By Andrew Busch and Leah Hamilton

The US housing market is large and complex.  The American mortgage market is massive at over $15 trillion.  The complexity is represented by the NAR Housing Affordability index being at its highest level since 2016, but the number of households severely rent burdened (paying more than 50% on rent) having increased by 42% between 2005 and 2017.  This percentage of households that are severely rent-burdened has grown to a total of 17% of all renting households.  Furthermore, Pew Research Institute indicates that as many as 40% of households renting are paying more than 30% of their income on rent.

As a reminder, affordable and stable housing helps both individuals and family well-being from better physical and mental health to improved school performance to greater opportunities for economic self-sufficiency.  Affordable housing helps communities provide access to services and opportunities; it also improves racial and economic integration. Lastly, affordable housing helps the local economy by being able to attract and retain workers; shortens commutes and reduces traffic; and supports sustainable economic growth.

In addition, the issue of rent burdening affects black households and households of seniors more frequently than white households, with the gap between these demographic groups continuing to widen.  This issue of rent burdening, and the additional demographic gap, are viewed as issues of social justice by many of the Democratic candidates. Several of the Democratic candidates tackle this issue in their policies.

For many families the unaffordability of housing is simply a factor of being low-income.  If a family is struggling to buy groceries or other essentials, they won’t be able to afford housing either.  Government assistance such as SNAP, free K-12, and Medicaid, can partially contribute to helping low-income families be able to balance their budgets, and begin to afford higher-quality housing.  Furthermore, Section 8 vouchers can also help low-income families to afford a home. However, there are a number of issues with the Section 8 housing vouchers that need to be ironed out. For example, even though many households are eligible for Section 8 vouchers, it can take an extended period of time for vouchers to actually be received by eligible families, and wait-lists are long.  Nearly 2.2 million households are eligible for Section 8 vouchers, but the waitlist is nearly 4 times as long.

As a percentage of income, housing costs have also continued to grow over the past five years, and middle-income families are also beginning to face problems with housing affordability, even in urban areas with strong labor markets.  Within some major US cities and suburbs, home prices have significantly increased past pre-financial crisis levels, and in turn, this squeezes the budgets of middle- and lower-income families. The Heritage Foundation notes that “as in the years prior to 2008, affordability concerns are growing. … the home-price-to-income ratio peaked at more than 4.0 in 2006 before declining to under 3.0 in the wake of the meltdown. It now stands at more than 3.5, significantly higher than the historic norm of around 2.8.”

The affordable housing problem can be separated into three categories:

  • Housing affordability; 
  • Housing availability; and
  • Racial and other demographic gaps in the above two factors.

The issue of how to handle affordable housing in the US has become a major election issue in the 2020 Democratic primary.  The question is whether housing issues and policy will be become a national campaign issue. As an indication, the National Low-Income Housing Coalition and Hart Research Associates produced a nation-wide public opinion poll, which discovered that around 85% of Americans “believe ensuring everyone has a safe, decent, affordable place to live should be a top national priority”.  Clearly, this issue resonates with voters, but nonetheless it isn’t on the top 5 issues for voters overall for 2020.  

In many cases, housing is an issue that can be and is primarily targeted by cities themselves, rather than at a federal level.  New York City, Seattle and Denver all have their local plans to address the issue of high rent and housing costs. Minneapolis made national news when it eliminated single-family zoning last December with its Minneapolis 2040 upzoning plan.  However, the federal government can have an influence when it comes to legislation around housing fairness, zoning rules, and land-use regulations.

For those Democratic candidates who have a plan, there are two camps of policies.  The Booker and Harris campaigns propose tax credits or subsidies for low-income people who spend large portions of their income on rent.  The other candidates’ proposals can be grouped together: addressing supply by building more housing, combined with policies specifically targeted to provide subsidies or assistance to disadvantaged demographic groups.  In most cases, the intention is for housing density to be increased, racial and demographic disparities reduced, and rents and housing prices brought down.

Biden

One of the glaring issues with Biden’s platform on affordable housing is that he has no specific proposals for national rent subsidy or building plans.  With no dedicated policy on housing, one must cobble together portions from other areas for his policy proposals impacting housing.  Under his energy and environmental plans, he has described a strategy to increase energy efficiency in homes, and to have low-income housing in particular made more energy efficient.  He plans to do this with “deep retrofits that combine appliance electrification, efficiency, and on-site clean power generation. 

Under his Plan for Strengthening America’s Commitment to Justice, Biden includes a goal of 100% of formerly incarcerated people having housing when they re-enter society.  He notes in this plan that a “lack of housing can be completely destabilizing and limit their likelihood of successfully staying out of the criminal justice system.” To enact this plan he would direct HUD to only contract with entities that are open to housing individuals looking for a second chance.  Furthermore, he would also expand the funding for transitional housing.

On the positive side, Biden’s Strengthening America’s Commitment to Justice plan could go some way towards increasing housing affordability as a percentage of income and could contribute to reducing racial and demographic gaps with regard to how much is spent on housing costs (such as electricity and heating).  In addition, this could fuel growth for businesses that specialize in this sector, creating a small boost for jobs in this area of retrofitting and housing energy efficiency. However, his plans do not address the issue of housing availability, they do not go particularly far when it comes to affordability and they only cover one aspect of the relevant costs. 

In addition, while his transitional housing plan is admirable and can help a vulnerable group in the population, it is a limited proposal that will not contribute significantly to larger middle- or low-income populations.  In addition, it states nothing with regard to what the quality of this housing must be like, or what entities “open to housing individuals looking for a second chance” really means. Without clear criteria on exactly who this housing will be open to, it’s hard to determine the impact this will make on the targeted population.  Furthermore, there is a question around who will provide and manage this transitional housing, and what burdens will be placed upon potential landlords to support transitional tenants in their properties.

Sanders

Sanders has described housing as a “right” and has released a plan on closing the affordable housing gap, which includes building 7.4 million affordable housing units.  In addition, he plans to establish the National Affordable Housing Trust Fund and would double the funding for HUD’s McKinney-Vento homeless assistance grants.

He supports rent control ordinances and would also mandate that developers include affordable housing in their new projects.  One of his most radical plans is to put far-reaching rent control measures in place, including a nationwide cap on rental prices above one and a half times above the rate of inflation, or 3% (whichever is higher).  California and Oregon both passed rent control ordinances in early 2019, but at much higher caps of 5 and 7 percent plus inflation, respectively.

He would also build 2 million mixed-income housing units, and fund $50 billion in grants for community land trusts.

In addition, he would implement the 10-20-30 approach to federal investments, which would assist communities that have high poverty levels.  Finally, he would end redlining practices and other forms of discrimination.

Sanders’ plans address both housing affordability and availability but could have unintentional negative effects for the housing supply, thus offsetting some of his plans’ benefits.  In particular, his policies on rent control may be the most problematic. 

While rent control is a well-intentioned policy, it can limit the returns that developers can make on housing construction, which may disincentivize development.  In other words, rent control can reduce housing supply and therefore, raise the cost for renters and exacerbate the affordable housing problem. The Cato Institute notes that “fixing rents below market levels gives the false signal that housing is plentiful … which ensures a shortage, with demand for rental property exceeding supply,” and that the cost of many rent control policies is “worsened availability of housing precisely where it is needed most.”  Also with rent control, landlords will have little incentive (profits) to afford renovation or repair and may let buildings fall into disrepair, which ultimately affects tenants negatively. Again, nationwide rent control could have an unintended consequence that hurts those the policy is intended to help. 

In San Francisco, when rent control was implemented, an issue arose when landlords simply took their rental properties off the market by either selling them or converting to condos.   This reduced the overall supply of rental units and led to rent increases in non-affected buildings and areas, as well as increasing gentrification. It’s hard to say whether Sanders’ plan would also result in these issues, but rent control policies can have mixed effects depending on how they are applied and whether there are any other policies counter-balancing their negative aspects.

On the positive side, 7.4 million affordable housing units, 2 million mixed income units and $50 billion in grants for land trusts will make an impact.  Given the intersection of racial and demographic groups with poverty, focusing on building large amounts of affordable housing for communities with high poverty levels could significantly help these groups.

Warren

Warren has a specific plan for housing, called “My Housing Plan for America” as well as a separate plan for military housing.  As part of her housing plan, she has re-introduced the American Housing and Mobility Act, which would invest $500 billion over 10 years to “build, preserve, and rehab units that will be affordable to lower-income families”.  According to Warren, this would contribute to 3.2 million homes available to lower- and middle-income households nationwide and would lower average rents by 10%.

In particular, half-a-billion would be invested in rural housing, $2.5 billion in the Indian Housing Block Grant and the Native Hawaiian Housing Block Grant, and $4 billion in a Middle-Class Housing Emergency Fund.  This fund would support the construction of new housing for middle-class renters in communities with severe housing supply shortages.

For first-time homebuyers in formerly redlined neighborhoods or formerly segregated neighborhoods that are still low income, she would introduce down-payment assistance. This is specifically intended to address the black-white housing gap.

The Fair Housing Act would be amended to ban discrimination on the grounds of “sexual orientation, gender identity, marital status, veteran status, and the source of one’s income, like a housing voucher.”  She would also extend the Community Reinvestment Act to require non-bank mortgage lenders to invest in minority communities. Also, individual states would be prevented from stopping local efforts to enact tenant protection laws. 

$2 billion would also be invested to support homeowners who are still underwater due to the 2008 financial crisis.

She also plans to change cities’ zoning policies, including mandatory parking requirements, minimum lot sizes, and development fees.  To enact this, she proposes a $10 billion fund that cities can apply for, to use for funding to build infrastructure. They would be eligible for funding as long as they comply with her land use rules.

On GSE reform, she would amend Fannie Mae and Freddie Mac to introduce strict new requirements on “the situations in which the agencies are allowed to sell mortgages and imposing requirements on buyers to make sure they protect distressed homeowners and the neighborhoods they live in.”  

The Heritage Foundation notes the continued ineffectiveness of the GSE system, and how in general it does “little to broadly support homeownership”.  However, Warren will likely critique the recent Trump administration plans for GSE reform as not going far enough to ensure that housing affordability is the top priority in any overhaul.  The reform of the GSE system will be complex, and even with Warren’s plans it is relatively uncertain as to whether her approach to reform will alleviate the current issues.

There are also issues with expanding the Community Reinvestment Act, with some viewing it as “ineffective or damaging”.  One of the problems is that lenders attempt to reduce risk by primarily lending to the highest-income of the low-income group, which completely avoids the people who need the help most.  However, one of the current problems with the CRA is that it does not apply to other lenders, including mortgage companies, fintech companies, and credit unions. Warren proposes to amend the CRA so that it will apply to these other lenders.  This could ensure that all lenders are required to support minority communities in a greater way. On the other hand, the regulatory burden of the CRA is relatively high, and the question remains as to whether compliance costs (which are passed on to consumers) match up with the gain from the CRA’s application.  The goals of the CRA are admirable, but there is considerable debate as to whether or not it is effective, and whether its’ goals should be pursued in a different way. 

On the positive side, Warren’s plans do attempt to tackle the three parts of the affordable housing problem that we highlighted above: housing availability, housing affordability, and addressing demographic gaps in housing access and cost.  Her plan to build 3.2 million home for low- and middle-income families will have a positive impact, and her policies to support black and minority communities could go some way towards reducing demographic differences in housing availability. 

Warren’s approach focuses on economic inequality and social justice and is generally balanced and focuses solutions and funding where it is needed most.  This broad view gives her platform a higher chance of success, as she clearly recognizes the underlying issues of affordability, supply, and equitability.  The Cato Institute explains that while Warren’s proposals are not all ideal, her kind of “tenant-based assistance is more efficient and equitable than project-based assistance, such as housing tax credits.”  This is in contrast to some of the other candidates, whose policies include tax credits and rent control, which can have unintended negative effects. 

Harris and Booker

The primary housing proposal put forward by Harris is a renters’ tax credit.  This has also been proposed by Booker. As such, their proposal will be considered together. It was introduced by both Senators in 2018.  The idea is that taxpayers would be given a tax credit for any amounts in rent that they pay, that are more than 30% of their total income. 

The differences between Booker’s proposal and Harris’, is where they cap the costs for this rent.  Booker would put a cap on this rent at “fair market” rates for the area and housing, while Harris would only allow this credit to be claimed by families earning up to $100,000 per year.  This “fair market” rent would be determined by the Department of Housing and Urban Development. 

Like Warren, Booker would also implement zoning reform, that would require cities to eliminate restrictive zoning rules for projects to qualify for federal loan and grant programs.

Like Warren, Booker would amend fair housing laws to prohibit discrimination on the grounds of gender, sexual orientation, or source of income (such as housing vouchers or government benefits).  He would also create a fund intended to fund legal counsel for renters who are facing eviction and cannot afford a lawyer. Harris also has proposals in this line, proposing to set aside $100 billion in federal grants that would help with closing costs and down-payments for families in formerly redlined communities.  She would also strengthen housing laws when it comes to sales, lending, and rentals, to stop discrimination on similar grounds to those proposed by Booker and Warren.

Part of Booker’s plan to end demographic disparities is his “Baby Bonds” approach, in which opportunity accounts are given to babies born to low-income families.  Part of the intention is that the value of these bonds would grow into a “nest egg” that could then be used for larger payments such as a down-payment on a house.

Another interesting plan from Harris is that she would expand the kind of information that is used for calculating credit scores, including taking into account whether individuals have been able to keep up with rent and utility payments.  This could help lower-income families qualify for better credit and housing options, even if they are struggling with their other debts.

In high-cost metro areas like New York and San Francisco, Harris and Bookers’ tax credit proposal could have a positive effect, particularly on low-income renters.  However, the issue is that this removes pressure on the housing markets for landlords to lower prices to compete for tenants. Instead, with the already hot “landlord’s market”, this increases the likelihood that landlords are ambivalent to maintaining or raising prices, given that their tenants can simply get a tax credit for any high costs.  Essentially, this would be an incentive to drive up rents, rather than a solution for low-income renters. Furthermore, the costs of this plan are relatively high: $134 billion annually, estimated by the Booker campaign. For Harris, her proposal would benefit primarily low- and middle-income families, while Booker’s would benefit anyone paying more than “fair market” rent.

This kind of tax credit has been implemented in some states, including Arizona, Colorado, Connecticut, Iowa, Missouri, Montana, North Dakota, Oregon, Pennsylvania, Rhode Island, and Utah.  Most of these tax credits are small, and almost all of them are based on the renter being low-income. However, very few of them are tied to rent as a percentage of income, and very few are tied to market rates for housing.

One negative is that neither Booker nor Harris have any significant proposals for building more low- and middle-income housing.  As such, their proposals do not go far enough in terms of addressing the issue of supply.

On the positive side, funding for low-income residents to fight eviction or other legal issues with tenancy could help vulnerable residents to access legal processes when they otherwise wouldn’t be able to afford it.  Furthermore, proposals to assist homeowners in formerly redlined communities can help to reduce the demographic gap that applies to housing access. 

Buttigieg

Pete Buttigieg has an extensive housing-related plan, called the Douglass Plan.  This Douglass Plan is intended to alleviate racial differences in housing access, homeownership, and wealth.  As part of the plan, he proposes a “21st Century Community Homestead Act”, which would create a public trust to purchase abandoned properties and provide them to eligible residents.  The people who would be eligible are those who live in historically redlined or segregated areas, or who earn less than the median income for their area.  They would get a 10-year lien over the property, and full ownership over the land.

The Homestead Fund created by this act would pay for the property renovations and would also give homeowners a 10-year guaranteed loan for initial improvements and maintenance.

In addition, as part of the plan, homeowners are required to occupy the property for at least 10 years, to prevent turnover and to encourage revitalization. 

Some of his other housing plans include providing national investment for affordable housing construction, reforming land use rules to make it easier to build affordable housing and expanding federal protections against eviction and harassment for tenants. 

He also proposes that the EPA, HUD, and CDC work together to address the issue of lead-based paint in aging homes.

The issue with his Homestead Fund plan is that low-income homeowners will not necessarily have the time and capacity to improve the property condition necessary for use as a primary residence.  Furthermore, homeowners may struggle to pay back these loans after 10 years, as there is no guarantee that the property market improves and that they actually make capital gains on their properties. 

Furthermore, requiring homeowners to stay in the property for 10 years is problematic, as this reduces opportunities for accessing jobs or better schooling elsewhere, and could trap residents in areas that continue to stagnate, leaving house prices low and reducing their opportunities to move.  Even from a practical perspective, living in a house that is under renovation is not pleasant, and may be beyond the capabilities of a low-income family that is already struggling with other issues such as access to food, healthcare, and education. Programs of this kind have been tried before and failed, such as homes for sale for $1 in Baltimore, for residents to improve.  In most cases the issue was that homeowners could purchase the house but could not finance the improvements, and banks were unwilling to lend for houses with no value.

If this plan were to work, some of the main benefits could be increasing generational wealth, reducing the wealth gap between white families and people of color, creating safer and healthier communities, and creating jobs in the area (people who work to complete the renovations).

Summary

When it comes to solving the housing crisis, the range of policy positions is relatively narrow, with several candidates proposing the same ideas for fixing the problem.  The progressive think-tank Data for Progress has put forward a report titled “Homes for All”, which sets out a potential housing policy framework. They note that a progressive housing plan would work towards “ending racist exclusionary zoning, building 7-to-10 million new social homes, offering immediate relief for renters, and decommodifying housing.”  It’s clear that some of the Democratic candidates are working towards these issues with this progressive stance in mind.  

The rent relief tax credit idea proposed by Sens. Booker and Harris is an interesting one, but one that could ultimately cause more harm than good.  In addition, rent control proposals from Sanders have the potential to help housing become more affordable, but could also backfire and result in the housing supply decreasing.  Rent control is problematic because it creates distortions in the housing markets. As stated above, rent control creates shortages that hurt non-subsidized renters. It also creates incentives for landlords to raise prices and not maintain their properties.

Generally, the ideas put forward by Warren are more well-rounded: more housing, down-payment and financial assistance, and a focus on communities that have been historically marginalized (and continue to be).  Her more-measured approach could have a greater positive effect on housing when compared to some of the other candidates’ more complex policies, which may actually have mixed or negative impacts. The simpler the program the bigger impact:  incentivize development to increase supply to reduce the price.

However, with all government spending programs, the questions are at what cost and what benefit?  If the private sector is not fulfilling a need, what is the lowest cost, highest return for government spending?  These are difficult, but critical questions to ask when solving the affordable housing problem.