Tennessee Faces Critical Housing Affordability Crisis
A new study by the Tennessee Advisory Commission on Intergovernmental Relations (TACIR), “Reducing the Burden: Increasing Housing Supply to Lower Housing Costs,” reveals a sobering reality: many Tennesseans are struggling to afford homeownership or even maintain their current homes. In Murfreesboro, where the median home listing price has reached $455,000, the challenge is particularly acute.
The housing crisis gripping Tennessee reflects a patchwork of regional challenges driven by multiple converging factors. Soaring housing and rental costs have transformed homeownership from an achievable goal into an elusive dream for countless residents. This affordability crisis takes different forms across the state’s diverse communities, creating a tangled web of economic pressures. State Representative Mike Sparks emphasized…”My wife Felicia and I were fortunate enough to purchase our first home when I was 22 and she was 19. Sadly, that opportunity is far out of reach for almost all young people today. This is a serious crisis that all leaders need to address with creative solutions. We can’t allow the dream of homeownership to become impossible for an entire generation of Tennesseans.”
The Burden on Tennessee Households
By 2022, nearly one in five Tennessee homeowners (17.9%) had become cost-burdened, spending more than 30% of their income on housing expenses. Renters face an even harsher reality, with 43.4% falling into this cost-burdened category. The ripple effects of this affordability crisis extend throughout Tennessee’s economy, affecting workforce stability, infrastructure development, property values, tax burdens, and critical community issues including public health outcomes and homelessness rates.
The gravity of this situation prompted Representative Sparks to introduce House Joint Resolution 139 in 2023, directing the Commission to investigate housing affordability comprehensively. Though initially centered on impact fees, the study broadened to examine the full spectrum of factors influencing housing costs.
Impact Fees and Growth Management
Cities like Murfreesboro now employ impact fees as a mechanism to manage costs associated with growth, though their influence on overall housing affordability remains modest. New developments inevitably require infrastructure and services, creating funding needs that must be met either through impact fees or property tax increases.
The debate over growth financing centers on fundamental questions of fairness. Proponents of impact fees argue that those creating demand for new infrastructure should finance it. Critics counter that such fees place an inequitable burden on new homebuyers. Tennessee law requires that impact fee revenues be dedicated exclusively to infrastructure necessitated by the developments that generated them.
Multiple Factors Drive Housing Costs
Addressing Tennessee’s housing challenge demands a multifaceted strategy, yet local governments possess limited tools—primarily impact fees, property taxes, and sales taxes. Impact fees contribute to housing costs but represent just one thread in the complex tapestry of factors determining final housing prices.
Representative Sparks pointed to education costs, particularly new school construction, as a major driver of impact fees and property tax increases. A recent Rutherford County Board of Education meeting confirmed that the new Batey Elementary School in the Blackman Community will carry an approximately $60 million price tag.
The National Association of Home Builders estimates that government regulations account for roughly one-quarter of a home’s total cost. This figure encompasses various regulatory requirements beyond impact fees, and Tennessee-specific data remains limited.
Impact fees and development taxes across Tennessee vary significantly by jurisdiction and don’t represent the primary drivers of housing unaffordability. At current market rates, even impact fees of $1 per square foot constitute a minimal percentage of a median-priced new home’s cost. However, the interconnection between scarce land—where school systems pay over $80,000 per acre—and rising home prices cannot be ignored.
Rutherford County’s Housing Stock
TACIR data reveals that Rutherford County’s housing inventory is relatively young: only 6.3% of homes were built on or before 1959. Another 26.5% date from the 1960-1989 period. The overwhelming majority—67.2% of all county homes—have been constructed since 1990, indicating most current residents occupy comparatively newer housing.
Supply, Demand, and Population Growth
The housing market’s supply-demand equation has grown increasingly intricate, influenced by pandemic disruptions, demographic shifts, and historical land use policy decisions. Tennessee, like numerous states nationwide, confronts a housing shortage amid rising demand, creating significant obstacles for residents pursuing affordable housing. Housing research organizations, including Up For Growth, estimate Tennessee’s housing unit deficit more than doubled from 22,000 in 2019 to 56,000 in 2020.
Tennessee’s population surge—adding over 125,000 residents between 2020 and 2022—intensifies competition and drives prices higher. Commission staff analysis demonstrates a clear relationship between per capita income and median home sale prices, underscoring how financial capacity shapes housing accessibility. Accelerating housing supply growth beyond population growth rates shows promise for moderating home prices, though analysis suggests this approach alone won’t achieve universally affordable price points.
Policy Pathways Forward
Current policy debates around housing affordability often pose a choice: subsidize affordable housing for lower-income residents or implement broader measures to expand housing supply across income levels. Research suggests the most effective approach combines both strategies—supporting subsidized housing alongside market-rate development.
The state could strengthen local government capacity by providing enhanced tools to increase land availability for housing development. One key recommendation calls for authorizing all local governments to establish land banks, which could combat blight, preserve existing affordable housing stock, and foster a more responsive housing market throughout Tennessee.
To view the full TACIR Study..Click Here.
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