Evaluating Candidates’ Housing Policy Proposals

Housing affordability is on many people’s minds as rents in cities like San Francisco, New York and Seattle have skyrocketed in recent years. Renters are paying increasingly high proportions of their incomes in rent as housing price growth has outstripped both inflation and wage growth. As a result, these cities are becoming too expensive for lower-income workers.

[su_pullquote]The fundamental problem is that demand has consistently outstripped supply in the cities where the affordability problem is most acute.[/su_pullquote]The fundamental problem is that demand has consistently outstripped supply in the cities where the affordability problem is most acute. San Francisco is a salient example. Since 2010, home prices have more than doubled, while the number of units of housing in the city has increased by only five percent. This has caused several interrelated problems: lower income people are forced to pay increasingly higher portions of their income, which makes it even harder to save or pay for medical expenses. Additionally, rapidly rising rents leads to displacement, forcing workers to live farther away and commute, which contributes extra greenhouse gas and particulate matter emissions.

Several of the candidates for the 2020 Democratic nomination have put forward detailed policy proposals to address this issue. Last summer, Senator Kamala Harris (D-CA) introduced the Rent Relief Act, which would give a tax credit to renters who spend more than 30 percent of their income on rent for the difference between their rent and the 30 percent figure. The credit would scale from 100 percent of the difference for renters making under $25,000 a year down to 25 percent for those making between $75,000 and $100,000 a year. For example, a family making$40,000 a year and spending 40 percent of their income on rent would get a tax credit for (0.4-0.3)*$40,000*0.75 = $3,000.

Senator Corey Booker (D-NJ) introduced a similar bill, the Housing, Opportunity, Mobility and Equity (HOME) Act, which would give renters a tax credit for the full difference between their rent and 30 percent of their income, capped at the area fair market rent (a measure of “fair” housing costs based on area economic and housing market conditions). Both these proposals are, broadly speaking, a rent subsidy. They are essentially a cash transfer to low income people who face a high rent burden.

While these policies would directly address the issue of housing affordability, they are misguided and do not reflect a nuanced understanding of the issue. While there are plenty of policy areas where more resources can do a lot of good, dumping more money into the housing market can have unintended consequences. The fundamental problem, which the rent subsidies don’t directly address, is that there just isn’t enough housing in cities like San Francisco or New York.

San Francisco shows that housing supply can remain almost constant even when there are drastic increases in housing prices. Despite the fact that home prices have doubled in the past decade, restrictive zoning laws and local “not in my backyard” politics make it difficult to get new housing projects approved in the city.

[su_pullquote align=”right”]The problem is that in housing markets like San Francisco, a rent subsidy (whose practical impact is to increase demand for housing by increasing potential residents’ purchasing power) will translate almost exclusively into price increases, while inducing very little new construction.[/su_pullquote]The problem is that in housing markets like San Francisco, a rent subsidy (whose practical impact is to increase demand for housing by increasing potential residents’ purchasing power) will translate almost exclusively into price increases, while inducing very little new construction. This price inflation would erase most of the gains to low-income renters and make higher income renters worse off. The only beneficiaries of the policy would be landlords, who would pocket the increased rents.

Senator Elizabeth Warren (D-MA) has proposed an alternative that takes a different approach. Her American Housing and Economic Mobility Act calls for building new affordable housing units, as well as extending anti-discrimination protections under the Fair Housing Act. An analysis by Moody’s finds that the project would create over three million new units of housing and decrease rents by 10 percent.

Importantly, Warren’s bill also addresses the problem of local land use restrictions that limit housing density and inhibit the construction of new housing. Her bill creates a competitive $10 billion grant program for which cities must reform their zoning laws to apply. This would go a long way towards reducing artificial constraints on housing supply that have contributed to the housing affordability crisis.

[su_pullquote]Warren’s proposed zoning reform incentives don’t go far enough.[/su_pullquote]Warren’s bill reflects a correct analysis of the underlying problem and directly addresses the root causes of housing affordability. However, her proposed zoning reform incentives don’t go far enough. Instead of using grants as a carrot, the government should instead make federal housing funding contingent on zoning reform, much like how the federal government coordinated states around a drinking age of 21 by tying federal highway dollars to the policy.

Having many candidates produce specific, detailed policy early in the campaign cycle helps sharpen the debate on key issues in Democrats’ platforms. Engaging in thoughtful policy debate now puts them in a better place to implement their agenda when they get the opportunity.

Michael Fogarty ‘19 studies in the College of Arts & Sciences. He can be reached at michael.fogarty@wustl.edu.