Housing affordability a national concern
Tuesday, June 25, 2019
Last year, almost $800 billion was spent nationally building new single- and multifamily homes and improving, repairing and maintaining existing homes. About 4 percent of all spending in our economy goes toward housing, not including furnishings, appliances and operations that take place in these homes. So, it’s a bit surprising that housing is rarely mentioned in national policy discussions. This is beginning to change with the upcoming 2020 presidential primaries. Housing in general, and housing affordability in particular, is becoming a critical concern in a growing number of areas across the country.
One reason housing affordability is coming to the policy forefront is that house prices have been rising faster than household incomes. While rising house prices offer many benefits — including declining numbers of homeowners underwater with their mortgages, fewer delinquencies and foreclosures and greater levels of home equity — the flip side is that rising prices have made housing less affordable in most areas of the country. While housing prices have averaged about three times typical incomes in an area historically, in many markets this ratio has been growing at an alarming rate. Currently, housing prices average about nine times area household incomes in San Francisco and Los Angeles, and average at least five times area incomes in San Diego, Seattle, Riverside/San Bernardino, New York, Portland, Boston, Denver and Miami. The situation is just as bad, if not worse, for renters as rent has also risen well above the pace of income growth. Not to mention, the Tax Cut and Jobs Act 2017, in capping two of the tax benefits to homeownership, effectively increased the cost of housing in many areas. In particular, with limits to mortgage interest as well as state and local tax deductibility, the cost of homeownership increased in areas with high housing prices, or with high state and local tax rates.
Very early in the presidential primary schedule are primaries in California, Colorado, Massachusetts and Utah; states in the top 10 nationally in terms of the average cost of homes according to Zillow. As a result, a growing number of democratic presidential candidates are developing housing policies as part of their campaigns. Four candidates — Senators Warren, Harris, Booker and Sanders — have released specific proposals directed at the affordable housing problem, and additional candidates are expected to release their own proposals in the coming weeks. Others have referenced affordable housing in their campaign appearances.
But even with the growing recognition, there is less of a consensus as to the appropriate policy solutions. The most direct would seem to be federal subsidies to help offset rising rental costs. One mechanism for this approach would be to offer federal tax credits for renters who pay an excessive share of their income on rent. However, others feel that this rental subsidy approach would just drive up rents, particularly in areas where there is an inadequate supply of affordable housing. What is needed, in this view, is a strategy that will generate more housing construction. Direct federal funding for construction is one strategy advocated, while an alternative would be incentives for local governments to reform their zoning regulations to make it easier to build affordable housing.
Regardless of the strategy, affordable housing is likely to continue being a key issue in the national debate. A recent public opinion survey from the National Low Income Housing Coalition reports that 85 percent of the public believes that a safe, decent, affordable place to live should be a top national priority, and that 60 percent of the population say housing affordability is a serious problem in the area where they live. This level of concern will ensure that housing stays on the national political agenda.
Kermit Baker is the senior research fellow for the Joint Center of Housing Studies at Harvard University. He may be reached via e-mail at [email protected]