My new book, The Affordable City, is out September 15th. It’s a how-to guide for affordable housing policies and programs, and it makes the case that truly affordable, just, and accessible cities require us to prioritize Supply, Stability, and Subsidy policies. None by itself will ever be enough. Click here to order it from Island Press. You can also purchase it from Amazon and other online booksellers.
Housing in Washington, DC, built with Low-Income Housing Tax Credit funding.
To celebrate the release of my book and encourage folks to pick it up from their favorite online bookseller, I’m excerpting several passages from different sections. If you missed the story of the book’s genesis and the excerpt from the intro, I suggest you read that first. You can find it here.
In this post I’m sharing an excerpt from the section on Subsidy policies, which opens with a discussion of why subsidies and smart tax strategies are necessary for affordable, accessible cities.
Here it is:
Market-rate housing can and should be able to serve most working- and middle-class households, but many people will never earn enough to afford unsubsidized housing. There is no realistic future in which the price of rental housing in high-demand cities—even low-quality housing—falls to $500 or less per month, and that’s near the limit of what many can afford, especially seniors and people with disabilities who subsist on a fixed income. Tenant protections and rental housing preservation can help, but the poorest households mostly won’t benefit from them because they can’t afford privately owned housing in the first place. Direct assistance, in the form of either supplemental rent payments or subsidized affordable housing construction, is the only answer for these families and individuals.
We can afford to provide this support. In the United States, we lavish tens of billions of dollars on relatively well off homeowners, with only a pittance left over for renters. The federal government’s housing programs should be laser-focused on those with the greatest need, and funds should be spent in ways that make the entire housing market more affordable.
In 2015, the federal government spent over $130 billion on homeownership programs such as the mortgage interest and capital gains deductions, compared with just $55 billion on programs for renters. The mortgage interest deduction (MID) alone accounted for $70 billion, outspending all rental programs combined. Households with incomes over $200,000, mostly homeowners, received an average of $6,000 in federal housing benefits, four times the $1,500 received by households earning $20,000 or less, who mostly rent. Where income data were available, it was found that about 60 percent of federal housing spending went to families earning at least $100,000 per year. In fact, more was spent on homeowners with incomes over $100,000 than on renters at every income level. This is despite the average renter in the United States being much poorer than the average homeowner.
Renters tend to receive more support at the state and local levels, though these jurisdictions also have a raft of wasteful homeowner subsidy programs. Even in liberal California, residents can deduct the mortgage interest from their second homes—homes that go empty most of the year as 130,000 state residents go without housing at all. This program costs the state $300 million in revenue every year. In 2017, California State Assembly member David Chiu proposed a bill to end the second-home tax break; it was defeated by the powerful Realtor lobby a few months later. Meanwhile, in Los Angeles alone, the waiting list for the Housing Choice Voucher Program (also known as Section 8) is approximately 600,000 people. Because of underfunding the list was closed for thirteen years, from 2004 to 2017, and once an applicant is on the list, the wait to receive a voucher can take years.
Arguably the most successful federal affordable housing program of the past few decades is the Low-Income Housing Tax Credit (LIHTC). Established in 1986, it has supported the development of approximately 2 million income-restricted units throughout the United States. About 100,000 new LIHTC units are built per year, but the affordability restrictions on many LIHTC-funded projects are reaching the end of their thirty-year terms and reverting to market-rate. About fifteen states also have their own LIHTC programs, which complement the federal tax credit.
Federal spending on LIHTC was less than $10 billion in 2015, about 7 percent of the amount spent on homeowner programs. That amount should increase approximately tenfold. LIHTC funds often require local matching funds, so a federal boost of that size wouldn’t necessarily lead to a tenfold increase in affordable housing development, but it would certainly make a big difference. If the program had been funded at that heightened level since its inception, there might be closer to 20 million low-income units rather than 2 million, enough to help every one of the approximately 19 million severely cost burdened renters and homeowners in the country.
Raising funding to these levels isn’t as crazy as it might sound. From the late 1970s to the early 1980s, the budget of the US Department of Housing and Urban Development (HUD) shrank from $83 billion to $18 billion in inflation-adjusted dollars, a nearly 80 percent cut. By 2018, its budget had recovered to only $52.7 billion. The peak of US low-income home building came in the 1970s, with approximately 300,000 new homes each year (when the country had 100 million fewer residents); that had declined to 150,000 per year by the 1990s and about 100,000 per year in the past decade. The number of public housing units—homes not just subsidized by the federal government but permanently owned by it—has been declining for decades, from a peak of 1.4 million in 1991 to around 1.1 million today. The affordability crisis is now affecting even middle-class households, but this disinvestment has been hurting low-income families for decades.
The Subsidy section goes on to discuss other forms of assistance and the purposes subsidies can serve — and those for which subsidies can never be enough — and finally how subsidy policies interact with supply and stability. I then review roughly a dozen strategies for raising and spending public funds to support housing goals, devoting 2-4 pages to each. These include common strategies such as reforming or eliminating homeowner subsidies and increasing low-income housing development, and less-discussed approaches including ground-leasing public land and offering low- or zero-interest public loans for housing acquisition and development.
If you’d like to read more, buy my book! I also encourage you to check out excerpts from the Supply and Stability sections of my book. You can find those here: Supply. Stability.