union-led benefits. As of 2024, only 10.3% of the construction workforce is unionized. Meanwhile, the construction sector is projected to have a shortage of nearly a half-million workers in 2025, likely because non-union jobs are unfavorable to workers. Such shortages will be further exacerbated by the Trump Administration’s deportation proceedings as a quarter of the existing construction labor force is sustained by immigrant labor. Public interventions in municipalities and states could help to support union leadership in this sector to improve labor outlook and ensure that workforce demand is met.

4. Ensure that public risk-taking translates into public rewards

Industrial policy is not new. The US has long supported and directed industrial innovation and growth, as with GPS, computers, and, more recently, renewable energy generation. Any investment in the production of new technologies bears some degree of risk: unforeseen circumstances, unpredictable consumer preferences, and experimental failure. Still, foundational investments often succeed and create transformative industrial change. When this happens, progressive economists Mariana Mazzucato and Andrea Laplane recommend that governments reap those returns on investment and redistribute them as public benefits. With strategic investment and policy coordination in the housing sector, policymakers could increase capacity to rapidly prepare the US housing stock for climate change while investing in long term affordability, high-road labor standards, and sustainable manufacturing and utilities markets.

Read our report to learn more.