Tackling Kentucky's Housing Crisis: Insights from the 2025 Task Force Report

Commerce Lexington members testify before the Kentucky Housing Task Force in October 2025.

​In November, the Kentucky Housing Task Force, a special legislative interim committee, released its final 2025 report, outlining 14 specific recommendations to address the state's critical housing shortage. Chaired by Senator Robby Mills (R-Henderson) and Representative Susan Witten (R-Jefferson) the task force convened five times since June and heard from a diverse range of stakeholders, including the Kentucky Housing Corporation, the Pew Charitable Trusts, the Kentucky Chamber of Commerce, and Commerce Lexington. Drawing on insights from neighboring states like Indiana, which has invested over $100 million in housing infrastructure since 2023, the report emphasizes urgent policy action to boost supply, reduce costs, and keep Kentucky economically competitive. Without meaningful intervention, the task force warns that Kentucky risks declining population, workforce shortages, and slower job creation. The recommendations are expected to help shape legislative priorities for the 2026 Regular Session of the Kentucky General Assembly.  

In 2024, the Kentucky Housing Corporation’s Housing Gap Analysis reported a statewide deficit of more than 200,000 housing units to meet current needs for both rental and homeownership options. For Lexington specifically, an additional 22,000 housing units are needed today to meet existing demand. By 2030, that number will exceed 30,000.  Meanwhile, Lexington is only building about 600 new homes per year – 1/3 of what the city was building before the Great Recession and well below what is required to close housing gaps.
 
For Lexington, internal factors like lack of available land for development, regulatory processes and land/infrastructure costs, combined with external pressures like inflation and interest rates, are driving up housing costs faster than wages.  In the last decade, the median home price increased 100 percent while median household wages have only increased 30 percent. Rental prices have also skyrocketed 47 percent in the last five years. Rising home prices and rents hit young professionals, low-income families and essential workers the hardest, but the challenge affects everyone, including economic development efforts as employers struggle to attract workers amid limited housing options.
 
To address housing challenges, the report proposes a comprehensive set of reforms aimed at reducing barriers in regulatory processes that increase construction costs or delay development. Key regulatory recommendations include:
 

• Easing state building code requirements for multifamily and "middle housing" like duplexes, triplexes, and quadplexes to treat them similarly to single-family homes.
• Allowing single staircases in certain apartment buildings to cut exorbitant costs.
• Imposing a two-year moratorium on code updates that raise residential construction expenses.
• Requiring state agencies to evaluate regulations' impact on housing affordability before adoption.
• Reducing minimum lot sizes, setbacks, and parking mandates to enable denser urban development.
• Encouraging conversions of commercial spaces to residential use and urban infill.
• Permitting religious organizations to build affordable housing on their land by right, as modeled after 2025's Senate Bill 59.
• Implementing mandatory timelines on development plan reviews (with automatic approvals or fee refunds for delays) to streamline and shorten approval processes.
• Securing developers' rights at the application stage to prevent mid-process changes.
• Ensuring zoning rules align with existing neighborhood characteristics to facilitate redevelopment.

 
The report also supports giving local governments additional financial tools to help stimulate housing production. New mechanisms like local tax incentive districts (per 2025's House Bill 7) and infrastructure development districts similar to a Tennessee model (per 2025’s Senate Bill 50 sponsored by Senator Mills) are designed to attract builders and foster public-private partnerships.
 
Recognizing that regulatory reforms and local investments alone may not be sufficient to address the scale of the housing shortage, the report recommends expanded state investments. The report recommends updating fees for the Affordable Housing Trust Fund to reflect inflation and bring Kentucky in-line with peer states, as proposed in 2025's House Bill 588.  The report further supports enhancements to the Rehabilitation Tax Credit, such as expanding transferability, allowing demand-driven usage, and increasing credits for housing-focused historic rehabilitation projects to bring new units online through adaptive re-use of older structures. Broader appropriations are also encouraged, including the creation of a residential infrastructure revolving loan fund modeled after Indiana's Residential Infrastructure Fund (RIF) to offset utility costs for builders, as well as a state low-income tax credit, a tool utilized by 25+ states including Ohio, Virginia, and Indiana. The report also highlights testimony from the Kentucky Bankers Association supporting the creation of a $20 million statewide bank capital fund accompanied by a state tax credit to spur increased investment in affordable housing projects.
 
On October 21, Commerce Lexington testified before the task force to share the progress of Lexington’s Transformational Affordability Housing Partnership and the initial pilot project on the former University of Transylvania baseball field. Led by Commerce Lexington’s Chief Policy Officer, Andi Johnson, Central Bank Chairman/President & CEO, Luther Deaton, EHI Consultants President, Ed Holmes, AU Associates Owner/President, Johan Graham, and Winterwood Development President & CEO, Mike Hynes, testified before the task force on this innovative model to address affordable housing. The group emphasized the value of the collaboration among banks, affordable housing developers and local government, impact of the $10M state investment to expedite site infrastructure and state policy solutions that could help Lexington’s unique challenges. 
 
Commerce Lexington supports many of the task force recommendations, including regulatory reforms to streamline processes and expanding financing tools to increase investments and partnerships. Ensuring accessible and affordable housing to meet workforce needs will remain a top priority for Commerce Lexington during the 2026 Legislative Session.
 
Review the full report HERE.