“Affordable housing” used to be something of a euphemism for housing for the poor. No longer.
With nearly a third of American households spending more than the recommended 30 percent of their income on a mortgage or rent, housing is becoming less and less affordable even for middle-income earners.
The housing crunch isn’t just inflicting pain on individuals. It’s hurting the economy as a whole. A recent study estimated that high housing costs reduce wages and productivity about $2 trillion a year, and that U.S. gross domestic product growth between 1964 and 2009 would have been 13.5 percent higher if more Americans had access to affordable housing.
The major driver of high housing costs right now is a shortage of supply, especially in the thriving cities where new jobs are more plentiful. Zoning regulations often make it hard to build houses, and permitting costs have risen in part to offset lost property tax revenue in the wake of the 2008 housing crisis.
Since so many of the factors driving housing construction and affordability are local, you might think the federal government has few levers to improve housing affordability. But in fact there are at least six things the federal government could do to ease the affordable housing crunch:
1. Use its leverage to ease land-use regulations and zoning laws. The federal government doesn’t have a direct way to change local policies like zoning and property taxation, but it does have leverage: It could attach strings to funding programs like the Community Development Block Grant and the Highway Trust Fund. There’s already bipartisan interest in this approach: Sen. Cory Booker (D-N.J.) in August proposed requiring local governments to revamp their zoning rules to receive federal housing funds; Housing and Urban Development Secretary Ben Carson has said “a major, major priority” is to look for ways to lift some restrictions and ease zoning rules. Carson has floated the idea of using the Affirmatively Furthering Fair Housing rule, which requires communities to address housing segregation or risk losing federal funds, to go after land-use regulations that impede development. If Congress and the Trump administration really pursue their promised infrastructure deal, that could give policymakers another vehicle to make it happen.
2. Boost the Low Income Housing Tax Credit. Congress has actually already done this, but the credit’s supporters think there’s more to be done. The credit, which gives tax incentives to developers to build affordable housing, received a 12.5 percent increase over four years in a spending bill enacted last March. The credit has led to the construction of more than 3 million housing units since its creation in 1986, according to HUD data. “It’s the most bipartisan and effective affordable housing production tool,” said David Dworkin, president and CEO of the National Housing Conference. “It leverages public-private partnerships, it has an incredible success rate.”
3. Increase funding for HUD programs. Adjusted for inflation, the Department of Housing and Urban Development’s budget is about a third of what it was in the 1970s (although housing tax credits have grown since then). That means HUD doesn’t have the resources to meaningfully increase rental assistance vouchers or expand its stock of public housing. The Trump administration went the other way: It proposed slashing HUD funding by 22 percent this year, though Congress ignored the request and boosted HUD’s budget by nearly 10 percent in the March omnibus bill—an acknowledgment of the problem, but still not enough to make it a muscular force in the housing crisis as prices rise.
4. Boost the Housing Trust Fund. When the federal government seized control of mortgage giants Fannie Mae and Freddie Mac in 2008, it also established the Housing Trust Fund, which uses a small assessment on Fannie and Freddie’s new business to fund grants to states to build and rehabilitate housing for people with low incomes. In the past, Congress has considered raising the assessment a bit or investing in the fund directly. Sen. Elizabeth Warren (D-Mass.) introduced a bill in September that would allot $45 billion annually to the trust fund over 10 years. That increase would result in 2.2 million new affordable units, according to an analysis of the bill by Moody’s Analytics.
5. Ease tariffs and construction regulations. New home construction has lagged for years, but new tariffs that went into effect in September are likely to make that problem worse. Of the thousands of goods hit by new tariffs on Chinese imports, more than 500 are used in residential construction, according to the National Association of Home Builders. The Trump administration has also imposed tariffs on lumber imports from Canada. Home builders also complain that regulations at every level of government slow construction and eat up a serious chunk of developers’ funds for new housing.
6. Subsidize rent. While economists agree that the affordability crisis won’t clear up without a significant boost to the housing inventory, housing advocates say it’s important to consider the demand side of the equation, particularly in markets with high vacancy rates. Sen. Kamala Harris (D-Calif.) introduced a bill this summer that would give renters who spend more than 30 percent of their income on rent a refundable tax credit. Subsidizing rent, though, is a tricky business. Some economists believe the subsidy approach only makes the problem worse, padding landlords’ wallets while contributing to a cycle of ever-higher prices.