- Jason Tuvia
Presidential Problem: Candidates Pitch Solutions to Nation’s Housing Shortage
Proposals Give New Prominence to the Lack of Shelter in a Growing Economy
As Democratic presidential candidates debated on Thursday night, the majority of a divided American electorate agreed in polls that a key need exists to address a national shortage of affordable housing.
That could be one reason why Massachusetts Sen. Elizabeth Warren and some of her fellow Democratic candidates, including Sens. Cory Booker of New Jersey, Kamala Harris of California as well as former Obama administration Housing Secretary Julián Castro, have put forward plans they say would make great strides toward helping families across the country deal with housing challenges that have contributed to more than half a million people living without homes in the United States.
Their philosophies will compete with the stands of other candidates who took to the debate stage, from former Vice President Joe Biden, South Bend Indiana Mayor Pete Buttigieg, Vermont Sen. Bernie Sanders, Minnesota Sen. Amy Klobuchar, former Texas Rep. Beto O'Rourke and entrepreneur Andrew Yang. And on the Republican side, President Trump has also addressed the issue during his time in office.
Democrats' plans, which span changes in land use and construction funding to tax credits for offsetting rental payments, come as national focus on rental affordability gains prominence with voters. More than 8 in 10 Americans said ensuring rental housing affordability should be a “top national priority," according to a poll by a group advocating for strong federal housing policies commissioned through Hart Research Associates early this year. The number of people who said housing was a "serious problem" was up 21 percentage points to 60% this year from 2016.
"We're finally getting national attention to a problem that affects millions of people across the country,” said Jim Lapides, vice president with the D.C.-based National Multifamily Housing Council. “We may not necessarily agree with some of the approaches," but "the elevation of this issue into presidential politics is key."
As a whole, the nation has been underbuilding housing, trailing household formation by about 4 million units, according to a CoStar report on the national apartment market. The lack of supply has helped to exacerbate rapidly rising rental costs, fueled in part by increasing single-family home prices and stricter mortgage lending rules that have made home ownership less attainable than in the past.
The apartment vacancy rate across the United States today is below 6%, compared with about 8% at the end of 2009, and that has helped to push up the average monthly rent to more than $1,300 from about $1,000 a decade ago, with some high-growth markets experiencing even faster rent growth and lower vacancies. That's even happening on the lower-end of the housing market.
While the Trump administration has cut the Housing and Urban Development Department and affordable housing funds while creating a council to explore scaling back regulations that could impede housing development, the plans from the Democratic presidential candidates increase federal funding or subsidies that, at least at one point in history, were key to solving some development challenges around affordable housing nationwide, some industry executives say.
"The federal government has historically played a critical role in the creation of housing options for people on the lowest end of the income spectrum," Diane Yentel, chief executive of the National Low-Income Housing Coalition, a group that advocates for housing solutions for people making the lowest incomes, said in an interview with CoStar News. HUD budget cuts in the 1980s choked off funds that need to be restored to go a long way toward tackling the problem, Yentel said.
Wherever the solution lies, some in the commercial real estate industry see an important role for the federal government in addressing the nation's housing crisis. "The issue is too big for private industry alone to do it," said Pat Jackson, president and CEO of Sabal Capital Partners, a financial services firm focused on commercial real estate, lending and investing in Irvine, California.
More Federal Funding
Warren, a longtime consumer advocate who rose to national prominence in the aftermath of the financial crisis by spearheading the creation of the Consumer Financial Protection Bureau, released a plan in September 2018, a few months before announcing she was running for president.
Warren’s plan, called the American Housing and Economic Mobility Act, would increase federal funding to build or renovate 3.2 million housing units for lower-income and middle-class families and bring down rents by 10% in urban and rural areas. The plan, which she reintroduced in the Senate this year, would invest almost $500 billion over 10 years into the National Housing Trust Fund, a federal housing program that builds, preserves, rehabilitates and operates low-income rentals.
It would also put $10 billion into a new competitive grant program that communities can use to build infrastructure, parks and schools, with the stipulation that local governments reform land use rules that make construction of new affordable housing more expensive.
Changing land-use rules can go a long way toward helping fix housing problems, according to a May study by the Urban Land Institute’s housing research arm, the Terwilliger Center for Housing. In a survey of ULI members, land use ranked the highest on a list of challenges to delivering attainable housing nationwide, scoring a 3.24 on a scale of 1 through 4, with 4 being the biggest challenge.
"This proposal will attack the rising cost of housing by helping to roll back needlessly restrictive local zoning rules and taking down other barriers that keep American families from living in neighborhoods with good jobs and good schools," said Warren in a statement announcing her proposal.
Warren’s plan intends to strengthen the Community Reinvestment Act, a 1977 law aimed at encouraging banks to provide loans to low- and middle-income families, to cover more institutions and strengthen sanctions against companies that do not follow the rules.
The plan calls for hundreds of billions in government spending over the next decade, which Warren intends to pay for by returning “estate tax thresholds to their levels at the end of the George W. Bush administration and institutes more progressive rates above those thresholds," according to her proposal.
The changes are expected to impact about 10,000 of the wealthiest families in the country, Warren’s announcement of the proposal says.
Some of the Democratic presidential candidates' plans focus on helping renters paying at least 30% of their income on housing, a figure considered a cost burden by some economists. Financial guidelines suggest that people should spend no more than 30% of their incomes on housing costs and those who spend more are considered “cost-burdened.”
The average monthly apartment rent nationwide is about $1,350, according to CoStar data. The median wage in the U.S. in the first quarter of 2019 was $898 per week, or $3,592 per month, according to the Bureau of Labor Statistics
Booker, who often tells the story of his own parents’ struggle with housing when he was a child, wants to offer a tax credit to renters who spend more than 30% of their income on housing.
Booker would use these tax credits to help families who are paying more than that fill the gap between that 30% and fair market rent, with the median credit for a family being $4,800, according to his campaign.
Similarly, Booker intends to pay for his plan, called the Housing, Opportunity, Mobility and Equity Act, which is estimated to cost $134 billion annually, by rolling back tax cuts passed by the Trump administration in 2017.
Under Booker’s plan, assistance would go directly to renters, rather than creating new rules for financial institutions or local governments.
“Access to safe, affordable housing can be transformative in the trajectory of people’s lives,” Booker said in a statement.
Harris is proposing a Rent Relief Act. It also offers a tax credit to renters making less than $100,000 per year and spending at least 30% of their income on rent, with the possibility of raising the threshold to $125,000 in particularly expensive cities.
Harris’ camp estimates the act could ultimately help 13 million families, particularly in cities, considering that about half the renters in the country’s largest cities are among those who spend more than 30% of their incomes on rent.
Meanwhile, Castro said he plans to expand federal housing vouchers into a “fully funded entitlement program” and has proposed a tax credit for renters who pay more than 30% of their income on housing.
He proposed $40 billion in annual funding for the National Housing Trust Fund, which could help create more than 3 million affordable apartments over a decade.
Sanders wrote an op-ed on CNN's website that he supports rent control ordinances and requirements that developers include affordable housing in their projects.
"My significantly different life experience in that rent-controlled apartment has informed my significantly different housing policy agenda," he wrote.
He wrote that he wants to expand the National Housing Trust Fund to build 7.4 million units of housing, invest more in public housing stock, double funding for HUD's McKinney-Vento homelessness assistance grants and support grants for municipalities that want to create community land trust housing.
Biden, who is leading in many voter polls, has said he plans to ensure all people exiting prisons have housing upon reentry by expanding transitional housing funding and directing HUD to contract groups willing to house formerly incarcerated people.
Minnesota Sen. Amy Klobuchar's plans include creating incentives for local governments to change their zoning laws, strengthening the Community Reinvestment Act protections and make Housing Choice vouchers available to all qualifying families with children. She has suggested raising the corporate tax rate and capital gains tax rate to the income tax rate for households earnings more than $400,000 annually.
Buttigieg wants to pass legislation called the Community Homestead Act that would "launch a public trust that would purchase abandoned properties and provide them to eligible residents in pilot cities while simultaneously investing in the revitalization of surrounding communities," according to his policy website. "This plan will attack the racial wealth gap by directly fostering asset ownership among those previously prevented from accumulating capital."
He also proposes focusing on national affordable housing investment and protections for tenant rights, which include reforming "unnecessary land use rules that prevent affordable housing construction, and redress the history of housing discrimination against communities of color that has limited economic mobility and fueled the racial wealth gap."
O'Rourke's campaign has not released a formal plan but his campaign has said he "wants to increase funding for the National Housing Trust Fund which would help to finance an increase in the stock of affordable housing and rental assistance programs."
Yang has proposed, in general terms, a plan to change land zoning to encourage more affordable housing development. According to his campaign website, he plans to "work with localities to relax zoning ordinances for the purpose of increasing the development of affordable housing" and "encourage the building of new innovative housing options like micro-apartments and communal living for people in high-density urban areas."
He's also proposed a universal income that would provide roughly $1,000 a month to every adult to help address economic issues, including housing affordability.
But the real estate industry hasn't taken too much of what's being proposed to heart, at least not yet. The election is still more than a year away, and politics have a way of changing, Jackson said.
"It's sound bite central," he said. "It's too early, whether you're a Republican or Democrat. Everyone is running to the opposite ends of the middle. Ultimately, whatever ends up happening, they’ll go to the center" to reflect most voters' political opinions, he said.
Focusing on Regulations
The plans from Democrats to increase funding for affordable housing initiatives come as Trump seeks to cut such funding further.
In his proposed budget for 2020, Trump proposed cutting funds to HUD by $9.6 billion, or 18% less than the previous year's levels. The cuts could affect the national Housing Trust Fund, affordable housing and community development, as well as assistance programs.
He has focused on affordable housing in other ways. Among the most notable, earlier this year, Trump signed an executive order to create the White House Council on Eliminating Barriers to Affordable Housing Development, which aims to find ways to increase construction of single family homes and multifamily buildings by methods including loosening zoning and construction regulations. The council is meant to “address, reduce, and remove the multitude of overly burdensome regulatory barriers that artificially raise the cost of housing development and help to cause the lack of housing supply,” according to the order.
"But to improve housing affordability in a truly sustainable manner, we need innovative solutions, not simply increases in spending and subsidies for Federal housing," reads the executive order. "These solutions must address the regulatory barriers that are inhibiting the development of housing. If we fail to act, federal subsidies will only continue to mask the true cost of these onerous regulatory barriers, and, as a result, many Americans will not be able to access the opportunities they deserve."
The decision was applauded by the National Association of Realtors and National Association of Home Builders, but criticized by some low-income housing advocates, including Yentel, who say they worry the changes could disproportionately affect economically depressed areas and threaten other forms of housing funding including Community Development Block Grants. The concerns follow a Trump administration decision last year to extend the deadline on a law requiring communities focus on racial desegregation known as Affirmatively Furthering Fair Housing rule, which gave some allowance for land zoning changes.
Trump also recently proposed ending government control of Fannie Mae and Freddie Mac, two companies that back half the nation’s mortgages and have federally required mandates to help low-income and minority borrowers to buy homes. That mandate would change to focus more on first-time homebuyers and low- to moderate-income buyers if the proposed plan is approved by Congress.
The two Republican candidates challenging Trump, former Massachusetts Gov. Bill Weld and former South Carolina Gov. Mark Sanford, have not put forward any proposals on affordable housing as part of their campaigns to date.
While one plan or solution isn't enough, according to Elliot Eisenberg, a housing economist based in D.C., the plans could complement what's happening at the state and local levels in the United States.
California is expected to become the third state in the nation to implement a statewide rent control law after the state Assembly passed a bill this week, a reflection of the way some states and cities have been working toward finding local housing solutions. Oregon and New York passed statewide rent control laws this year and cities such as Minneapolis and Seattle have largely done away with single family zoning in some areas in favor of more dense housing construction.
In all, the efforts to address the growing crisis suggest the issue will continue to be discussed at all levels of public discourse.
"A widening recognition of the challenges means that we'll actually get more meaningful solutions rather than having to deal with a California-type approach," said Lapides. "At least that's the hope.”