Did governments make the housing crisis worse?
In some ways the current crisis looks a lot like it did during the Great Depression, which led to the first major federal housing program.
Welcome back, readers. For almost a century, the government has tried to “fix” housing conditions in cities. The ways in which that has happened has changed over the decades from public housing to incentives, and from the federal government to local housing authorities.
Today, housing affordability is arguably more elusive than ever and a big part of it is the decline in supply. Not only is housing largely unaffordable for low-income families, it’s increasingly out of reach for the middle class. This week’s newsletter looks at what local governments are doing today, the economic factors also at play, and an explainer on the public sector’s role in the origins of the modern housing crisis.
Funding ‘missing middle’ housing
A recent report from Fitch Ratings on affordable housing notes that it is becoming increasingly more difficult for middle-income workers (like teachers and cops) earning between 80% and 120% of the area median income, to live near their jobs.
“In urban areas, there is a growing gap between the high cost of market-rate housing and the limited availability of subsidized housing, which leaves a significant portion of the middle-income population without affordable housing options,” the report says.
Though housing for this income group has gotten more attention in recent years from traditional public supports such as local housing authorities and through tax breaks, it’s still tough to make the numbers work. Building and maintaining housing has gotten more expensive and even with a tax break on financing, relying on middle class rents to pay back debt is a 30-year tightrope walk.
“The rent received over that time would depend on the makeup of tenants,” Fitch Senior Director Karen Fitzgerald tells me. Rent payments are restricted to a portion of the tenant’s income, and 80% to 120% of area income is a wide margin.
Moreover, a repayment timeframe of 30 years (and in some cases, 45) is a long window to gamble with. If a project ends up having more tenants over that time who skew to the lower end of the income bracket, that may not be enough to cover the debt service, Fitzgerald says.
“So there’s just a lot of unpredictability and volatility going forward,” she adds.
Rising interest rates and the increased cost of labor and materials has exacerbated this situation. But Fitzgerald also notes that more government programs are emerging in response. For example, the Bipartisan Infrastructure Act:
Expanded the low-cost loan program known as “TIFIA” to include residential housing near transit.
More recently, made that money available for office-to-residential housing conversions.
Higher costs are a symptom. The cause is more complex.
Access to capital is just one piece of the crazy quilt story of America’s housing crisis. Another big driver of the housing shortage is that actually building something takes a long time and governments have played a role here in various ways.
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