Five Figures to Consider
When Senator Kamala Harris, (D-CA), introduced the Rent Relief Act last week, she quickly got lots of love on Twitter from America’s millions of cash-strapped renters. Across the country more than 21 million people (half of all renters) now spend more than 30% of their income on rent. Historically that has been the measure at which Americans are considered rent-burdened. And that burden is the crux of today’s housing crisis. In contrast to the crisis of the mid-2000s when people couldn’t afford their mortgage payments, today millions of Americans can’t afford their rent. Nor can they downgrade into less expensive housing. There isn’t enough of it. The crisis, a result of rising housing costs and stagnating wages, has been a long-time in the making. Between 1960 and 2016 the median rent payment rose 61% in inflation-adjusted dollars. Meanwhile, the income of the median renter rose just 5%. While the lack of affordable housing has struck the poor the hardest, it is also impacting moderate-income families. The proportion of cost-burdened renters who earn $45,000 to $75,000 has nearly doubled since 2001.
One contributor to the problem is a shrinking supply of low-income rentals. While the construction of rental units boomed with rising demand following the mid-2000s housing crash, that construction was aimed at high-income renters. According to the Joint Center for Housing Studies of Harvard University, the number of occupied rentals climbed 21% between 2006 and 2016, but the number of units renting for less than $650 dropped by 5%. The loss was concentrated in metro areas, 89 of which experienced a 20% decrease in the supply of their lowest-cost rental units. Where did those units go? Call it gentrification. Millennials, the biggest generation in our nation’s history, are not moving to the suburbs and starting families at the rate previous generations did. They prefer urban centers, places that have historically had concentrations of low-income housing. So now older buildings that in the past might have aged into low-income stock are a) being torn down for high-rent, new construction or b) being spiffed up and rented at high prices. The poor and not-so-poor are priced out.
What are the economic and societal costs of the current affordable housing deficit? Research by economists from the University of Chicago and the University of California, Berkeley, found that constrained housing supplies in economic powerhouse cities like New York, San Francisco and San Jose lowered U.S. aggregate GDP by 36% between 1964 and 2009. A lack of housing, the researchers write, limits the number of people who can participate in the economic activity in the highest productivity cities in the country. On a personal level, high rents mean working families have longer commutes and less money to spend on food, education, mortgage down payments, childcare and retirement savings. (According to Gallup, the proportion of Americans with commutes of more than 90 minutes climbed 8% in 2015.) Among the poor, unstable housing has been associated with increased healthcare costs and lower educational achievement.
This crisis is not limited to big, coastal cities; every state in the country has a shortage of affordable housing. According to the National Coalition for Low Income Housing, the country has a deficit of 7.4 million units of affordable housing for very low-income households. Workers in the fields of food service, personal care (childcare workers, flight attendants, fitness trainers, etc.) and building and grounds maintenance workers are the most likely to be rent-burdened. (Want to see what it takes to rent a modest, two-bedroom apartment in your community? Check it out.) That’s why cities are exploring new ways to expand affordable housing, especially for vital workers like teachers, firefighters and EMTs. Vail, Arizona, is building tiny homes for teachers. Miami is planning to build apartments for teachers on school property. Denver, which is seeing record numbers of people priced out of its neighborhoods, has expanded emergency rental assistance and is looking to purchase land for affordable housing using income from marijuana taxes. Rhode Island turned an abandoned mall into micro-apartments. Non-profit community development financial institutions such as the Community Development Trust, Enterprise and the National Housing Trust are preserving and building affordable housing across the country that help tens of thousands of families a year. Unfortunately, the housing shortfall is in the millions.
Where’s Washington? As we previously reported, the vast majority of federal housing assistance ($72 billion) is delivered in the form of mortgage interest deductions to high-income households. The Tax Cut and Jobs Act of 2017 trimmed that deduction, but, contrary to the hopes of affordable housing advocates, it did not allocate that savings to low-income housing. In fact, the Act is likely to have a negative impact on affordable housing. Here’s why. In cutting the corporate tax rate from 35% to 21%, the Act limited the appeal of the Low-Income Housing Tax Credit program, which, since its introduction in 1986, has been the most important incentive for affordable housing development, adding more than three million units to the national supply. The program allows corporations to earn tax breaks when they invest in low-income housing. Now that the corporate tax rate is lower, many believe that companies will be less likely to invest in affordable housing. The real estate accounting firm Novogradac and Company estimated that a tax cut from 35% to 21% would result in at least 219,200 fewer affordable housing units being built over the next ten years. In an attempt to offset the loss, Senators Orrin Hatch, (R-UT), and Maria Cantwell, (D-WA), led a successful effort to increase the amount of credits available (currently $8 billion) by 12.5% over four years. Since the tax credit is responsible for about 108,000 units annually, that change would likely add just 13,500 more units over the four years.
Meanwhile, only 1/4 of the 11.4 million very low income people who qualify for federal housing assistance (a $19.3 billion program) actually receive it because the program is vastly underfunded. Don’t look to the Trump Administration to close the gap. The Administration’s 2019 budget proposal includes just a 1% increase in HUD spending. Further, Housing and Urban Development Secretary Ben Carson is planning to propose raising rents on low-income families from 30% to 35% of their monthly income. That may allow him to squeeze more people into the program, but, according to a report for the Associated Press by the Center on Budget and Policy Priorities, it would also contribute to homelessness. Enter Kamala Harris’ Rent Relief Act. The bill would create a new refundable tax credit for families earning less than $100,000 and paying more than 30% of their income in rent. Tit for tat. Meanwhile, a bipartisan group of eight senators has formed a Task Force on the Impact of the Affordable Housing Crisis.
Is there a solution? Developers don’t usually build low-income housing without incentives, but in the absence of additional federal funding, local governments must get more creative and allocate more of their own budgets to expanding the affordable housing inventory through measures like property tax abatements and increased assistance for nonprofits that purchase and preserve low-rent, unsubsidized units. Housing advocates, researchers and builders agree that loosening zoning and some building regulations, such as those that require a certain number of parking spaces to be allocated to each new unit, would also facilitate the construction of more affordable housing. (According to the National Association of Homebuilders, regulations account for 32% of the cost of the average multifamily development.) Houston, which has no zoning, for example, has met its housing needs better than tightly zoned cities like San Francisco and San Jose. In addition to a reduction in impact fees and property taxes, the Up for Growth National Coalition advocates new laws that would establish priority for multi-family development within a half-mile of public transportation. This would neutralize neighborhood opposition, which 85% of developers say has added costs or delays to their projects.
Cash-strapped state housing authorities working in partnership with lawmakers and non-profit housing groups can only do so much. One federal program that could help is the HOME Investment Partnerships Program, a $1.36 billion fund that leverages local government, non-profit and private partnerships to build affordable housing. HOME funding has been reduced by 50% since 2010. In 2019 the Trump Administration wants to eliminate it.
FIVE FIGURE THINKING
An inability to find affordable housing traps families in poverty. Solving our current affordable housing crisis will require aggressive efforts by local governments working with lawmakers and non-profit housing groups as well as a more robust response from the federal government.
American Enterprise Center on Housing and Finance, Bipartisan Policy Institute, Brookings Institution, congress.gov, HUD, HousingEconomics.com, Joint Center for Housing Studies of Harvard University, National Association of Counties, National Association of Home Builders, National Low Income Housing Coalition, Office of the Comptroller of the Currency, Up for Growth