A National Commission on Solving the US Housing Crisis: An Urgent Proposal
Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz.
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March 10, 2023
(co-authored with Michael Saadine and Ben Preis)
In March 1988, 35 years ago almost to the day, a high-profile National Housing Task Force released a stirring report entitled A Decent Place to Live. The Task Force, headed by James Rouse, the famed Baltimore developer and founder of the Enterprise Foundation, and David Maxwell, the CEO of Fannie Mae, explored and elevated the nation’s housing challenges and recommended an ambitious 10-point program to provide housing opportunity. Its focus was primarily on federal policy reform, in large part as a response to the dismantling and de-funding of housing programs during the Reagan years.
The Task Force conducted its work with rigor and exactitude. The Task Force included 26 members, with broad representation from key housing institutions, constituencies and advocates. The Task Force members met regularly over several months and engaged two well-respected Washington housing attorneys to sharpen the policy recommendations and write the final report. The Task Force received philanthropic support from the Charles Stewart Mott Foundation, based in Flint, Michigan, and benefitted from 20 research papers prepared under the direction of scholars from the Massachusetts Institute of Technology.
The Rouse/Maxwell Task Force delivered its report at a moment of energy and optimism. The Low-Income Housing Tax Credit had been created as part of the 1986 Tax Reform Act and efforts were already underway to design a system for raising private capital through syndication. The Local Initiative Support Corporation and The Enterprise Foundation (now Enterprise Community Partners), had both been created less than a decade prior, and benefited from charismatic leadership guiding a new model for the finance and delivery of affordable housing through public, private and community partnerships. Other advocates and practitioners were pushing the envelope on solutions to address deeply challenged public housing projects and the relatively new surge of homelessness.
The impact of the Rouse/Maxwell Task Force was profound. Closely aligned with bipartisan leadership in the US Senate, the Task Force directly informed the drafting of the National Affordable Housing Act of 1990. That Act, among many other provisions, required states and localities to draft comprehensive housing affordability strategies, authorized a new federal program (HOME) to expand the production of affordable housing and homeownership and kickstarted the demolition and replacement of tens of thousands of public housing units via the HOPE VI program. (Bruce was Senior Counsel to the U.S. Senate Subcommittee on Housing and Urban Affairs at the time, so was deeply involved in moving policy ideas to legislative text and action).
It is urgent to consider again the creation of a new and independent National Housing Commission. Not a day goes by without the lack of affordable housing being front page news all across the country. Rising homelessness. Widening racial inequities. Crushing rents. Persistent inflation. Impenetrable barriers to homeownership and wealth creation. A new class of institutional investors and corporate landlords. YIMBYs. NIMBYs. The list goes on and on.
As in 1988, the size, scope and complexity of the nation’s housing crisis requires objective review and purposeful action. The country desperately needs a serious re-examination of the nature and scope of the nation’s housing’s housing crisis and the creation of a smart, fresh set of transformative solutions from the bottom up. Many states and localities have promising experiments underway, as well as examples of successes and challenges from the last 30 years. It is long past time to take stock of this data set, with an eye towards more systematically applying replicable best practices.
To that end, we propose the creation of a National Commission on Solving the US Housing Crisis by September 2023, with funding of $25 million drawn from the nation’s largest financial institutions and philanthropies. As in 1988, the work of the Commission must be deliberate but swift, with a report proposing concrete solutions published by June 2024.
Consider the following facts:
The supply of affordable housing has not even remotely kept pace with the growth of the nation’s population and households. The evidence points to one distressing conclusion: the housing challenge has worsened considerably and changed structurally over the past three and a half decades. The mismatch between housing supply and demand and, relatedly, housing prices and wages, is exacting a brutal toll on tens of millions of Americans. The housing world is awash in grim stories and statistics; here are just a few:
- Homelessness continues to be a national disgrace and the most visible symbol of the nation’s inequities. Tent encampments now proliferate throughout the country, particularly in central business districts depopulated due to the rise of remote work.
- The national average rent-to-income ratio reached 30% in the fourth quarter of 2022, according to Moody’s Analytics. That’s the definition of housing cost burden that the federal government routinely uses and it’s the highest in the more than 20 years Moody’s has been tracking it. According to the American Community Survey, over 19 million renter households spent more than 30% of their income on housing costs in 2021.
- For millions of Americans, paying 30 percent of their income for rent is a bargain. Incredibly, 30% of Black renters, 27% of Latino renters, and 22% of White renters are severely cost-burdened, meaning that they pay more than half of their income for rent.
- According to the US census, the communities experiencing high rent burdens are now widely distributed across the country. Places with high rent burdens are located not only in large metropolitan areas on the coasts (e.g., Boston, Los Angeles, New York City, San Francisco) but in counties spread across the South. Nearly half of the counties where renters had the highest median housing cost ratios were in the South. Florida, Louisiana, Texas, and Mississippi were among the states with the largest number of counties where renters’ median housing costs exceeded 30% of their income.
- As renter burdens balloon, the American dream of homeownership becomes more elusive. Overall, only 9% of Black renters could afford the median priced home in 2021, compared to 13% of Latino renters, and 17% of White renters. According to the National Association of Realtors, the gap between Black and white homeownership rates is higher today than it was when the Fair Housing Act was passed in 1968.
- Homeownership rates for millennials have lagged behind homeownership rate for previous generations. Though millennial homeownership rates increased during the pandemic, only 27% of millennials aged 25-34 are homeowners, compared to 40% of Generation X when they were the same age. At the same time, longtime homeowners have seen substantial appreciation in home values, allowing substantial increases in net worth. Taken together, this represents a generational transfer of wealth from low-wealth millennials to high-wealth retirees.
Many of these challenges are the direct result of too little housing being built to meet the rising demand of a growing population and changing household composition. Freddie Mac estimated in 2021 that the country is short some 3.8 million housing units. The combination of intense local opposition, byzantine building codes and zoning ordinances and rising costs have made the production and preservation of affordable housing (or “workforce housing” in the more palatable parlance) a heroic act mastered by fewer and fewer practitioners.
But the housing crisis is not just worse than in the late 1980s; it has structurally changed in important ways due to new technologies, new investors and new corporate landlords. The mismatch between supply and demand has created a new way for private capital to extract higher rents and higher profits with minimal risk or action. A wave of parasitic capital is sweeping the country as investors, large and small, buy single family homes at scale, boosting rents, displacing residents and altering the fabric of entire neighborhoods. A new class of slumlords now occupies the urban landscape. Ironically, the trend is rooted in the federal government’s response to the Great Recession, when the government intentionally pushed institutional investors to buy foreclosed properties at scale.
The impact of the nation’s housing affordability crisis is far and wide. The crisis has lowered social mobility, deepened racial and ethnic disparities on income, health and wealth, sharpened inter-generational divisions, undermined regional economic competitiveness and exacerbated the sprawling dysfunction of metropolitan areas. A recent article in the Atlantic even posited a “housing theory of everything” illustrating how this one issue has affected all aspects of national life to the detriment.
Against this background, national housing policy is fundamentally broken.
The federal government mostly oversees a series of underfunded, legacy programs. Most of these programs haven’t been significantly updated in decades, leading to declining innovation, rising costs and disturbing inefficiencies. With a few exceptions, federal housing legislation has mostly responded to the financial malfeasance that precipitated the Great Recession in 2008 or the threat of mass evictions during the COVID-19 pandemic. Political support for housing has also waned. The Biden Administration’s call for a significant increase in housing vouchers, for example, went nowhere and was left on the cutting room floor as Congress appropriated hundreds of billions for infrastructure, manufacturing, defense, innovation and climate related solutions. While energy efficiency efforts could lower housing costs, the firehose of federal infrastructure and other investments could make the housing crisis worse, given that they are likely to raise property values and, unwittingly, attract outside parasitic capital – again increasing demand without helping to generate commensurate supply. To its credit, the federal government has started to acknowledge shifting market and investor dynamics and respond to the latest wave of predatory financial activity.
With the federal government stymied, states, localities and the private and philanthropic sectors have tried to step into the vacuum. And there have been advances. States like California and Massachusetts have mandated localities to build more housing and empowered builders to get around local opposition. Cities like Atlanta, Cincinnati, Denver, Louisville and Tulsa have pushed a diverse set of solutions (e.g., land banks, community land trusts, housing trust funds, zoning reforms, accessory dwelling units, revamped public authorities and community benefits agreements) that make the production or preservation of affordable housing financially feasible. Cities like Austin and Houston are making discernible progress on addressing homelessness with approaches that marry housing solutions with the provision of mental health care. A few corporations and anchor universities and hospitals are even taking matters into their own hands, given the impact that housing costs have on the ability to attract or retain workers.
But these hard-won victories are not sufficient. They are spatially uneven, covering only a small portion of the country. They are narrowly drawn, focused mostly on increasing housing supply and not on countering predatory dynamics. They are remarkably parochial, borrowing few international examples. And they are inadequately scaled since there is no federalist mechanism for codifying and replicating success.
Against this backdrop, we call for the immediate creation of a National Commission on Solving the US Housing Crisis. We strongly recommend consideration of the following design elements:
First, the focus of the Commission must be expansively federalist rather than narrowly federal. We use the term “National” intentionally. Housing policy is a broad federalist act in the US rather than an exclusive federal responsibility. With Washington again divided along partisan lines, it is extremely unlikely that any meaningful housing legislation or action will occur at the federal level over the next several years. States and localities will, therefore, bear the brunt of responsibility for making progress.
Second, the federalist focus of the Commission should be widely drawn and its approach irreverent. Fundamental questions about the nature and scope of the housing crisis and the current state of housing policy and practice need to be asked and answered. This will require a complete and fresh look at the nation’s housing finance system and the institutions and tax incentives that drive it, including the latest wave of parasitic capital. It will also necessitate a long overdue assessment of the nation’s housing delivery system, to ascertain whether the mix of public, private and non-profit builders and financiers are adequate to the task.
A focus on the stock and flow of housing must be central to this effort. Even pushing to produce more units, as complicated as that is, will never be sufficient as long as the country continues to lose affordable units “through the back door,” as values appreciate and predatory owners take hold.
The basic foundations of the American housing system, including the ways that homeownership is tied to wealth creation, and the implications that carries for racial inequities, must be reevaluated.
Homeownership rates in this country are unequal, and have barely changed in 50 years. The Commission must evaluate the feasibility of financial innovations and consumer products that can address contemporary wealth and income gaps that act as barriers to homeownership. At the same time, however, the Commission should evaluate ways to build individual assets and community wealth through means other than homeownership. Even if the homeownership gap were closed, the racial wealth gap would persist, due to biases in the home appraisal process and the way that neighborhoods are subjectively evaluated based on those who live there. Not all countries rely so heavily on homeownership to generate wealth — the Commission should thus look at other ways to make housing and asset building more equitable, not just homeownership.
In all cases, the Commission must be empowered to look both inside and outside the United States for inspiring and imaginative solutions. In most mature economies, for example, housing policy is primarily local rather than national. This has allowed cities like Copenhagen and Hamburg to create nimble institutions with the capacity to act on housing challenges with alacrity and scale in the market as well as financial mechanisms that enable a portion of the rise in property values to be captured for community purpose.
Third, the Commission will be directed to provide not just a national report for action but a national Solutions Bank for Innovative Housing Practices. The goal is to codify 50 proven or imaginative solutions that are being deployed to produce or preserve affordable housing, protect tenants and aid homebuyers and identify the policy reforms and institutional powers used to further them. The Solutions Bank must include a high level of detail and specificity, to increase the likelihood that innovative practices (e.g., financial instruments, local policy changes, and technological processes) can be routinized and replicated.
Fourth, the Commission will be mandated to provide clear guidance on the steps different actors in the housing policy, finance and delivery landscape can take to spread and scale innovative products, policies and processes from first-mover communities to multitudes of fast-followers. The Commission will consider multiple options, including the creation of a new national intermediary, to speed the process from the germination of local innovations to the setting of national norms.
Fifth, given the federalist orientation, the Commission should be housed at an organization focused on state and local solutions and headed by leading state and local elected officials, perhaps a triumvirate of a sitting Governor, County Executive and Mayor. Commission members should then be filled out with representatives from a broad cross-section of stakeholders who, directly or indirectly, design, finance or produce or preserve (and, in some cases) manage affordable housing. This includes leading practitioners from financial institutions, institutional investors, housing owners, developers and managers (across subsidized and market-rate units), public authorities, philanthropies, tenant protection organizations, housing advocacy organizations, state and local legislative bodies, architectural, law, technology and engineering firms, just to name the most obvious candidates. In all cases, the most important criterion for naming someone to the Commission is whether that person has pioneered and executed real solutions that have the potential for long term sustainability and large-scale replication.
Sixth, like the 1988 Task Force, the Commission should be supported by a technical advisory group of top researchers from academia, the government, private industry and even media outlets. Fortunately, a growing network of housing researchers have adequately dissected the complex nature of housing challenges and formed a strong foundation for systemic and sustainable solutions. We particularly note the strength of centers at the University of California-Berkeley, Harvard University, New York University and Princeton University.
Finally, the Commission’s bottom-up approach will ultimately act as a feedback loop to the federal government and other key players in the housing finance system. We expect that this effort will uncover steps that federal government agencies and corporations (including but not limited to HUD, Treasury and the GSEs) can take to align longstanding programs and products to new financial potential. We also hope that this effort can articulate and spark a different division of responsibilities between all levels of the government and the private and civic sectors.
The Commission’s work will focus on equitable outcomes throughout the entire process, including wealth-building and preservation for low-income owners and renters and meaningful access to opportunities for Black and brown developers, construction, and professional services firms.
Here is the bottom line. The US housing crisis is now so deeply rooted that a policy tweak here or financial instrument there is no longer sufficient. As with national industrial policy or national climate policy, a fresh re-framing of challenges and opportunities is desperately needed. It is time for a new federalist effort to provide a fresh start on housing solutions and galvanize the full energies and resources of the nation.
Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Michael Saadine is Managing Partner at Invisible Group, a new interdisciplinary real estate investment platform. Ben Preis is a Research Fellow with the Nowak Lab.