Tag Archives: housing policy

Housing Affordability for Moderate-Income Households

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The Center for Housing Policy’s most recent issue of Housing Landscape gives its Annual Look at The Housing Affordability Challenges of America’s Working Households. The Center finds that

Overall, 15.2 percent of all U.S. households (17.6 million households) were severely housing cost burdened in 2013. Renters face the biggest affordability challenges. In 2013, 24.3 percent of all renter households were severely burdened compared to 10.0 percent of all owner households. (1, footnote omitted)

The Center summarizes “the severe housing cost burdens of low- and moderate-income working households.” (1) Unsurprisingly. these households face

significantly greater affordability challenges than the overall population. In 2013,21.2 percent of working households were severely cost burdened (9.6 million households).Twenty-five percent of working renters and 17.1 percent of working homeowners paid more than half of their incomes for housing that year. (1)

The report notes some modest good news:

Since 2010,the overall share of working households with a severe housing cost burden has  fallen.This modest decline is the result of a complex combination of factors, including the shift of  some higher-income households from homeownership into rental housing. An insufficient supply of rental housing and sustained increases in rents have led to millions of working households having to pay too much for housing or live far from their jobs, in substandard housing,or in poor-quality neighborhoods. (1)

Federal and local housing policy has not yet come to grips with the fact low- and moderate-income households have been paying a significant portion of their income in housing costs year after year. Household have to make difficult trade-offs among cost, distance from employment, housing quality and neighborhood quality.

The Center notes that more can be done to support affordable housing at the federal and state levels, but it is not clear to me that there are any politically feasible policy responses that can make a serious dent in the affordability of housing for working households.

Tax Expenditure Wars: Wealthy Households v. Poor

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Henry Rose has posted How Federal Tax Expenditures That Support Housing Contribute to Economic Inequality to SSRN. This short article examines “how federal income tax laws benefit more affluent owner households but provide no benefits to economically-strapped renter households.” (1) Housing policy analysts (myself included) constantly bemoan the regressive nature of federal tax policy as it relates to housing, but it is always worth looking at the topic with updated numbers. And this article contains some tables with some interesting numbers.

One table provides an overview of the estimated tax savings (in billions) in FY 2014 for five federal tax expenditures for owners of housing that they occupy:

Mortgage Interest Deduction  (MID)                                                 $66.91

Property Tax Deduction (PTD)                                                        $31.59

Capital Gains Exclusion on Sales                                                   $35.54

Net Imputed Rental Income Exclusion                                            $75.24

Discharge of Mortgage Indebtedness Exclusion                            $3.1

Total                                                                                                 $212.38

The next table provides an estimated distribution of two of these tax expenditures (FY 2014, savings in millions):

Tax-Filer AGI                PTD Tax Savings         MID Tax Savings                

Below $50,000              $693                              $1,443

$50,000-75,000             $2,190                           $4,330

$75,000-100,000           $3,478                           $6,581

$100,000-200,000         $13,648                         $27,421

$200,000+                     $11,798                         $29,340

Total                              $31,806                         $69,115                               

The article concludes by noting that despite

the great disparity in economic positions between owners and renters, federal tax expenditures lavish tax savings on primarily affluent owners and provide none for renters. The federal tax expenditures for owners are so generous that interest can be deducted on mortgage balances up to $1,000,000 and can also be taken on second homes, even yachts, as well as primary residences. It is difficult to conceive of a federal public policy that more directly promotes economic inequality than the federal tax expenditures that support owners of housing but are not available to renters. (9-10, footnote omitted)

I don’t expect this disparity to be addressed any time in the near future, given the current political environment, but it is certainly one that should stay at the top of any list of reforms for those concerned with promoting equitable federal housing policies.

Housing Policy and Justice

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John Infranca has posted Housing Resource Bundles:Distributive Justice and Federal Low-Income Housing Policy to SSRN. The abstract reads,

Only one in four eligible households receives some form of rental assistance from the federal government. Nonetheless, there is no time limit for the receipt of this assistance; individuals can continue to receive benefits as long as they satisfy eligibility requirements. In addition, individuals who do obtain assistance frequently have higher incomes than those denied it. Beyond simply providing housing, federal rental assistance is enlisted to serve a myriad of additional policy goals — including furthering economic integration and providing access to better neighborhoods — that can exacerbate inequities between those who receive benefits and those denied assistance. These broader objectives often increase the cost of housing assistance and reduce the number of households served.

Given increasingly limited resources and the growing demand for rental assistance, difficult decisions must be made regarding how to satisfy a range of conflicting programmatic goals. Although for at least four decades legal scholars, economists, public policy experts, and politicians have denounced the inequities in existing housing policy, no one has provided a detailed analysis of the specific ways in which this policy departs from norms of distributive justice and of how it might be made more equitable. This Article moves the conversation beyond simply decrying existing inequities and instead carefully analyzes federal housing policy in light of specific theories of distributive justice. Drawing on the philosophical literature, it evaluates the specifics of existing policies, and their distributional impacts, in light of five theories of distributive justice. It then proposes a new structure for federal rental assistance, which would allow recipients to choose among a set of “housing resource bundles.” This approach will not only satisfy the most salient understandings of distributive justice, but will also advance the concerns that underpin other distributive justice theories and allow federal housing policy to more effectively embrace a plurality of programmatic goals.

I was particularly intrigued by one (modest?) proposal:

A commitment to distributing all federal housing assistance to provide for equality of resources would demand that the housing resource bundle approach be put in place for all citizens. Each individual would be limited in the total amount of housing assistance they could receive during their lifetime. All citizens would receive an equal sum of housing resources, either through direct rental assistance or a deduction of mortgage interest (or some combination). This would result in a substantial change in the allocation of resources, resulting in a more equitable distribution of all federal housing assistance. (62-63)

This proposal highlights the extent to which federal housing policy heavily favors upper-income households which benefit greatly from the mortgage interest deduction. The proposal also highlights a limitation of the article.  While it it makes clear that housing policy violates norms of distributive justice, it does not chart a practical course to achieve political change in an environment where the mortgage interest deduction is one of the most heavily protected federal tax expenditures. That being said, the article helps to clarify what is at stake in debates over federal housing policy and provides some intellectual clarity for those who study it.

Here Comes The Housing Trust Fund

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HUD has published an interim rule in the Federal Register to governing the Housing Trust Fund (HTF). The HTF could generate about a half a billion dollars a year for affordable housing initiatives, so this is a big deal. The purpose “of the HTF is to provide grants to State governments to increase and preserve the supply of rental housing for extremely low- and very low-income families, including homeless families, and to increase homeownership for extremely low- and very low-income families.” (80 F.R. 5200) HUD intends to “open this interim rule for public comment to solicit comments once funding is available and the grantees gain experience administering the HTF program.” (80 F.R. 5200)

The HTF’s main focus is rental housing, which often gets short shrift in federal housing policy

States and State-designated entities are eligible grantees for HTF. Annual formula grants will be made, of which at least 80 percent must be used for rental housing; up to 10 percent for homeownership; and up to 10 percent for the grantee’s reasonable administrative and planning costs. HTF funds may be used for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of nonluxury housing with suitable amenities. (80 F.R. 5200)

Many aspects of federal housing policy are effectively redistributions of income to upper income households. The largest of these redistributions is the mortgage interest deduction.  Households earning over $100,000 per year receive more than three quarters of the benefits of that deduction while those earning less than $50,000 receive close to none of them.

So, the HTF is a double win for a rational federal housing policy because it focuses on (i) rental housing for (ii) extremely low- and very low-income households.

While not wanting to be a downer about such a victory for affordable housing, I will note that Glaeser and Gyourko have demonstrated how local land use policies can run counter to federal affordable housing policy. Might be worth it for federal housing policy makers to pay more attention to that dynamic . . ..

Homeless in America

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The Department of Housing Urban Development released Part 1 of The 2014 Annual Homeless Assessment Report (AHAR) to Congress.  Part 1 provides Point-in-Time Estimates of Homelessness. Its key findings include,

  • In January 2014, 578,424 people were homeless on a given night. Most (69 percent) were staying in residential programs for homeless people, and the rest (31 percent) were found in unsheltered locations.
  • Nearly one-quarter of all homeless people were children under the age of 18 (23 percent or 135,701). Ten percent (or 58,601) were between the ages of 18 and 24, and 66 percent (or 384,122) were 25 years or older.
  • Homelessness declined by 2 percent (or 13,344 people) between 2013 and 2014 and by 11 percent (or 72,718) since 2007. (1)

The report notes that in “2010, the Administration released Opening Doors: Federal Strategic Plan to Prevent and End Homelessness, a comprehensive plan to prevent and end homelessness in America.” (3) The plan had four goals:

  1. Finish the job of ending chronic homelessness in 2015
  2. Prevent and end homelessness among Veterans by 2015
  3. Prevent and end homelessness for families, youth, and children by 2020
  4. Set a path to ending all types of homelessness (3)

HUD claims success on all four fronts:

  1. The number of individuals experiencing chronic homelessness declined by 21 percent, or 22,892 people, between 2010 and 2014.
  2. The number of homeless veterans declined by 33 percent (or 24,837 people) since 2010, and most of the decline was in the number of veterans staying in unsheltered locations.
  3. Since 2010 the number of homeless people in families has declined by 11 percent (or 25,690 people).
  4. Overall, homelessness has declined by more than 62,000 people since 2010 (62,042), a 10 percent reduction since the release of Opening Doors. (3)

In many ways, the success of American housing policy comes down to the question — can all Americans have a safe and affordable place to call home? The Administration answers this question in the affirmative. And this report appears to demonstrate that the Administration’s plan to end homelessness is working.

While I am skeptical of claims that we have finally figured out how to systematically address homelessness, I am happy to see that it is trending downward over the last few years.  This report was authored by some serious people, including Dr. Dennis Culhane of the National Center on Homelessness among Veterans at the University of Pennsylvania, so there is reason to trust these numbers. One can hope that this trend continues, but given the financial insecurity so many households face, I am worried that it will not.

Reiss on Threats to Housing

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CBS News interviewed me (and gave a shout out to REFinblog.com) about The 5 Biggest Threats to the Housing Recovery. It reads in part:

3. The government’s role in the mortgage market will change

The U.S. government currently backs about 97 percent of mortgages though the Federal Housing Authority, Fannie Mae and Freddie Mac. That’s unlikely to continue. It may take years, but the feds will eventually start edging out of the mortgage market. Private mortgage financiers will have to fill the void. But exactly how that will happen and what effect it will have on borrowers remains to be seen.

“The entire lending industry needs [government] leadership as to what the bulk of the market is going to look like in the long run,” said David Reiss, professor at Brooklyn Law School and editor of real estate finance industry site REFinBlog. “How tight or loose will credit be? The Federal Housing Finance Agency will decide this to a large extent, as seen by the recent announcement that Fannie and Freddie will no longer buy interest only mortgages.”

Building a Model for Housing Finance

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Following up on Friday’s post, I want to discuss Chambers, Garriga and Schlagenhauf’s draft that they recently posted to SSRN (free here).  It presents some interesting historical analogies to the issues we face as we attempt to chart a new direction for federal housing policy.

They too review the housing subsidies that exist in the financing system and in the tax code.  They attempt to “study the effects of changes in government regulation on individual incentives and relative prices” (4)  They include an interesting Table (2) on page 8 that shows the growing percentage of home mortgages that were insured or guaranteed by the FHA and VA.

What I find most interesting about this article is that it attempts to model the impact of better financing terms on the housing market.  For instance, they argue that their “model suggest that the extension of the FRM contract from 20 to 30 years can explain around 12 percent of the increase in ownership” for a certain period of time. (25)  More generally, they find that the “total impact of mortgage innovation is approximately 21 percent” when combined with “a narrowing mortgage interest rate wedge . . ..” (31) I would love to see more economics articles that model the impact of credit terms on housing prices and homeownership rates.  While this seems fundamental to housing economics, there is less out there about this than there should be.

While their conclusion that “mortgage innovation did make a significant contribution to the increase in homeownership between 1940 and 1960”  is not surprising, their model helps us understand why that is the case. (26)