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America Has a Housing Mess, and President Biden Wants to Fix It

Bloomberg logoBloomberg 5/26/2021 Noah Buhayar and Olivia Rockeman

(Bloomberg Businessweek) -- U.S. housing policy is practically geologic in form. Since the 1930s, the federal government has rolled out layer upon layer of programs and incentives to help the poor, the middle class, veterans, and others afford homes. What we have today is an accretion of policies and bureaucracy that’s complex and inadequate for today’s needs. “It’s like sedimentary rock,” says Chris Herbert, the managing director of the Harvard Joint Center for Housing Studies. “There’s never really been a time when we sat down and said, ‘Let’s think about a coherent U.S. housing policy.’”

President Joe Biden wants to do better. With a possible eviction crisis looming and home prices spiraling further out of reach for many buyers, his administration is pushing for the biggest federal housing investment in decades—one that’s also designed to advance goals on climate and racial equity. This includes the more than $300 billion his administration has proposed to “build and modernize” housing as part of its sprawling infrastructure package, as well as a raft of social spending that will increase the amount of money Americans have to keep roofs over their heads. All this would come on top of the more than $50 billion in emergency funds Congress has allocated to help households that missed rent and mortgage payments during the pandemic.

The flood of money comes after decades in which federal spending on housing assistance receded. That pullback, as well as years of underbuilding, contributed to an acute affordable housing shortage going into the pandemic. Almost 11 million households spent more than half their income on rent in 2018, a level of financial stress that frequently tipped people into crisis. Here’s one mind-boggling number: On a single night in January 2020, more than 580,000 individuals were homeless in the U.S., according to a once-a-year count organized by the Department of Housing and Urban Development.

Covid-19 has only exacerbated the inequities built into the system. Black and Hispanic households have lost jobs at higher rates than White families and are more likely to be behind on rent or mortgage payments. At the same time, the Federal Reserve’s easy monetary policy sent mortgage rates to historic lows, allowing the well-heeled to refinance and buy second properties, while many first-time buyers are finding themselves shut out of the booming market. “If you don’t have excellent credit, if you don’t have a really high and competitive down payment, and if you don’t have the ability to go over ask, good luck,” says Ali Wolf, chief economist at Zonda, a housing data and consulting firm.

The emergency rental assistance Congress authorized this year and last, as well as policies such as the Centers for Disease Control’s eviction moratorium, are meant to prevent people from falling further and compounding their hardship. “One of the gaps we inherited that we are now forced to take on is the lack of a widespread structure to help Americans avoid unnecessary and potentially devastating evictions,” says Gene Sperling, a senior advisor to the president overseeing the $1.9 trillion coronavirus relief package passed in March. “We are racing to close that gap.”

Still, these outlays have been slow to get to renters in some places and are just Band-Aids for the underlying problems. That’s why the White House is pushing for even bigger investments as a part of the president’s American Jobs and Families Plans. These include a sharp increase in tax credits—outlined on May 26—to help finance affordable housing—and $40 billion to fix up public housing, which would disproportionately help communities of color. Expanded child tax credits would put more money into families’ pockets, and an increase in funding for housing vouchers in the president’s budget blueprint could help 200,000 additional households afford rent.

These supports for lower-income Americans could really move the needle in parts of the country where there are already enough homes but local wages haven’t kept up with rising housing costs, says Carol Galante, faculty director at the Terner Center for Housing Innovation at the University of California at Berkeley. In such high-cost regions as the San Francisco Bay Area, Seattle, and Boston, though, it won’t be enough to drive down rents, she says.

Expanding the supply of homes in those places will require taking on the Nimbys. On this front, the Biden administration’s solution is a voluntary grant program that would give local jurisdictions money to fund what can be the arduous process of reforming zoning laws and removing other obstacles to increasing density. Such local laws—including parking requirements for new construction and prohibitions on multifamily dwellings—have furthered housing segregation, exacerbated sprawl, and driven up costs. But some prosperous places probably won’t take the money, says Joe Cortright, director of City Observatory, an urban policy think tank based in Portland, Ore.

A more effective approach would be to tie federal transportation dollars to the reforms, says Sarah Saadian, vice president of public policy at the National Low Income Housing Coalition. “That’s the money that’s really sought-after and would be persuasive,” she says.

In the near-term at least, the administration is also fighting market forces that are making it harder to add more housing. The price of lumber is soaring, driving up the cost of constructing a home by almost $36,000 in the last year, according to the National Association of Homebuilders. A shortage of build-ready lots and labor are also holding back construction. Add it all up, and what you get is inflation in the cost of shelter that could exceed 4% annually by 2023, a higher level than at any other point in the previous economic cycle, researchers at Goldman Sachs Group Inc. estimate.

While several of the administration’s housing proposals have bipartisan backing, hopes for advancing an infrastructure bill that Republicans support have dimmed. That could force Congress to pass many of the president’s priorities through budget reconciliation, a fast-track process that could clear both chambers with only Democrats voting in favor. But just getting moderates and progressives in that party to agree may keep the administration from reaching for more ambitious reforms.

Take the mortgage market. Currently, people can get government-backed loans to buy homes in parts of South Florida that are already experiencing seasonal flooding because of rising sea levels. The U.S. could choose to stop subsidizing their mortgages, says Jenny Schuetz, a senior fellow at the Brookings Institution who studies housing policy. “That seems like low-hanging fruit, but so far we have chosen not to do it.”

Whatever form the Biden housing plan takes, administering it effectively would be an enormous task. “The biggest risk is implementation,” says Galante, who was an assistant housing secretary during the Obama administration before going to UC Berkeley. “The thing that bureaucrats fear more than anything is being criticized by Congress for not getting the money out, or getting the money out in a way that is abused.”

The pandemic has forced the federal government to be more nimble as it sets up programs and deploys relief money to states and local jurisdictions. That could help lay the groundwork for spending on housing through an infrastructure package, says Erika Poethig, special assistant to the president on housing and urban policy. “We have incredible collaboration across the agencies,” she says. “So I’m hopeful that the resources allocated through these plans would land well and start to really handle some of the backlog.”

(Updates second and sixth paragraphs with information the White House released today detailing proposed new spending on housing as part of the American Jobs Plan.)

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