Update 565 — BBB Faces Housing Crisis:
Residential Infrastructure and Recovery
Democrats’ negotiations on Build Back Better are gathering momentum, as evidenced by the stream of detailed pare-backs and concessions reported this week. But progressives are mounting a defense of the bill’s housing provisions. Congress may cut housing outlays from the initially proposed $327 billion to as low as $100 billion over ten years. The growing crisis — low stock, rising prices, and rents — reminds us this isn’t wish-list spending; home is where the heart of the recovery is.
In this update, we discuss how the Build Back Better Act’s housing section as written begins to address the housing crisis both by boosting supply and ensuring affordability through demand-side policies — arguing against paring down BBB’s housing provisions.
Good weekends all,
Build, Baby, Build!, Mantra for a Majority
The problems besetting the housing sector today are both structural and circumstantial. There is practically universal agreement among analysts that the most acute one is the inadequacy of supply today, especially in high-demand markets to bring costs down. Currently, the United States has a housing shortage of roughly 4 million to 7 million units. The shortage has driven up prices, pushed families out of their residences, and contributed to the near 600,000 people experiencing homelessness across the country.
The immediate, actionable solutions to the problems, starting with stock, are foremost in import and modest in cost, Both public and private investments are needed to fully solve the crisis, and the Build Back Better Act’s housing provisions begin to tackle the issue by infusing money into public housing as well as incentivizing private capital to build more:
- Public Housing Repairs ($80B): The House Financial Services Committee wants to invest $80 billion in public housing authorities (PHAs). PHAs across the country have been dealing with significant underfunding for decades. The lack of investment has caused many public housing units to fall into disrepair and thus reduces the public housing stock. Rehabilitating PHAs would help maintain public housing stock at the current baseline, which would remedy the downward pressure on supply currently seen. In addition, HUD Secretary Fudge has discretion over $66 billion of the funds to direct money toward PHAs with the largest funding gaps, such as New York’s which currently has a $40 billion shortfall.
- Exemption from the Faircloth Amendment: Representatives Ocasio-Cortez, Velázquez, and Omar secured an exemption to the Faircloth Amendment, a 1998 rule that currently prohibits HUD from funding new public housing construction if it helps local PHAs secure new units. The rule contributed to the malaise plaguing the public housing stock. While few funds are currently dedicated toward new public housing construction, lifting the prohibition from the Faircloth Amendment lays the groundwork for a net increase in the supply of public housing, a crucial step in increased aggregate housing supply.
- HOME Investment Program ($35B): The proposed $35 billion to the HOME Investments Partnerships Program should jumpstart plenty of affordable, low-income multifamily developments in communities that desperately need more multifamily housing.
- National Housing Trust Fund Investment ($37B): Similar to the HOME Investment Program, the $37 billion investment in the National Housing Trust Fund would help build and preserve 330,000 homes affordable to people with the greatest needs across the country.
- Zoning Reform Incentives ($4.5B): Since the federal government holds no jurisdiction over local zoning matters, Congress is attempting to incentivize localities to reform their zoning ordinances to allow higher density housing. Changing zoning laws to allow high-density construction would incentivize private capital to invest, helping to alleviate the housing shortage.
Affordable Housing for All
In addition to ensuring an adequate supply of housing, Congress wants to alleviate the price barrier to renting or owning a home. Through monetary assistance and vouchers, the Build Back Better Act aims to provide assistance to people to afford their housing.
The policies proposed by the House Financial Services Committee expand the social safety net in housing and provide a way for more people to maintain a roof over their heads and find stability:
- Universal Section 8 ($75B): Section 8 Vouchers are the workhorse of federal housing policy, with low-income recipients usually contributing 30 percent of their income to rent while the voucher covers the outstanding sum. However, due to lack of funding, only one-quarter of families eligible for Section 8 currently receive housing vouchers, and the average wait time for federal housing assistance is two years. Some wait for over a decade. The Build Back Better Act would expand the program to serve an additional 750,00 households. Enhancing Section 8 would take a great stride in alleviating the eligibility problem and the wait time for assistance.
Discretionary Spending for Housing Assistance Relative to GDP
Source: Center on Budget and Policy Priorities
- Project-Based Rental Assistance ($15B): Project-Based Rental Assistance (PBRA) currently provides more than 1.2 million low-income families with long-term affordable housing. The Build Back Better Act increases funding for this program by 20 percent over the next five years, allowing up to a quarter-million new families to benefit from the PBRA.
- Downpayment Assistance ($10B): This new program would provide up to $20,000 to first-generation homebuyers, fulfilling one of President Biden’s major campaign promises. Homeownership is the primary tool of middle-class wealth generation. Black and brown families have been mostly locked out from accessing this tool for generations, and the investment proposed would begin to combat the racial homeownership gap by increasing Black and Latino homeownership by hundreds of thousands. The program would target families without a prior history of homeownership and would take a major step in closing the racial homeownership gap. A $10 billion investment would generate tens of billions of dollars in economic activity as well.
Don’t Pare This Down
The Build Back Better Act’s housing provisions are a long-overdue down payment to tackle the metastasizing housing crisis. This section should not be cut due to arbitrary lines drawn in negotiations. The housing provisions — particularly investments in rental assistance, public housing, and the Housing Trust Fund — would cut homelessness in half just within five years; that is what is at stake if Congress slashes the housing section. But beyond that, fostering construction will provide material benefits voters await and will reward.
Crucially, these housing provisions would create 115,000 new jobs over the next 10 years. The House Financial Services Committee did its due diligence when crafting this section and even came in below budget based on its limit set by the reconciliation instructions. They should not be penalized for developing critical investments that boost job growth in a cost-effective manner.
House Financial Services Committee Chairwoman Maxine Waters has tackled homelessness throughout her Congressional career. Cutting the housing section would disserve her work and that of the Committee staff. Waters’ fellow Financial Services Democrats are united behind her, signing a letter calling for the full housing package as written to be included in the final bill, citing polling data, economic impact, and various experiences from affected groups. The housing provisions are too high a priority, too popular, and too promising politically, given their critical short-term economic impact.