The affordable housing crisis, explained

The United States is facing an affordable housing crisis.

It’s affecting Americans across the income spectrum. The National Low Income Housing Coalition found in 2018 that a renter working 40 hours a week and earning minimum wage can afford a typical two-bedroom apartment (i.e., not be cost-burdened) in exactly zero counties nationwide.

Harvard researchers found that in 2016, nearly half of renters were cost-burdened (defined as spending 30 percent or more of their income on rent). Even some high-income earners in expensive coastal cities struggle with rent. Nearly two-thirds of renters nationwide say they can’t afford to buy a home, and saving for that down payment isn’t going to get easier anytime soon: Home prices are rising at twice the rate of wage growth.

Even as the economy continues to grow and the housing market rebounds from the Great Recession, Americans face widening inequality, and, for many, an inability to comfortably pay for housing as wage growth stagnates and housing costs continue to climb.

With supply shortages across the country, the simple answer to the rent being “too damn high” is, of course, to build more housing. But the reality is significantly more complicated than simply jump-starting construction. A variety of market forces, policy decisions, and demographic changes have converged to make building affordable housing a difficult, and politically fraught, proposition.

How did a nation that prides itself on opportunity become one in which a shortage of affordable housing options seems to have no immediate solution and where so many renters and buyers struggle?

Here are the main factors driving up the cost of housing.

Affordable housing policy favors homeowners over renters—and our tax deductions prove it

In 1965, the U.S. Department of Housing and Urban Development (HUD) became a cabinet-level agency. The Johnson administration used the department to implement a vision of America in which federal welfare programs combated poverty—partly through housing subsidy programs—and the impacts of racial injustice; enthusiasm among progressive activists abounded.

But this new vision didn’t carry over to Johnson’s successors. The Nixon administration put a moratorium on the construction of public housing. Moves by the Reagan and Clinton administrations essentially resulted in public housing only being built to replace existing units. The Reagan administration drastically cut HUD’s rental assistance programs, which advocates for affordable housing claim made homelessness a permanent fixture of American life.

Meanwhile, the federal government consistently subsidizes middle- and upper-middle-class homeowners.

Take, for instance, the mortgage-interest deduction (MID), which was established in 1913, along with the federal income tax, and has survived numerous updates to tax law thanks to the powerful real estate lobby. The MID lets homeowners deduct interest payments on a mortgage from their federal income taxes.

While the tax law passed in 2020 lowered the MID cap from $1 million to $750,000, and thus how much it will cost the federal government, the Congressional Joint Committee on Taxation predicts that in 2020 the MID will save homeowners (and cost the federal government) $30.2 billion in lost revenue. This annual federal tax expenditure is more than the funding of all rental subsidies and public housing, and benefits mostly middle-class and wealthy homeowners because renters don’t benefit at all and the more expensive a home is the more the owner benefits.

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