2020 GDP Drop of 3.5%

Update 502 – 2020 GDP Drop of 3.5%
Really Hits Home… Owners & Renters

The economy shrank by 3.5 percent in 2020, the largest contraction since 1946 and the first annual decline since 2009. Consumer spending specifically took a major hit, decreasing from Q3 to Q4 — an alarming anomaly and a reminder that disposable income, the key to recovery, is steadily shrinking.

Despite a strong housing market, the drop in consumer spending means renters are in trouble too. A new administration and Democratic control of Congress ensure that housing policy will be at the forefront of the immediate debate. We have a look at the housing sector, the policy problems it raises, the Biden administration’s response, and the congressional perspective below.

Good weekends all, 



Yesterday, the Senate Banking, Housing, and Urban Affairs Committee held a confirmation hearing for Rep. Marcia Fudge, President Biden’s nominee for Secretary of Housing and Urban Development. The longtime Ohio representative would become the first woman in more than 40 years to lead HUD and only the second woman of color in its history. 

If the Senate confirms Fudge, she will be tasked with reinvigorating the enforcement of anti-discrimination laws, delivering relief, and developing Biden’s housing policies moving forward. Below we examine the challenges Biden will face and his plans to address them.

Pandemic Relief for Renters

With more than 10.5 million families behind on rent and another 8.7 million homeowners behind on mortgage payments, the United States faces a housing crisis eclipsing that which took place during the Great Recession. Thanks to a federal eviction moratorium, the impending crisis has been temporarily forestalled, but $57 billion in back rent remains unaddressed. Without major financial relief for renters, our economy is likely to plunge into a double-dip recession when the bill comes due and millions of families are unable to stay in their homes.

The COVID relief bill passed in December partially alleviated this problem by distributing $25 billion to landlords or utility companies on behalf of renters hit worst by the pandemic. While this action is projected to cut the number of renters facing eviction by around three million by June, it does not fully resolve this crisis. The Biden administration’s American Rescue Plan includes an additional $30 billion for renter assistance and $5 billion to address homelessness. The plan also extends the eviction moratorium, scheduled to expire in March, through September. 

If enacted, the American Rescue Plan would reduce back rent to pre-COVID levels, but does not address the structural housing inequalities from before the pandemic. Black and Hispanic renters are currently 3 and 2.4 times more likely to be underwater on rent than white renters. Additionally, while homeowners’ saving rates have increased dramatically during the pandemic, the savings of all renters have barely budged. 

Biden’s Plan…

Biden’s stimulus plan may offer some short-term relief, but the administration faces a much longer-term affordability crisis. Following the 2008 financial crisis, the affordable housing stock plummeted, resulting in higher prices for renters and homeowners. Per a report from the Joint Center for Housing Studies, 46 percent of renters and 21 percent of homeowners spent more than 30 percent of their household incomes on housing in 2019. 

These trends have only worsened during the pandemic. To address the affordability crisis, Biden has proposed a $600 billion housing plan that includes: 

  • Creating a First-time Buyer and Renter’s Tax Credit: Biden proposed an advanceable and refundable tax credit of up to $15,000 to help first-time homebuyers with their down payment. The plan also assists renters who earn too much to qualify for housing vouchers by allowing them to write off housing costs that exceed 30 percent of their income. Vice President Kamala Harris introduced a similar proposal last Congress in the Rent Relief Act. 
  • Eliminating Certain Local and State Housing Regulations: Under Biden’s proposal, states and localities wishing to take advantage of new federal investments in housing will be required to eliminate certain regulations that reduce affordable housing availability.
  • Expanding the Low Income Housing Tax Credit (LIHTC): The LIHTC subsidizes the construction, rehabilitation, and acquisition of affordable rental housing. 
  • Establishing an Affordable Housing Fund: Biden’s plan would establish a $100 billion fund to build and upgrade affordable housing for renters and buyers. The policy would also provide $20 billion to the Housing Trust Fund, which offers affordable housing construction grants to states. 

Beyond issues of affordability, systemic housing discrimination contributes to severe racial disparities in homeownership. Black homeownership today is at its lowest level since at least 1970. Biden’s housing plan seeks to increase enforcement of existing laws, including the Fair Housing Act and the Community Reinvestment Act. This week, the administration took its first step to fight redlining. The executive order instructs HUD to review the impact of harmful fair housing rules adopted by the Trump administration and reinstate the disparate impact and fair housing rules. 

… and Congress’ Approach

Last Congress, House Financial Services Committee Chair Maxine Waters made housing reform a centerpiece of her agenda. At the beginning of this year, the Chairwoman praised Biden’s first steps to reinstate the Fair Housing Act.

To further housing justice, the Place to Prosper Act and the Housing Fairness Act provide starting points for future legislation. To address the issue of affordability, the following housing bills will likely be reintroduced in the 117th Congress:

  • American Housing and Economic Mobility Act (H.R.1737)
  • Affordable Housing Credit Improvement Act (H.R.3077)
  • Ending Homelessness Act (H.R.1856)
  • Housing is Infrastructure Act (H.R. 5187)
  • Rent Relief Act (S.4519)

Housing Finance Reform

Days before President Biden’s inauguration, then-Treasury Secretary Mnuchin and Federal Housing Finance Agency (FHFA) Director Calabria permitted Fannie Mae and Freddie Mac to retain all of their earnings for the first time since entering government conservatorship. The agreement puts Fannie and Freddie on track to meet the requirements of the FHFA’s post-conservatorship capital framework. Per Calabria, Fannie and Freddie could build up the capital needed to exit conservatorship as soon as this year, but it’s unlikely that this timeline will be met as President Biden takes the reins.

The Biden administration must decide whether to follow the path set forth by the Trump administration or forge a new one. Incoming Senate Banking Committee Chairman Brown has suggested transforming the two GSEs into government utilities. This policy would allow the GSEs to continue providing broad access to affordable mortgage credit with little risk. But the proposal would come at a cost to Fannie and Freddie shareholders who have not received dividends for over a decade. 

The fate of the GSEs is not just up to the Biden administration. The Supreme Court is expected to rule on a case this spring regarding the leadership structure of the FHFA and the legality of an agreement that required Fannie and Freddie to deliver nearly all their profits to the Treasury. The outcome of the case may grant Biden the ability to fire Calabria and nominate a new director, providing the administration with even more power to determine the GSEs fates. 

Fudge To Lead HUD

Rep. Fudge appears set for a quick confirmation. Though some Republicans are skeptical of her progressive record in Congress, her home state Republican senator spoke glowingly of Fudge, calling her a friend and noting their collaboration over many years. 

As a former mayor, Marcia Fudge brings a progressive perspective back to HUD, particularly ob urban housing disparities. If confirmed, Fudge will use her powers to expand rental assistance, increase access to Section 8 vouchers, and create more homeownership opportunities. She will also play an important role in developing, promoting, and implementing Biden’s legislative housing agenda.

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