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The federal government has fueled housing bubbles that make home prices more volatile. It has wasted money by subsidizing public housing that swiftly decayed while benefiting political machines (in places like Detroit). It also spends more money in areas that have made housing unaffordable by imposing harmful limits on housing construction. That provides a reward for bad behavior by local governments. Now, homeownership is much less affordable for the average American than it was a decade ago. What can the federal government do to make housing more affordable?
The Foundation for Research on Equal Opportunity has some ideas:
Despite a century of government-led efforts to improve the affordability of American housing, U.S. homeownership rates have barely budged in the last five decades. Four-fifths of Americans making less than $30,000 struggle to afford a home to rent. And Americans’ incomes have dramatically declined in relation to home prices. In 2008, the median after-tax household income was 37 percent of the median home price. In 2022, it was 18 percent.
The core problems are that federal policy has artificially increased demand for housing by encouraging excessive borrowing. On top of that, many policies at the federal, state, and local levels have artificially constricted the supply of housing. Constrained supply alongside subsidized demand equals higher prices.
In this paper, we review the history of U.S. housing policy since the 1920s, and offer six key recommendations for increasing the number of Americans who can afford to live in a community that will help them expand opportunities for themselves and their families:
Reform zoning laws to encourage housing supply. Zoning is a 20th century solution to 19th century problems. Localities should relax or eliminate zoning restrictions and other rules that constrict the growth of housing supply. Building codes can keep housing safe and healthy without the complexities and costs of zoning regulations.
Tie federal aid to local governments to reforms that increase supply. The federal government should focus its housing assistance on localities that have done the most to reduce the underlying cost of housing in their jurisdictions.
Migrate away from building subsidized housing and towards Section 8 rental assistance. The federal government should more proactively assist families and move away from publicly funded housing projects and favor more flexible Section 8 housing vouchers that allow people to live close to their families or their workplaces. Publicly funded housing is expensive and reduces social mobility.
Simplify the Low-Income Housing Tax Credit (LIHTC) program. Make it easier and less costly for developers to expand the supply of housing available to low-income renters.
Reduce the systemic risk caused by Fannie Mae and Freddie Mac. Today, government agencies like Fannie and Freddie dominate the secondary mortgage market. Because the market assumes that the government-sponsored enterprises will be bailed out by taxpayers, their assumption of mortgage default risk increases housing inflation and decreases the stability of the financial system.
Reexamine the role of the Federal Reserve in creating housing bubbles. Near-zero interest rates, imposed by the Fed, created an incentive for large financial institutions to buy up residential real estate, increasing prices and decreasing affordability for low- and middle-income homebuyers. They also led to speculative buying by individual investors.
More details at this link: https://freopp.org/affordable-housing-in-the-21st-century-8f9921d79ef9