A Housing Agenda for 2023
Federal and state governments have the opportunity to take on these five priorities.
Over the last year I’ve written about what a conservative housing agenda would look like. That agenda included taking a hard look at how federal programs subsidize local intransigence on land use and housing. It also included taking a closer look at homeownership and the federal government’s role in increasing housing supply. The Congress, and the House especially, now has a chance to focus on these issues in 2023. Here’s where they should start.
Take on the Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit (LIHTC) program began in 1986 to encourage the production of more multifamily rental housing by market-rate producers. The LIHTC program was conceived as an incentive for the private sector, but today, non-profit developers get most of the $10.9 billion allocated by the program each year. And the Biden administration wants to spend more. The problem is that local governments are making it harder and harder to build housing to meet demand. Then, when prices go up, people complain about “skyrocketing rents,” and the federal government responds with more money in the form of tax credits. The money ends up getting spent on ridiculously expensive projects with total development costs as high as $700,000 per unit.
Senator Todd Young of Indiana has been a vocal supporter of the LIHTC programs. He could lead the way by asking tough questions about how to make the program more efficient. Why are total development costs so high? How many more units could be built if costs were lower?
How much do local wage requirements affect project costs? How much do transaction costs add to total costs?
Reforms to the LIHTC system should include making credit more immediately available to for-profit developers willing to set aside 20 percent of their units for people who earn less than 60 percent of area median income (AMI). This would mean more immediate help for people looking for housing and would forgo land acquisition and long-term taxpayer maintenance of non-profit housing.
Allow Immediate Use of Housing Choice Vouchers
A review by the Office of the Inspector General found that many vouchers aren’t being used. “Nearly 81,000 available housing choice vouchers could potentially be used to provide additional subsidized housing,” and “more than 191,000 additional low to moderate-income families could possibly benefit from subsidized housing by using these vouchers.”
Many voucher holders can’t find a place to use their voucher because they can’t find a qualified apartment where they need or want to live. When I looked at King County in Washington, some voucher holders had been looking for a qualifying unit for as long as 240 days, all the while still paying rent they presumably couldn’t afford.
Why not just let households that qualify for a voucher use that voucher where they currently live? This would be an immediate relief for the households suffering from higher costs. House oversight committees should ask the Department of Housing and Urban Development what HUD is doing to eliminate barriers for housing providers to take vouchers. What would prevent use of vouchers to pay rent where people live today? How many more families would be housed if we allowed this practice, and how much would families save?
Begin a Conversation About Home Ownership
Many make a valid argument that homeownership has been the single most socially and economically transformative shift in American society in the 20th century. According to the Federal Reserve Bank of St. Louis, homeownership rates have risen to 66 percent of American households, an astonishing shift from the beginning of the last century when the homeownership rate was less than a third of all households.
A presentation by the National Association of Realtors quantifies the global benefits of this trend. “Homeownership allows households to accumulate wealth and social status, and is the basis for a number of positive social, economic, family and civic outcomes.” The presentation cites benefits to “the educational performance of children, induces higher participation in civic and volunteering activity, improves health care outcomes, lowers crime rates and lessens welfare dependency.” The benefits have been demographically uneven, but still, African American homeownership rates were on the rise before the pandemic hit in 2020.
There is no doubt about the benefits of homeownership. But what about the costs, including overall housing inflation? Earlier this year, I wrote about a film created by the Economist about the overall costs of subsidizing homeownership. Taxpayers spend $100 billion per year in lost tax revenue from the mortgage interest deduction. Most consumer mortgages are backed by the Federal National Mortgage Association (Fannie Mae), and this pushes more cash into the housing market. And homeowners have an incentive to keep housing scarce to keep their equity; that means more regulatory pressure against multifamily housing and higher rents.
Last year saw massive price increases because of cheap money. Then, this year, in response to inflation largely driven by housing costs, the Federal Reserve raised interest rates. This has sent housing markets into a spiral in the last half of 2022, a trend that will continue in 2023. Now, buyers can’t afford to buy, and sellers can’t afford to sell. The resulting freeze in the market means that production will continue to drop. Lately, the volatility of homeownership has increased because of the market’s dependence on lower rates. The Community Land Trust (CLT) model might help smooth this out for first time homebuyer. The CLT model is built around land ownership by a non-profit with homeownership by individual families. By removing land from the equation, the model could smooth out the volatility of the market.
There is a strange, harmful, and distracting debate taking place in the United States about homelessness. Some, mostly on the left, argue that homelessness is entirely a function of the price of housing; mental health and drug addiction have little to do with it. “Mental illness and poverty were not remotely significant factors in causing disproportionate homeless in major cities and coastal states,” they argue. Using correlation, the argument is boosted by looking at housing costs and mental illness elsewhere; mental illness is just as prevalent in Topeka as it is on the coasts. And look where the highest costs are for housing: the coasts.
The notion that, in places like San Francisco, people living in rows of tents on the sidewalk and injecting heroin and dying from fentanyl overdoses are suffering because they couldn’t find a decently priced apartment in the city doesn’t pass the common-sense test. In a series I posted this year, I suggested that our approach to homelessness should include deregulating the overall housing economy. Why? Because the savings we’d realize from no longer having to subsidize people who have incomes would allow us to offer more intense support for people living and suffering on the streets of our cities.
The Congress in 2023, with conservative leadership, needs to look at ways to leverage federal subsidies to reduce the regulatory factors that suppress housing supply, create local inflation, and require people with jobs to take subsidies to afford housing. Montana has advanced a serious proposal to do this with state subsidies. The market can produce housing for most working households, and when it can’t, cash subsidies should be favored. This would create more resources for the hardest to reach people, and those funds should be conditioned on implementing more interventions that create some changes in the marginal rate of substitution for people living on the street; many are making the choices they are because they aren’t being offered better options.
Cities Are Worth Saving
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And speaking of cities, conservatives need to develop an approach to addressing urban problems. Cities in the United States have suffered over the last 3 years and are likely to continue to see less economic activity downtown, and continued issues with crime and homelessness. But, as I’ve pointed out, cities are worth saving. The ideological and electoral divide in the country doesn’t help; most cities are hardened in their resistance to reform. But cities are still engines of innovation and economic potential.
We need to build support for common sense solutions, the simplest being to allow the production of more housing of all kinds, everywhere, for people of all levels of income. A basic principle many conservatives embrace is that people thrive when they have more and better choices. We should apply that to housing policy in 2023.