In a context marked by rapid urbanization, growing housing demand, and the worsening impacts of climate change, national governments play a vital role in delivering environmentally sustainable cities with adequate and affordable housing. This paper reviews national housing policy instruments from around the world, analyzing their impacts on compact urban development and housing affordability. First, the paper proposes a framework to better understand the housing market in cities by outlining drivers of housing supply and demand as well as the constitution of the housing market and its segments: homeowners and renters, single- and multi-family homes, market and below-market price segments. Next, the paper analyses a range of policy options available to national governments, which are summarised and evaluated according to their impacts on compactness and affordability. Last, the paper provides short-, medium– and long-term policy recommendations to align national housing policies to deliver more sustainable and inclusive cities. The paper is one of the first attempts to consider the intersection of physical urban form and housing affordability from a national policy perspective.