Why Biden is Spending Billions on Affordable Housing
It’s been just 50 days since President Joe Biden took office. Yet, his administration has spent an average of $1 billion per day to create or preserve affordable housing around the country.
This puts Biden on pact to reach his promised $640 billion investment in affordable housing over the next decade by next year. But, the spending isn’t as frivolous as these numbers may seem. Biden has shown there’s a clear, evidence-based strategy behind the money.
First, Biden asserted that addressing housing affordability requires keeping people who are at risk of experiencing homelessness in their homes. Without these efforts, the marketplace for affordable housing would become hyper-competitive. Priced-out homeowners would be forced to compete with first-time homebuyers and others for properties. In turn, home prices would soar.
To that end, Biden extended the federal eviction moratorium, and shortly thereafter, the forbearance period for federal mortgage borrowers right after his inauguration.
Next, Biden began fomenting policies that will help people pay down their backlog of debt to mortgage servicers, utility companies, and landlords. Biden’s American Rescue Plan sets aside $21.5 billion for emergency rental and utility payments, nearly $10 billion for mortgage assistance, and $455 million for affordable housing in sovereign Native American communities.
According to estimates by The Wall Street Journal, millions of Americans are still at risk of being evicted because of unpaid rent and mortgages. Meanwhile, landlords around the country are seeking judicial help to remove tenants who fail to pay up.
These moves have had a disproportionate impact on communities of color, according to research by the University of Washington and Cal-Berkeley. Eviction is an specifically pernicious tactic because “it prevents households from being able to achieve favorable and affordable housing in good neighborhoods and leads to prolonged searches for housing that leave ample time for families to experience short-term and long-term homelessness,” according to one study.
Communities of color often bear the brunt of evictions in the US. The university of Washington performed its own study on evictions and found that “neighborhoods that saw increases in Black and Latino populations and declines in education and new movers over time also see higher rates of eviction.” Oftentimes, these evictions are accelerated by stagnant wages and rising rents, the study adds.
Recognizing the need to expand access to housing for many communities, Biden directed the Department of Housing and Urban Development (HUD) through an executive order to redress the federal government’s legacy of housing discrimination.
In response, HUD announced in February that the agency will begin enforcing the Fair Housing Act to prohibit housing discrimination based on gender or sexual orientation, two categories not included in federal civil rights legislation.
This policy stance is already paying dividends. The agency has secured two victories in housing discrimination cases: one against a Missouri landlord for forcing a disabled tenant to pay exorbitant “pet fees” because of her accommodation requests and one against a Pennsylvania housing provider for discriminating against people with mental disabilities. HUD also resolved claims against JP Morgan Chase for racially discriminatory housing appraisals.
“Racially discriminatory housing practices and policies have kept communities of color from accessing safe, high-quality housing and the chance to build wealth that comes through homeownership,” acting HUD Secretary Matt Ammon said in a statement.
“To this day, people of color disproportionately bear the burdens of homelessness, pollution, climate-related housing instability, and economic inequality because of deliberate and systemic efforts to deny them fair and equal access to housing opportunity,” he added.
After passing protections for those who are already in homes, Biden then turned his focus toward building affordable housing.
HUD has already authorized another $8.9 billion in funding opportunities for affordable housing outside of the American Rescue Plan. These opportunities include spending $2.7 billion for improvement projects in public housing facilities in all 50 states, another $5.5 billion to support rapid re-housing programs, transitional housing, and homeless shelters, and $652 million in Indian Housing Block Grant (IHBG) formula funding for eligible Native American Tribes and Tribally Designated Housing Entities.
At the same time, the Federal Housing Finance Authority (FHFA) announced it will release $1.09 billion in affordable housing funding in 2021, nearly double the amount released in 2020. The money is going to two groups: the National Housing Trust Fund (NHTF) and the Capital Magnet Fund.
90 percent of the funds NHTF receives go toward providing affordable housing to people with extremely low incomes. The remaining funds are used to help first-time homebuyers secure housing. HUD defines an “extremely low income” as being no more than 30 percent of an area’s median income or meeting the federal poverty line, whichever is greater.
The Capital Magnet Fund provides grants to build low-income and affordable housing. It is overseen by the Treasury Department, which allocated $383 million to the Fund, a nearly 50 percent increase from the $175.8 million it received in 2020.
To back up these efforts, the Treasury Department approved $9 billion in Emergency Capital Investment Program (ECIP) expenditures. This new initiative is designed to help small and minority-owned businesses and consumers in low-income and underserved communities that were hit hard by the COVID-19 pandemic find access to capital.
Similarly, Secretary Janet Yellen told the National League of Cities on March 9 that the Biden administration is committed to providing the funding necessary to ensure the pandemic recession doesn’t reach the depths of the Great Recession.
“The federal government didn’t provide enough aid to close the gap. It was a profound error. Insufficient relief meant that cities had to slash spending and that austerity undermined the broader recovery,” she said.
An Urgent Calling
During Trump’s campaign, he spoke at length about helping communities address the nation’s housing affordability crisis. However, cities were largely left to their own devices after he was elected.
Trump directed the National Interagency Council on Homelessness (NICH) to “crackdown” on homelessness in Los Angeles, depart from evidence-based strategies such as Housing First, and threatened to cut funding from Democrat-led jurisdictions during a pandemic.
Meanwhile property values across the country skyrocketed. The top-10 markets each saw greater-than 1% gains in home prices, according to Global Property Guide, a real estate investment website.
All of these facets are what’s driving Biden’s affordable housing efforts on the surface. Below the surface, the Center for Budget and Policy Priorities (CBPP) described Trump’s policies as “a systematic attack on poor people, children, and the elderly.”
In his 2018 budget, Trump cut billions from programs that provided healthcare. Medicaid will see its allocations decrease $763 billion over the next decade, with cuts reaching $172 billion annually by 2028 if Biden doesn’t reverse course in his first budget.
He also sacked $85 billion away from the Supplemental Nutrition Assistance Program, which helps families purchase healthy food, canceled Housing Choice and Section 8 Vouchers, and raised rents for millions of residents in public housing units.
The next year, Trump attempted to reconfigure the equation for the federal poverty rate, a move that would have caused 250,000 seniors and people with disabilities to lose or receive less help from Medicare’s Part D Low-Income Subsidy Program, and more than 300,000 children to lose comprehensive coverage through Medicaid and the Children’s Health Insurance Plan within a decade, according to CBPP.
Lowering the poverty line would have a disproportionate impact on childhood poverty. If parents lack access to healthy food or healthcare options, their children are more likely to be malnourished and develop long-term health problems, a report by The Nation found. In turn, these factors can weigh down a child’s ability to escape poverty.
In 2020, Trump told his suburban voters that they won’t be “bothered” by nearby low-income housing anymore after rescinding an Obama-era rule fair housing rule. Not only is this policy based on a debunked theory that low-income housing detracts from the for-sale value of market-rate housing, but it also limited the development of new housing units for low-income individuals during a global pandemic.
For his finale, Trump released a budget in 2021 that reduced HUD’s funding by $8.6 billion, a 15 percent decrease. In total, the budget cut $1.6 trillion from low-income housing programs, according to a CBPP analysis. The deepest cuts went to public housing options and housing for persons with HIV/AIDS. Both programs saw cuts above 20 percent.
Economists from the University of Chicago and the University of Notre Dame released a report shortly before the end of 2020 detailing how these policies helped lead the US to suffer a 2.4% increase in poverty in 2020, the largest spike since the 1960s.
Addressing the Real Issues
Opponents to the Biden Administration’s approach argue that these policies will actually make housing more expensive because he aims to raise taxes on businesses and individuals, and increase the federal bottom wage.
Daniel Kowalski, a businessman, argued in an article for the Foundation For Economic Education (FEE) that exempting housing builders from income taxes would spur homebuilding faster than allowing the government to enter the development market, as Biden’s plan calls for.
“With a tax exemption, a developer could keep 100 percent of the profit they make while providing a product that benefits the poor. This would almost certainly spark development,” Kowalski writes.
However, Kowalski’s argument makes the same assumptions that Biden’s housing policies directly oppose. Kowalski is essentially saying that if developers are allowed to make more money, then they will build more buildings. Seems simple enough, right? However, simply exempting private developers from taxes doesn’t solve the real issues ailing homebuilders — rising material and labor costs.
Since March 2020, the price of home building materials such as PVC, wood, and steel have all doubled. Similarly, many states increased their minimum wages once the calendar turned to 2021. Neither of these issues would be solved by income tax exemptions. Instead, they can be abated by using economies of scale, something the federal government specializes in.
Not only can federal development programs purchase materials at lower than market-rate costs, but they can also subsidize labor costs to produce homes that are affordable for every income level. While tax hawks will squawk about perceived “wasteful spending” if the government doesn’t turn a profit off of its own people, private developers know they cannot operate at this level of loss.
Meanwhile, a study by Realtor.com found that COVID-19 and recent extreme weather have caused more than 200,000 listings to go “missing” from the US housing market. At the same time, housing starts are beginning to decline even as the number of building permits continues to increase, according to the US Census Bureau. This speaks to the tough business climate many homebuilders are facing, one that lives completely outside of taxation.
Biden’s housing plan offers a much different approach. The plan essentially argues that providing affordable housing is a moral imperative rather than just a profitable business model.
“While the housing challenges Americans face in different rural and urban communities across the country may vary, every American in every zip code should have access to housing,” Biden’s campaign website says.
