ACE

Category: Housing and Transportation Policy

  • The Low-Income Housing Tax Credit: Expanding the U.S. Housing Stock

    The Low-Income Housing Tax Credit: Expanding the U.S. Housing Stock

    The Low-Income Housing Tax Credit

    The Low-Income Housing Tax Credit (LIHTC) is the primary supply-side subsidy for affordable development in the United States, financing approximately 90% of the nation’s affordable housing annually. To receive tax credits, a proposed development must dedicate at least either 20% of its apartments to people who earn less than 50% of the area median income (AMI) or 40% to people who earn less than 60% of AMI. To be affordable, rent for those apartments must be no more than 30% of the target income level. 

    Development Process

    While the LIHTC does aid developers in financing affordable projects, tax credits are not guaranteed. States allocate tax credits through a competitive process that varies by state, and most states have many more applications than available credits. On average, one project out of five may receive an allocation of tax credits. Even when LIHTC credits are granted, taxpayers claiming the tax credits are usually real estate investors, not developers, and the tax credits cannot be claimed until the real estate development is complete and operable. This makes affordable development through the LIHTC a multi-year process after acquiring land, planning development, and applying for funding.

    How Efficient is the LIHTC Program in Expanding the Housing Stock? 

    While the LIHTC is the United States’ largest and most successful mechanism of affordable construction, economists speculate about its efficiency in growing the nation’s housing stock. For instance, a 2002 study found a high rate of substitution between current housing stock and LIHTC units, meaning that the total stock of housing ultimately remains the same while new LIHTC units crowd out an equivalent quantity of unsubsidized housing. Another 2005 study concluded that subsidized housing could increase the average quality of housing available to low-income people but would not have a lasting effect on the quantity or price of housing available to them. This raises the question of the LIHTC’s efficiency—are tax credits awarded to projects that could proceed, and be successfully developed, without the aid of tax credit financing?

    When non-marginal projects, or projects that could be built without LIHTC funding, are constructed, developers retain most of the subsidy, rather than pass it on to tenants. Despite being more affordable than market value, developers and landlords are still inclined to charge the highest “affordable” prices they can, often at or close to the maximum permitted by the program. Unlike subsidized housing in other countries, rents are not tied to the individual household income of the tenant, but are leased only to eligible households with enough income to afford the rent. Because housing demand is so high, they have no problem filling their units with tenants who can afford their prices. The issue of crowding out leaves those who need rent levels below the maximum price without subsidized housing. 

    How Could the LIHTC be Improved?

    The LIHTC program should be altered to ensure that it effectively and efficiently expands the United States’ housing stock, which is the program’s established purpose. To do this, federal, state and local governments need to ensure there are enough subsidy funds available to meet the need. It is also important to consider the types of projects to which governments and Housing Finance Agencies allocate credit. Figure 1 below illustrates the impact LIHTC credits have on the quantity and price of the housing stock when LIHTC credits are widely available, granted to projects that could proceed without the LIHTC (listed as inframarginal projects), and when they are granted to marginal projects.

    In Case 1, when tax credits are widely available to all investors, there is a downward shift in the supply curve, increasing the aggregate housing stock from H0 to Ht and decreasing the aggregate price. In Case 1, developers can access as many LIHTC credits as they want, and the government can grant credits to every developer that applies. 

    In Case 2, LIHTC credits are only granted to inframarginal projects, or projects that crowd out other unsubsidized affordable projects. In this example, only the projects up to Ht receive tax credits, but the aggregate housing stock is unchanged at H0. Thus, the tax credit finances projects that would have been built even without the subsidy. 

    Case 3 shows the impact of marginal projects receiving credits. Marginal projects are projects that would not be developed without the tax credit. When the associated portion of the supply curve shifts, there is an addition to the housing stock from H0 to Ht. While the stock of housing up to H0 is unsubsidized, the additional stock of housing beyond H0 is subsidized. In this case, revenue loss from the LIHTC results in a net gain in the housing stock, and the subsidy is passed on to tenants as reduced rent.

    Of the three scenarios, Cases 1 and 3 are examples of how the LIHTC can be used to expand the housing stock. Ideally, Case 1 is the best option as there would be no competition between developers for credits, and all affordable projects that are proposed could be financed and built effectively. However, because LIHTC credits are not widely available, Case 3 illustrates how selecting marginal projects can still result in a net gain in housing stock. 

    To solve the issue of marginality and crowding out, the government must keep track of net gains and losses of its housing stock, especially for low-income units. A national affordable housing inventory system is a way for the Department of Housing and Urban Development to account for its housing stock and measure the efficiency of the LIHTC. Additionally, inventory should be kept on the number of households on rental housing waitlists to determine demand at a given time. 

    To measure the LIHTC’s efficiency and its impact on enabling affordable development, it must be determined whether credits are being granted to marginal projects or projects that could proceed without the program. If tax credits are awarded to marginal projects and these projects do not crowd out other affordable housing, then the LIHTC succeeds in solving the affordable-housing problem. Thus, the program’s effectiveness relies on the ability of state housing authorities to select marginal projects.

    Examining the applicants who fail to win credit awards may provide important insights to this. Do those who seek to build affordable housing still do so without tax credits? Do those who receive credits use them to make their units more affordable than they otherwise would be?

  • Upzoning to Create Mixed-income Neighborhoods

    Upzoning to Create Mixed-income Neighborhoods

    The Problem: Unaffordability and Sprawl

    The structure of American cities was created and has been maintained in accordance with the interest of affluent homeowners who leverage outsized political interest. Sweeping histories of residential segregation have emerged in recent years, igniting a conversation around how to remedy urban “ghettos”—predominantly Black and Latino portions of cities which feature high levels of crime, concentrated poverty, low upward mobility, and decrepit buildings. Since the political awakenings of the 1960s, experts on housing policy have recognized that mixed-income neighborhoods have the potential to substantially bridge the gap in life-quality between low and high income urban residents. Given the overwhelming evidence on the virtues of integration, why do cities in the United States remain starkly segregated? 

    Currently, the most notable source is local zoning ordinances, which determine what sorts of buildings can be built and where. Housing prices fluctuate, like any other good, in accordance with supply and demand. The hyper-localized nature of zoning decisions gives residents a stranglehold on the supply side, which chokes off new construction and drives up prices accordingly. For this reason, experts agree that the main cause of unaffordability in housing is a shortage in supply, particularly in job and amenity-rich urban areas.

    To illustrate the gravity of the problem, a few key statistics are worth noting. In 2017, 48% of all renters qualified as cost-burdened, which means they spent over 30% of their household income on rent. By the same measure, about 75% of “low-income” renters were cost burdened; the majority of whom were severely cost-burdened—meaning they spent over 50% of their income on rent. While affordability of rental housing has always been a problem for low-income people—simply by virtue of insufficient incomes and a lack of social welfare provision—the share of working and middle-class Americans who struggle to pay the rent has risen precipitously in recent years. When developers are unable to build, housing unaffordability creeps further up the income ladder to the point where middle-class households with two adults working full-time are competing with low-income families for low-quality housing. 

    In addition to the troubles of affordability and the economic insecurity that accompanies it, restrictive zoning ordinances encourage urban sprawl—a phenomenon that increases the emittance of fossil fuels and contributes to climate change. Under current zoning regimes, developers are incentivized to build high-density developments along interstate highways far from the job-rich urban centers. California presents the most notable example of this problem, which manifests itself in crawling traffic and extensive commute times. 

    Across the United States, 75% of land in urban areas are zoned for single-family housing. These portions of land are usually high in amenity—home to well-funded and high achieving schools, low in crime, bordered by leafy green spaces—and present a lucrative opportunity to developers: build big buildings and make a lot of money. In other words, the reason developers are not building is not due to a fundamental market failure, because developers would build in earnest if given permission. Rather, it is the outsized influence of local homeowners who seek to limit new building projects. 

    A legal ruling made by the Circuit Court of Appeals in 1935 denied the federal government the power of “eminent domain,” which would have given Congress the ability to override local zoning codes. Instead, zoning codes are decided on a fragmented level, with cities and municipalities passing a mixture of overarching guidelines and case by case decisions. The lion’s share of new zoning propositions are subject to debate at local town hall meetings, where interest groups and individuals can show up and advocate to support or block potential zoning alterations. Many of these alterations aim to upzone or to expand the available options for any given property—to include duplexes, triplexes, or apartments, for example—given the current highly restricted landscape. At these meetings, a very specific demographic predominates; White, affluent homeowners, who are often older men, show up en masse to block construction of bigger, more affordable developments. These neighborhood defenders are often derided as NIMBYs, an acronym for “Not In My Backyard”. 

    Even where anti-development interests fail to block construction, developers are forced to shell out on up-front costs, which creates an overall deterrent against building in neighborhoods where NIMBY interests preside. To offset expenses from environmental reviews and delays in construction, developers in strictly zoned areas choose to build more expensive units, ultimately aggravating the affordability problem.

    The Proposal: Upzoning

    To address the dual-harms caused by strict zoning ordinances—scarcity and sprawl—the government should encourage new construction of high-density housing. As mentioned, the federal government lacks the leverage to effectively compel localities to alter their ordinances, though they do have some tools at their disposal. Most of this power lies in the ability to stipulate federal funding by making it conditional on local political action. For instance, a number of senators, including former Presidential candidates Cory Booker and Elizabeth Warren, have proposed withholding infrastructure and transportation funding from cities that are not “demonstrating progress towards reducing barriers to affordable housing.” “Progress,” here, would certainly include loosening strict zoning laws. 

    Some local governments, most notably the city of Minneapolis, have swum against the tide of homeowners in order to “abolish” single-family zoning. In California, where the affordability problem is at its worst, efforts to address zoning have been met with fierce opposition.

    Whether it requires the full force of the federal government or the concentrated will of local advocacy, liberalizing zoning laws and removing single-family requirements is an essential step in addressing the housing crisis. There are, however, important arguments to note on both sides of the issue, many of which concern the operation and distribution of political power. 

    Arguments Against

    Proposals to override restrictive zoning ordinances are flanked by critics on the left and on the right, who make very similar arguments, yet buttress them with vastly different language and ideological signaling. Both argue that local control of the housing landscape affords some level of popular sovereignty over the land. From this angle, the deployment of local interests at a town hall meeting appears to be a paragon of democratic decision making; it gives citizens direct control over their neighborhood and their livelihood. These critics worry that centralized control of zoning amounts to “weakening the ability of inhabitants to determine democratically how urbanized spaces are produced”.

     On this point, NIMBY advocates also fold in an argument about the importance of individual choice, defined in the economic sense as unfettered self-interest. Neighborhood change, in this view, does violence to the homeowner’s past decision to settle down in a neighborhood zoned for single-family occupancy. Embedded in this argument is the fundamental contention over the ideal of integration—economic, racial, and otherwise—and the extent to which the ability to choose the nature of one’s lived environment is something to be desired. In its strongest form, this argument can be used (and has been used) to justify clear-cut racial segregation, simply due to the—hypothetical—fact that many White people oppose the presence of residents of color. 

    Overall, parsing the legitimacy of NIMBY interests is difficult and controversial. Research on how new density would impact the life-quality of homeowners in previously single-family zoned neighborhoods is mixed, but there is reason to think that they would sacrifice some of the benefits afforded by proximate affluence. 

    From the left flank, gentrification activists lament the pitfalls of urban renewal programs of the past, arguing that they shred the social fabric and cultural autonomy of low-income, often predominantly minority neighborhoods. They worry that new developments will displace existing low-income residents by raising rents. This alleged causal mechanism goes like this: new developments come in; the affluence of the new residents makes the areas more desirable, amenities such as business and transportation follow to cater to these new residents; the value of the surrounding land rises due to its desirability; rent for existing tenants skyrocket; low-income residents, now unable to afford such rents, are forced to relocate. Adversaries to zoning reform invoke this process—often discussed through the language of “gentrification”—to illustrate the government’s lack of attention towards people in poverty. 

    Arguments For

    The most morally forceful argument for changing restrictive zoning laws are premised on the wealth of evidence suggesting that mixed-income neighborhoods afford low-income families heightened prospects of achieving key tenets of the American Dream. Thus, many YIMBY (“Yes In My Backyard”) advocates extoll the ideal of an integrated city of equal amenities and equal opportunity—an ideal only achievable if cheaper housing is available in every neighborhood. The key variable in this vision is affordability, which would increase across the board in the view of many YIMBY advocates.

    As mentioned, there is near-consensus amongst experts that a lack of affordability springs primarily from widespread shortages in available units. In 2019, the National Low Income Housing Coalition’s annual report noted that there are 37 available affordable units for every 100 extremely-low-income renters. Constraints on new construction intended to bridge this gap contributes to rampant homelessness, particularly in Western states, and creates an affordability problem that afflicts low- and middle-income Americans. Armed with data emphasizing the centrality of housing in the equation for well-being, proponents of easing construction constraints argue that the interests of single-family homeowners who deplore new construction are outweighed by the social benefits of alleviating unaffordability. 

    Advocates of eliminating single-family zoning also note the subsidiary benefit that new construction has on housing quality. Even when targeted at households of middle and higher-income, new construction leads to a virtuous process known as “filtering.” To maximize profits, developers build high amenity, aesthetically pleasing new buildings, which attract people in the area looking to upgrade their living space. To fill units left vacant by these eager movers, landlords must adjust their prices to attract new tenants, which means that as rental prices reach a new equilibrium, some lower-income renters will end up in nicer units. Evidence suggests that this process is to some extent legitimate, but that it tapers off in areas with perpetually rising rents. 

    As mentioned above, advocates for easing zoning restrictions must contend with those whose central fear in housing policy is the process of gentrification. In response to this concern, NIMBY advocates argue that new construction prevents the so-called gentrifiers from competing with the existing population for established rental units; if they did compete, they would outbid community members on rental prices and displace tenants. With support from some evidence, they argue that loosening zoning has little impact on the displacement of existing low-income residents. Further, they support an easy solution to mitigate any displacement that does occur. Through stipulations in the new construction contracts, local governments can ensure that a sizable portion of the new development is reserved for low-income households. This strategy is formally known as “inclusionary zoning” and is popular in many cities. 

    The final and perhaps most important argument advanced by adversaries of single-family zoning regards the policy goal of encouraging the most energy efficient structures in future construction. Detached single-family homes are highly inefficient to heat and cool. Moreover, as development spreads and sprawls to accommodate the preference for single-family homes, transportation becomes less efficient—assuming, correctly in the case of most American cities, that there is not a robust public transportation network to accommodate such sprawl. In contrast, dense development accompanied by well-planned transportation systems have a salutary effect on greenhouse gas emissions. 

    Concluding Note and Questions

    It should be noted that the path forward for housing policy demands a set of complementary policies to accompany the increase in housing supply that is proposed here. In some cases, relaxed zoning laws will increase the prices of neighboring properties, which puts pressure on existing tenants and homeowners due to rising rents and property taxes. To ease this pressure and make the housing market more equitable and inclusive, programs like Section 8 vouchers and other subsidy programs should be broadened in scope to cover more households. 

    Reflection Question

    1. Should federal or local governments override the interests of homeowners and upzone to allow for denser development; or should the homeowner’s preference for their community be respected?
  • The Land Value Tax

    The Land Value Tax

    In the United States, the Department of Housing and Urban Development (HUD) administers federal public housing assistance programs and distributes funding to local housing agencies. These programs aid approximately 5 million households in finding affordable housing, yet 3 out of 4 eligible households do not receive HUD assistance due to lack of funding. The lack of affordable housing in the United States is also due in part to limited housing supply. A land value tax could help address these challenges by encouraging developers to build more housing while also creating revenue for local governments to spend on affordable housing programs.

    Benefits of the Land Value Tax

    Originally suggested by journalist Henry George in the 19th century, a land value tax requires landowners to pay taxes on the value of their land, not including the value of any buildings or structures on the property. While most current property taxes in the United States tax the value of land and the structures built on the land equally, some researchers have suggested that a land value tax could be implemented in a split rate system, which would charge a higher tax rate on land and a lower tax rate on structures. Proponents of this system argue that it is a way to encourage higher density development and generate revenue that could be used to fund affordable housing.

    When a split rate tax is implemented, landowners can offset the burden of higher land taxes by maximizing the use of the land through development. Lowering taxes on structures and raising taxes on land encourages landlords and developers to build in such a way that would result in individuals living on smaller portions of land. In addition, it discourages landowners from keeping land undeveloped or underdeveloped because their tax burden, the ratio between taxes paid and the property’s fair market value, falls as more improvements to the land are made. For example, owners of single family homes might choose to build a duplex or triplex instead because they can increase the value of their property without significantly increasing their tax rate, thus reducing the average tax on the property.

    In addition to incentivizing higher density development, split rate taxes also encourage economic activity in lower valued areas. Land that is close to amenities such as transportation, safe neighborhoods, or job centers is valued higher and experiences higher taxes. Since there is no significant tax penalty for adding structures, developers may have more interest in areas with low property values where they can add housing units or make other improvements without experiencing major tax increases. The split rate tax also shifts the tax burden to areas with higher amenities, returning some of the property value to the local government for use in affordable housing programs or investments in under-resourced parts of the city. 

    Arguments For the Land Value Tax

    Proponents of the split rate tax argue that it stimulates construction and beneficial land uses in lower income areas, helping to address issues of housing supply. Since landowners will be encouraged to increase density and use their land more efficiently, the tax could also help to reduce urban sprawl. Others argue that a land value tax automatically compensates property that is devalued by unwanted development. If land loses value because of new projects, such as nearby train tracks which generate unwanted noise, the property will pay a lower land tax bill. In an op-ed for the Los Angeles Times, three UCLA professors argued that, since housing scarcity creates wealth for homeowners and burdens for those who do not own homes, the government should tax that wealth and use it to lessen the burdens of housing scarcity. They contend that even a small land tax would raise millions of dollars each year that local governments could use to fund affordable housing. For example, a 2% tax on real estate transactions over $1 million in Los Angeles could generate $200 million each year.

    Pennsylvania is one of the states that allows its local governments to implement a split rate tax system. 

    16 localities in Pennsylvania currently levy a split rate tax, 5 have rescinded split rate taxes, and 12 have considered, but never implemented, a split rate tax. While it is difficult to isolate the impact of land value taxes on development among other economic influences, many Pennsylvania cities experienced development increases and tax cuts for at-risk communities after implementing a split rate system. In the city of Allentown, where the land tax rate is nearly 5 times the building tax rate, the split rate tax was beneficial for at-risk neighborhoods, where more than 90% of homes had their tax liability reduced. It also helped make housing more affordable for many senior residents on fixed incomes by lowering their property taxes. In 2000, local politicians wrote that building permits in Allentown had increased by 32% since the land tax was passed, and the city’s Fairgrounds, an undeveloped parcel of land, experienced a 137% increase in property taxes.

    Before the city of Harrisburg implemented a split rate tax system, it had 4,200 vacant structures, numerous empty lots, and was the second most distressed city in the United States according to the Federal distress criteria. Since levying the tax, the city gained more than $1.2 billion in new investment and the number of vacant structures declined from 4,200 to 500. Today, the city of Harrisburg continues to levy a split rate tax at a land to building ratio of 6:1. Although some researchers argue that the conditions of Harrisburg’s success are hard to replicate elsewhere, including the city’s energetic and motivated mayor, local politicians assert that the land value tax was a key factor in Harrisburg’s ability to combat blight and spur development.

    Land value taxes have also been levied internationally. Australia relies heavily on several variations of a land value tax to fund state and local budgets. New Zealand and South Africa have also successfully implemented land value taxations to support their local governments and redistribute tax burdens. Both domestically and internationally, the land value tax has been beneficial for local governments to make housing more affordable for at-risk communities by lowering their property taxes, increasing high density development, and generating revenue for local budgets.

    Shortcomings and Alternatives

    To effectively stimulate construction of high-density development, a split rate tax would need to be implemented alongside other policies and conditions. If land use regulations and zoning are too restrictive, developers will not be able to increase density and build new structures. Additionally, land value taxes require that assessments of land and improvements be done promptly and accurately. Land can be difficult to value because its price is not directly recognized when a property is sold. In many of the cities where the land value tax was rescinded, researchers argue that the tax became a scapegoat for issues with infrequent and inaccurate assessments and clumsy rate-setting procedures. In order to avoid these problems, local governments would need to adopt the best assessment practices, frequently reassess land values, and change zoning to allow high density development.

    Some argue that a land value tax will not encourage the development or sale of valuable land. Instead, landowners who cannot afford to pay the tax will be forced to sell their land, while wealthy landowners may choose to bear the cost rather than develop their land. This concern was realized in some Pennsylvania cities, where local governments indicated that the land tax was not a large enough burden to stimulate development. If split value taxes are administered at a local level, communities can decide individually what land to building ratio to implement. In areas where undeveloped land is important, such as agricultural communities, the ratio may remain low, while larger cities that seek to incentivize development may implement higher ratios.

    Others argue that land value taxes will more heavily impact individuals who have chosen to invest in land as opposed to those with similar economic means who have invested in stocks and bonds. Further, it disproportionately impacts those who own land at the time the tax is implemented since higher property taxes are offset by lower mortgage payments for those who buy land after the tax is instituted. Some types of landowners, including businesses such as golf courses or land-rich but income-poor residents, may also be hit particularly hard by the land value tax if they rely on undeveloped land for their business or do not have the means to make improvements to their land. In order to tackle these concerns, cities may need to take measures such as phasing in split rate taxes over several years, implementing tax credits for low-income residents, creating exemptions for burdened property owners, or varying tax rates within the locality.

    If implemented with the right conditions and supporting policies in place, land value taxes could be an effective way to encourage a greater supply of high-density housing, generate money for local governments to spend on housing programs, and make housing more affordable for low-income residents. When deciding on this issue, individuals will need to consider if they believe landowners should bear additional tax burdens to support affordable housing. Is it fair for current landowners to pay a tax that will not be as acute for renters and future landowners?  Should industries that depend on undeveloped land be burdened by higher taxes to improve housing supply and affordability? Finally, should the government focus on increasing tax revenue and investing in affordable housing programs, or should the focus be increasing development and lowering taxes for residents?

  • Zoning Policy and Affordable Housing

    Zoning Policy and Affordable Housing

    High housing costs and inadequate supply are not a natural outcome of market forces, but the result of policy choices. In the U.S., public housing development relies on private developers who are bound by restrictions on the location, size, and funding for new projects. Zoning laws determine the purposes for certain lots of land, and ultimately where new developments can be built. Each zone’s purpose and rules are determined by local governments, making zoning an essential factor in the creation of affordable housing. 

    Context

    • The Faircloth Amendment of 1937 sets a limit on the number of public housing units a Public Housing Agency owns, assists or operates, with federal funding. The current limit was established in 1999 in reaction to the perceived failure of the public housing program. PHAs are organizations that oversee and maintain public housing complexes. They often do not reach their Faircloth limits due to a lack of federal funding.
    • An economically efficient housing market should have high-density housing near public transit and in areas with good schools, low crime, etc, as a high number of units on an expensive lot of land results in a lower cost per unit and can accommodate more households. 

    Inclusionary Zoning

    Zoning laws can be helpful in creating opportunities for affordable development and economic mobilization. Inclusionary zoning requires and incentivizes a certain percentage of units in new developments to be affordable, and ties the development of affordable housing to the development of market-rate housing and guarantees that benefits are accessible to households along a range of incomes. Projects that implement inclusionary zoning near public transit and job centers can expand economic opportunity for low-income households. In addition, local zoning regulations can enable vulnerable communities to push back against projects that would harm them, such as urban renewal or highways.

    Exclusionary Zoning

    On the other hand, zoning laws can also be socioeconomically exclusive and societally inefficient. Those in favor of zoning reform argue that changing the rules of housing development to require moderately priced housing in high-opportunity areas is essential for more equitable, resilient, and thriving communities. For instance, zoning that does not mandate affordable development in high-value areas, especially places with good transit, leads to higher costs of living for the lowest-income households. This also causes negative externalities such as worsened traffic and harmful environmental impacts. 

    Impact on Developers

    In many cases, zoning is a barrier for developers who want to create affordable housing. When left to local jurisdictions, cities tend to only subsidize projects in specific areas where the need for affordable housing is most significant. This limits location options for developers who want to use housing subsidies, such as the Low-Income Housing Tax Credit, which is essential to the development process. Local governments also have complicated development processes that favor community preferences over affordable expansion which prevent low-cost, high-density development, especially in affluent neighborhoods with high land values. In desirable markets, developers are often faced with community opposition to new development or rezoning. In the end, the high costs associated with land acquisition and construction make catering to affluent renters the best opportunity for developers to make a profit which has caused affordable development to be neglected in many U.S. cities.

    Impact on Homeowners and Renters

    When restrictions force affordable housing away from high-value land areas with good transit, high economic opportunity and low crime, poorer households are kept from advancing economically. Limited housing near job centers leads more workers to undertake long-distance commutes, which is infeasible as many households may not own cars. Many low-income workers rely on public transportation, which is not accessible away from city centers. Exclusionary zoning practices such as redlining have also caused racial and economic divides in cities.

    Reflection Questions

    • How can local governments balance the preferences of their community with inclusive practices?
    • How can your community include and promote more affordable development?
    • How can federal, state, and local funding ease the affordable construction process for developers?
  • How Can the United States Learn from Germany’s Housing Policies?

    How Can the United States Learn from Germany’s Housing Policies?

    The political system of Germany is a Federal democracy, functioning with similar institutions of power as the United States. The federal system has national, state, and local levels, with specific powers reserved for regional assemblies or local authorities. Similar to the U.S, German governmental power is divided into three branches: the Executive, Legislative, and Judicial. Germany also functions under a capitalist economy. Given these comparable factors of power and market influence, the United States can look toward Germany’s successful housing policies for areas of improvement for its housing crisis. 

    Rental Market

    In the U.S, 35.6% of households rent, whereas 54% of all households in Germany rent. The composition of renters also differs in each country, where German renters are often young and lower incomes but with widespread renting among higher income earners as well. In contrast, 40% of renters in the U.S. in 2019 earn less than $35,000,  and the medium income for homeowners is roughly $90,000. The largest discrepancy between these rental markets are the financial incentives. Homeownership is not incentivized in Germany compared to similar economies around the world. Mortgage interests can only be deducted from income taxes if the home is rented out. The transaction costs for home purchases are also much higher than other comparable countries, making both homeownership and frequent moves inaccessible to many Germans. Due to these policies, private, nonprofessional landlords have become an essential part of the German rental market. Public organizations and private housing companies own less than a quarter of rental dwellings. Private landlords own 62% of the rental units constructed since 2011. 

    Subsidized housing emerged in Germany after World War II, and was constructed by not-for-profit and private housing companies. These new buildings were required to rent to low-income households. Today, 90% of rental units are multifamily buildings, allowing for more affordable housing in areas with high population density. Since most of the population rents, rigorous tenant rights and protections are outlined in numerous housing laws. Leases also tend to be open ended and easier for tenants to terminate agreements than landlords. In the most densely populated regions, rent regulations are stronger to maintain the limited available units. In 2015, Berlin implemented a rent cap which prevented low-income households from paying more than 30% of income on rent. That same year, the Senate ruled that Berlin’s government would acquire 30,000 new units over the course of ten years and link rent of the new units to income of the residents. 

    Homeownership 

    Homeownership in Germany remains cheaper than other comparable countries. This is because the German economy ensures stable and affordable housing instead of letting free-market supply and demand determine the value and access to homeownership. German municipalities allow for these stable and affordable homes by relinquishing land regularly for land development that would increase the housing supply. The federal government also allots funding based on up-to-date numbers of current residents and households, incentivizing local governments to construct new housing to bring in more residents and therefore increase funding. Banks in Germany are permitted to loan up to 80 percent of property value to homeowners, forcing potential homeowners to accumulate 20 percent of property value for a deposit. On top of that, there is a large consumption tax for homeowners whereas renters are given tax breaks to maximize the use of rental units. These barriers to homeownership incentivize more people to seek out rental units or rent out properties they own. With these barriers to homeownership, renting remains accessible, affordable, and popular in Germany. In the United States, barriers to homeownership are not counterbalanced by the same robust rental market. 

    Where the United States Can Improve 

    Both the United States and Germany have decentralized states with local governments and municipalities where land-use plans implemented by local authorities are consulted and reviewed by the federal government. However, the regulations of land-use plans differ in each country. Fiscal zoning in the United States regulates land-use with the intent to minimize government spending and maximize government revenue. In contrast, municipalities in Germany seek to maximize population and therefore revenue from federal incentives with land-use regulations. This allows Germany to maintain the demand for housing while keeping prices affordable and stable. Homeownership in the U.S is viewed as an investment and a primary mode for wealth accumulation, causing underused land and hoarded property in order to maintain market values. German localities legally must provide enough land for housing in all zoning plans which are reviewed by the federal government. From 2010 to 2019, Germany provided 97 construction permits for every 100 people that entered the country. In contrast, From 2010 to 2019, the United states provided 42 homes for every 100 that entered the country.

  • Austrian Social Housing

    Austrian Social Housing

    Social housing accounts for 48% of housing in Vienna and 25% of housing in Austria. Austria’s social housing system began with “Red Vienna,” a Marxist program established in 1918 that began a period of mass housing construction, public education, and public healthcare. Vienna’s city government owns and manages 220,000 housing units which represent 25% of the city’s housing stock. The city also controls 200,000 units that are built and owned by limited-profit private developers but developed through a city-regulated process. 

    Housing Communities

    Social developments include various housing types to ensure housing accessibility for people of all backgrounds and income levels. Most complexes include typical subsidized rental housing for lower-income workers, ownership-focused homes for families, apartments reserved for refugees, and low-cost housing for students. Many also include amenities such as shops, restaurants, kindergartens and daycare centers, office spaces, and leisure facilities which enhance the quality of life for residents and encourage social integration, creating prosperous communities.

    Development Process 

    Austria’s social housing development process is rooted in adequate public funding and a competent and dedicated limited profit sector. To initiate new projects, cities buy land in areas deemed desirable near transit, job centers and schools, soliciting proposals from private developers who want to build and own the housing complexes. Cities then sell the land at an affordable price and grant the developer a favorable loan with a low interest rate and an extended repayment period to ensure the financial viability of the project. To keep up with demand, the Austrian government builds thousands of new social housing units each year which mitigates rent fluctuation and keeps prices in an affordable range.

    Rental Terms

    Social housing programs provide their residents with financial support and daily amenities which promote long-term occupation and social integration. For instance, residents’ rent never increases from their initial agreement, regardless of if their income levels increase, and they are never required to move out. This alleviates the cost-burden and financial pressure that often comes with home rental, making housing accessible for all people in Austria. As a result, many higher-income residents choose to remain in subsidized housing rather than purchase more expensive homes, promoting mixed-income communities with people from a variety of backgrounds. The desirability and affordability of Austria’s social housing encourages more residents to stay in public housing regardless of their income level or social status.

    Financing

    Austria’s social housing is financed by all parties involved in the projects to ensure that the financial burden does not fall too heavily on one sector. It is important to note that Austria’s housing system is effective because of the nation’s strong voluntary sector and its commitment to a social obligation. For instance, municipalities are legally encouraged to contribute to social housing by providing land for affordable prices, eliminating land acquisition costs for builders. Developers receive low-interest, long-term loans from housing banks whose purpose is to raise money for social housing. New construction is also partially funded by a fixed proportion of income tax, corporation tax, and “housing contributions” paid by Limited Profit Housing Associations which include public and private builders and housing cooperatives who own and operate about 700,000 units each. Housing cooperatives are associations that involve tenants, builders and municipalities who plan developments together, negotiating lot locations, financing, and construction layouts. Around one third of Austria’s total subsidies go to LPHAs and cooperatives, but altogether, 80% of all new constructed housing units are co-financed by the public which alleviates the government’s financial burden. On a ten year average, 51% of all completed projects are built by private individuals, 28% by housing associations, 19% by private housing developers and 2% by municipalities. This system is effective because of the adequate private and public funding for each sector. 

    What can the United States learn?

    Public housing policy in the United States lags far behind Austria as no federal sector exists to actively plan and build desirable public housing. For instance, in 2019, 42% of public housing properties finished their last construction before 1975, and a 2010 HUD-sponsored assessment of the nation’s public housing capital needs determined that approximately $21 billion was needed for unmet maintenance and repairs. This financial burden is left entirely on the federal government, whereas Austria acquires funding LPHAs, housing banks, and municipalities together. 

    The United States provides homeowner and renter assistance in the form of Section 8 housing vouchers, and almost all public housing is built through the Low Income Housing Tax Credit, a subsidy for private developers. Unlike Austria, however, public housing accounts for less than 1% of the U.S.’s total housing stock compared to Austria’s 25%. In addition, the U.S. provides no security for its residents; tax-credit properties are only required to remain affordable for thirty years, meaning landlords can raise rent prices out of the affordability range of their tenants as they wish, after the property is thirty years old. The United States has no mechanism for collecting adequate funding for housing, does not communicate with municipalities for sufficient land, and leaves nearly the entirety of financing up to developers who prioritize their own profits over creating affordable housing stock. 

    What keeps the United States from being able to provide long-term affordable housing is its lack of correspondence between private developers and local governments, which is rooted in a lack of a social obligation for affordable construction. Local governments are not active in creating a dialogue between prospective tenants, Public Housing Associations, and developers, allowing developers to continue to drive home prices up. Even when private developers use LIHTCs in an affordable project, they are faced with strict zoning restrictions and minimum funding leading many to prioritize higher-end construction for profit and skimp out on affordable units. In contrast, a 2013 article in Governing magazine states that “the Viennese have decided that housing is a human right so important that it shouldn’t be left up to the free market.” The U.S.’s capitalistic housing market encourages homeownership for those who already have strong financial backgrounds but leaves behind those who don’t. While the majority of those in U.S. public housing are cost-burdened, meaning they pay more than 30% of income on housing, Austrian city governments regulate rent so that none of the residents pay any more than 20% to 25% of their household income on housing. Alleviating the financial burden of housing allows residents more money for basic necessities such as healthcare, child care, and food, promoting more prosperous, equitable, and healthy communities. 

  • Housing Policy in the Netherlands

    Housing Policy in the Netherlands

    The Netherlands has one of the highest proportions of government housing in Europe, with approximately 1 in 3 Dutch homes subsidized by the government. Although the Netherlands faces the challenge of being a densely populated country, they have successfully expanded available housing by 7.6% in the last few decades. While there is significant social stigma around public housing in the United States that poses obstacles to solving the housing crisis, there is less social stigma regarding government housing in the Netherlands because public housing is much more common. In the Netherlands, public housing is built to the same standards as private housing with the intention of creating cohesive, integrated neighborhoods.

    Public Housing in the Netherlands

    Housing that is subsidized by the government is known as social housing. Approximately 30% of the Netherlands’ national housing stock is social housing. This percentage is higher in big cities like Amsterdam, where nearly 50% of housing is social housing. Compared to the United States, where only approximately 3% of the population receive government housing assistance, the Netherlands has a much greater proportion of its citizens living in government subsidized housing.

    Rent in social housing is determined by a points system, where points are awarded based on the size and amenities of the property. The number of points determines the rent of the property, with a higher number of points translating to higher rent. Local housing associations are responsible for setting a maximum rent for social housing each year. In addition, 80% of social housing must be rented to households that fall below a certain income threshold. 20% of available social housing must be available for households with two tiers of higher income thresholds. These income thresholds are adjusted yearly. 

    Housing associations are responsible for maintaining homes and neighborhood parks, facilities, streets, and parking. They also organize activities and events for the neighborhood and prevent crime by removing graffiti, encouraging a close-knit community among residents, and monitoring houses and facilities. Tenants in social housing can bring complaints about rent, service charges, maintenance, and nuisance to the housing association complaints committee or the Rent Tribunal, a neutral agency which settles disputes between tenants and landlords. To apply for social housing, individuals must be within the income thresholds for social housing and register with the local housing association. Households apply for properties they are interested in, but there are often long waitlists. Factors including income, family size, time spent on the waitlist, and urgency are all considered when allocating housing.

    Private Housing

    The private housing market in the Netherlands is called free-sector housing. Unlike social housing, there is no cap on rent, no cap on increases in rent, and no point system for determining home value. Owner-occupied homes in the free-sector consist of approximately 60% of the national housing stock, privately owned rental homes make up 8% of housing stock, and the remaining 32% are government owned rental homes. In contrast, 65% of homes in the US are owner-occupied. 

    Public-Private Partnerships

    The Netherlands utilizes a private-public partnership (PPP) to expand housing affordability. PPPs require both the government and private companies to invest financial resources and expertise in a development project. Co-investment on projects is more cost-effective and lowers risk for both investors. Additionally, PPPs allow the government to complete projects more quickly and efficiently than projects funded by the government alone. 

    VINEX

    Between 1995 and 2005, the VINEX housing program increased housing stock in the Netherlands by 7.6% by producing 450,000 homes. The project was a combined effort of national, regional, and municipal governments to expand housing around populous cities in locations that were accessible by public transportation. Land acquisition and infrastructure costs were subsidized by the Dutch Central government and new neighborhoods were built with sustainability in mind. Many neighborhoods feature open canals and waterways to collect run-off, incorporate outdoor spaces and parks, and are designed to promote walking and biking.

    Opzoomeren

    Opzoomeren involves initiatives such as street festivals, Dutch language classes for immigrants, and the creation of community rules which reduce conflict. The Opzoomeren policy began in Rotterdam, a city heavily populated by migrants, as a city-wide policy. Initially organized by citizens to improve integration and connection in their communities, it has since spread throughout the Netherlands as a national policy. Actions are initiated by the community and may be funded or by the municipality if the project is successful. The Opzoomeren policy has successfully bridged cultural gaps in neighborhoods that are ethnically, socio-economically, and generationally diverse.

    Takeaways

    In comparison to the United States, the Netherlands provides government-assisted housing for a greater proportion of its citizens and has less social stigma regarding living in public housing. Although the Netherlands still faces housing affordability and supply concerns, its policies provide examples for how housing supply, specifically public housing, could be increased in the United States. Additionally, the Netherlands serves as an example of how public housing can be effectively integrated among higher income households to create more diverse, accepting neighborhoods.

  • Housing Policy in Japan

    Housing Policy in Japan

    Why Consider Japan?

    Like many OECD countries, Japan became a world economic power following World War II, spurred by aggressive government-led development. Japan’s housing market, as with the rest of its economy, is grounded in a complex dynamic between the public and private sectors. This reality lends itself to direct, data-driven comparisons with the United States. Japan is distinctive in the international scene for two important statistics. First, there is a near-zero level of homelessness, which indicates effective provision of shelter for the worst-off, and second, Japan boasts a very high level of satisfaction with housing. Both enviable characteristics make Japan a useful case study. 

    A Brief History of Japanese Housing Policy

    Facing a large shortage in available units after World War II, Japan made homeownership more attractive to citizens by lowering mortgage interest rates and extending the terms on mortgage loans through a three-pronged approach. First, the Government Housing Loan Corporation (GHLC) was established in 1950 to support the financing of housing construction and to provide liquidity to mortgage markets. Second, the Public Housing Act of 1951 authorized local government units (LGUs) to construct public rental houses for low-income people Third, the Japan Housing Corporation (JHC) was established in 1955 to promote collective construction of housing and the large-scale supply of residential land for middle-income people, mainly in major urban areas. 

    Importantly, Japan avoided some of the exclusionary results experienced in the United States by targeting more of the monetary benefits to the bottom two-thirds of the income scale. Interest rates were lower for low-income people and increased proportionally for the wealthy. Across the board, interest rates were capped at 5.5%, which prevented predatory lending, as it has come to be known in the United States. In 1986, Japan supplemented their homeownership policies with a tax deduction clause. Unlike the policy in the U.S., where it is the largest subsidy in terms of size and scale, the deduction is uniformly set at 1%, rather than being tied to the marginal tax rate. This structure, combined with the fact that it is income-capped at 30 million yen (about 270,000 USD) means it is much less regressive.

    The most notable economic event in Japan’s housing history was the 1992 housing bubble collapse. A sharp downturn characterized by rising unemployment, a decline in income, and a chain reaction of enterprise bankruptcies, was devastating for the national economy, but had positive downstream effects on the housing market.  Zoning was relaxed to drive up construction and drive down prices. The recession also induced a whirlwind of social, demographic and cultural change that led to detachment from the standard-life-course model, so Japanese homeowners became more amenable to the prospect of living in small apartments in urban centers—a reversal from the prevailing trend towards suburban sprawl. The average dwelling in Japan is 125 square meters, only a little more than half the size of the average American home at 247 square meters. 

    Current Policy Landscape and Key Characteristics

    Japanese has rates of homeownership vs. rental and public vs. private ownership that are comparable with other OECD countries. Homeownership has long hovered in the low 60s, and currently sits at 62%. About 36% of households rent, 80% of which consists of private rentals and 7% of which is publicly operated. Renters on average have a lower income than homeowners—5.15 million yen for homeowners and 3.51 million yen for renters. 

    Publicly operated housing is built or rented by local governments using grants from the central government and constitutes a total of 2.17 million units. The rents for these units are set each month to flexibly align with the needs of occupants. While public units share some of the same stigmas as they do in the U.S., they were constructed with more aesthetic intention, both to normalize occupancy and to appeal to the middle-class. Currently, Tokyo boasts a 6.5% acceptance rate for public housing applicants, and a 99% occupation rate of available units—both of which reflects a high level of desirability. One potential demerit of this desirability is that residents choose to stay longer than necessary, even after they find a new higher-paying job or raise enough money to move out; people who especially need provision are thus occasionally excluded from provision by those who could afford to live elsewhere. 

    Lessons to Learn

    1. Zoning and the virtues of central planning

    The focal point of Japanese housing policy is the city of Tokyo, which is one of the densest and most productive cities in the world. The 13.6 million residents of Tokyo live in newly constructed high-rise apartments that have replaced older, smaller buildings to meet rising demand. To accommodate density, Tokyo streets are narrow which discourages driving and encourages the use of public transportation, which urban planners have ensured is fast, efficient, and reliable. Compared to dense American cities like New York or San Francisco, Tokyo has managed to keep rents low. Tokyo avoided the problems of exorbitant rent that afflicts urban America with relaxed zoning and central planning. 

    In Japan, the central government has control over building codes and is the ultimate arbiter of construction plans and zoning proposals, which are initially crafted by localities but approved or rejected at the national level. When facing a shortage of affordable housing, the policy action plan is simple: build more in places where people want to live. In contrast, residents of American cities in homogeneously single-family neighborhoods are equipped with the power to obstruct new construction by attending local meetings to plead their case. These advocates—often affluent homeowners—seek to preserve certain qualities of their neighborhoods (such as low-density, minimal traffic, green spaces, safety etc.), but which in effect exclude large swaths of the population from living there. 

    While there are some anti-density obstructionists in Japan, the federal government has gradually consolidated the ability to override these interests. Half of Japanese metropolitan land allows for residential development without height limits, which leads to mixed-income neighborhoods, accelerated growth near transit, and sturdy tax bases. One lesson here is that federal oversight can, in effect, lead to less regulation, because local interests are constrained. The result is that fewer low-income Japanese residents are “cost burdened”—a measure which looks at whether a household spends more than 30% of their income on housing expenses. The ratio of housing expenditures to annual income has climbed in recent years, from around 10% in 2001 to 13% in 2018, but has remained lower than in the United States, which hovers around 20-25%.

    1. Environmental efficiency

    In the past twenty years, Japan has experienced 20% of all high-magnitude earthquakes across the globe. Such an unrelenting natural force requires careful planning and development to armor buildings against the threat. With extensive experience on this front, Japan can provide guidance on how to manage the economics of housing prices in areas hit particularly hard by climate change. As building code imperatives change, units that fall behind depreciate in value and often come to be occupied by lower income residents. This creates a situation in which the most vulnerable individuals reside in the least protected buildings, which despite being a somewhat natural economic turnout, could be preempted by government action. 

    One consequence of the need to constantly update buildings is that new construction is usually outfitted with the newest, most energy efficient technology. Unlike in the U.S., where homeowners and property owners are incentivized to retrofit buildings due to the procedural hurdles of new construction, demolition is commonplace in Japan. The earthquake threat has also encouraged people to gather densely in areas, such as Tokyo, that are less at risk, and to live in taller buildings with strong metal scaffolding. The strongest and safest buildings are also the most environmentally friendly. Strong central planning has made Japan one of the most energy-efficient industrial structures, which is aided by their innovative “Eco-points” voucher,  where up to ¥300,000 is given to people who buy or renovate a house to meet certain criteria.  

    1. Tenant protection laws

    The United States has weak tenant protections, and gives power and discretion to landlords. In contrast, Japan has put into place a set of laws that reconfigured this relationship. To refuse renewal or terminate a lease—to evict a resident—landlords must file a lawsuit and successfully establish just cause. Additionally, multi-year leases are standardized, whereas American landlords prefer one-year leases. This puts landlords at heightened risk, but affords some measure of stability to low-income people who face uncertainty in other economic realms. Increased protection for the least well-off flows from the fact that national laws are not subject to local variation. While the U.S. delegates landlord-tenant law to state governments, the national government in Japan sets the policies. Stronger protections for tenants, however, come with their fair share of consequences— unintended side-effects to beware of, especially those that advocate for policies like rent control and eviction moratoriums. This is because investors looking for opportunities do not constrain themselves to one type of development nor to any given industry; corporate investors in Japan have shied away from rental housing because of risks related to empowered tenants. In effect, this erodes the supply of affordable rentals. American policymakers should therefore be warned that any effort to strengthen tenant power must be accompanied with other policies to ensure the provision of affordable housing.

  • Historical Context for U.S. Housing Policy Part 4: Section 8 Vouchers

    Historical Context for U.S. Housing Policy Part 4: Section 8 Vouchers

    Nixon’s 1973 moratorium on the production of public housing marked the beginnings of a new consensus in U.S. housing policy: insufficient incomes and rising costs—e.g., affordability—constituted the major problem, rather than a physical shortage of units. This conviction, though not unchallenged at the time, led the federal government to fully commit to a demand-side approach with the Housing and Community Development Act of 1974. 

    What has come to be known as Section 8 vouchers found its roots gradually, through a patchwork of policy initiatives and experiments. Ultimately, Section 8 has taken over as the dominant mode of federally subsidized housing, with over two-thirds of the Section 8 growth deriving from transfers from public housing. Vouchers operate by providing recipients with a subsidy to close the gap between 30% of their income and the cost of renting a unit on the private market. The options for rental have been constrained by various algorithms over the course of the program, but there are generally three conditions: 

    1. Voucher holders must find an apartment on the lower-end of the price-spectrum as calculated by the Fair Market Rent (FMR) of the surrounding area;
    2. The rental unit must comply with standards for physical adequacy;
    3. The owner of the unit must agree to participate in the program, incentivized by the federal subsidy which ensures reliable payment. 

    Vouchers were initially championed by conservatives under President Nixon and struck progressives as a retreat from the era of strong federal influence in the housing market. Section 8 enjoyed support from the housing market lobby in Washington DC—most notably the National Association of Real Estate Boards, or the NAREB—because it generated an influx of reliable renters who could afford moderate pricing. On the other hand, most affordable housing advocates at that time supported public housing because they did not trust the private market. Over time Section 8 gained widespread support, particularly from social welfare-minded constituencies which hoped it could operate as a tool for economic and racial integration. 

    The court-ordered Gautreaux program, located in Chicago in the 1990s, provides a good case study of how and whether vouchers can work to deconcentrate poverty. The Gautreaux program created a lottery to select a set of Black households, which were given Vouchers accompanied by individualized counseling on the available affordable units and the benefits of living in affluent neighborhoods. 75% of the participants were relocated to suburbs, while the rest settled in primarily White urban neighborhoods. The results were dramatic, especially with regards to the suburban/urban divide. 27% of the children relocated to suburban areas ended up attending a four-year college, compared to only 4% of city children. While it is debatable whether it is a good thing for urban Black families to move away from neighborhoods where they have strong community and cultural ties, the Gautreaux program illustrates how suburban living improves various measures of well-being. It is important to note, however, that many scholars have questioned how generalizable these results are, given that the program is likely self-selected for more enterprising families. 

    Inspired by Gautreaux, the federal government launched Move to Opportunity, or MTO, in 1993. Unlike Gautreaux which took an explicitly race-based affirmative action approach, MTO focused on income. It was implemented in five metropolitan areas: Baltimore, Boston, Chicago, Los Angeles, and New York City. The results were far less encouraging. Many participants remained in the city, often opting to attend the same school in the same high-poverty neighborhood. While the families expressed higher satisfaction with their home and were exposed to less violence, there was little if any improvement in education or economic flourishing. 

    While many journalists note that the main divergence between Gautreaux and MTO was the requirement in Gautreaux that participants relocate in suburbs, there is understandable reluctance from many urban residents to do so. Following the implementation of MTO, White, working-class suburban residents organized in fierce opposition, expressing race-tinged fear that public housing residents would enter their neighborhood.

    Despite resistance to Section 8-driven economic and racial integration, many advocates continue to extol vouchers for their ability to move program participants to areas of higher opportunity. Pragmatic progressive critics, however, note that Section 8 is insufficient to solve the problem of low-income housing. Section 8 has failed to break out of its original form, which was crafted under the fiscally conservative leadership regimes of Reagan, Bush, and Clinton. Unlike other federal programs such as Medicaid and SNAP, Section 8 funding is capped at a set amount. Currently, only one in four eligible parties receive vouchers, and every locality harbors lengthy waiting lists. 
    In recent years, concerns over landlords’ amenability to vouchers have joined concerns over underfunding. From 2010 to 2016, over 10,000 landlords have backed out of the Section 8 program, and have fought successive laws to outlaw this practice under the rationale of unfettered choice. In a 2018 study conducted by the Urban Institute, two-thirds of landlords in five major cities said they would refuse to accept vouchers. While Section 8 vouchers are widely considered an effective tool, both historically and for the future, their success depends on other aspects of housing policy to provide affordable units.

  • Historical Context for U.S. Housing Policy Part 3: The Fair Housing Act

    Historical Context for U.S. Housing Policy Part 3: The Fair Housing Act

    The Civil Rights movement of the 1960s cast light on the various sites of racism and discrimination imposed on Black Americans. Housing was no exception. The Fair Housing Act of 1968 was a turning point in the battle to ensure equal provision of housing benefits for all. From a legal standpoint, The Fair Housing Act prohibited housing discrimination in sales and rentals, outlawed Blockbusting, and enlisted the newly-created Department of Housing and Urban Development, or HUD, in the task of enforcing these rules. The United States’ sprawling Federalist system of local, state-level, and federal government—along with poor design—meant that the Fair Housing Act had relatively weak enforcement mechanisms, but it played an important role in elevating housing to a level of moral and legal concern, which opened the door for more federal intervention in the future.

    The Fair Housing Act bloomed out of the Committee to Rebuild America’s Slums which was established by President Lyndon B. Johnson in 1967 and aimed to eliminate substandard housing. It set a high production goal—the production or rehabilitation of 26 million over the next ten years—but fell into conflict over whether the housing would be provided through public or private means. The compromise that followed created Section 235 of the National Housing Act, which enabled HUD to pay private lenders of the FHA-insured loans the difference between 20% of the home buyer’s monthly income and the monthly mortgage payment. 

    The Fair Housing Act also lowered underwriting standards to combat redlining. This policy led to some improvements in African American’s ability to attain mortgages outside of the inner city, but this left further concentrated poverty in its wake. In addition, Section 236 enlisted the facilities of the private market in constructing low-income rental housing, mostly of the multi-family variety. HUD lowered the interest rates for the involved private companies to 1% on construction loans, and in exchange, the owner of the buildings agreed only to rent to households with incomes at or below 80% of the area median income and to subject the rent charged to HUD approval. 

    The Fair Housing Act also created legal standards to combat exclusionary housing policies. Most notably, in the court-ordered Gautreaux program (1981-1996) in Chicago, federal judges determined that the location of public housing projects constituted intentional segregation. In more than ten other cities across the country, including Los Angeles, Philadelphia, Memphis, Minneapolis and Omaha, lawsuits levied by the local NAACP organizations resulted in changes to single-family zoning ordinances. None, though, were as successful or prominent as the Gautreaux program. 
    The legacy of the 1968 Fair Housing Act lies mostly in policies that it spawned, and in the broadened effort to address racial discrimination in housing. Politicians have repeatedly affirmed and strengthened the law, such as President Obama’s 2015 Affirmatively Furthering Fair Housing rule, which commits to “meaningful actions to overcome historic patterns of segregation, promote fair housing choice, and foster inclusive communities that are free from discrimination.” However, federal judicial regimes have thus far refrained from using the law to consistently address local segregation.