More than 580,000 Americans are homeless. The median sale price for a home has just surpassed $400,000. Homeownership is on the decline.
This, by all accounts, is a national emergency — and one House Democrats had proposed $330 billion to tackle as part of their Build Back Better plan. This package was both a once-in-a-generation investment and also barely enough to scratch the surface. Now, even those proposed investments are being cut down as part of negotiations over the final package.
Perhaps more worrisome is the apparent lack of willingness to tackle the root of the problem.
When Covid-19 hit last year, officials took groundbreaking steps to help keep people in their homes — a nationwide eviction moratorium, tens of billions in rent relief, and state and local protections too. Plans from the White House and different senators highlighted that they were willing to take bold action to increase housing supply in a country facing a 3.8 million housing unit deficit.
Then the housing portion of the Build Back Better plan was floated. And it became clear that while some in Congress were willing to make substantial investments, very few were willing to tackle the fundamental problem that was making homes so expensive in the first place: lack of supply.
Yes, it’s easier to try to help people afford something expensive than to try and make it less expensive to begin with. But many of the policies that try to subsidize housing can actually make it more expensive. “What you really need if you want to lower those new home prices, is you need to build more homes — and there’s not that much of that in this bill,” says Paul Williams, a fellow at the Jain Family Institute.
I spoke with Williams about what the new, cheaper plan Democrats are coalescing around could mean for people looking around the housing market and finding very few options, and for people struggling with the basic need to obtain shelter.
The following conversation has been edited for length and clarity.
So the housing proposal in Build Back Better — what’s in that?
The Build Back Better housing plan really addresses decades of under-investments in affordable housing and housing supply at the lower end of the market, which is something the government traditionally has been needed to support in order to correct market failures at the lower end. So the big bucket items in the Build Back Better plan are:
- Investments in the public housing capital backlog. This is public housing that we invested in over the decades, then cut funding for in the ’90s, and now those buildings have two decades of deferred maintenance and there’s all these problems in these buildings. [The funding is] so that they don’t literally fall apart.
- Another big bucket item is housing choice vouchers and project-based vouchers, which are two rental assistance programs that the Department of Housing and Urban Development (HUD) runs. One of them is the tenant gets the voucher that they can use to help pay their rent and the other goes to a building and then all the tenants who live in that building get rental assistance.
- Another big bucket is investments in the Housing Trust Fund and the home investment partnership program, which are basically grants which can be used as grants or loans to contribute to new affordable housing production projects.
Over the last year, we’ve seen a lot of attention paid to the housing crisis. On one end, there are tenants struggling to stay housed as they were hit hard by the economic effects of Covid-19. And on the other, there’s been a really hot housing market where homeownership seems to be a dying dream for millennials and historically disadvantaged groups. How well do you think these big buckets you’ve outlined address these two concerns?
I think that the biggest-ticket items in the original proposal were really about either creating or preserving existing affordable housing at the lower end of the market. It’s the people at the very lower end of the market who are least able to weather the storm [of Covid-19]. And that’s where most of these investments lie: in preserving those existing lower-end units and creating new ones.
On the homeowner side, there’s a piece in this proposal that is downpayment assistance for first-time homebuyers. You know, it’s a difficult thing because housing prices are really hot right now, but the lending that’s actually happening is like almost 80 percent to people with credit scores above 760. So it’s all people with very high incomes and very low debt loads. And this is with extremely low mortgage rates. So, downpayment assistance in a lot of places isn’t really going to help people break into this really hot housing market.
What you really need if you want to lower those new home prices is you need to build more homes — and there’s not that much of that in this bill.
Yeah, it seemed earlier this year that there was energy around exclusionary zoning reform. [Exclusionary zoning laws, which range from banning multifamily housing to requiring certain numbers of parking spaces in or near homes, artificially constrain the number of homes built in an area.]
There were proposals from the Biden administration and Sen. Amy Klobuchar and there were blog posts coming out from the Council of Economic Advisors about how much restrictive zoning was responsible for a lot of our housing affordability woes.
What happened there?
In the original proposal, there was around $5 billion for a carrot incentive program for local municipalities. The idea being you can get a small amount of money from the HUD if you hire some planners and have them do a zoning study. And then if you implement some of those changes, you could get even more money.
So I don’t personally think that the amounts that are in there are really going to swing the pendulum for a lot of jurisdictions, particularly those with some of the most egregious policies. I don’t really see what was in the package originally as a game changer.
The package has been in negotiations for a while, and there are several proposed cuts to the housing portion. Reporting seems to indicate everything gets cut — public housing, rental assistance vouchers, the housing trust fund, etc. — except for downpayment assistance, which actually goes up from $10 billion to $15 billion.
This seems to be a tendency of Congress’s. Earlier this year, I covered a memo that the Treasury Department wrote to policymakers and Congress in particular, essentially pleading with them to focus on increasing housing supply. I talked about why Congress is much more willing to engage on demand-side policies [giving people money to afford something expensive] rather than on supply-side policies [making expensive things less expensive]. Do you have any thoughts about this?
Yeah, that’s an interesting point. I agree, Congress is often more willing to engage on the demand side than the production side, and that can lead to increased prices if we don’t also build more — especially for the low-income people we’re trying to help with these programs.
Downpayment assistance, I think there’s potentially an inflationary impact of that or some impact on actual home prices particularly in places where a lot of people are eligible for this program and there’s a lot of [housing] scarcity and not a lot of construction happening.
With the vouchers, this is something that people have talked about, this question of how do we make our housing voucher program such that everyone who is eligible can actually get it. Right now, the program is only funded such that one-fifth of the people who are eligible actually get it. Everyone else is in this potentially decades-long line.
One issue with making it universal is that you give everybody this assistance [without increasing the supply of rental housing], and then you may see rents starting to go way up. And there’s a couple of things that can push back on that: If you have production that keeps pace with new rental assistance, then you’re pushing back on that. And then in cities where you have rent regulations that can keep annual rent increases from going up exorbitantly, you can also push back on that.
Focusing on housing production elements of this bill, one area where we could see increased production is in public housing. But as you mentioned earlier, public housing funds have been deficient for a very long time, so we have this massive capital backlog. That means that even with the original proposal to spend $80 billion on this, almost all of that would have gone toward just repairing those buildings — and now that seems to have been cut.
Can you talk a little about what the capital backlog has meant in real terms for people living in public housing?
So just to kind of frame it with the history. In 1998, as part of a slew of welfare reforms that President Bill Clinton’s administration moved through Congress, the Quality Housing Act really shifted the way that HUD funded public housing. The result of all these changes together was the capital expenditures have been in precipitous decline since 1999.
Some of that has been alleviated by public housing authorities taking units out of public housing ... but the vast majority have not been, and the result is that these buildings are just going to fall apart around these people. This is potentially the last time Democrats are going to have full control of Congress and the presidency for, some people say, a decade.
There’s no alternative here. We have to fix these buildings.
And every once in a while, the lack of safety makes pretty big news. We hear about fires in public housing where people have actually died, and the lack of capital investments was the key factor. We also see kids growing up with lead paint in the walls — which is essentially poison to them.
This is a situation where the federal government has taken ownership of a housing structure and has let people live in absolutely dire conditions where we would encourage someone to sue if this was the private market and their landlord was allowing the situation to deteriorate to this extent.
Yes. And I’d also add that these public housing capital investments and with the Housing Trust Fund, this new money for production and rehab means there is a lot of movement from public housing authorities and nonprofit developers who are building affordable housing to do carbon-neutral, full-electric projects.
At NYCHA [New York City Housing Authority], they got a grant to develop their own new heat pump technology that would be fully electric type of heating and cooling systems for the buildings. This is technology that does not yet exist on the market so their hope is to get this working and deploy it portfolio-wide across all of their buildings.
I think it’s important not to underestimate the impact that public sector procurement has on these kinds of long-term changes we need for climate change. It’s not just in vehicles, it’s also in buildings and housing.
We’ve talked a little bit about the need to fix the existing public housing stock. And while that’s very important, we’re so far behind on capital expenditures that likely none of that money would actually [meaningfully be spent on] creating new units of affordable housing. It appears that the best chance for that in this bill is in the Housing Trust Fund dollars. How does that work?
Yeah, the Housing Trust Fund and the home investment partnerships exist to plug all the [financing] holes because there are so many projects that come very close to getting funded and then can’t get that last piece funded, and the project falls apart. The Housing Trust Fund in particular is targeted toward the very low end of the rental market — so, very low-income and extremely low-income households.
One of the things that’s really shocking to me is that despite all of the pain we’ve seen over the last year when it comes to lack of housing, Congress is still not even really tackling this problem. It just indicates to me how much many of these lawmakers still don’t really believe that they’re responsible for fixing the underlying problems in the housing market. And I wonder, do you think this sort of “housing policy is local” disease is going to persist?
It definitely would be a shift for the federal government to say, “We have a serious stake in this issue and we’re going to wield a stick to do something about it.” The federal government has not really done that in relation to what are framed as local planning issues. I think it’s becoming increasingly clear that a lot of these local planning issues actually have serious national macro-level impacts on who’s able to access housing for a cost they can afford.
So I think that the case is becoming more and more clear — as this problem gets worse and worse — that there is a role for the national government to do something about it.