Indianapolis faces a housing shortage. Why is it so hard to build more?

There is an estimated housing shortage of between 4 and 7 million homes across the country, according to the Pew Research Center. That shortage has contributed to rising rents nationwide.

In Indiana, advocates have warned that affordable housing is out of reach for roughly two-thirds of renters.
 

How do we know Indiana has a housing shortage?

Indianapolis officials say there is a shortage across different housing "types" — low, middle, and upper-income housing stock.

"When you have low vacancy rates, that signals that you have a high demand for housing. So that's one metric that we really do pay close attention to to see where we're at with our housing stock," said Megan Vukusich, director of the Indianapolis Department of Metropolitan Development. "But I would say generally across Indianapolis, there's a demand for all types of housing within our community."

Advocacy groups like Prosperity Indiana look at different metrics, including how many renters are able to afford what units are costing.

Their findings show that the state as a whole has housing costs that are roughly middle of the pack compared to other Midwest states — but wages were dead last.

"Our wages are simply not keeping up across the board, compared to our Midwest neighbors," said Aspen Celmons, Executive Director of Prosperity Indiana.

By the groups' estimates, there are over 200,000 people in the state with Extremely Low Incomes, or ELI. ELI are people living with roughly 30% of the area median income.

For those people there is a shortage of roughly 137,000 affordable housing units.

Advocates like Clemons say both wages and housing costs need to be part of the solution to address this gap.

"If it costs $250,000 to $300,000 to build each unit, and the buyer or the renter [able to afford] $170,000 who's subsidizing that gap for developers?" Clemons asked. "What's the incentive there for developers to want to increase the affordable housing stock?"
 

Can't we just build more homes?

Possibly. But it's expensive.

There are some reasons behind that high price tag that are generally agreed upon by different community stakeholders, like government officials, home builders, and real estate agencies.

For example, the cost of materials and labor has gone up, meaning that on a basic level, building new housing is more expensive.

"When I started my career, the idea of it costing $100,000 to build a multi-family unit seemed crazy," said Sara Coers, with the Indiana University Center for Real Estate Studies. "Now it's $300,000, in the $200,000s per unit, which is a heavy lift to get off the ground."

According to the National Association of Home Builders, the cost of building materials has risen 41% over the last five years.

But there are other factors builders and local governments don't agree on, like how much city zoning ordinances contribute to higher home prices.
 

How does zoning contribute to the final cost of a house?

Experts say the United States has been critically underbuilding housing over the past two decades. That inevitably creates places where, as demand increases and new housing stock doesn't come online, prices go up.

But rents have not gone up equally everywhere.

In the Indianapolis Metro, rents have shot up 30% since 2020. In contrast, in Minneapolis, rents have not gone up at all during the same period, said Alex Horowitz, director of the housing policy initiative with the Pew Charitable Trust.

Horowitz believes the reason is how differently the two cities have managed zoning. Minneapolis fast-tracks projects so long as builders follow some basic rules, which cuts out review and proposal periods that add time and money to the final project.

"Minneapolis has been building housing at triple the rate of the rest of Minnesota because they've made it so easy," he said. "They have a quick, simple permitting process. That means each time a builder is looking at building an apartment building, they don't need to go figure it out with the city. They can just follow the rules."

Specifically, Minneapolis moved to lift zoning restrictions that make it harder to build duplexes and triplexes, establish building height minimums, and remove minimum parking requirements. All of these moves help builders create higher-density housing, which serves middle and lower-income residents.

Horowitz said other cities have reduced requirements around lot size.

"That's how you improve affordability by speeding up production," he said. "Every month of delay adds cost, and it discourages builders from building, especially when interest rates are high, especially when the cost of materials is high."

One example of an Indiana building code that Horowitz said adds to the cost of housing is a requirement that apartment complexes have two stairwells for fire safety.

"Putting two stairways in every apartment building makes it cost a lot more," he said. "So, evidence suggests that adds about 6-13% to the cost of an apartment building to put in a second stairway."

Several local governments, including Los Angeles and Austin, Texas, have removed the double stairwell requirement.

Horowitz said there isn't good evidence that a double stairwell actually increases fire safety.
 

What has Indianapolis tried to improve zoning?

Indianapolis city officials point out that reforms to the city zoning code have already taken place. Indianapolis now allows for something called an "accessory dwelling unit," a separate unit usually on the lot of a single-family home. It's one way cities are working to increase housing density.

That change was made in 2015, when the city passed Indy Rezone, which aimed to simplify Indianapolis' zoning regulations.

Vukusich, with the Indianapolis Department of Metropolitan Development, said that they allow for higher density "where it makes sense."

"The density that comes with zoning, really will be reflective of the character of that neighborhood," she said. "So, when we are talking about the entire city of Indianapolis, the residential densities that are allowed are also going to be reflective of those neighborhoods."

One example cited by city officials was a change to ensure that housing of similar types to what already existed in a neighborhood would automatically be permitted.

"What is built here now in neighborhoods across Indianapolis, and how can we allow that development plan to replicate and to grow?" said Shannon Norman, Principle Planner of Ordinances with the Metropolitan Department of Development. "So there were certain neighborhoods that had duplexes or triplexes, but you couldn't build them under the standards of today, and so that was something we worked on."

The city will also work with developers to try and help fill funding gaps and bring more affordable housing to the city, but there are limits to those funds.

"To make an affordable housing project work and make it a reality it's going to take effort by the state, the city, potentially philanthropic partners, and then a responsible and quality land owner and developer who is going to be committed to keeping those units affordable," Vukusich said. "We can provide a tax break, but we don't just have funding that's just not being utilized to throw at these projects."
 

Who is most impacted by a housing shortage?

According to Horowitz, with the Pew Charitable Trust, a lack of housing options inevitably leads to climbing rents that hurt lower-income individuals living in a city the most.

In Indianapolis, homelessness has also been on the rise, with some pointing to a lack of affordable housing as the culprit. The city's 2025 point-in-time count found that there had been a 24% increase in chronic homelessness.

Horowitz points out that prices and rent in Indianapolis have increased faster than the country as a whole.

"The influx of residents is now bumping up against that restrictive zoning, and that's making housing get more expensive," he said. "That leads to people being displaced from the communities where they've lived, that pushes home ownership out of reach, that pushes up rents, and it actually explains why the U.S. is at an all-time high in homelessness, because housing costs are the foremost driver of homelessness."

Crucially, Horowitz said that places that have made it easier to build new housing, like Minneapolis and Houston, have kept costs in check and seen declines in homelessness, even as homelessness has climbed in the country overall.
 

Resources

Indianapolis has resources for renters and builders — either need to access housing assistance or are looking to work with the city in building affordable housing. You can find links to those resources here: https://www.indy.gov/activity/housing

Renters in need of housing or energy assistance can also seek support here: https://housing4hoosiers.org/links-resources/help-with-housing-needs/
 

Contact Government Reporter Benjamin Thorp at bthorp@wfyi.org