Freddie Mac Multifamily has chosen Peter Lillestolen (pictured) to lead its targeted affordable housing (TAH) business as vice president of production and sales. In this new position, Lillestolen will oversee low-income housing tax credit (LIHTC) equity, conventional and TAH structured transactions, as well as seniors housing. Steve Johnson, senior vice president for Freddie Mac Multifamily’s … [Read more…]
Is the housing shortage merely awful, or jaw-droppingly catastrophic? Depends on who you ask. The Harvard Joint Center for Housing Studies estimates that there’s a deficit of 1.5 million dwellings. Realtor.com says that we’re 2.3 million units short. Zillow says it’s 4.3 million, and the National Association of Realtors (NAR) guesses we’re shy 5 million to 6 million homes.
The Biden administration recently announced several programs to goose the construction of affordable housing. The efforts won’t situate everyone into a decent place that they can afford to rent or buy. But over the next few years, the programs could ease housing burdens for hundreds and maybe thousands of households.
The problem is that the federal government is engaging the situation with a polite nudge when true progress requires a rude shove. If Congress would increase funding and the White House would apply more imagination, the impact could be bigger.
Two main causes for the housing shortage
In five years, the median resale price of an existing home went up 51%, to $406,700 in July 2023, according to the NAR. Prices are too high for many would-be buyers. In early 2022, Freddie Mac polled Gen Z adults (ages 18 to 25 at the time), and 34% of them agreed that “homeownership at any point seems out of reach financially.” Mortgage rates have zoomed since that poll was conducted, making homes even more unaffordable.
Housing experts blame the shortage of low-cost housing on two primary factors: the cost of land and the expense of borrowing money to build. High lumber prices and a scarcity of construction workers are problems, too, but land costs and financing are the biggies that the Biden Housing Supply Action Plan addresses.
It’s expensive to develop and build
When builders talk of land costs, they mean more than the price of vacant acreage. They also refer to costs imposed by local governments: impact fees, zoning rules that limit the size and spacing of new homes, and wasted time while projects are delayed by legal challenges and political opposition.
It’s often a long, costly slog to get approval for housing, especially for dwellings for low-income households, apartments and other multifamily units. As the Harvard Joint Center puts it in its 2023 report on the nation’s housing: “The national housing shortage is also the product of local restrictive zoning policies and other regulatory barriers that make it difficult to build a range of housing types at different price points.”
Cities overwhelmingly zone land for single-family houses, effectively banning duplexes and apartments. Minimum lot sizes mean builders can construct only so many houses on a block, so they build expensive homes to maximize profits.
“Considering everything, they are saying, ‘Well, only way to make the numbers work, we are focusing on this larger-size home,'” the NAR’s chief economist, Lawrence Yun, said in a C-SPAN interview in early August.
Feds need to be firmer with local governments
Elected local leaders set the rules that drive up the cost of housing in communities blue and red. Several states, from California to Connecticut and Montana to Maine, have responded by restricting local governments’ land-use powers in order to promote multifamily and affordable housing.
Some housing advocates think the federal government should step in and compel local governments to make room for less expensive housing, such as apartments. In a March 2021 paper, Overcoming the Nation’s Daunting Housing Supply Shortage, Jim Parrott of the Urban Institute and Mark Zandi of Moody’s Analytics wrote that “federal policymakers should push communities to reorganize their approach to development from the ground up.”
The Biden administration adopted this approach. Its flagship program, Pathways to Removing Obstacles to Housing, dangles an $85 million pot of money. Local governments can receive grants from it to implement reforms that allow for denser housing, to plan transit-oriented development, to streamline permitting and to address gaps in financing, among other things.
It’s a well-meaning effort, with two problems: It lacks bite and it’s stingy. (The administration requested $10 billion and Congress appropriated $85 million.)
“It’s a nice idea, but, you know, we need some stick with the carrot,” says David Dworkin, president and CEO of the National Housing Conference. He means that the effort would be more effective if the federal government would withhold money from cities that refuse to relax zoning. Such an approach worked in the 1980s, when the feds threatened to deny highway funding to states that refused to raise the drinking age to 21. That was a shove, not a nudge — and it worked.
Playing hardball might yield results with housing, Dworkin says. “This is about having apartment buildings in communities, and duplexes or quadplexes, and the failure of communities to address the political pressure of residents who say, ‘I’ve got mine, no one else gets theirs,'” he says.
A miserly response to an expensive problem
As for the amount of money that Congress approved: In their paper, Parrott and Zandi imagined a federal program that would hand out $50 billion per year for 10 years to cities that “ease regulations and other building restrictions.” The generous program would increase affordable housing by 275,000 units per year, they estimated.
If $50 billion per year for 10 years would help solve the affordable housing shortage, the $85 million Pathways to Removing Obstacles to Housing program is laughably small. It’s as if Parrott and Zandi presented a $500 repair estimate, and Congress fished three quarters and a dime out of its pocket. If $50 billion in funding would result in 275,000 affordable homes, as Parrott and Zandi estimate, then $85 million would be good for 468 affordable homes.
The Department of Housing and Urban Development (HUD) said it will ask Congress for more funding.
Other programs address the housing shortage indirectly. The Department of Transportation will chip in money to local governments that extend public transportation to and from affordable housing, partly through zoning reform. The Commerce Department, when handing out Economic Development Administration grants, will favor development projects that allow people to live closer to work.
Making borrowing easier for developers
The other major way to stimulate the construction of affordable apartments is by making it easier and faster for builders to borrow money to fund their projects. HUD has come up with two solutions.
First, it has increased the threshold of what constitutes a “large loan” to build or rehabilitate apartments. The increase from $75 million to $120 million will reduce paperwork and costs to build or rehab large apartment complexes.
Second, HUD removed a $25 million cap on the size of FHA-insured loans on apartment construction that uses a streamlined Low-Income Housing Tax Credit (LIHTC). This means more apartment complexes will be eligible for the LIHTC, which reduces investors’ tax bills.
These tactics — loosening the purse strings to boost apartment building — might hasten construction for projects that have already won approval. But in the long term, this country can’t solve its housing shortage if cities and towns continue to use regulations to restrict new construction. If paying them to cut red tape doesn’t work, then state and local governments might have to withhold funding.
The United States is home to a large population of both elderly and disabled people, but only 5% of housing across the country is equipped with features that make them accessible to such individuals.
This was one of the takeaways this week from “Laying the Foundation: Housing Accessibility and Affordability for Older Adults and People with Disabilities,” a hearing held by the U.S. Senate’s Special Committee on Aging.
Over 60 million people — roughly 26% of the total U.S. population — have a disability. An additional 20% of the total population is at or over the age of 65, a figure that is increasingly trending upward and which will challenge the U.S. economy in the years ahead.
However, homes with accessibility features for older and disabled people only make up less than 5% of the nation’s housing supply, as reported by CNBC.
Despite a climate of intense political polarization, committee members on both sides of the aisle appeared to recognize the inadequacy of that fact in addressing the housing needs of American citizens, and vowed to work together in an effort to find legislative solutions.
While the opening statements from the committee chairman and ranking member, respectively, were rife with political finger-pointing over the issue, the actual content of the conversation between committee members and panelists indicated amenability between Democrats and Republicans to address these challenges legislatively.
“Sometimes we’re at odds in terms of what we should do, but there’s always practical legislation in the middle, and I’d hope that we can have those conversations that get us there,” said Sen. Mike Braun (R-Indiana), ranking member of the committee according to CNBC.
One piece of legislation discussed was the Visitable Inclusive Tax Credit for Accessible Living (VITAL) Act, introduced by committee chairman Sen. Robert Casey (D-Pennsylvania) earlier this year.
It would increase “the low-income housing tax credit to serve the housing needs of older people and people with disabilities,” the bill’s summary says. “Specifically, the bill increases state allocations of the credit and credit amounts for projects for assisting households with disabled individuals.”
Domonique Howell, a witness for the hearing and a disability housing advocate from Philadelphia, described her own challenges living as a disabled person and the difficulty she and her family have faced in finding an accessible place to live. When the elevator breaks in her current apartment complex, for instance, she and others have to stay in their homes until a repair is made which can sometimes take “weeks,” she said.
“[Pennsylvania and other states should] develop affordable accessible housing to match the needs of residents,” she said during the proceeding.
A bipartisan group of legislators from the U.S. Senate and House of Representatives have introduced a new bill, the Affordable Housing Credit Improvement Act (AHCIA), which could help spur the construction of two million affordable housing units over the next 10 years.
The bill has been introduced in both chambers and seeks to expand the low-income housing tax credit.
If passed, the bill would accomplish these goals through three primary methods: by increasing the number of credits allowed to each state by 50% over the next two years; by increasing the number of affordable housing projects that can be built using private activity bonds; and improving the Housing Credit program to better serve at-risk and underserved communities.
Communities that could qualify as “at-risk” or “underserved” include veterans, domestic violence victims, formerly homeless students, certain Native American communities and rural residents.
The effort is being led by House members Darin LaHood (R-Ill.), Suzan DelBene (D-Wash.), Brad Wenstrup (R-Ohio), Don Beyer (D-Va.), Claudia Tenney (R-N.Y.), and Jimmy Panetta (D-Calif.). In the House, the bill has more than 60 bipartisan co-sponsors. Taking point on the measure in the Senate is Maria Cantwell (D-Wash.), Todd Young (R-Ind.), Ron Wyden (D-Ore.) and Marsha Blackburn (R-Tenn.).
In the House, the bill is designated as H.R. 3238 while the Senate version is S. 1557.
“Affordable housing is vital for families throughout Illinois and the Low-Income Housing Tax Credit continues to be an important tool to drive investment in the affordable rental housing market,” said Rep. LaHood in a statement. “This bipartisan bill will modernize the Low-Income Housing Tax Credit and help expand our housing supply, strengthening communities and supporting economic development in Illinois and across the county.”
Sen. Cantwell — whose state recently took action on its housing priorities through state-level legislation — added that the core priority is to address housing costs.
“This legislation would increase the federal resources allocated to each state, cut the red tape that hinders financing for workforce housing, better serve people most in need, and ultimately add more than 64,000 affordable units to Washington’s housing stock over the next decade,” she said.
According to a brief by the ACTION Campaign, the AHCIA has been introduced in each of the previous four U.S. Congresses and earned bipartisan support each time. Portions of the bill have been enacted over the years, but it has not made it into law in a comprehensive fashion.
Both the Senate and House versions were introduced into their respective chambers on May 11.
America is strongest when her people are strong. Therefore, when considering policy to improve our nation, we should always incentivize striving with an emphasis on equality of opportunity, understanding that a rising tide lifts all boats.
In my role as president of the Jack Kemp Foundation, I moderated an “Innovations in Affordable Housing” webinar. The webinar featured a panel of nationally known affordable housing experts, hosted by affordable housing developer National CORE, with the Sarasota Housing Authority, the National Multi Housing Council (NMHC) and the Housing Partnership Network (HPN) as panelists.
These policy leaders highlighted innovative solutions being pursued across the country to combat homelessness, house low-income families, and use affordable housing as a tool to improve the lives of those who need a hand up, not a handout.
What did we learn?
First, skyrocketing rents are placing a severe strain on families, seniors, and disabled persons of limited financial means as they seek affordable places to live. The most obvious impact is an increase in homelessness – which creates a host of additional community challenges. But this crisis also saps families’ resources for basic necessities and limits economic mobility.
We learned that the costs to build affordable housing rental units are also soaring. This makes it more difficult than ever to meet housing demand for lower-income families, since the rents they can afford do not cover the capital and operating costs of building new housing.
But one thing we have learned over the last 50 years is that we cannot just throw money at the problem. The cost of having federal taxpayers fund the full cost of needed affordable housing units – or subsidizing rents – is prohibitive and unrealistic. So, we need to be wise. We need to leverage our limited federal funding sources to access private sources of capital, using market-based approaches that maximize efficiency of the federal dollars being spent.
We need to prioritize local solutions.
Top-down federal grant programs, in silos separated by federal agencies and hampered by cumbersome rules, are not the answer. The housing tax credit program is a good model. Funds are competitively allocated by states to individual developments, ongoing accountability is maximized by the need to maintain tax eligibility for investor tax deductions and local developers compete for scarce dollars based on need and the merit of their proposals.
We also need to focus on people, not just buildings. Our affordable housing programs cannot just be about warehousing people living in poverty. They need to be about promoting the health, well-being and economic mobility of low-income families living in affordable housing. Our policies should focus on root causes of homelessness, such as mental health and addiction, as well as accessing health care and other community services.
Unfortunately, our housing policies are often grounded in the distant past.
HUD funds over $200 million a year for service coordinators to help families and seniors access services in their local communities. But these programs are arbitrarily limited to public and Section 8 housing units. This means that almost 100% of the new affordable housing built in the last 50 years – and the residents they serve – are ineligible for these grants. And there are no federal programs that directly fund resident services in federally funded affordable housing.
Congress should expand eligibility for resident services for low-income families – a good investment of federal funds. Accessing local health care services can help seniors avoid the alternative of nursing homes, which cost taxpayers considerably more as they pick up the tab through Medicaid.
Family self-sufficiency resident services are also a good investment. Such programs help low-income residents gain educational and occupational skills – which can help them take the step to affording market-price homes. Each time this happens, it’s the equivalent of building a new affordable housing unit for another low-income family.
The April 13 panel also explored other priorities that Congress should pursue. There is an almost universal consensus among housing advocates that the volume of low-income housing tax credits must be boosted. One panelist argued for adoption of the Neighborhood Homes Act, which would establish a federal tax credit for new construction or substantial rehabilitation of affordable, owner-occupied housing in distressed urban, suburban, and rural neighborhoods.
Another panelist suggested creating tax incentives for the long-term preservation of affordable housing units owned by qualified nonprofits, a far more cost-effective approach than building new units.
There is no shortage of ideas for meeting the modern-day challenges of affordable housing. I hope the ideas circulating in our webinar can spur further national discussion and debate in Congress about the most effective ways to modernize policy prescriptions and meet that challenge in a way that helps all Americans flourish.
Jimmy Kemp is the President of the Jack Kemp Foundation.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the author of this story:
Jimmy Kemp at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]