Introduction

View the Executive Summary for this brief.

Case Study

Oakland, California is home to thousands of unhoused individuals and 140 homeless encampments. City officials have programs to address housing issues, but critics “say the programs are plagued with safety issues and do little to address underlying causes of housing instability.” 

At the start of the pandemic, a group of 20 unemployed Oakland artists joined together to build emergency housing for unhoused individuals in the area. Now a team of 150 volunteer artists, carpenters, activists, and advocates, many houseless, unemployed, or underemployed due to COVID-19, Artists Building Communities became one of the local advocacy arts and food organizations that teamed up with an expert in the technique of making cob structures.  

Cob is “a mixture made from organic materials including sand, subsoil, water, and straw.” Under a highway overpass in West Oakland, the group of volunteers built a small community of cob structures made from foraged materials. Called the Cob on Wood, the small village is “fostering a sense of community and dignity” amongst homeless individuals. The community includes a shower, a fully stocked kitchen, a health clinic, a “store” offering donated items, and vegetable gardens. 

The effort took about 5 months, and now hosts events and workshops, and aims to host even more educational opportunities, nutrition and cooking classes, and skill-sharing and career development opportunities “to the estimated 300 people who live in nearby encampments.” How long the Cob on Wood will last is in question, as it was built without a permit on land belonging to the state’s transport agency, demonstrating the complexity of land use.

Why it Matters

There has long been a desire to make homeownership affordable for every American, and for many decades has been considered part of the American dream. The National Housing Act of 1949 even “established the goal of a decent home in a suitable living environment for all.” The fall out from the 2008 housing crisis brought attention to affordability struggles for many households. Additionally, “[p]ublic health guidance to shelter at home during the pandemic underscored the direct relationships between health and housing.” These events have led to “an increased awareness of housing as a core social determinant of personal health and well-being” and one that “is essential for people to address their challenges and pursue their goals.

The housing market also constitutes a significant part of our economy on a macro- and micro-level. According to the National Association of Home Builders, housing contributes on average 15-18% of GDP; in 2020, housing contributed $3.6 trillion in spending, amounting to 17.5% of GDP. Simply constructing 100 units of single-family housing supports over 200 full time jobs and produces over $11 million in wages. For households, evidence indicates that experiencing housing instability or homelessness can affect future educational attainment, employment growth, health stability, and family preservation.

Putting it in Context

History

Housing is primarily a private market enterprise, but the government has grown increasingly involved over the past century. During the Great Depression, the economy hit a standstill and banks had very little capacity to make loans to finance housing purchases, so many federal efforts implemented by the New Deal attempted to stimulate growth. 

These included establishing the Federal Housing Association in 1934 to reduce the risks associated with lending and to protect lenders in the case of a borrower default, as well as the Federal National Mortgage Association (“Fannie Mae”) in 1938 to “stimulate the housing market by making more mortgages available to moderate- and low-income borrowers.”

The Rise of Homeownership

After the end of WWII through the 1960s, homeownership rose from 45% of the population to 60%, mainly due to the rise of suburbs, the baby boom, low interest rates, and extended loan periods, like the 30-year mortgage.

The 1970s in particular marked a surge in homeownership as the Baby Boomer generation grew older and demanded a greater supply of larger, more expensive homes. To finance the new demands, Congress created the Federal Home Loan Mortgage Corporation (“Freddie Mac”) in 1970 to increase the amount of capital available.

Throughout the 1980s and into the 1990s, the government sought the goal of increasing home ownership rates among Americans to 70%. Congress enacted reforms meant to increase the share of American homeowners, such as the 1995 Community Reinvestment Act that allowed mortgage lenders “to buy ‘subprime’ securities to fulfill their affordable-housing lending obligations.” Many economists believe the eased credit requirements, and interest rate cuts in response to the dot-com bubble in 2000, increased the demand for risky subprime loans. The result was millions of prospective homebuyers were issued loans that were valued well above their payment ability. These factors created the perfect storm for a housing crisis.

The 2008 Housing Crisis

The housing industry began to implode in 2006, when housing prices started to decline, and culminated in 2008 when the housing bubble burst. Homeowners with subprime mortgages could not pay their loan obligations, and defaulted. In many cases, mortgages were worth more than the actual value of the home, which meant that selling to pay back the loan was not a viable option and borrowers were actually better off defaulting

Professor Tyler Cowen of George Mason University explains the intertwining housing factors that led to The Great Recession of 2008 (13 min):

 

Housing prices that had dropped starting in 2006 reversed course and restarted their climb around 2010. The rise was pressured by a significant decline in housing starts and overall lack of supply to house a growing population. A report from the National Association of Realtors suggests that between 2010 and 2020, new home construction “fell 6.8 million units short of what was needed to meet household-formation growth and replace units that were aging or destroyed[.]”

The Coronavirus Pandemic

Many Americans laid off during the pandemic faced hardship making ends meet, prompting federal, state, and local protections from eviction and foreclosure. Other Americans, prompted to shelter in place, moved out of large, congested, and expensive urban areas and flocked to areas with more space. According to the Wall Street Journal, the most significant inventory drops occurred in vacation destinations such as Cape Cod and in the towns just beyond the inner ring of suburbs outside major cities. Meanwhile, inventory in several major cities such as Los Angeles, New York City, San Francisco, Seattle, and Boston have increased. See The Policy Circle’s Migration Between States Brief for more on where Americans have been moving.

By the Numbers

Homeownership

The housing market in the U.S. has rebounded since the market crashed in 2008. Home foreclosure rates have dropped from over 2% (2009-2010) to early 2000s levels of under 0.5%. Home sales have also improved since 2008; in 2020, the combined number of homes sold was 6.5 million, the highest figure since 2006. However, the supply of homes has not been keeping up with demand; in January 2022, the number of active housing listings in the U.S. dropped to its lowest in five years, a 60% decrease in inventory since February 2020.

New home sales are related to housing starts, which have increased since bottoming out after the financial crisis but are still lower than historical averages. The low inventory is driven by shortfalls in construction due to the availability and costs of land, labor and materials such as lumber.

New housing construction has remained below levels necessary to meet demand, and construction costs have increased. Among existing homes, supply is also not keeping up with demand. In the rental market, the vacancy rate fell to 5.6% at the end of 2021 from 10% in 2010. The vacancy rate for homeowners units fell to 0.9% in 2021 from 2.6% in 2010. With fewer vacancies, there are fewer units available for those who are looking.

All this means home prices have increased. The national price-to-income ratio was 4.7 in 2019, marking the fourth consecutive year median home sales prices were quadruple the median household income. From 2019 to 2021, the ratio increased to 5.4, meaning homes cost 5.4 times as much as the average annual income. On the whole, average rent prices have increased 18% over the last five years, outpacing the 2022 rate of inflation (16%). Nationally, rents rose a record 11.3% in 2021.

Rising prices are indicative of a supply-demand problem: too little supply, and too much demand. Renters have flooded the market: at the end of 2018, one report found there were more renters than homeowners in 47% of major cities, up from 21% in 2006. Total renters increased from 31% in 2005 to 35% in 2019 and fell slightly to 33.4% in 2020. Meanwhile, homeownership stood at 69% in the mid-2000s, fell to 63% in 2016 and slightly climbed to 66% in 2020. The slight increase reflects household formation among millennials in their 20s and 30s. Growth in homeownership among households ages 25-34 was:

  • 34,000 per year between 2010 and 2013
  • 170,000 per year between 2013 and 2016
  • 250,000 per year between 2016 and 2019

Recent growth in homeownership has been among households primarily with higher incomes; households with incomes of $150,000 or more comprised 88% of net homeownership growth between 2013 and 2019. Households with incomes under $75,000, close to the national median income for homeowner households, could afford 46% of the homes on the market in September 2020. In addition to income gaps, homeownership gaps also exist across age groups and race. Data analysis by the National Association of Realtors also supports these findings. According to PEW Research, at the end of 2021, 74% of white adults owned a home, compared to 43% of Black Americans and 48% of Hispanic Americans.

 

With tight market conditions, decreased supply, and incomes not keeping up with prices, the number of cost-burdened households is increasing. Households that pay more than 30% in housing costs are considered cost-burdened. The number of cost-burdened renters increased from 14.8 million in 2001 to 20.8 million in 2018, representing 47% of all renters even as the total number of renters increased during this time period. In 2020, 46% of American renters were cost burdened, and 23% spent at least half of their income on housing.

About 17 million households are cost-burdened, disproportionately among households under 25 and among those over 85. Just under 54% of the 4.4. million households under age 25 are cost burdened and almost 37% of 4 million households over age 85 are cost burdened. Just under 54% of Black households, 52% of Hispanic households, 42% of White households, and 42% of Asian households are cost burdened.

Homelessness

The Department of Housing and Urban Development’s Annual Homeless Assessment Report, released January 2021, reported that on any given night in 2020, 580,000 people experienced homelessness nationwide. While overall homelessness decreased from 2007 to 2020, the number of homeless individuals has steadily been increasing since 2016. About 60% of the homeless population was in sheltered locations such as emergency shelters or transitional housing programs, while 40% remained unsheltered, such as on the street or in abandoned buildings. (PIT = point in time)

More than half of all unsheltered homeless persons are in the nation’s fifty largest cities. In fact, California is home to 51% of all unsheltered individuals in the country. More than half of all people experiencing homelessness are concentrated in four states: California (28%), New York (16%), Florida (5%), and Texas (5%). A full 25% of all people experiencing homelessness in the U.S. were either in New York City or Los Angeles.

The typical individual experiencing homelessness is 25 or older (95%), male (70%), and white (54%). Of all people experiencing homelessness, 48% are white (74% of the U.S. population), 39% are Black (12% of the U.S. population), and 23% are Hispanic (16% of the U.S. population).

See state-by-state statistics in HUD’s report, starting on page 80.

The Role of Government

Although housing is foremost a private market enterprise, the government is involved in nearly every aspect of the housing finance market. For example, Congress “establishes laws governing U.S housing policy, funds housing policies and programs via the annual appropriations process and the federal tax code, and oversees policy and program implementation by various federal agencies.” 

Federal

Federal Agencies

The Department of Housing and Urban Development (HUD), established as part of President Johnson’s Great Society, “is responsible for national policy and programs that address America’s housing needs, that improve and develop the Nation’s communities, and enforce fair housing laws.” HUD administers the federal government’s main housing assistance programs. In FY2021, HUD’s budget amounted to just under $60 billion.

In the realm of housing finance, the Federal Housing Administration (FHA), under HUD, provides mortgage insurance loans to provide lenders with protection against losses if a property owner defaults. It is self-funded by insurance premiums it collects from borrowers. Through the Servicemen’s Readjustment Act of 1944, the Department of Veterans Affairs (VA) also administers home loans and other housing-related programs for veterans.

Federal policymakers have been addressing homelessness since 1983, when President Reagan established the first Federal Interagency Task Force on Food and Shelter for the Homeless. Today, USA Spending says there are 33 federal programs “that explicitly flagged homeless individuals as beneficiaries,” and the United States Interagency Council on Homelessness is the main policy driver. It brings together 19 federal member agencies and “leads national efforts to prevent and end homelessness in America” in cooperation with state and local stakeholders.

The Federal Housing Finance Agency (FHFA), established by the Housing and Economic Recovery Act of 2008, does not receive appropriated funds from Congress. It is responsible for oversight of the Federal Home Loan Bank System.

The Federal Home Loan Bank System is “a government sponsored enterprise to support mortgage lending and community investment.” It is composed of 11 regional banks that are privately capitalized, independently operated, and receive no taxpayer assistance. These banks provide access to billions of dollars in low cost funding to U.S. banks, credit unions, insurance companies, and community development financial institutions.

The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are federally-backed mortgage companies created by Congress. Fannie Mae and Freddie Mac are private companies “even though both have congressional charters that contain special privileges and certain special responsibilities to support affordable for low- and moderate-income households.” Both purchase mortgages from lenders and issue them as government guaranteed mortgage-related securities. Lenders then have money to originate more loans. Together, they “provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing.”

In response to losses due to the high rate of mortgage defaults in 2008, Fannie Mae and Freddie Mac were placed under conservatorship by the Federal Housing Finance Agency, but for budgetary purposes are not treated as governmental entities. Fannie and Freddie guarantee slightly more than half of the $11 trillion housing market, accounting for 60% of mortgage originations by dollar in 2020.

Also in response to the financial crisis of 2007-2008 was the Dodd-Frank Wall Street Reform and Consumer Protection Act. Known simply as the Dodd-Frank Act, it established a number of new government agencies and offices tasked with overseeing various components of the financial system. Read about the basics of Dodd-Frank here.

Programs

The Housing Act of 1949 officially established the national housing policy goal of providing a “decent home and suitable living environment for every American family.” Today’s federal housing assistance programs are for rental housing assistance (primarily through rent vouchers), assistance to state and local governments (primarily through block grants), and assistance for homeowners (such as through tax incentives or mortgage insurance programs).

The Department of Housing and Urban Development administers the majority of these programs. The following are the largest programs; for others – almost 100 including mortgage and regulatory programs – see this list from HUD.

Section 8 Housing Choice Vouchers are a form of tenant-based rental assistance that is federally funded by HUD and administered locally by Public Housing Authorities (PHAs). Eligible households live in private housing (approved by program standards and with landlords willing to participate). They pay 30% of their adjusted income towards rent, and “the voucher pays the difference between the family’s contribution toward rent and the actual rent for the unit.”

Section 8 is the largest of HUD’s rental assistance programs, accounting for more than one-third of HUD’s budget (amounting to $25 billion in FY2021). According to the latest available data, over two million low-income families participate in the Section 8 program, amounting to over 5.3 million people. About 75% of vouchers go to families that earn less than 30% of the median area income. In numerical terms, this equates to an annual income of less than $20,000 for the majority of families receiving vouchers in mostly metropolitan areas.

Low-rent public housing developments are owned and operated by local public housing authorities (PHAs) and subsidized and regulated by the federal government.” There are about 1 million public housing units that are under contract with the federal government, meaning public housing is the second largest direct housing assistance program behind Section 8.

The Housing and Community Development Act of 1974 enacted the Community Development Block Grant (CDBG) program. Recipient communities must use at least 70% of funds for low- and moderate-income households, such as through property rehabilitation, services such as crime prevention or child care, or neighborhood economic development projects. Funding for CDBG has held steady at around $3.5 billion in recent years.

Congress

The following Congressional committees have jurisdiction over loans, mortgages, public and private housing, urban development, rural housing services, HUD, FHA, Fannie Mae and Freddie Mac, and financial institutions that influence the housing market, such as the Federal Home Loan Bank System:

State and Local Role

Housing is mainly regulated at the state and local levels. In the 1980s, many federal housing programs “had been scrapped as inefficient, subject to fraud and abuse, or too expensive,” and policymakers acknowledged that local communities might be able to provide housing more efficiently than HUD through the creation of block grants and tax credits.

For example, the Tax Reform Act of 1986 enacted the Low Income Housing Tax Credit (LIHTC), which “provides incentives for the development of affordable rental housing through federal tax credits administered through the Internal Revenue Service.” State housing finance agencies (HFAs) receive the tax credits based on state population, and then award credits to housing developers who agree to construct or renovate housing, with a certain portion of units for low-income households. In turn, housing developers sell credits to investors, and the proceeds help finance the housing developments. Units are concentrated primarily in areas designated as Qualified Census Tracts or identified by the Difficult Development Areas Program. “Because tax credits reduce the amount of private financing required to build or rehabilitate housing, the owners of developments financed through tax credits are able to charge lower rents.” More than 2.3 million units were developed using LIHTCs as of 2018. It is estimated to cost about $9.5 billion annually, and “is by far the largest federal program encouraging the creation of affordable rental housing for low-income households.”

States and municipalities administer public housing and local rental assistance programs with funding through various sources. For example, San Francisco’s Direct Access to Housing Program deploys city and federal funds, whereas The San Francisco Housing First Program uses only city funds. See the available programs in your state. Also see your state’s housing finance agency and the public housing authorities in your state.

States also play a large role in homeless assistance programs. For example, while there are 33 federal programs “that explicitly flagged homeless individuals as beneficiaries,” federal funding works as part of a larger network. New York City spent $3.2 billion on homeless programs in 2019, and federal programs provided $134 million.

Finally, possibly the most influential role of the local government in the housing market is regulation in the form of zoning ordinances. These are regulations that govern how land can be used within the area. For example, zoning ordinances determine which areas are for residential buildings, which are for industrial buildings, and which are for commercial buildings. They also determine how close together buildings can be and the maximum height of buildings. Read on for more about zoning, or see The Policy Circle’s Stitching the Fabric of Neighborhoods Brief.

The Role of the Private Sector

The housing industry would not function without  private enterprise. Groups like banks fund pools of mortgages and work with homeowners to prevent foreclosures. Private groups invest in building new housing and improving older, more neglected housing, such as through LIHTCs, or other tax benefits like Opportunity Zones. Nonprofit groups such as NeighborWords America, Habitat for Humanity, and Community Development Corporations are also involved in revitalizing and building in neighborhoods through options such as Community land trusts, discussed more below.

In response to homelessness, the Continuum of Care (CoC) Program, developed in the 1990s, “created local quasi-governmental entities in metropolitan areas that can apply for HUD funding and administer local homelessness programs.” The program is mostly managed by state and local governments, which distribute federal funding directly to CoC organizations that administer contracts to local shelters, housing programs, and service providers. The program distributed $2.5 billion for 6,597 local homeless housing and service programs across the U.S. and territories in FY2020. See grants for your state here.

Affordable housing extends far beyond grant programs and vouchers to renters. In response to critics, HUD established a set of goals for 2018 to 2022 that focuses on leveraging private sector partnerships and encouraging more private investment in affordable housing, as supply of housing – particularly affordable starter homes – is the main driver of high prices. Some private nonprofit organizations are even approved by HUD to participate in certain HUD programs in public-private partnerships.

Challenges and Areas for Reform

Affordable Housing

Housing prices are related to the cost of construction, and the balance between supply and demand. Housing affordability is a qualitative measure reflecting the relationship between household incomes and housing prices. Affordability, labeled as “the greatest housing problem today,” stems from prices being higher than incomes can afford, and when prices are high, “the market is sending a message that housing is scarce and more is needed.”

The federal government’s main solutions are subsidies that lower cost burdens (such as rental assistance programs) and building more affordable housing units. Today, government housing policies prioritize subsidies. See Table 16 on page 39 of this Congressional Research Service report to see the increase in rental assistance and decrease in building housing, especially since 1990.

Rental assistance relies on contracts for affordable housing between building owners and HUD. One dilemma is when these contracts expire, after which owners are allowed to charge market-rate rents that make the units potentially unaffordable for low-income families. Since more federal resources go towards subsidies than building new affordable units, “affordable housing preservation” is a major concern.

Additionally, “some landlords want to charge more than what the government thinks a particular unit is worth after checking it out.” Eva Rosen, assistant professor at Georgetown University, “says that landlords are often reluctant to get involved with the voucher program and in many places can simply refuse to rent to voucher holders.” This is why some estimates say as many as 30% of families nationwide cannot use government vouchers. There are fifteen states and a few dozen cities with laws preventing this kind of discrimination, but landlords can find loopholes, such as charging a higher rent than the government wants to pay or intentionally failing inspection reports.

Other suggestions include expanding the National Housing Trust Fund, which “provides grants to states to support the development and preservation of housing for households” with very or extremely low incomes. It is funded through fees on government-sponsored enterprise mortgages (from Fannie Mae and Freddie Mac), which amounted to $323 million in 2020. Advocates point to the self-funding mechanism, and add that states have flexibility to use the funds for several types of affordable housing expenses from preservations and rehabilitation to support services. Critics point out that the program is similar to many others, and that most housing programs are redundant and duplicative of each other.

Location is another important component, as individual municipalities make decisions related to land use and housing provision; for example, more than 10% of units within the city of Chicago are devoted to affordable housing, while fewer than 5% of units are in the city’s suburbs. Demand for affordable housing and the cost of construction also vary greatly across the nation. In San Francisco, building affordable housing can cost three times as much as in Texas or Illinois, due to the price of land and labor. The average costs of construction are 13% higher than in New York, 60% higher than in Chicago, and 75% higher than in Houston. Many also argue that California’s housing market is vastly over-regulated due to government fees and permits; a single affordable housing project often requires financing from an average of six different sources at the federal, state, and local levels.

The coronavirus pandemic has added to affordable housing complications. According to Harvard’s 2020 State of the Nation’s Housing report, one Urban Institute estimate projected “the cost of helping all renters return to their pre-pandemic income-to-rent ratio without unemployment assistance would be $5.5 billion per month, although even this support would leave many households with cost burdens.” A separate estimate from Harvard put the cost at $3.5 billion per month when paired with state unemployment support. Additionally, the pandemic has resulted in skyrocketing costs for construction, due to supply shortages and demand increases for building supplies, such as lumber.

The private sector also has a significant role to play. In 2019, a number of large tech companies committed to investing in affordable housing, including offering grants to public agencies and local housing organizations.. Alphabet’s Google committed $1 billion toward San Francisco Bay Area housing; Apple committed $2.5 billion throughout California; Microsoft, based in Washington, committed $750 million in Seattle; and Facebook committed $1 billion in the Silicon Valley area. Amazon has also committed over $2 billion in its hub cities of Seattle, Arlington, and Nashville. Critics maintain that “tech companies have played a role in driving up home prices by attracting well-paid workers who can pay more for housing than longtime residents.”

Another alternative is community land trusts, which “have the explicit goal of promoting affordable housing and contain legal provisions governing ownership and transfer to keep units affordable in perpetuity.” They are usually managed by a nonprofit, which owns the land and leases or sells the buildings to residents, and community members are often included on boards or in decision-making. Separating the cost of land from the cost of the building makes ownership more accessible to households with lower incomes. By one estimate, there are over 270 community land trusts nationally, from densely-populated urban areas like Houston, Texas and Oakland, California to more isolated mountain communities like Big Sky, Montana.

Gentrification

Any time an investment is made in a distressed or an ‘up-and-coming’ community, there is a threat that property values and cost of living will increase to a point that it pushes out the residents who have long lived in those communities. One solution to counteract the consequences of gentrification is to ensure that local community partners have an ownership or equity stake in the investment, with the idea being that through shared ownership, all boats will rise together.

Housing Finance

The U.S. housing finance system is very large, and as was seen with the financial crisis, influences the greater U.S. economy. Housing finance  is primarily centered around mortgages. The majority of homebuyers do not have the financial resources available to purchase a home, so most take out a loan. “A loan that uses real estate as collateral is typically referred to as a mortgage.”

In what is referred to as the primary mortgage market, a borrower applies for a loan from a lender, such as a bank or credit union. In the secondary market, mortgages are bought and sold to investors. The secondary market “plays an important role in providing funding for loans made in the primary market. When a mortgage is sold in the secondary market, the lender can use the proceeds to fund additional new mortgages in the primary market.”

After the financial crisis, the federal government took steps to enhance protections for consumers, which led to regulations on banks. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act provided legal protections to lenders if their loans satisfy the requirements for qualified mortgage status. All loans guaranteed by federal agencies and purchased by Fannie Mae and Freddie Mac meet this criteria. Other originators – namely banks and credit unions – have limited themselves to only making qualified mortgage loans to avoid liability and risk. Note the difference in private securitization of the mortgage market compared to government mortgages before and after the financial crisis.

Because of the new rules, more private securitization firms exited the mortgage market. This gave added importance to government entities (note the increase in FHA/VA loans starting in 2008). This also applies to Fannie Mae and Freddie Mac, which are still under conservatorship as of early 2022 with no indication of an end to government control. This Marketplace podcast explains what this means.

Outside of mortgages, there are alternative financing arrangements “that research indicates are generally riskier, most costly, and subject to far weaker consumer protections and regulatory oversight than traditional mortgages.” Barriers to mortgages, such as the tight state of the housing market that has resulted in a shortage of small mortgages, may be driving some home borrowers to alternatives. Approximately 20% of home borrowers – about 36 million Americans – have used alternative financing at least once, mostly those with annual household incomes under $50,000 Examples include:

  • Seller-financed mortgages, when the seller also acts as the lender;
  • Personal property loans, which typically have higher interest rates and shorter terms than comparable mortgages;
  • Lease-purchase agreements, also known as “rent-to-own,” when the seller is also the landlord and the buyer occupies the property as a tenant, usually paying rent that exceeds the market rate in exchange for the option to purchase the home within a designated period of time.

Regulations for these types of finances vary by state, and the lack of consistency – and in many cases consumer protection – often leads buyers to pay higher costs and can result in default of loss of the home. Scarce information about the prevalence of alternative financing arrangements – including who uses them and why – has generally prevented effective policymaking from protecting borrowers.

Homelessness

Housing First is a policy focusing on finding permanent housing for the homeless, such as through subsidized housing. It began in the 1990s in New York and thanks to some success was adopted by the National Alliance to End Homelessness and then the Bush Administration. The main goal is to get as many homeless individuals out of shelters and off the streets. This is the policy priority at the local, state, and federal level, which has led to more local providers shifting their programs to maximize their ability to receive grants.

Critics are concerned the Housing First model does not see the whole picture, and that it reduces homeless individuals into housing statistics by providing them with housing but not improving their general well-being. While lack of affordability is a contributing factor to the homelessness crisis in America, the Discovery Institute’s Christopher Rufo adds that contributing factors of addiction, mental illness, and crime play critical roles.

For example, a 2019 University of California, Los Angeles report estimated that of the unsheltered homeless population, 75% have a substance abuse disorder, 78% have a mental health disorder, and 84% have physical health conditions. Many support the Treatment First model, in which “the goal is to rehabilitate the individual, then secure permanent housing.”

The University of Alabama at Birmingham completed four randomized controlled studies of six-month programs that focused on a Treatment First-approach and “provided the homeless with abstinence-contingent housing and required participation in a rigorous full-time program of addiction recovery, behavioral treatment, work training, and recreational opportunities.” Six months out, 64% of residents were maintaining sobriety and demonstrated increases in housing stability and employment.

Overall, the Housing First model has high housing-retention rates, at around 80%, but shows little  improvements in substance abuse, mental health, or employment outcomes. The Treatment First model has housing retention rates of around 40%, but shows improvements in substance abuse, mental  health, and employment outcomes.

The National Alliance to End Homelessness suggests combinations, such as through a coordinated systems approach that is designed to identify, assess, refer, and connect people in crisis to assistance, establish plans to help committees set goals and priorities, and focus on data collection to inform decisions. Similarly, permanent supportive housing can combine housing assistance with support services that can build self-sufficiency by connecting people with “community-based health care, treatment and employment services.”

Los Angeles has tried this with its homeless veteran population. Although the city still struggles with homelessness, there was a 60% decrease in homeless vets between 2009 and 2019. This has resulted from “carefully coordinated efforts” between federal and local governments and local nonprofits and advocacy groups. One program, the Homeless Providers Grant, awards grants to community agencies “to help find short-term housing for veterans and deliver critical services to get their lives back on track,” marrying housing with “job training and services addressing mental health, substance abuse and other issues.”

San Diego has also tried a similar strategy. Key & Kite media explains (6 min):

Zoning

Local governments set and enforce zoning ordinances that specify which land can be used for different purposes and what building can be constructed. This report from the Mercatus Center at George Mason University explains, “Exclusionary zoning includes rules that limit multifamily housing construction and mandate minimum lot sizes for single-family homes.”

Zoning laws such as land use restrictions and building codes can be essential to public health and safety, and development fees can be necessary for “schools, sewage systems, roads, and other public services associated with new development and growing populations.” Such regulatory requirements, density restrictions, and development fees can also “increase construction costs and limit the amount of new housing that can be built,” contributing to an undersupply of affordable housing.

The Institute for Humane Studies explains zoning (7 min):

Finding a balance is a top policy priority at the local level. Houston reduced its mandatory minimum lot size, making townhouse development possible. Minneapolis updated its zoning plan to allow duplexes and triplexes in areas of the city that previously had been limited to single-family development. In the Louisville Metro area, the local government developed a website looking into zoning regulations to do a full review that incorporates community feedback.

Inclusionary Zoning

As opposed to exclusionary zoning, inclusionary zoning policies “require or incentivize developers to designate a portion of new housing units as affordable for households making low or moderate incomes in exchange for density bonuses, allowing developers to build more market-rate housing than they would otherwise be allowed.”

The density bonuses’ values depend on housing prices and how much zoning restricts development in the particular area. According to Emily Hamilton at the Mercatus Center, density bonuses will be valuable where zoning is restrictive and housing prices are high. In areas where developers are not as limited and can provide as much housing as is profitable, bonuses have less value and “inclusionary zoning programs will be a clear tax on construction.”

For example, of the 8 jurisdictions that have mandatory inclusionary zoning programs in the Baltimore-Washington Area, only Alexandria and Falls Church have produced units. In both of these neighborhoods, exclusionary zoning contributes to high house prices and high demand for housing. The median house price per square foot is $210; in Alexandria it’s $361 and in Falls Church it’s $417.

Advocates say inclusionary policies produce affordable housing without the need to spend tax dollars. Critics say it’s a go-around that does nothing to address the exclusionary zoning that leads to high housing prices in the first place. For more on zoning, see The Policy Circle’s Stitching the Fabric of Neighborhoods Brief.

PBS dives into how zoning can restrict and even prevent affordable housing (11 min):

Conclusion

The Housing Act of 1949 established the goal of “a decent home and a suitable living environment for every American family.” However, since the housing crisis, the complications, complexity, and instability of the financial market, as well as the question of the role of government oversight, have raised the question of whether or not all Americans should own homes and what the future of homeownership looks like. Homes are not only buildings; they are key components of neighborhoods and are deeply intertwined with the surrounding communities and the amenities that exist in these communities.

 

Thought Leaders and Additional Resources

Christopher Rufo, The Discovery Institute

Emily Hamilton, Mercatus Center

Harvard’s 2020 State of the Nation’s Housing Report

HUD’s 2020 Annual Homeless Assessment Report

Housing Issues in the 116th Congress

End Homelessness: Tracking relevant legislation

State Policy Network’s State & Local Zoning Reform Toolkit

HUD Office of Housing Counseling Resources

PolicyMap Housing Needs Assessment Report

Local Housing Solutions

National Low Income Housing Coalition: How much do you need to earn to afford a modest apartment in your state?

Ways to Get Involved/What You Can Do

Measure: Find out what your state and district are doing about affordable housing and homelessness?

Identify: Who are the influencers in your state, county, or community? Learn about their priorities and consider how to contact them, including elected officials, attorneys general, law enforcement, boards of education, city councils, journalists, media outlets, community organizations, and local businesses.

  • Who are the members of departments related to housing and housing finance in your state?
  • Who is in charge of your Local Public Housing Agency (PHA) or State Housing Finance Agency (HFA).
  • What steps have  your state’s or community’s elected and appointed officials taken?

Reach out: You are a catalyst. Finding a common cause is a great opportunity to develop relationships with people who may be outside of your immediate network. All it takes is a small team of two or three people to set a path for real improvement. The Policy Circle is your platform to convene with experts you want to hear from.

  • Find allies in your community or in nearby towns and elsewhere in the state.
  • Foster collaborative relationships with law enforcement, first responders, faith-based organizations, local hospitals, community organizations, school boards, local real estate agents, and local businesses.

Plan: Set some milestones based on your state’s legislative calendar.

  • Don’t hesitate to contact The Policy Circle team, communications@thepolicycircle.org, for connections to the broader network, advice, insights on how to build rapport with policy makers and establish yourself as a civic leader.

Execute: Give it your best shot. You can:

  • Ask policymakers about local housing strategy.
    • What are the objectives? How will they be met, and over what time frame? How will they be assessed to ensure accountability and transparency?
  • Contact local real estate agents to understand key challenges in the housing market.
  • If you are unfamiliar with the housing market, talk to your friends and neighbors about their experiences renting or purchasing a home.
  • Learn from local business owners about whether and how local zoning ordinances affect them and their businesses.
  • Investigate volunteer opportunities, such as with Habitat for Humanity or NeighborWorks,

Working with others, you may create something great for your community. Here are some tools to learn how to contact your representatives and write an op-ed.

 

 

Suggestions for your Next Conversation

Explore the Series

This brief is part of a series of recommended conversations designed for circle's wishing to pursue a specific focus for the year. Each series recommends "5" briefs to provide a year of conversations.