Tom’s Take on the National Housing Crisis

Tom’s Take on the National Housing Crisis

Posted on September 4, 2024

Housing is on everyone’s mind, across the economic and political spectrum. An increasing conversation about the inability of younger people to buy a home, a broken housing market where not enough new homes are being built, Wall Street investments in existing housing stock and its inflationary effect on the market, the highest mortgage and development loan interest rates in decades — has everyone scrambling for ideas how to fix the problem. To highlight how the challenge bridges our famously divided country, housing issues played a prominent role in both the Republican and Democratic conventions this summer.

So, what is the plan to fix it? Frankly, neither campaign offers enough solutions in their respective platforms. The Harris campaign proposes to put more resources into existing programs, adding a new down payment assistance program (and tax break) for first-time homebuyers. The Trump campaign promises to reduce housing costs by removing regulatory barriers and deporting undocumented immigrants who are occupying too much of our current housing supply. Neither campaign provides many details on how they would accomplish their plans, at least not yet.

In my view, a change in our mindset must come before we can meaningfully respond to the challenge.

When looking at the mismatch of housing to people, the starting point is supply. Simply put, we are not adding enough to our existing housing stock. The Harris campaign has designated the shortage of new housing units nationally at 3 million. In California alone, studies have put the number at 1.2 million, and we continue to fall behind each year. Housing prices and costs are a classic supply and demand story. So how do we build more, faster, and cheaper?

First, we need to treat it as an “everyone” problem. Housing costs strain the budgets of all but the highest-income households, demanding that we halt the upward trajectory of costs of building and renovating housing. This involves a broad range of issues including zoning and permitting, building codes, supply chain challenges, growing our construction labor force, and revising our financing products.

Second, we need to recognize when and where subsidies are needed. For decades, the federal government has spent far more on subsidizing housing for middle- and upper-income households than low-income Americans. Chiefly, this is done through the mortgage interest deductions that homeowners take advantage of at tax time. This is not a bad thing, as it helps to encourage the homebuilding industry and bolsters local governments and economies. But in an environment of constricted federal domestic spending budgets, housing subsidies for our working poor and other low-income families are radically deficient. And we must recognize that we have no subsidies available to middle income renters, part of a huge swath of the “missing middle.” We simply must expand subsidies rather than continue to play a zero-sum game.

Third, we must pursue strategies matching housing needs to housing units. Many elderly homeowners are locked into houses that are more than they need due to favorable mortgage interest rates on older loans and property tax policies such as those in California. This is at a time when younger growing families find it increasingly difficult to purchase or even rent homes that fit their needs. There are also too many affluent and tourist destination communities that routinely restrict the development of higher density housing for their workforce. Housing must be considered a human right in this country instead of a delivery system that relies on localized restrictions, regulations, and resources. Declaring housing a human right would have profound effects on how we address our homelessness challenges, and importantly would have broader implications on housing supply.

Fourth, there needs to be a focal point in the federal government for housing policy to be implemented. You might think that the Department of Housing and Urban Development is that agency, but that is far from true. The US Department of Agriculture, the IRS, and the quasi-independent “Government Sponsored Entities” Fannie Mae and Freddie Mac are all major players in our housing market as well. Even the Department of Health and Human Services is increasingly involved in housing. Unfortunately, none of these agencies are known for playing well together in the housing opportunity sandbox. We’ve had a Drug Czar; why not a Housing Czar?

Housing development is more complicated than it should be, with a lot of moving parts. But it need not be. In my most hopeful moments, I dream that something good may come from this crisis of widespread unaffordable housing; that at least now people will understand the problem of affordability and the need for subsidy and meaningful cost reduction for housing development writ large. For any challenge, before substantive change can become reality, more people need to be directly impacted. That time is now…. even if the two presidential candidates do not realize it yet.