Priced Out: The State of Housing in America — Senate Hearing 117-827 (July 21, 2022)
Summary
S. Hrg. 117-827 prints the July 21, 2022 hearing "Priced Out: The State of Housing in America" before the Senate Committee on Banking, Housing, and Urban Affairs, with Chairman Sherrod Brown presiding and an opening statement from Senator Toomey. Brown said that from 2000 to 2015, 23 States fell 7.3 million homes short on housing production. Witnesses were Lawrence Yun of the National Association of Realtors, Douglas Holtz-Eakin of the American Action Forum and Peggy Bailey of the Center on Budget and Policy Priorities. Bailey's prepared statement urges Congress to increase funding for the Housing Choice Voucher program, which it says assists more seniors than any other rental assistance program.
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“Priced Out: The State of Housing in America — Senate Hearing 117-827 (July 21, 2022).”
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[Senate Hearing 117-827]
[From the U.S. Government Publishing Office]
S. Hrg. 117-827
PRICED OUT: THE STATE OF HOUSING IN
AMERICA
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING THE STATE OF HOUSING IN AMERICA
__________
JULY 21, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov/
-------
U.S. GOVERNMENT PUBLISHING OFFICE
54-731 PDF WASHINGTON : 2024
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
----------
THURSDAY, JULY 21, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 26
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 27
WITNESSES
Lawrence Yun, Chief Economist and Senior Vice President for
Research, National Association of Realtors..................... 6
Prepared statement........................................... 29
Responses to written questions of:
Senator Menendez......................................... 53
Senator Sinema........................................... 53
Douglas Holtz-Eakin, President, American Action Forum............ 7
Prepared statement........................................... 40
Responses to written questions of:
Senator Sinema........................................... 54
Peggy Bailey, Vice President for Housing Policy, Center on Budget
and Policy Priorities.......................................... 9
Prepared statement........................................... 42
Responses to written questions of:
Chairman Brown........................................... 55
Senator Menendez......................................... 56
(iii)
PRICED OUT: THE STATE OF HOUSING IN AMERICA
----------
THURSDAY, JULY 21, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order. Welcome to our witnesses.
This hearing is in the hybrid format. Our three witnesses
are in person today. At least one of our Committee colleagues
may attend from their offices, and we have continued that and
will likely for a good while.
You cannot open up a paper or turn on the news without
hearing about housing--how much it costs and how hard it is to
find. The headlines tell the story.
``The Housing Shortage Isn't Just a Coastal Crisis
Anymore'';
``Why High Housing Costs Could Keep Climbing'';
``High costs spur more baby boomers to find roommates'';
``What's up with the crazy housing market?''
And those are just headlines in the past month.
It is not a new problem. Wages have not kept up with the
cost of housing for years and years. This country has not done
enough to produce the housing we need. From 2000 to 2015, 23
States, about half the country, fell 7.3 million homes short on
housing production. This shortage, of course, makes housing
more expensive.
Congress has not done its job for years. It was just last
year that we hosted in this Committee the first hearing on the
state of housing in America in nearly a decade, one of the
first things we did after I took the chairmanship.
We talk about housing so much because it is the foundation
of everything else in our lives. Where you live determines so
much about your life--where you work, where your kids go to
school, where you do your grocery shopping--and it eats up the
biggest chunk of most people's paychecks. As Matthew Desmond,
the author of the book Evicted, says, ``the rent eats first.''
When housing costs are up, it means less money left over
for groceries and gas and school supplies and prescriptions.
For a lot of families, it also means crippling stress at the
end of each month. How do I pay my rent? After I pay my rent,
do I pay my electric bill or the water bill or the internet or
daycare or pay off the credit card, or make a payment on the
credit card, more likely?
For years, the market has not produced enough housing that
working people can afford.
Home health aides, nursing assistants, and restaurant
workers, working full-time, have long been paid too little to
afford even a one-bedroom apartment, let alone fulfill the
dream of actually owning their own home.
Meanwhile, young, aspiring homebuyers have long faced
insurmountable barriers to home ownership. They are crushed by
student loan debt. Black and Brown families' parents were
denied the dream of home ownership or had it ripped out from
under them by predatory lending and cannot help with a
downpayment, as many kids have been able to be helped.
Over the past 2 years, with low rates making monthly
mortgage costs just a little more affordable, some of these
families thought that maybe, just maybe, now was their chance
to buy a home. But they found themselves competing with wealthy
buyers for too few homes. Often they were not losing out to a
family with a little more money, they were outbid by Wall
Street investors from out of town, paying in cash.
Families told stories of spending more than a year looking
for a home. A man in Senator Tester's State, in Bozeman, even
resorted to standing on the side of the road wearing a sandwich
board asking someone, anyone, to sell him their home. He had
put in 18 unsuccessful bids. There was just nothing to buy.
And now, with home prices rising to record levels and
mortgage rates going up, home ownership is increasingly out of
reach for renters hoping to lock in a steady monthly payment,
find some stability, and build wealth.
Recent cost increases have priced an estimated 4 million
families out of home ownership. These are families who will now
be renting, in a rental market that was already too tight.
Median rents in May topped $2,000 a month, and that is if
you can find somewhere to live at all.
Bidding wars that used to be limited to homebuyers in
``hot'' housing markets are now breaking out between renters in
communities from Chicago to Port Orange, Florida, who are just
trying to find a place they can afford.
This exacerbates the wealth gaps we already had and put
first-time home ownership further out of reach, especially for
families of color. Because while millions of existing
homeowners, who already had 40 times the wealth of the average
renter, saw their wealth skyrocket as home values rose,
renters, again disproportionately people of color, fell further
and further behind.
We have underinvested in housing and communities for
decades. Now we see the consequences. A recent report found a
shortage of nearly 3.8 million homes nationwide, double the
shortfall we had just 10 years ago. Not a single State has
enough homes to meet its families' needs.
Unless we act, it is tough to see how renters, whether or
not they want to buy a home, will ever catch up.
The answer is clear. We need more housing. We need more
housing available to buy for the millions of aspiring
homeowners just starting out. We need more housing for renters,
especially those with the lowest incomes.
Our Committee Members are leading on efforts to find
solutions. I would like to mention a handful of them.
Senator Van Hollen has a bipartisan proposal with Senator
Young to expand support for renters with the lowest incomes,
because we know the market does not build housing that they can
afford.
Senators Reed and Collins have a bill to increase energy
efficiency of our housing.
Senator Menendez, also a Member of this Committee, has a
proposal to help communities that want to make comprehensive
housing and transit investments.
Senator Warren, a Member of this Committee, has a bill to
repair more of the homes we have, and to produce new housing
that lower-income families, including families in rural areas
and Tribal communities, can afford.
Senator Cortez Masto, here today and a Member of this
Committee, from Nevada, has a proposal to fund repairs in
manufactured housing communities, to keep those communities, a
key part of our housing in our country, to keep those
communities affordable for their residents.
And Senators Warnock and Van Hollen are cosponsoring a
proposal to help communities invest in meaningful local
projects and preserve the housing we have. We can do this while
ensuring that we are not displacing families and seniors from
the neighborhoods they love.
I look forward to hearing from the three witnesses today
about the challenges you are seeing, and your recommendations
to support new housing in communities. We cannot deny this
problem any longer. It is a problem across the country. It has
been decades in the building. It is not a Republican or a
Democratic problem. Congress must do better.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, and welcome to our
witnesses. Today we are discussing the recent, rapid rise of
home prices and its impact on affordability. Of course, home
price appreciation is not occurring in a vacuum. Inflation in
the Biden economy is broad-based and severe.
And despite promises to the contrary from the President and
his advisors, inflation, fueled by reckless spending and lax
monetary policy, has been an enduring phenomenon. Adjusted for
inflation, wages have fallen almost every month since President
Biden took office. The average American's real wages have
fallen by 5 percent, and it has been even worse for blue-collar
workers. So, it should come as no surprise that home ownership,
like most goods and services, has become increasingly
unaffordable.
And with demand for home housing specifically, demand far
outpaces supply in many, many regions. Why is this happening
and why is the housing market not naturally correcting these
imbalances? I would point to some bad policy decisions,
especially those made by this Administration and some of my
Democratic colleagues.
During COVID, the Federal Government made a number of
mistakes. Eight billion dollars went to rental assistance,
vouchers, and other housing subsidies, and that is $80 billion
above and beyond the hundreds of billions in ordinary housing
subsidies we spend every year, and a significant sum of that
remains still unspent.
The Administration and Democrats in Congress dropped
hundreds of billions of dollars, essentially helicopter money,
to stimulate an already strong economy. They also unnecessarily
extended and expanded foreclosure and eviction moratoria.
Outside of the COVID emergency, the number and cost of
housing subsidies boggles the mind. We provide tax breaks such
as the mortgage interest and PMI deductions; capital gains
exclusion on home sales; tax deduction on local property taxes;
and Low-Income Housing Tax Credit. We subsidize mortgages with
GSE securities guarantees; FHA, VA, and USDA mortgage insurance
and Ginnie MBS guarantees; and downpayment assistance programs.
We have an overlapping array of HUD and USDA programs,
including project-based rental assistance; tenant-based rental
assistance; public housing funding; Section 202 housing for the
elderly; Section 811 housing for persons with disabilities;
Section 521 rural rental housing; CDBG; HOME block grants; and
homelessness assistance. It is unbelievable.
And it is a fact that the vast majority of the massive
Government support in housing subsidizes demand rather than
supply. And even more amazingly, all this spending has not
meaningfully changed home ownership rates over the decades nor
narrowed the racial home ownership gap.
In 1970, 52 years ago, the home ownership rate in America
was 64 percent. Today, maybe trillions of dollars later, it is
65 percent. And Black home ownership levels are almost the same
as when the Fair Housing Act was passed in 1968. These
Government policies have run up a lot of debt but they have
mostly just made housing more expensive.
If the Administration were serious about immediately
lowering housing costs it would start by removing misguided
trade barriers that drive up the cost of home construction. It
could lift tariffs on lumber, steel, and aluminum, materials
that are universally used in home construction across the
country and which have cost consumers billions.
In the last 3 years, American consumers paid at least $14
billion more just on steel and aluminum imports because of the
tariffs. We know lumber tariffs have contributed to price
increases too.
Unfortunately, the Administration is continuing to promote
a reckless spending agenda that will make soaring housing costs
even worse. In May, the White House released a plan to
supposedly boost housing supply, but instead used the
opportunity to add upward pressure on pricing by endorsing a
partisan House-passed proposal to increase spending by $75
billion on housing vouchers and $80 billion on public housing.
Additional spending of this kind is only going to further fuel
inflation.
The White House plan also proposed pushing Fannie and
Freddie into activities that prior Administrations understood
created too much risk for taxpayers. In a break from decades of
bipartisan efforts to reform the GSEs, the White House has now
embraced the GSE conservatorships as a means for social
engineering of its housing and racial equity policies.
The FHFA recently relaxed restrictions on the GSEs' risk
layering and acquisitions of investor and second home loans, it
reduced the GSEs' guarantee fees, and it required the GSEs to
develop equitable housing finance. Stunningly, the GSEs' new
proposed pilot programs limit eligibility based on borrower
race, and even go so far as to give taxpayer money to certain
borrowers based on the color of their skin, to make
downpayments.
Yesterday, all Banking Republicans sent a letter organized
by Senator Tillis to FHFA expressing grave concern about the
legality and discriminatory nature of these new programs. I
hope the FHFA Director will reconsider this discrimination on
the basis of race and instead act to protect taxpayers from
excessive risk as conservatorship envisions.
Racial discrimination is always wrong, and this is no
exception. Further, relaxing underwriting requirements to chase
political priorities risks exposing low-income families, in
this case minority families, to wealth loss.
The state of the housing market only affirms the urgency of
GSE reform. To improve housing affordability for both renters
and owners, we should favor policies that leverage the power of
free enterprise.
We should phaseout demand-side subsidies like downpayment
assistance and focus FHA on a narrow subset of borrowers. We
should end the GSE conservatorships to ensure this and future
Administrations cannot use conservatorships to influence the
pricing and allocation of mortgage credit.
For decades we have spent countless sums, and we have
virtually nothing to show for it. It is time for meaningful
reform that does not feature the same tax-and-spend strategies
of the past.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
We have three witnesses today. Dr. Lawrence Yun is the
Chief Economist and Senior Vice President of Research in the
National Association of Realtors. Dr. Yun served as an
economist at the Realtors for now more than 20 years. Welcome.
Dr. Douglas Holtz-Eakin has been on and off a regular at
this Committee. He is the President and Founder of American
Action Forum. He served as a commissioner in the congressional
charged Financial Crisis Inquiry Commission, Director of the
Congressional Budget Office, and on the President's Council of
Economic Advisors. Thanks for your years of public service and
your joining this Committee frequently.
Ms. Peggy Bailey is also a familiar face, the Vice
President for Housing Policy at the Center on Budget and Policy
Priorities. She recently return to CBPP after serving as a
senior advisor and rental assistance at the Department of
Housing and Urban Development. Thank you for your public
service and for joining us today.
We will begin with Dr. Yun. Welcome.
STATEMENT OF LAWRENCE YUN, CHIEF ECONOMIST AND SENIOR VICE
PRESIDENT FOR RESEARCH, NATIONAL ASSOCIATION OF REALTORS
Mr. Yun. Chairman Brown, Ranking Member Toomey, Members of
the Committee, thank you for inviting me to testify at this
hearing.
I am Lawrence Yun, Chief Economist and Senior Vice
President of Research at the National Association of Realtors.
I lead a research team as we gather pertinent and timely
housing data and oversee research activity pertaining to the
real estate industry. Most of our 1.5 million members are small
business owners. Eighty-seven percent are classified as
independent contractors. The most pressing concern expressed by
our members over the years has been consistently lack of
inventory and its impact on the housing market.
The housing market activity, since the onset of the
pandemic, has been quite surprising and extraordinary. Home
sales reached multiyear highs. Home prices set new records. But
beginning this year, market conditions have shifted
dramatically. Our latest home sales activity shows five
straight months of decline through June. The latest data, on an
annualized basis, 5.12 million home sales. That would be
actually below the 2019 annual total. In other words, current
sales activity is trending below prepandemic activity.
Single-family housing starts, the building activity, in
June also fell for the fifth straight month, and now at the
lowest point since the lockdown months in 2020.
So even as home sales have softened in recent months, the
median home price continues to set new records, in June
reaching $416,000, which is a rise of 13.4 percent from 1 year
ago. Other price measurement has shown appreciation rate of
closer to 20 percent.
I believe home prices are set to decelerate given the home
sales' softening conditions, but I do not foresee any national
home price decline. Some local markets may pull back somewhat
from record-high home prices but any short-term price
adjustment in these markets, if they occur, will be less
consequential compared to the immense, long-term housing
affordability challenges facing the country.
Lack of supply in the housing market is not a new
phenomenon. While it is certainly more noticeable now, even
before the pandemic NAR estimated, our organization estimated
nearly 5 to 6 million housing unit deficit in relation to the
population and job growth in the country. The fast rise in
rents and home prices are a direct consequence of the housing
shortage that persisted even before the onset of the pandemic.
So what does it exactly mean to be priced out when a solid
majority of Americans are homeowners? Homeowners today are
enjoying wealth gains arising from home price growth. After
reasonably accounting for the 30 percent price rise over the
past 3 years and very little cash-withdrawal refinancing that
has been taking place, my estimate, because Federal Reserve
data is as of 2019 and we are currently in 2022, so my estimate
put the typical homeowner's wealth conservatively at $320,000.
So that would be a median net worth for a homeowner.
By contrast, the median renter net worth is likely to be in
the $5,000 to $10,000 range, again, a vast difference between
renters and homeowners.
So homeowners, I would think, are quite content about the
recent market developments and have fewer financial worries
than non-owners. But this is the crux of the current housing
affordability crisis. Renters are paying ever-higher rents with
disappearing prospects of ever realizing the American dream,
which many Americans associate with ownership, essentially
owning part of America.
So not only is home ownership more difficult to attain due
to the housing shortage but the same housing shortage pressures
are causing rents to accelerate in the current environment and
crowding out savings. Unless we can address the supply issue,
housing unaffordability will continue to be an ongoing issue
for many Americans for many years to come.
Thank you for the opportunity to present my views today.
Chairman Brown. Thank you, Dr. Yun.
Dr. Holtz-Eakin, welcome again.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT,
AMERICAN ACTION FORUM
Mr. Holtz-Eakin. Thank you, Chairman Brown, Ranking Member
Toomey, Members of the Committee. It is an honor to be able to
talk about the state of housing in America, and the key
characteristic, as has been mentioned, is the high and rising
prices in both the owner-occupied sector and in the rental
sector. This has occurred despite the fact that in 2021, we saw
record increases in supply, the largest number of single-family
units in about 13 years, the largest number of multifamily
units in three decades. All of that should lead you to suspect
that the problem lies on the demand side of the market, and
indeed I think there is a lot of evidence that that is the
problem.
Recently we have seen additional demand subsidies, the
fiscal policies that Senator Toomey mentioned in his opening
statement, but in particular the monetary policies of the
Federal Reserve. In addition to keeping interest rates very
low, zero, which means very low mortgage rates, they had a
quantitative easing that included buying $30 billion of
mortgage-backed securities each month. Why they chose to
allocate $30 billion of capital to the mortgage market I do not
know, but it had the unmistakable impact of fueling demand in
the housing sector, and the house price appreciation came with
it.
Looking forward, that is about to reverse. So one thing we
can expect is an enormously stressed housing market over the
next year or 2 years. The Fed is reversing course and, yes,
rates are going to be higher, and that means higher mortgage
rates, and we have seen impacts on that already, as Dr. Yun
mentioned. They are also going to unload about $35 billion a
month of those MBSs, essentially switching, by $65 billion,
that net impact on capital available in the mortgage market,
and that financial tightening is going to have a very big
impact.
The Fed needs to do this. If you look at the consumer price
index, shelter is about a third of the consumer price index.
Shelter inflation is about 5.6 percent, and has been rising
since January of 2021, uninterrupted. We have yet to see a
peak, and it probably will not peak below 6 percent.
If the Fed wants to hit a 2 percent target and shelter
inflation is at 6 percent, everything else has to be zero. That
is not going to happen. So the Fed needs to bring down shelter
price inflation and it will increasingly raise rates and
tighten financial conditions until it does.
This is also a traditional channel for monetary policy, to
lower the demand for housing, lower the construction of
housing, and thus lower the production of furnaces and water
heaters and all the things that go into housing. It has broad
impacts on the economy. Ironically, they are in the position of
having to do this because of the policy errors we have made at
a time when there is record-low inventory. So I expect a very
stressed housing market over the next couple of years.
Longer term, there is this array of demand subsidies that
exist and have done very little to change the overall rate of
ownership in the United States. And I would highlight
especially the continued role of the GSEs. They have been in
conservatorship for 14 years, they remain seriously
undercapitalized, and yet we have done a U-turn and relaxed the
capital standards in recent months. They have now undertaken
this initiative for equitable housing finance plans. These are
demand subsidies by another name. They go the wrong direction
at the wrong time and have an array of defects in the form of
social engineering and racial discrimination.
I would very much fear that this is a return to the mission
creep that we have seen out of the GSEs in the past that
exposed taxpayers to enormous risk, and which resulted in
generational wealth losses for many communities of color in the
housing bubble.
So I think it would be wise for the FHFA to finalize a rule
on prior approval of enterprise products and make sure that the
mission drift gets stopped and the taxpayer gets protected.
If there are going to be some policy changes they should
focus on the supply side and the production of housing. I would
second the recommendation of dropping the tariffs that make
construction more expensive. They are simply wrong-headed
policy moves. I think it would be wise to think hard about the
workforce available in the construction sector, and that would
mean returning to some of the apprenticeship programs that were
in place under the previous Administration and were abandoned,
the IRAPs. Immigration reform is a great way to improve the
availability of labor in the construction sector. That should
be on the table. And it would be wise to pare back any
permitting obstructions and other unwanted land use
restrictions at the local level in order to increase the
supply.
I thank you for the chance to be here and I look forward to
your questions.
Chairman Brown. Thank you for being here.
Ms. Bailey, welcome. Thank you for joining us.
STATEMENT OF PEGGY BAILEY, VICE PRESIDENT FOR HOUSING POLICY,
CENTER ON BUDGET AND POLICY PRIORITIES
Ms. Bailey. Thank you. Chair Brown, Ranking Member Toomey,
and Members of the Committee, thank you for the opportunity to
testify before you today. My name is Peggy Bailey. I am the
Vice President for Housing Policy with the Center on Budget and
Policy Priorities, a nonpartisan policy research institute.
The Nation's most pressing housing problem centers on the
millions of people with low and extremely low incomes who are
not able to afford stable housing. Several factors contribute
to this problem. First, we obviously lack sufficient supply of
affordable rental housing. Data show that over the last 18
months we had a housing development boom. However, this boom
may have plateaued and is not enough to overcome the existing
rental housing deficit, plus without Federal and State
intervention these new units will largely be unaffordable for
people with low and extremely low incomes.
Second, shortages of affordable housing single-family homes
means that renters that might be ready for home ownership stay
in rental housing longer, reducing vacancy rates, and driving
up rental costs. Also, we are losing affordable rental housing
stock as properties come to the end of their initial
affordability obligations, typically about 20 to 30 years, or
become so deteriorated that they must be demolished without
being replaced.
And finally, often missing from the housing supply
discussion is the importance of housing vouchers which help
low-income families better afford housing. For families with
the lowest incomes it is too simplistic to call vouchers or
rental subsidies purely a demand-side intervention. These
families do not have incomes high enough to afford any quality
housing unit because landlords must set rents at least high
enough levels to cover their own costs to operate the building,
to properly maintain the building, and to pay any debt that
they owe.
We have seen what happens to rental housing when operating
costs are not adequately funded. That is what has happened to
public housing, project-based rental assistance units, and
other Federal programs with inadequate or no ongoing operating
support. Vouchers correct this mistake by helping families
afford rent and giving landlords and owners the resources they
need to pay their bills and maintain their properties, which
bolsters supply.
To make this point clearer, the average extremely low-
income renter household had an average income of about $11,000
in 2019, thirty percent of that income the industry benchmarked
for housing affordability. For this family it was about $280 a
month. But in 2019, the average market rental units' operating
costs were $520 a month, and over $580 a month if the landlord
paid utilities. These figures have surely risen substantially
since then.
In the past, our solution as to build public housing. Now
we use housing vouchers. Vouchers allow people more choice of
where to live and are a tool to reduce segregation of people
with low incomes, which are disproportionately people of color,
into neighborhoods that have historically been disinvested in.
It is important to know that housing agencies can project-base
vouchers to guarantee that developments include units
affordable for families with low or extremely low incomes.
Investing in the housing voucher program can also mitigate
the need for new, affordable units by allowing people who live
in high-quality units and their desired neighborhood to stay in
place. We are confident that housing agencies, if properly
resourced with funding for the vouchers and for the
administrative costs, would be able to use many additional
vouchers, particularly if new resources are targeted to
agencies that already have high utilization rates today.
In fact, the Emergency Housing Voucher Program, funded
through the American Rescue Plan, demonstrates housing
agencies' ability to utilize new vouchers. Even under difficult
rental markets, so far they have been able to house 26,000
households who were experiencing or at risk of homelessness or
survivors of domestic violence.
To effectively address these issues, Congress should
support major increases to the Housing Voucher Program. Most
immediately the Senate Transportation and HUD Appropriations
Subcommittee should fund at least 140,000 new vouchers passed
by the House Appropriations Committee along with adequate
funding for voucher administration; increase capital funding
for deeply affordable rental housing; prevent the loss of
existing affordable housing; remove barriers to home ownership;
and as noted more thoroughly in my written testimony, we cannot
forget the unique housing challenges for people living in
Tribal lands. Increasing resources for Native American, Alaska
Native, and Native Hawaiian affordable housing is essential.
Thank you for the opportunity to testify and I look forward
to answering your questions.
Chairman Brown. Thank you, Ms. Bailey.
The questioning will begin with the Senator from Georgia,
Senator Warnock.
Senator Warnock. Thank you so very much, Chairman Brown.
Since 2019, rent in Georgia has increased 13.7 percent, one
of the highest increases in the country and far exceeding
income growth over the same period. Meanwhile, for the first
time since it began tracking data, the Federal Reserve Bank of
Atlanta has deemed the Atlanta housing market as unaffordable,
forcing more and more prospective homeowners, as you point out,
to keep paying rent.
And let us be clear. This is not just a city of Atlanta
problem. Everywhere in Georgia people are feeling the pinch.
Dawson County, which has a population of around 25,000, has a
lower home ownership affordability index than Fulton County.
The best way we can lower prices is to increase supply, and
I have supported several bills that do just that. But Georgians
do not have the luxury to wait several years for home prices
and rents to fall.
Ms. Bailey, what are some immediate solutions we can offer
renters, especially those who spend a significant proportion of
their income on rent, to help them provide the relief they so
desperately need?
Ms. Bailey. Thank you, Senator, for that question. The most
immediate thing that we can do to help renters is to provide
rental assistance, mainly through the Housing Choice Voucher
Program. That can immediately give renters the relief that they
need to be able to afford the other things that Senator Brown
mentioned in his opening statement--food, transportation,
clothing, school supplies. Giving someone a housing voucher
will allow them to only pay about 30 percent of their income
toward their rent so that it frees up more income for other
needs.
Senator Warnock. Do you think that offering tax cuts to
rent-burdened individuals might be helpful?
Ms. Bailey. Tax credits can be helpful to renters. Being
able to give renters more cash to just be able to pay their
basic bills can be more helpful.
Senator Warnock. OK. And when we passed the American Rescue
Plan one of the provisions in that bill was the single largest
tax cut for middle- and working-class families in American
history, and I regret the fact that we were not able to get it
extended. But do you think that kind of tax cut could have been
helpful?
Ms. Bailey. Absolutely. As you mentioned, those provisions
in the American Rescue Plan helped significantly reduce poverty
for children, and so extending those, doing more of those can
only help low- and middle-income families.
Senator Warnock. Georgia is in the middle of a housing
crisis, as we point out, and understanding how large,
institutional investors and Wall Street private equity firms
from outside Georgia affect the market is also an important
part of this puzzle, it seems to me. According to the National
Association of Realtors, institutional buyers made up 13
percent of the residential sales in 2021. However,
institutional landlords do not look to acquire properties
uniformly across the country. In Georgia, institutional buyers
made up 19 percent of all sales--19 percent--the second-highest
in the Nation, and according to a survey by CoreLogic mostly
out-of-State investors made almost 43 percent of all purchases
in the Atlanta area in late 2021.
Dr. Yun, what effects are targeted, private equity
investments having on the housing market in cities like Atlanta
and the surrounding areas?
Mr. Yun. Well, certainly we hear that from our members in
Georgia realtors, that institutional buyers are coming in and
essentially pushing away first-time buyers, especially those
requiring first-generation buyers such as taking out an FHA
mortgage or VA mortgages. They have very little chance. And
furthermore, it changes the dynamics of the neighborhood, where
you have a distant landlord overseeing renters and having
homeowners who are deeply rooted into a community.
Senator Warnock. What data do we need to fully understand
how institutional investors are influencing our housing
markets?
Mr. Yun. Data collection is very important. So the 13
percent institutional buyers you referred to certainly are
people who are buying. They may be upgrading it in order to
sell. But they are also people who are permanent, corporate
landlords, and I think that is where the concerns are expressed
among our members, where it is essentially just leading into
more renter Nation rather than giving opportunity to buy a home
for people who are of a more moderate income.
Senator Warnock. I think that we need research to
effectively understand how private equity is impacting markets
in Atlanta and Georgia and all across the country, and I look
forward to introducing legislation very soon to address that
very issue.
Thank you so much. Thank you, Brother Chairman, for letting
the most junior member of the Senate go first. I appreciate it.
Chairman Brown. Thank you, but not junior in wisdom. Thank
you, Senator Warnock.
Senator Toomey is recognized.
Senator Toomey. Thank you, Mr. Chairman. Dr. Holtz-Eakin, I
want to follow up on a point that you made, and actually I
think that Ms. Bailey touched on this point, which is that in
recent years we actually have seen a big surge in supply. Does
the data suggest that that is true about both single-family and
multifamily housing?
Mr. Holtz-Eakin. Correct.
Senator Toomey. Yeah. So it seems to me, especially given
in light of that fact, and when you look at the prices across
the whole economy, a lot of the price escalation is probably a
reflection of the general inflationary environment we are in.
Does that make sense?
Mr. Holtz-Eakin. Yes.
Senator Toomey. And as you point out, the Fed made it
particularly egregious, in my mind, by choosing to allocate
credit in the mortgage space, where there was no problem. It is
not as though the mortgage market was not functioning. And for
months and months and months, arguably over a year after we
were well past the crisis, they kept pumping money into
subsidizing mortgages, which lowered the rate of mortgages
relative to where they would otherwise be, at a time when the
housing market was clearly overheating, as the economy was
generally.
But it certainly seems as though we still need more supply,
and you alluded to, you touched on a few of the factors that
seem to be contributing to higher costs and holding back supply
material costs, which I mentioned----
Mr. Holtz-Eakin. I agree.
Senator Toomey. ----permitting and land use, which in some
cases restricts the ability to build new homes, labor shortage.
Could you elaborate at all on, you know, what is holding back
the supply that the market seems to be looking for?
Mr. Holtz-Eakin. I do not think any single one of those
issues stands out as the key. It is the combination. There are
just too many impediments to finding suitable land, building
the density necessary, if you had an urban area and you need to
produce affordable rental units, and finding the workers to do
it. Those problems exist across the economy.
Senator Toomey. Right, and they do not go away with the
wave of a wand.
Mr. Holtz-Eakin. No.
Senator Toomey. So we have gotten kind of a surge in
supply, but it is probably not realistic to think we are going
to have this massive boom. I just want to ask----
Mr. Holtz-Eakin. Can I emphasize one thing?
Senator Toomey. Yeah. Go ahead.
Mr. Holtz-Eakin. You know, people would love to solve this
problem quickly. That would be great. But to solve it quickly
requires an enormous residential construction boom, which is
exactly the wrong thing for the economy right now. So thinking
short-term fixes is not the solution. You have to put it into a
long-term strategy.
Senator Toomey. So the other thing that I am concerned
about is further demand-side subsidy is going to make the
pricing problem worse.
Mr. Holtz-Eakin. I agree.
Senator Toomey. I think of the analogy that comes to mind
is what we have seen in higher education for years. With all
good intentions there are all kinds of Federal programs that
have subsidized higher education. And what have we seen?
Skyrocketing costs in higher education, long before inflation
occurred generally in the economy. It was happening there
because the Federal Government just kept throwing money at it.
And yet we see all these proposals for further demand-side
subsidies.
Recently your fellow witness, Mr. Yun, was quoted as saying
a proposal for downpayment assistance featured in the
Democrats' Build Back Better plan would, and I quote, ``add
demand on top of already strong demand so you will push up
housing prices even further,'' end quote. He also stated that,
quote, ``that is a game for current homeowners, not home
buyers,'' end quote. And I wonder if you agree with that
assessment. Is that a big part of the net effect of these
further demand-side subsidies?
Mr. Holtz-Eakin. Yes. I completely agree, and this is a
common strategy in Federal policy where there is a high price
and rather than dealing with the supply problem you subsidize
demand further and make your problem harder.
Senator Toomey. And then with respect to the FHFA, we have
seen this new requirement that the GSEs submit this Equitable
Housing Finance Plan, which is meant to promote housing equity.
The plan, as I understand it, proposes subsidizing downpayments
and other mortgage costs such as appraisals and title insurance
on the basis of race. So this seems to be a mechanism that is
likely to contribute to inflation, but it is also a very
disturbing exercise of social engineering on the part of
unelected folks over at FHFA.
First of all, do you see that whole mechanism as consistent
with FHFA's statutory obligation for their conservatorship to
require to return the GSEs to sound and solvent condition and
preserve and conserve their assets? Is this really supposed to
be part of their mission?
Mr. Holtz-Eakin. No, it is not, and after 14 years they are
still not adequately capitalized and they are now expanding the
credit blocks in many ways, and they will, as a result, be at
greater risk of losses, and that is exactly the wrong direction
for the FHFA to take them.
Senator Toomey. All right. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Tester, from Montana, is recognized.
Senator Tester. Thank you, Mr. Chairman. I do not think
Montana is an outlier here. I mean, I think just about
everywhere in the country there are housing shortages. In the
faster-growing areas it has come to the point where we have
teachers in Montana that either do not take the job or live in
a KOA campground because the houses are just too unaffordable.
This is occurring because, of course, demand, we have got a lot
of folks from Texas, we have got a lot of folks from the coast
that are moving into Montana, which would make me think that
there would be houses for sale in Texas and in San Francisco
and L.A. and those kinds of places, but I am not hearing about
any housing surpluses there.
Dr. Yun, could you give me at least a little insight into
what the hell is going on and why 1 month we have housing
surplus and then 6 months later we have not near--I mean, not
near enough houses.
Mr. Yun. Well, any economic data, particularly on housing,
there could be some volatility on the month-to-month movement
part. But if one looks at the longer-term trend what one finds
is that in the aftermath of the terrible foreclosure crisis of
15 years ago, home builders, especially the small home
builders, really never came back to the market, and
consequently there has been a decade of underproduction across
the country in relation to the population growth. So if you are
not producing houses while the population is rising then we
have a shortage.
But this shortage continues to intensify with each passing
year and consequently the Nation, as a whole, we estimated that
there were about 5 million housing units short--apartments,
single-family, you name it, we were short. So that is why we
have a housing shortage in Texas, California, Montana, because
we have simply not built enough.
Now in relation to the recent trend that you are
absorbing--people from Texas moving into your State--there was
a housing shortage in Texas. So maybe people who are moving to
Montana, they are just creating the demand in Montana, causing
a housing shortage in your area, but people who are leaving
Texas, that is a small drop in the bucket compared to the
housing shortage that they are currently experiencing.
Senator Tester. So Senator Toomey and I disagree once in a
while but every once in a while we agree too. But one of the
things that is obvious to me is the fact that we have got a
problem. It is having some major impacts on economic growth in
the small towns, because there is no place for workforce to
live, there is no place for entrepreneurs to live. Doing the
right thing is important here. We do not want to exacerbate the
problem. We want to make it better.
Dr. Holtz-Eakin said that we need a long-term plan. I have
got 2 minutes left and I do not want you to spend 2 minutes on
a long-term plan, Doctor, but could you give me a little
insight? I mean, this problem will fix itself but it may take
30 years. I do not know that 30 years is particularly good for
businesses that, by the way, have a hard time under the best of
circumstances.
So could you give me just a little insight into what should
be in the long-term plan that actually would result in more
houses on the market?
Mr. Holtz-Eakin. I think that broadly you want to take the
dollars that are being currently devoted to demand subsidies,
the long array that Senator Toomey mentioned is opening, and
channel those toward things which would generally expand the
production, the physical production of housing, including
providing, in some cases, the land necessary. I saw something
yesterday that the Federal Government owns 40 percent of the
land in California. Land is the scarce good in the California
housing market. They might want to supply some land to the
housing market.
Senator Tester. So what you are talking about is investing
in workforce training? Is that part of the deal?
Mr. Holtz-Eakin. I do not think we need a big, new
workforce training program. We have workforce training
programs. I think we need to think hard about our immigration
strategy and have it work as a tool of economic policy. I am
happy to expand on that at some other time. And I think we had
some really promising apprenticeship programs that were started
under the previous Administration and have been abandoned,
these IRAPs which were very popular and could be deployed
across different sectors of the economy. Those, I think, would
be promising ways to go.
Senator Tester. Ms. Bailey, in the little time that I have
left, from a rural perspective what would you view the state of
housing in rural America, and is it markedly different than in
urban America?
Ms. Bailey. I appreciate that question and it is really
important to have a focus on rural America. I think that the
issues are related but need to be addressed in a different way,
because it is not necessarily the case that we should build a
100- or 200-unit building in rural America. What we need are
things like manufactured housing and tools to be able to
finance smaller projects to exist throughout a community so
that it blends in with the rest of the community and we can
address the housing need in rural America.
The Low-Income Housing Tax Credit is not designed right now
to be able to do that. The properties that the Low-Income
Housing Tax Credit fund are usually larger.
So we need tools like what President Biden included in his
fiscal year 2023 budget, the $50 billion in supply that would
allow for smaller projects to be able to financed so that they
do not rely on the Low-Income Housing Tax Credit and they do
not need as many pieces of the capital stack to be created.
Senator Tester. All right. Thank you. Thank you to all
three of you. I appreciate you being here, and thank you.
Chairman Brown. Thank you, Senator Tester.
Ms. Bailey, thank you, and I appreciate what you said about
manufactured housing. Let us dwell on not necessarily that but
just demand generally.
We have seen reports that housing starts are up, but a
$3,000-a-month apartment in Washington does not help a low-
income resident in East Cleveland. What kind of housing you are
building and where, obviously, those things matter. Is the
housing we are building matching up with incomes and size and
accessibility needs of renters? If not, talk through that and
what do we need to do to make sure we have enough housing that
is affordable to families?
Ms. Bailey. Thank you for that question. You are hitting
the nail on the head on the challenge. As I said in my
testimony, we have partly been in a development boom over the
last 18 months, but as the Joint Center for Housing Studies
shows the average rent in those multifamily properties is about
$1,700 to $1,800 a month, where the median renter can only
afford about $1,000 a month.
So that right there shows you that the market is targeting
units to the upper end of the market and not making units
affordable.
So what we need are strategies that both enhance supply and
add capital dollars to supply, but then add subsidies to be
able to make those units affordable so that we can properly
operate those buildings, owners can pay their bills, and
programs like the Housing Choice Voucher Program do that. They
allow for renters, especially low- and extremely low-income
renters to be able to afford market housing.
Chairman Brown. Thank you. And Dr. Yun, expand on what Ms.
Bailey just said about making housing more affordable for
families.
Mr. Yun. Certainly the supply is required, and I know it is
not a 1-year solution but we also have to combine the rental
subsidy with the long-term supply solution. If one looks back
in the U.S. history, there were times when we encountered
recession and then we came out of the recession. Often when we
came out of the recession it was due to the housing production,
building more apartments, building more single-family homes.
The recent Great Recession was a little different because
the housing market came slowly. The building activity came
slowly with the small mom-and-pop buildings really reentering
the market.
So if we look at, in the past, we had a tremendous amount
of economic boom as we built more homes, whether it was
apartments, single-family, certainly it creates jobs, adds to
the economic impact, and certainly it would lessen the pressure
on the housing costs, whether on the rent side or on home
prices.
So I think something to address that we need to boost
supply, and then of course we need to address the short-term
needs on the demand subsidy for people who are in that
difficult situation.
Chairman Brown. Thank you. Continue on that, Dr. Yun. We
know the Fed has raised interest rates three times so far this
year. They may do it again, people expect. Discuss what rising
interest rates meant for homeowners in terms of their monthly
costs, and if you can, estimate how many people do you estimate
this might push out of the home ownership market and what
affect does it have on the rental market.
Mr. Yun. So you combine the impact of the higher prices
along with higher mortgage rates currently prevailing versus
what it was just 1 year ago, or even December of last year. We
estimate that monthly mortgage payments on a typical home in
America has risen by close to 50 percent, 48 percent. Just
consider what people find very dear, trying to purchase a home,
it has risen by 48 percent, in our estimation, from the changes
in prices and mortgage rates.
Chairman Brown. That is the monthly payment goes up.
Mr. Yun. Monthly payment for a new set of buyers. Now for
existing homeowners who locked in of course their monthly
payment----
Chairman Brown. Not the price of the house but the monthly
payment.
Mr. Yun. Yes.
Chairman Brown. OK. Got it. So what effect does that have
on the rental market then?
Mr. Yun. So naturally we are seeing the home buying demand
soften, which means that people who thought they had a chance
to buy a home essentially being locked out. They have to renew
their lease, and now we are seeing rental demand rising, which
now is leading to rent acceleration. The official Government
data is showing rent rising about 5 percent, but many private
sector information is saying rents are rising even faster than
that.
So right now we are in very low vacancy rates for
apartments, and consequently the rent rising is a heavy burden
for renters.
Chairman Brown. Ms. Bailey, any additional thoughts on
that?
Ms. Bailey. Only that to just put a point on the fact that
this is an extremely important issue for extremely low and low-
income families, that they feel the pressures the most, which
leads to housing instability for them, including homelessness.
Chairman Brown. So pushing someone who was on the verge of
buying a home back into the rental market, or staying in the
rental market and the pressure that puts all the way down to
lower-income renters.
Ms. Bailey. Exactly.
Chairman Brown. Thank you. Senator Hagerty, of Tennessee,
is recognized, if you are ready.
Senator Hagerty. Thank you, Mr. Chairman. Thank you very
much, and to our witnesses, thank you.
Dr. Yun, you and I have actually met before. You used to
frequent Professor Dewey Daane's events at Vanderbilt
University, my alma mater, so it is good to see you here. Dr.
Holtz-Eakin, it is good to see you again too. We met a number
of years ago, in a different role. And welcome to you, Ms.
Bailey.
I thought I would start out with you, Dr. Holtz-Eakin.
Today in your testimony, earlier, you did a very convincing job
of relaying how housing prices have been moving upward very
dramatically here in the United States. And one of the issues
that I wanted to discuss with you is the artificial increase in
price that the Davis-Bacon Act forces for affordable housing.
You seemed to describe very well what is to me a supply
problem here, and we have got Davis-Bacon Act requirements that
essentially add roughly $30 per square foot to the cost of the
home. I would just like to get your thoughts on what that might
do in terms of incentivizing developers to go in a different
direction. Where does that impact the supply of housing when we
are desperately in need of more supply?
Mr. Holtz-Eakin. Well, certainly an artificially inflated
wage is a cost that has to be included in the prices of the
unit, and it does not really make sense to have a law that does
it, that you should pay prevailing wages, you know, set by
market conditions wherever you are building. That would be a
preferable way to go, in my opinion.
It leads to higher costs--there is no question about that--
but it also changes the builder's calculation of what kind of
unit to build. Will you build a low-income unit when you have
already got that base cost in there? You might want to build
something at the upper end of the market, and we have seen that
happen in recent years.
So I think it is on that list of things that is causing the
costs of building to be artificially inflated, and taking those
costs out would be a good idea.
Senator Hagerty. Yeah, I think the Berkeley study indicated
a $30-per-square-foot impact. You know, that could be 10 to 20
percent, depending on the State that you live in. In my State
of Tennessee it is going be on the higher end of that spectrum.
But this is a significant increase in the cost of affordable
housing, and I think your point is well taken that it would
have a very negative impact on price.
I would like to stay with you for a few more minutes, Dr.
Holtz-Eakin. There is now a voucher program that is being
negotiated by appropriators. They are talking about 140,000
vouchers, roughly $30 billion of more demand, it looks to me,
coming into a marketplace again that is constrained on the
supply side. What would you predict the impact of these
vouchers to be on the supply of housing and the price?
Mr. Holtz-Eakin. A permanent expansion in subsidies for
demand is going to raise prices. That is an unmistakable
directional implication of this. And perversely, at the moment,
you could spend that money, say, next year, and the Fed will do
everything within its power to undo the impact of that demand
stimulus because they are trying to cool the market, and need
to. And so it will be a lot of taxpayer dollars to no
particular good effect.
Senator Hagerty. You mentioned the Fed. I would like to
come to you, Dr. Yun, to talk a bit about what is happening
right now. I think the Fed's job has been made enormously
difficult because of the policies that have been implemented,
whether they are policies that have waged war on the oil and
gas industry here that have driven prices through the roof--
everybody that has been to the pump knows this--the policies
that drove, you know, massive stimulus package that was passed
on a completely partisan basis in March of last year. We have
got inflation at levels that we have not seen in more than 40
years.
So the Fed has been required to do a couple of things. One,
the mortgage-backed securities on their balance sheet are an
enormous number, and they are letting those run off right now.
Chair Powell actually indicated to me that he would not rule
out selling at a loss these mortgage-backed securities. So I
can imagine what impact that might have on the marketplace and
also raising rates.
So if you think about this in the context of the Fed's
required actions right now, whether it be selling mortgage-
backed securities or raising rates, how does that impact? These
inflationary policies that have driven it are having a very
important impact on the housing market. If you could just take
us through the logic of that.
Mr. Yun. You know, the spread between the 10-year Treasury,
this morning I saw it at 3 percent. Under normal circumstances
the mortgage rate should be about 4.8 percent. Rather, we have
a mortgage rate that is 5.8 percent because of the undoing of
the quantitative easing and quoting the potential sell of the
mortgage-backed security and also not repurchasing. So we have
a much larger spread which is leading to a home sales decline.
Many Realtors--again, we have 1.5 million Realtors across
the country, including from Tennessee, and they ask, ``When
will the mortgage rate stop rising?'' And I say once the
inflation begins to top out and begins to show that it is
peaking and we will decelerate.
So anything to constrain the overall consumer price
inflation, then the market, I think, will begin to say, well,
maybe we have topped out on inflation and mortgage rates could
also top and maybe even decline somewhat.
Senator Hagerty. Well, it seems that inflation continues to
go just one direction now, and that is up. You look at last
month's posting of 9.1 percent. That was an acceleration from
8.6 the month before. I am very concerned about the direction
that it is going. And again, the policy decisions that are
being made by this Administration seem to be all in favor of
more inflation.
So I am concerned about the impact on the housing market in
my own home State. We are hearing it loud and clear; mortgage
rates are up. That makes housing less affordable. And I am very
concerned about the negative impact it will have on the housing
market, and long term the effect it will have on supply that
you have both done such a good job of explaining that is indeed
what the problem is.
Thank you all for your testimony. I appreciate it. Thank
you, Mr. Chairman.
Chairman Brown. Thank you, Senator Hagerty.
Senator Menendez, from New Jersey, is recognized.
Senator Menendez. Thank you, Mr. Chairman. Home ownership
has long been a cornerstone of the American dream, and
countless American families have purchased homes as a pathway
to the middle class. Yet according to the National Association
of Realtors the home ownership rate for Black and Hispanic
households is significantly less than it is for its White
households.
Dr. Yun, what do you believe are the top three reasons that
the Black and Hispanic home ownership rates have consistently
lagged behind those of White households?
Mr. Yun. America is a great country but we also have to
recognize some of the past mistakes, some legal discrimination
that was taking place prior to the Fair Housing Act, which has
a legacy impact throughout. We are seeing the downpayment as
the major barrier for first-time buyers. So they try to save it
up. Sometimes it requires getting help from the family members.
And due to, again, the past situation that sometimes you have
the members of minority households who are less able to get
assistance from family members, which then places the others at
an advantage, or one group at an advantage over the other. So
downpayment assistance is very important.
One has to also look at the proper credit underwriting
standards. Is there something that is preventing minority
households from being able to get a mortgage given other
circumstances? I like the ideas of, say, changing some credit
scoring models who have demonstrated the financial
responsibility of paying, say, rents on time, utility bills on
time. Certainly they will be in a much better position to take
on responsibility for home ownership.
And finally, it is about the supply. Lack of supply means
home prices zoom up, but even as people's income rises, if
prices rise even faster that will be a major barrier.
Senator Menendez. I appreciate that answer. I would add
that Federal lens and policies created racial segregation, a
dual credit market, institutionalized redlining, and other
structural barriers, some of which you have mentioned, that
contribute to the differences between the rates of ownership.
What has not been mentioned is how property tax assessments
have contributed to lower Black and Hispanic home ownership
rates and how this has worsened the racial wealth gap. It is
well established by historians such as Andrew Kahrl at the
University of Virginia that Black and Hispanic households have
been subject to higher property tax assessments than their
White counterparts. Higher property tax rates inflect a double
penalty on homeowners.
I am sorry. I cannot hear myself. I am sorry.
Higher property tax rates lead to lower home values, making
Black and Hispanic homeowners more vulnerable to tax
foreclosure and tax sales, and that is by design. Being taxed
more for less limits the ability to build wealth through home
ownership. Annual overassessment eats away at Black and
Hispanic homeowners' income and wealth yearly, and when their
neighborhoods become gentrified their property values suddenly
and rapidly increase, leaving them vulnerable to foreclosures,
liens, and sales if they are unable to pay their increased
property tax bills.
So the State and local property tax deduction, which we
commonly refer to as SALT, is the only deduction in the tax
code that allows homeowners to deduct their property taxes.
Thus, SALT deduction is essential for encouraging and
preserving home ownership and wealth for Black and Hispanic
homeowners, especially for those that are over-assessed.
That is one of the many reasons that on Tuesday the NAACP
passed a resolution to support lifting the Trump $10,000 SALT
cap. Now this has been a favorite target of my Republican
colleagues since Ronald Reagan's presidency. They argue that
SALT is an unfair tax break to the wealthy. But that argument
completely ignores all contexts. Republicans want to get rid of
this deduction because they want to create an environment where
States and local governments are forced to cut taxes, defund
public education, privatize public services, and adopt fee-for-
service models of Government.
They want to ignore that SALT is an essential driver in how
States and municipalities pay for education, health care,
public welfare programs, transportation, and public safety, and
that even though students, patients, residents, and employees
may not claim the SALT deduction themselves, they benefit from
SALT. These factors cannot be captured in a distributional
analysis. That is what makes SALT so different.
That is why, in 1984, an entire coalition of States,
Governors, counties, mayors, unions, and organizations came
together to push back against its elimination by President
Reagan. That is why the same group came together in 2017, with
the unified support of all Democrats.
So this is not about rich or poor or coastal elites. This
is about who gets to benefit from the American dream, purchase
a home, and build wealth. This is about who is entitled to hold
on to that wealth and pass it to the next generation, and this
is about getting to and staying in the middle class by owning a
home, attending a good school, and having access to good public
services.
And I just wanted to use this hearing to drive that point,
Mr. Chairman. I have other questions which I will submit for
the record.
Chairman Brown. Thank you, Senator Menendez.
Senator Warner, from Virginia, is recognized from his
office.
Senator Warner. Thank you, Mr. Chairman, and again, thank
you for holding this hearing. I know a lot of us are very
interested in this issue, and, you know, it is kind of a one-
two punch with the hearing that we were jointly together on
yesterday in Finance. And I want to repeat some of the things
that were said yesterday.
One of the things I actually discovered, and COVID drove
home, enormous challenges in our country around racial wealth
gap, and depending on the survey, racial wealth gap between
Black families and White families is as much as 10-to-1, maybe
down to 9-to-1. But the biggest driver of that racial wealth
gap is not even any more job opportunities or educational
background, but it increasingly is about home ownership. We saw
disproportionate relief during COVID. For example, under the
PPP that went to White-owned businesses rather than Black-owned
businesses or rather than women-owned businesses, not
necessarily because the banks were bad but because the
community banks work with their traditional customers.
And I was very proud of the fact that, Chairman, you and
Senator Crapo, and a big bipartisan group, Senator Van Hollen,
and I, we worked with actually the Trump administration and got
$12 billion for CDFIs and MDIs, again, on issues of access to
capital.
One of the things that I have worked on with Senator Ossoff
and Senator Warnock and Senator Van Hollen was a proposal that
I would like the panel to comment on, which was the LIFT Act,
which says if we are going to address the racial wealth gap in
a fair way one approach would be to look at first-generation,
first-time homebuyers, so this would be available to anyone.
That definition would actually drive about 60 percent people of
color because they do not have the same level of home ownership
as majority communities do, although in many rural communities
there are lots of White families that do not have any history
of home ownership.
And it would say that if you qualify for a traditional 30-
year mortgage, and while we are supportive of downpayment
assistance, what we do not want to do is push people into homes
that they cannot long-term afford. If you qualify for that
traditional 30-year mortgage and you meet these certain
criteria within a certain income strata and a certain price
range we would provide, in a sense, a 20-year mortgage rather
than a 30-year mortgage, and we call this program the LIFT Act,
and it would directly address this racial wealth gap issue and
put some points on the board for a lot of families, to give
them that equity they need to make sure the kid has the access
later, down the line, of getting a college education or having
that equity you can draw upon.
Dr. Yun, in your testimony you talked about the widening
home ownership gap that exists between White and non-White
families. Could you talk a little bit about how something like
the LIFT Act might apply, and then Ms. Bailey, if you would
make some comments on that as well, I would appreciate it.
Mr. Yun. Thanks for asking the question, Senator. I am a
numbers guy, so I think one of the requirements for all high
school students is to just run the numbers through the mortgage
calculator just to see how the numbers change by changing
interest rates and the duration of the mortgage. A 20-year
mortgage would certainly build up equity much, much quicker,
and given the very wide home ownership rate gap between various
ethnic and racial groups, to address some of the past mistakes
it is moving in the right direction, certainly.
But we also have to understand that we have to combine it
with increased supply, because if we are simply raising the
demand opportunity but with limited supply, most of the gain
would go to the current owners, and given the current, again,
disparity in home ownership rate, the current owners are likely
to be White Americans.
So we have to address the demand health. The 20-year
mortgage timeline, I think that is terrific and a quick way to
build wealth. But we have to assure that supply comes along so
that demand can access that increased supply.
Senator Warner. Yeah, and Dr. Yun, I 100 percent agree, and
that is why I did not focus my question on the supply side and
other colleagues have. This LIFT program would be only
applicable to first-time, first-generation homebuyers, because
again, we know the second- and third-generation folks, as you
build that equity in your history you have got an easier
availability.
Very quickly, Ms. Bailey, and I am over time, but if you
could quickly address this issue as well I would be grateful.
And thank you, Mr. Chairman.
Ms. Bailey. Sure. Thank you, Senator, for the question. And
so when following Dr. Yun's recommendations that would help
alleviate some of the pressure at the upper end of the rental
market, which would then alleviate the fact that we do not have
the tenant vacancies that we need in order to keep costs down,
and it would allow those upper-income individuals to be able to
move into the home ownership space so that we would have those
units available for renters.
So anything that helps first-time, first-generation
potential homeowners move into home ownership helps renters as
well.
Senator Warner. Thank you, Mr. Chairman, for having this
hearing. Thank you, Ms. Bailey.
Chairman Brown. Thank you, Senator Warner.
Senator Cortez Masto, from Nevada, is recognized.
Senator Cortez Masto. Thank you. Thank you, Mr. Chair.
Thank you to the panelists here. Such an important issue across
the country but including in Nevada, the issue of affordable
housing, which I have been working on with so many stakeholders
in my State.
I do have a question, Dr. Yun. In Nevada, in 2021, 28
percent of homes purchased in the Las Vegas metro area were
bought by investors. Investors bought about $1.9 billion worth
of homes with a median sales price of $373,000, and Nevada is
not the only place where corporations are snapping up single-
family homes.
My question to you is what trends are you seeing in home
purchases by investors, and what impact do you think this is
having on home prices in places like the Las Vegas metro area?
Mr. Yun. The presence of investors, that is an extra
demand, especially if the money is backed by Wall Street
funding. It certainly boosts the extra demand from it so the
home prices will naturally be higher. And furthermore, as they
are purchasing single-family homes and turning it into rentals,
that is essentially making less chance for, say, first-time
buyers or first-generation buyers to have a chance, because
often the downpayment comes from sale of a previous home, using
the proceeds as a downpayment, but naturally the first-
generation or first-time buyers do not have that. So,
consequently, it makes it much more difficult for the first-
time buyers to compete against especially the Wall Street bank
investors.
Senator Cortez Masto. And that is my biggest concern.
Nevada is one of these places where the subprime mortgage
crisis hit us so hard, and right after that I saw a lot of
investor-owned, equity-owned homes being bought up and
purchased. And this is my concern. Not only are they taking
them off the market, they are turning them into rentals, and
the rental prices are increasing exorbitantly.
So for me, and I think so many, this is a challenge we are
dealing with in trying to understand it and make sure that we
can help renters and homeowners have access to those homes,
which are so important.
Ms. Bailey, let me talk a little bit about vouchers. When I
talk to developers in Nevada they tell me that they cannot
build an apartment building that is affordable to people
earning under $50,000 a year without a subsidy. So why are
vouchers among the most important layers of this subsidy?
Ms. Bailey. That is exactly why it is so important to have
vouchers is because landlords and owners have to be able to
charge rent that is at least high enough for them to pay their
own bills and to properly maintain their properties. And for a
wide array of renters that is still more than 30 percent of
their income. So vouchers play that critical role of paying for
that gap between 30 percent of the family's income and what the
landlord or owner needs in order to properly maintain that
property.
Senator Cortez Masto. Right, and you touched on it. It not
only gives the tenants the stability but also for the property
managers as well there is the stability there.
Ms. Bailey. Exactly. Exactly.
Senator Cortez Masto. Thank you. Thank you, Mr. Chair. I
appreciate it.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Warren, of Massachusetts, is recognized.
Senator Warren. Thank you, Mr. Chairman. Our country has
faced an affordable housing crisis for decades now. And we have
a shortage now. The estimates are as many as 6.8 million units
that we need. Everyone needs housing. There is just not enough
to go around. It is a classic case of demand outstrips supply.
So this is Econ 101, and that says we are going to end up
with higher prices. Indeed, this severe lack of supply has
relentlessly pushed up the cost of rent for families, taking
bigger and bigger bites out of budgets, as you identified, that
are now doubly strained by rising prices on everything else,
from gasoline to groceries. Rents are up nearly 6 percent more
than they were just a year ago, and higher housing costs are
one of the biggest overall drivers of inflation.
So to tackle rising costs, the Federal Reserve is raising
interest rates at an aggressive pace, but we should be clear
about the impact of the Fed's rate hikes on the housing market.
Dr. Yun, the Fed claims its rate hikes will bring down
prices for families by taming inflation. So let me ask you, do
you expect the Fed's interest rate hikes will meaningfully
bring down rental costs for families?
Mr. Yun. The rental component in the consumer price index
comprises about 30 percent, including something called
homeowner equivalency rent. Given that there will be fewer
buying activity and more renters, rents will be rising. In
fact, one can say at least a rental component, with higher
interest rates it will be rising even faster.
Senator Warren. So the Fed's actions on aggressive interest
rate increases are likely to drive up the cost of rent, and as
you said, that is about 30 percent of the inflation
calculation.
So it is not going to bring down rental costs. It is not
going to bring down the cost of food or gas or other
necessities that have spiked because of Putin's war in Ukraine.
It is not going to fix supply chain kinks. It is not going to
stop corporate price gouging.
But by increasing borrowing costs the Fed's rate hikes will
do two things, first, make it more expensive to build new
housing, which dampens investment in construction and makes the
housing shortage even worse, and second, make it more expensive
for families to take out a mortgage and buy a home. The cost of
a mortgage, as you have pointed out, has already doubled since
last year.
So Dr. Yun, people renting and buying homes are worse off
when the Fed jacks up rates, but are there any participants in
the housing market who are relatively better off under these
conditions, like big investors and private equity firms?
Mr. Yun. The intense multiple offers were prevalent
throughout last year. Now the multiple offers are far less
occurring, which means that people who are still in the market
are able to grab property with much easier access, and
certainly the corporate investors will be in that category.
Senator Warren. And corporate investors, I take it, often
are buying for cash.
Mr. Yun. Cash buyers, which consequently makes it very
difficult for the first-time buyer who needs to take out a
mortgage to compete.
Senator Warren. Right. So private equity firms are buying
in, they swoop up what little housing is available, they rent
it out to families at a premium. In fact, in the first quarter
of this year, investors purchased one out of every five homes
that were sold, which is a national record.
Ms. Bailey, if private equity and other big investors buy
more of the housing stock what do you expect will be the impact
on rent prices on the families that are living in those homes?
Ms. Bailey. Thank you, Senator, for that question. I think
that we can expect that rents will increase, putting more
pressure on families' incomes and having them have to stretch
their already thin budgets even further.
The other thing, though, that often gets missed is that
that also can lead to gentrification of neighborhoods and
displacement of families that live in those neighborhoods,
which is also a challenge when equity firms purchase property.
Senator Warren. Yes. Thank you.
The solution to bringing down housing costs for families is
clear: step one, build more housing, and step two, loosen big
investors' grip on the market to make sure that it is families,
not just private equity firms, that have an opportunity to buy
a home.
There is also a third step that the Federal Reserve
Chairman, Jerome Powell, should take: think twice before
jamming through overly aggressive rate hikes that are only
going to make the housing crisis worse.
Thank you very much for being with us today. Thank you, Mr.
Chairman, for holding this hearing.
Chairman Brown. Thank you, Senator Warren.
That concludes the questioning, it looks like. Thank you to
the witnesses for being here today and providing testimony.
For Senators who wish to submit questions for the record
those questions are due by the close of business 1 week from
today, Thursday, July 28th. To our witnesses, per Committee
rules, we ask you to respond to any questions within 45 days
from the day you receive them.
Thank you again. With that the hearing is adjourned.
[Whereupon, at 11:19 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
You can't open up a paper or turn on the news without hearing about
housing--how much it costs, and how hard it is to find. The headlines
tell the story.
``The Housing Shortage Isn't Just a Coastal Crisis Anymore'';
``Why High Housing Costs Could Keep Climbing'';
``High costs spur more baby boomers to find roommates'';
``What's up with the crazy housing market?''
And that's just in the past month.
But this isn't a new problem. Wages haven't kept up with the cost
of housing for years.
And this country hasn't done enough to produce the housing we need.
From 2000 to 2015, 23 States--about half the country--fell 7.3 million
homes short on housing production.
And this shortage makes housing more expensive.
Congress hasn't done its job for years. It was just last year that
we hosted the first hearing on the state of housing in America in
nearly a decade.
We talk about housing so much because it's the foundation of
everything else in our lives. Where you live determines so much about
your life--where you work, where your kids go to school, where you do
your grocery shopping.
And it eats up the biggest chunk of most people's paychecks. As
Matthew Desmond, the author of the book Evicted, says, ``the rent eats
first.''
When housing costs are up, it means less money left over for
groceries and gas and school supplies and prescription drugs.
For a lot of families, it also means crippling stress at the end of
each month. How do I pay my rent? After I pay my rent, do I pay my
electric bill or the water bill or the internet or daycare or the
credit card?
For years, the market hasn't produced enough housing that working
people can afford.
Home health aides, nursing assistants, and restaurant workers,
working full-time, have long been paid too little to afford even a one-
bedroom apartment, let alone dream of owning a home.
Meanwhile, young aspiring homebuyers have long faced insurmountable
barriers to home ownership. They're crushed by student loan debt. Black
and Brown families' parents were denied the dream of home ownership or
had it ripped out from under them by predatory lending and can't help
with a downpayment.
Over the past 2 years, with low rates making monthly mortgage costs
just a little more affordable, some of these families thought that
maybe, just maybe, now was their chance to finally buy a home.
But they found themselves competing with wealthy buyers for too few
homes. Often they weren't losing out to a family with a little more
money--they were outbid by Wall Street investors from out of town,
paying all in cash.
Families told stories of spending more than a year looking for a
home. A man in Bozeman, Montana, even resorted to standing on the side
of the road wearing a sandwich board asking someone, anyone, to sell
him their home after he'd put in 18 unsuccessful offers.
But there was just nothing to buy.
And now, with home prices rising to record levels and mortgage
rates going up, home ownership is increasingly out of reach for renters
hoping to lock in a steady monthly payment, find some stability, and
build wealth.
Recent cost increases have priced an estimated 4 million families
out of home ownership. These are families who will now be renting, in a
rental market that was already too tight.
In May, median rents topped $2,000 a month.
And that's if you can find somewhere to live at all.
Bidding wars that used to be limited to homebuyers in ``hot''
housing markets are now breaking out between renters in communities
from Chicago to Port Orange, Florida, who are just trying to find a
place they can afford.
All this will exacerbate the wealth gaps we already had and put
first-time home ownership further out of reach, especially for families
of color.
Because while millions of existing homeowners, who already had 40
times the wealth of the average renter, saw their wealth skyrocket as
home values rose, renters--disproportionately people of color--fell
further and further behind.
We have underinvested in our housing and communities for decades.
Now we're seeing the consequences.
A recent report found a shortage of nearly 3.8 million homes
nationwide, more than double the shortfall we had just 10 years ago.
Not a single State has enough homes to meet its families' needs.
Unless we act, it's tough to see how renters--whether or not they
want to buy a home--will ever catch up.
The answer is clear. We need more housing.
We need more housing available to buy for the millions of aspiring
homeowners just starting out.
We need more housing for renters, especially those with the lowest
incomes.
Our Committee Members are leading on efforts to find solutions.
Senator Van Hollen has a bipartisan proposal with Senator Young to
expand support for renters with the lowest incomes, because we know the
market doesn't build housing that they can afford.
Senator Reed and Senator Collins have a bill to increase the
efficiency of our housing.
Senator Menendez has a proposal to help communities that want to
make comprehensive housing and transit investments.
Senator Warren has a bill to repair more of the homes we have, and
to produce new housing that lower-income families, including families
in rural areas and Tribal communities, can afford.
Senator Cortez Masto has a proposal to fund repairs in manufactured
housing communities, to keep those communities affordable for their
residents.
And Senators Warnock and Van Hollen are cosponsoring a proposal to
help communities invest in meaningful local projects and preserve the
housing we have, so we don't fall further behind.
And we can do this while ensuring that we're not displacing
families and seniors from the neighborhoods they love.
I look forward to hearing from today's witnesses, the challenges
they're seeing, and their recommendations to support new housing in
communities across the country.
We can't deny this problem any longer--we see it in every community
across the country. It's not a Republican or Democratic problem.
Congress must act.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Today we are discussing the recent, rapid rise of home prices and
its impact on affordability. Of course, home price appreciation is not
occurring in a vacuum. Inflation in the Biden economy is broad-based
and severe.
And despites promises to the contrary from the President and his
advisors, inflation, fueled by reckless spending and lax monetary
policy, has been an enduring phenomenon. Adjusted for inflation, wages
have fallen almost every month since President Biden took office.
The average American's real wages have fallen by 5 percent. And, it
has been even worse for blue-collar workers. So, it should come as no
surprise that home ownership, like most goods and services, has become
increasingly unaffordable.
Turning to housing specifically, demand far outpaces supply in many
regions. Why is this happening and why isn't the housing market
naturally correcting these imbalances? I'd point to bad policy
decisions, especially by Democrats.
During COVID, the Federal Government made a number of mistakes. $80
billion went to rental assistance, vouchers, and other housing
subsidies. That's above and beyond the hundreds of billions in ordinary
housing subsidies we spend every year, and a significant sum remains
unspent.
Democrats and the Administration dropped hundreds of billions in
helicopter money to stimulate an already strong economy. They also
unnecessarily extended and expanded foreclosure and eviction moratoria.
Outside of the COVID emergency, the number and cost of housing
subsidies boggles the mind. We provide tax breaks such as the mortgage
interest and PMI deductions; capital gains exclusion on home sales; tax
deduction on local property taxes; and Low Income Housing Tax Credit.
We subsidize mortgages with GSE securities guarantees; FHA, VA, and
USDA mortgage insurance and Ginnie MBS guarantees; and downpayment
assistance programs.
And we have an overlapping array of HUD and USDA programs,
including project-based rental assistance; tenant-based rental
assistance; public housing funding; section 202 housing for the
elderly; section 811 housing for persons with disabilities; section 521
rural rental housing; CDBG; HOME block grants; and homelessness
assistance.
It's a fact that Government housing spending is massive and the
vast majority of it subsidizes demand rather than supply. What should
be embarrassing to its advocates, all this spending hasn't meaningfully
changed home ownership rates over the decades nor narrowed the racial
home ownership gap.
In 1970, the home ownership rate in America was 64 percent. Now,
it's 65 percent. And Black home ownership levels are similar to when
the Fair Housing Act was passed in 1968. These Government policies have
just made housing more expensive.
If the Administration were serious about immediately lowering
housing costs, it would start by removing misguided trade barriers that
drive-up the cost of home construction. It could lift tariffs on
lumber, steel, and aluminum, materials that are universally used in
buildings across the country and which have cost consumers billions.
In the last 3 years, American consumers paid at least $14.2 billion
more on steel and aluminum imports. And we know lumber tariffs have
contributed to price increases too.
Unfortunately, the Administration is continuing to promote a
reckless spending agenda that will make soaring housing costs worse. In
May, the White House released a plan to supposedly boost housing
supply, but instead used the opportunity to add upward pressure on
pricing by endorsing a partisan House-passed proposal to increase
spending by $75 billion on housing vouchers and $80 billion on public
housing. Additional spending of this kind will only further fuel
inflation.
The White House plan also proposed pushing Fannie and Freddie into
activities that prior Administrations understood created too much risk
for taxpayers. In a break from decades of bipartisan efforts to reform
the GSEs, the White House has embraced the GSE conservatorships as a
means to social engineer its housing and racial equity policies.
FHFA recently relaxed restrictions on the GSEs' risk layering and
acquisitions of investor and second home loans; reduced the GSEs'
guarantee fees; and required the GSEs to develop equitable housing
finance. Stunningly, the GSEs' new proposed pilot programs limit
eligibility based on borrower race, and even go so far as to give
taxpayer money to certain borrowers based on their skin color to make
downpayments.
Yesterday, all Banking Republicans sent a letter organized by
Senator Tillis to FHFA expressing grave concern about the legality and
discriminatory nature of these new programs. I hope the FHFA Director
will reconsider this discrimination on the basis of race and instead
act to protect taxpayers from excessive risk as conservatorship
envisions.
Racial discrimination is always wrong, and this is no exception.
Further, relaxing underwriting requirements to chase political
priorities risks exposing low-income families--in this case
minorities--to wealth loss.
The state of the housing market only affirms the urgency of GSE
reform. To improve housing affordability for both renters and owners,
we should favor policies that leverage the power of free enterprise.
We should phase-out demand-side subsidies like downpayment
assistance and focus FHA on a narrow subset of borrowers. We should end
the GSE conservatorships to ensure this and future Administrations
cannot use conservatorships to influence the pricing and allocation of
mortgage credit.
For decades we've spent countless sums without much to show for it.
It's time for meaningful reform that doesn't feature the same tax-and-
spend strategies of the past.
PREPARED STATEMENT OF LAWRENCE YUN
Chief Economist and Senior Vice President for Research, National
Association of Realtors
July 21, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN
President, American Action Forum
July 21, 2022
Introduction
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, thank you for the opportunity to discuss the state of U.S.
housing markets. In this testimony, I hope to make three main points:
The dominant characteristic of owner-occupied and rental
housing is high and rising prices, despite a recent
construction boom. This suggests that the primary underlying
cause of stress is demand stimulus from Federal subsidies,
especially those from the Government-sponsored enterprises
(GSEs) Fannie Mae and Freddie Mac.
Before looking to new initiatives, Congress would be better
served by a more complete understanding of the current state of
existing subsidies, both from existing Housing and Urban
Development initiatives and COVID-19 grants, from which a
significant amount of funding remains unspent.
To the extent that Congress attempts to meaningfully impact
supply, it may look to remove tariffs that increase the cost of
construction materials, expand the workforce of skilled
construction workers, and reduce bureaucratic barriers such as
unwanted land-use restrictions and the permit process.
Let me discuss each of these in greater detail.
The State of Housing Markets
House prices and rents rose rapidly in 2021. These price increases
reflect some combination of slow expansion in the supply of units and
rapid expansion in the demand for units. Supply has been at the center
of attention. The total inventory of homes available for sale fell 26
percent in January 2021 year-over-year.\1\ At its lowest point, the
Federal Reserve Bank of St. Louis estimated that there remained only
3\1/2\ months of total housing inventory--in other words, there would
be only 3\1/2\ months without construction until there would be no
homes available in the United States. Housing inventory remains
stressed following COVID-19-related eviction moratoria and
forbearances.
Nevertheless, in the main, U.S. price pressures seemingly reflect
growth in demand. According to the Joint Center for Housing Studies:
``Single-family starts hit 1.1 million in 2021, exceeding the million-
unit mark for the first time in 13 years. Multifamily starts were also
at a 30-year high of 470,000 units.''\2\
If a record pace of construction is unable to alleviate price
pressures, policymakers must be cautious about interventions that boost
demand further. Unfortunately, these efforts continue. Demand has in
part been fueled by Federal Reserve policy. As part of its monetary
stimulus, the Fed purchased $30 billion monthly in mortgage-backed
securities (MBS), pumping $30 billion in capital into the mortgage
market each month. This reduced the cost of mortgage capital,
subsidized mortgages, and stimulated demand.
Looking forward, the Fed will have to take aim at housing as a
matter of fighting inflation; this will be part of its approach to
broadly slowing the economy and will have a disproportionate effect on
housing markets.
The shelter component of the Consumer Price Index (responsible for
one-third of the index) has exhibited an uninterrupted rise in
inflation, from 1.6 percent in January 2021 to 5.6 percent in June
2022, with no signs yet of peaking. Notice that if shelter inflation
gets to 6 percent, inflation on everything else must be zero for the
Fed to hit its 2 percent target.
Next, note that as housing starts and residential construction
decline, so does the demand for all sorts of goods and services
associated with homebuilding--durable goods such as furnaces, air
conditioners, ovens, and the like; household items such as furniture,
carpeting, curtains, and so forth; and services such as inspections,
landscaping, and others. Housing has always been an important channel
for the transmission of monetary policy and slowing the housing market
reduces demand in a broad swath of the economy.
Finally, the Fed's plan cannot avoid affecting housing especially
strongly. As the Fed raises the Federal funds rate, all interest rates
will rise. Credit cards and auto loans will go up, and so will mortgage
interest rates. (Indeed, mortgage rates have already risen sharply.)
But there is a second channel of impact. As noted above, the Fed
purchased $30 billion monthly in MBS. As part of tightening financial
conditions, this will no longer occur. That means to get the same total
amount of funds into the mortgage market, rates will have to rise even
further to attract the $30 billion in capital. But it doesn't end
there. The Fed intends to draw down its holdings of MBS by $35 billion
a month, essentially pulling $35 billion in capital out of the market.
The upshot is that rates would need to rise even a bit more to
completely offset the $65 billion (roughly 20 percent of mortgage funds
at 2021 rates) net swing in mortgage funds.
Government Intervention in Housing Has Frequently Done More Harm Than
Good
Housing finance was at the center of the 2008 financial crisis that
visited substantial economic stress on Americans and spawned dramatic
Government intervention. Yet more than a decade later, the central
actors in the crisis and response--Fannie Mae, Freddie Mac, and the
Federal Housing Finance Administration (FHFA)--remain essentially
unchanged.
Fannie Mae and Freddie Mac need to be wound down and closed as a
matter of both policy and politics. From a policy perspective, the GSEs
were central elements of the 2008 crisis. First, they were part of the
securitization process that lowered mortgage credit quality standards.
Second, as large financial institutions whose failures risked
contagion, they were massive and multidimensional cases of the too-big-
to-fail problem. Policymakers were unwilling to let them fail because
financial institutions around the world bore significant counterparty
risk to them through holdings of GSE debt, certain funding markets
depended on the value of their debt, and ongoing mortgage market
operation depended on their continued existence. They were by far the
most expensive institutional failures to the taxpayer and are an
ongoing cost.
Moreover, despite 14 years under the conservatorship of the FHFA,
``each Enterprise remains undercapitalized.'' Nevertheless, the FHFA
just moved to relax the capital requirements. Worse, the FHFA announced
it would require Fannie and Freddie to put in place Equitable Housing
Finance Plans that would deploy a number of ``special purpose credit
program'' that would assist racial minorities and particularly African
American borrowers with home buying costs such as title insurance,
appraisals, and downpayments. Typically, these costs are the
responsibility of the homebuyer and in the case of downpayments, some
of the capital risk is taken by private mortgage insurance for
borrowers who do not provide 20 percent down. This approach takes
capital that is supposed to protect taxpayers to subsidize home
purchases by borrowers who simply don't have the financial preparation
to do so.
This strategy seems destined to repeat the errors of the past that
yielded a wave of foreclosures that wiped out millions of homeowners,
hurting many minority families that were beginning to accrue
generational wealth. Congress should urge the FHFA to reconsider these
housing subsidy plans. It risks setting up another generation of
minority borrowers for failure.
These plans also suggest a return to GSE mission creep. Instead,
the FHFA should finalize the rulemaking on Prior Approval of Enterprise
Products, which was proposed in October 2020 and would ensure there is
adequate oversight and transparency around new products and activities
the GSEs bring to the market.
Efforts such as the Equitable Housing Finance Plans are simply
demand subsidies by another name. They build upon the questionable
track record of the housing trust fund, the HOME program, and Community
Development Block Grants and will not serve to alleviate house price
pressures. Instead, they will simply exacerbate the problem. Similarly,
the Biden administration's Housing Supply Action Plan contains as many
demand subsidies as ideas to expand housing supply. These are steps in
the wrong direction.
Multiple Avenues for Congressional Support Already Exist
The Federal Government already provides multiple avenues of support
for the construction of affordable housing and assistance for low-
income renters and homebuyers, including seniors. The most prominent of
these is the Low-Income Housing Tax Credit (LIHTC). Unfortunately, a
recent review by Desai, Dharmapala, and Singhal casts considerable
doubt on the efficacy of this program. In addition, the Federal
Government provides appropriated funding through more than 30 programs
within the Department of Housing and Urban Development, tax credits and
deductions for both corporations and individuals, housing programs for
veterans through the Department of Veterans' Affairs, rural housing
programs through the Department of Agriculture, and mortgage insurance
programs through the Federal Housing Administration and Government
corporation Ginnie Mae.
The failures of this overly complex constellation of programs not
performing as designed are clear. House price indices are at record
highs, housing affordability indices are declining,\3\ and home
ownership rates have barely changed since the 1970s.\4\ The housing
market is under considerable stress, further impacted by the challenges
of the recent pandemic. It is difficult, however, to point to stressed
markets as a justification for further Government intervention if the
Government itself is responsible for significant portions of that
stress. There is less evidence of market failure than there is of
Government failure.
Policies To Alleviate Housing Prices
Even if Congress could design legislation that does not duplicate
existing efforts, works perfectly as intended, creates sensible market
incentives, and empowers private actors, while at the same time not
putting overt pressure on inflation and the deficit, any legislative
solution focusing on demand rather than supply will only exacerbate the
high prices facing Americans.
Housing demand is especially high as a result of low mortgage rates
and a coronavirus-inspired flight from large urban centers and into
homes better suited to remote work.\5\ Despite these high prices, the
risks of an economic crash as a result of a collapse of the housing
market appear low due to the low availability of mortgage credit and
better underwriting standards. The rate of home ownership is on track
to fall, however, and housing inequalities, felt disproportionately by
seniors and other vulnerable populations, will be exacerbated.
Housing supply is constrained by low labor availability, the high
cost of materials, and restrictive local regulations. Existing homes
are not returning to the market at typical rates as economic stresses,
the low mortgage rate environment, and the unknowns of listing a home
in the backdrop of a global pandemic caused homeowners to delay or
cancel their plans to list. Housing inventory, while on track to rise,
is at historic lows.
Fortunately, there exist positive steps Congress could take to
alleviate some of short-term stresses on the housing market. Congress
could take steps to reduce tariffs that raise the prices of key
construction materials, most obviously those on Canadian lumber.\6\
Congress can investigate the labor market forces leading to an
estimated shortfall of 650,000 skilled construction workers in 2022.\7\
Finally, Congress can work to reduce the red tape requirements of new
construction, ranging from the building permit process to unwanted
land-use restrictions.
Outside of short-term fixes, the most effective action Congress can
take to improve the overall health of the housing market is to continue
the effort to reform the GSEs. The United States does not have a
functioning private secondary mortgage market and has a distorted
primary market thanks to Fannie and Freddie. If Congress seeks a
healthy and functioning housing market that benefits all participants,
including seniors, then it must continue its efforts to reform the
GSEs. Instead, this Administration has reversed previous improvements,
decreasing the amount of capital the GSEs are required to hold and once
again allowing them to purchase the riskiest mortgages.\8\
Thank you and I look forward to your questions.
Notes
1. https://www.bankrate.com/real-estate/why-are-house-prices-going-up/
2. https://www.jchs.harvard.edu/sites/default/files/reports/files/
Harvard-JCHS-State-Nations-Housing-2022.pdf
3. https://www.americanactionforum.org/chartbook/housing-chartbook-q4-
2021/
4. https://www.census.gov/housing/hvs/data/histtabs.html
5. https://www.americanactionforum.org/insight/understanding-the-
national-increase-in-house-prices/
6. https://www.nahb.org/blog/2022/01/nahb-welcomes-biden-
administration-move-to-lower-lumber-tariffs/
7. https://www.abc.org/News-Media/News-Releases/entryid/19255/abc-
construction-industry-faces-workforce-shortage-of-650-000-in-2022
8. https://www.americanactionforum.org/insight/fhfa-reverses-previous-
housing-market-reform-progress/
______
PREPARED STATEMENT OF PEGGY BAILEY
Vice President for Housing Policy, Center on Budget and Policy
Priorities
July 21, 2022
Chairman Brown, Ranking Member Toomey, Members of the Committee,
thank you for the opportunity to testify before you this morning at
this important hearing. I am Peggy Bailey, Vice President for Housing
Policy at the Center on Budget and Policy Priorities, a nonpartisan
research and policy institute in Washington, DC.
In this testimony, I will discuss the pressing housing
affordability crisis affecting people with the lowest incomes and
recommend policies that will move us toward the goal of ensuring that
everyone in this country is able to afford safe, stable housing.
Solving the Affordable Housing Crisis Must Include Subsidizing Rent
Costs
Addressing the Nation's affordable housing crisis must include
housing subsidies, such as Housing Choice Vouchers, for people with
little to no income. These families do not have incomes high enough to
afford quality housing because landlords must set rents at least high
enough to cover their own operating costs, perform general maintenance,
and pay any debt owed. Housing agencies can ``project-base'' vouchers
to guarantee that developments include units affordable for families
with low and extremely low incomes. For example, many buildings with
units dedicated as permanent supportive housing for people experiencing
homelessness who also have disabilities use project-based vouchers to
make units affordable for this population. The voucher program can also
mitigate the need to build new units by allowing people to remain in
modest, decent units that are appropriate to their family size. Voucher
holders do not need to move but can have their rent burden reduced,
which allows them to afford other basic needs or survive a small
financial crisis.
Closing the housing affordability gap will require a long-term
strategy but progress can be made in the short term. Most immediately,
Congress should fund at least the 140,000 new vouchers included in the
2023 Transportation-HUD funding bill passed by the House Appropriations
Committee, together with adequate funding for existing vouchers to
cover rising housing costs. As part of that bill, Congress should also
provide adequate voucher administrative funding, fund services to help
voucher holders search for housing, and allow voucher subsidy funds to
be used for security deposits. \1\ Over the longer term, lawmakers
should enact major additional voucher expansions, with the goal of
making vouchers available to everyone who is eligible.
---------------------------------------------------------------------------
\1\ Sonya Acosta, ``House Bill Would Fund Housing Vouchers and
Other Key Investments To Reduce Homelessness, Help With Rising Housing
Costs'', CBPP, July 5, 2022, https://www.cbpp.org/research/housing/
house-bill-would-fund-housing-vouchers-and-other-key-investments-to-
reduce.
---------------------------------------------------------------------------
Congress must take additional steps, including:
Reducing the shortage of deeply affordable rental housing.
There is a need to increase affordable rental housing stock
through multifamily and manufactured housing developments.
Actions such as expanding the capacity of the Low-Income
Housing Tax Credit; increasing funding for Department of
Housing and Urban Development (HUD) programs like HOME, the
Community Development Block Grant, and the Housing Trust Fund;
implementing new strategies such as a renters' tax credit; \2\
and directing more resources for manufactured housing are
needed. HUD's Our Way Home Initiative recognizes the need for a
comprehensive strategy to increase housing supply. HUD's
programs often work with the LIHTC to make rents affordable for
families with the lowest incomes by subsidizing predevelopment
and ongoing operating costs, which helps keep rents lower.
Alongside these actions, there's also a need to address zoning
practices and other local actions that can stand in the way of
building new affordable housing.
---------------------------------------------------------------------------
\2\ For additional information on this proposed renters' tax
credit, see https://www.cbpp.org/topics/renters-credit.
Prevent the loss of existing affordable housing. Resources
are needed to preserve the existing affordable housing stock
along with actions to improve the properties. Estimates are
that about 6 percent of the Federal assisted housing stock is
set to lose affordability restrictions by 2025. Based on past
data, about half will likely not stay affordable, resulting in
the loss of about 176,000 units in the near term. \3\
---------------------------------------------------------------------------
\3\ Andrew Aurand et al., ``2021 Picture of Preservation'', Public
and Affordable Housing and Research Corporation and National Low Income
Housing Coalition, October 2021, https://preservationdatabase.org/wp-
content/uploads/2021/10/NHPD-2021Report.pdf.
---------------------------------------------------------------------------
Several actions are needed to preserve affordable housing:
Redevelop existing public housing properties through HUD
tools such as the Rental Assistance Demonstration program;
Incentivize Low-Income Housing Tax Credit property owners
to keep their developments affordable once their initial
contract term ends;
Invest in redevelopment resources for properties that
receive HUD assistance such as through the Project Based Rental
Assistance program; and
Incentivize landlords to rent to families with low
incomes--especially families receiving Housing Choice Vouchers.
Remove barriers to home ownership. There is a shortage of
affordable single-family home ownership opportunities due to a
low supply of homes and challenges first-time buyers are facing
accessing mortgages. If fewer people can successfully purchase
homes, then more people remain in the rental market, creating a
shortage of rental units and driving up costs. Downpayment
assistance for first-time homebuyers and other policies to make
it easier for families to obtain mortgages are critical to
relieving pressure from the rental market.
Reform existing public and multifamily housing. Most
project-based Federal assistance does not allow families to
move and maintain their housing subsidy. These programs should
be reformed to allow tenants true choice in where they live.
This will put pressure on landlords and owners to make their
units more attractive and reduce neighborhood segregation of
people with low incomes.
Improve the Low-Income Housing Tax Credit Program. LIHTC
should be reformed to make it easier for States and developers
to ensure that more units are affordable to people with incomes
well below the program's eligibility limit (although many low-
paid workers and others with extremely low incomes will still
need a voucher or other rental assistance to afford these
units). This can include amending State Qualified Action Plans
to include extra points for projects that will allow people
with lower incomes to rent units and dedicating Federal or
State resources that reduce the predevelopment costs for
developers.
Address housing needs in tribal communities. Increase
resources for Native American housing programs, particularly
the Indian Housing Block Grant, the Indian Community
Development Block Grant, and the Native Hawaiian Housing Block
Grant, to address the high rates of housing hardship faced by
American Indians and Alaska Natives living on tribal lands and
Native Hawaiians on the Hawaiian homelands while continuing to
honor tribal sovereignty.
Millions of People Struggle To Afford Housing, With Needs Heavily
Concentrated Among People With the Lowest Incomes and People of
Color
The Nation's most pressing housing problem centers on the millions
of people with low incomes who are not able to afford safe, stable
housing. This often is characterized as a problem due to the supply of
hard units. While supply is an issue in some places, it is important to
recognize that most people have a place to live and are not seeking to
move; they simply struggle to afford their current residence. Even
before the pandemic and economic downturn, 23 million people lived in
11 million low-income households that paid more than 50 percent of
their income for rent. (See Figure 1.) Government programs and private
owners and lenders often use 30 percent of income as a benchmark for
the amount households can afford to pay for housing. \4\
---------------------------------------------------------------------------
\4\ CBPP, ``United States Federal Rental Assistance Fact Sheet'',
January 19, 2022, https://www.cbpp.org/research/housing/federal-rental-
assistance-fact-sheets#US.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
While most people who need housing to be more affordable already
have a place to live, many do not. Unaffordable housing compels many
people with low incomes to live in homes that are overcrowded or
unsafe, and hundreds of thousands of people can't afford a home at all;
580,000 people slept in shelters or on the streets on the night in
January 2020 when HUD conducted its annual point-in-time homeless
count.
These affordability challenges are becoming increasingly urgent for
many people around the country for two reasons:
First, rent and utility costs have risen sharply since the
summer of 2021. By June 2022, rents for newly leased units were
15 percent higher than a year earlier, according to one
national index. \5\ And in the 12 months through June, prices
for residential fuel and utilities rose 18 percent. Typically,
renters who must pay very high shares of their income for
housing have to divert money away from other necessities to
keep a roof over their heads, such as by going without needed
food, medicine, clothing, or school supplies. As those unmet
needs pile up, families often find themselves one setback--a
cut in their work hours or an unexpected bill--away from
eviction. In March 2022, 10.4 million adult renters reported
that they were not caught up on rent. \6\ Inflation can make
this problem more acute.
---------------------------------------------------------------------------
\5\ Jeff Tucker, ``Housing Affordability Obstacles Are Mounting,
But Buyers Who Can Weather the Storm Have More Time and Options'' (June
2022 Market Report), Zillow, July 19, 2022, https://www.zillow.com/
research/june-2022-market-report-31239/.
\6\ Erik Gartland, ``Relief Measures Reduce Hardship, But Many
Still Struggle To Pay Rent in Every State'', CBPP, June 17, 2022,
https://www.cbpp.org/research/housing/relief-measures-reduced-hardship-
for-renters-during-pandemic-but-many-still#scene-0.
Second, many States and localities are beginning to exhaust
the Emergency Rental Assistance funding provided through
pandemic relief legislation. This assistance has helped at
least 5.7 million households pay rental debt accumulated during
the pandemic and accompanying economic downturn and to afford
ongoing rent and utility costs. The exhaustion of these funds
will eliminate a key source of help for people struggling to
---------------------------------------------------------------------------
stay housed.
Difficulty affording housing is heavily concentrated among
households at the bottom of the income scale. More than 70 percent of
households that pay over half their income for rent have extremely low
incomes (defined by HUD as below the Federal poverty line or 30 percent
of the local median income, whichever is higher), and these households
are far more likely than higher-income households to experience
homelessness and other housing-related hardship. Nearly everywhere in
the country, rents are too high to be affordable to people with the
lowest incomes, including low-paid workers \7\ and seniors and people
with disabilities with low fixed incomes. \8\
---------------------------------------------------------------------------
\7\ Andrew Aurand et al., ``Out of Reach: The High Cost of
Housing'', National Low Income Housing Coalition, 2021, https://
nlihc.org/sites/default/files/oor/2021/Out-of-Reach-2021.pdf.
\8\ TAC, ``Priced Out: The Housing Crisis for People With
Disabilities'', 2021, https://www.tacinc.org/resources/priced-out/.
---------------------------------------------------------------------------
Due to a long history of racial discrimination in housing and other
areas, these problems are disproportionately concentrated among people
of color. As a result, people of color are already more likely to rent
their homes because they have historically been denied home ownership
opportunities; 55 percent of renters identify as a race other than
White, compared to 39 percent of the general population. \9\
---------------------------------------------------------------------------
\9\ CBPP analysis of the American Community Survey 2015-2019
microdata and Table B03002.
---------------------------------------------------------------------------
People of color are also more likely to face housing hardship,
instability, and homelessness. More than 60 percent of people in low-
income households that pay more than half their incomes for housing are
people of color. These renters are more likely than White renters to
live in crowded conditions. Asian and Pacific Islander and Latino
renters face the highest levels of doubling up and overcrowding, with 1
in 10 living in households that are both doubled up and overcrowded.
\10\ And people of color are at much greater risk of experiencing
homelessness. Nearly 40 percent of those who experienced homelessness
in 2020 were Black and 23 percent were Latino, far above these groups'
shares of the U.S. population (13 and 18 percent, respectively). Native
Hawaiians and Pacific Islanders have the highest rate of homelessness,
followed by American Indians and Alaska Natives. \11\
---------------------------------------------------------------------------
\10\ Erik Gartland, ``Funding Limitations Create Widespread Unmet
Need for Rental Assistance'', CBPP, February 15, 2022, https://
www.cbpp.org/research/housing/funding-limitations-create-widespread-
unmet-need-for-rental-assistance.
\11\ National Alliance to End Homelessness, ``Racial Inequalities
in Homelessness, by the Numbers'', June 1, 2020, https://
endhomelessness.org/resource/racial-inequalities-homelessness-numbers.
---------------------------------------------------------------------------
Rental Assistance Is the Best Way To Address Housing Needs Among
Families With the Lowest Incomes
Rental assistance programs play a crucial role in closing the
affordable housing gap and preventing housing instability, including
homelessness, evictions, and overcrowding.
Federal rental assistance helps 10 million people in 5 million
households afford housing, mainly through three major programs: Housing
Choice Vouchers, Section 8 Project-Based Rental Assistance (PBRA), and
public housing. In each of these programs, participants pay about 30
percent of their income for rent and utilities and a Federal subsidy
covers the remaining costs. Because of inadequate funding, these
programs, along with several other programs administered by HUD and
some by the Department of Agriculture, only assist about 1 in 4
households in need, \12\ and most applicants for rental assistance face
waiting lists that are very long or closed. \13\
---------------------------------------------------------------------------
\12\ CBPP, ``76% of Low-Income Renters Needing Federal Rental
Assistance Don't Receive It'', 2022, https://www.cbpp.org/research/
housing/three-out-of-four-low-income-at-risk-renters-do-not-receive-
federal-rental-assistance.
\13\ Sonya Acosta and Erik Gartland, ``Families Wait Years for
Housing Vouchers Due to Inadequate Funding'', CBPP, July 22, 2021,
https://www.cbpp.org/research/housing/families-wait-years-for-housing-
vouchers-due-to-inadequate-funding.
---------------------------------------------------------------------------
Rental assistance is by far the most direct, effective way to
address the Nation's most severe housing problems. Research shows that
vouchers sharply reduce homelessness, overcrowding, and housing
instability. (See Figure 2.) And because stable housing is crucial to
many other aspects of a family's life, those same studies show numerous
additional benefits to vouchers. Children in families with vouchers are
less likely to be placed in foster care, switch schools less
frequently, experience fewer sleep disruptions and behavioral problems,
and are likelier to exhibit positive social behaviors such as offering
to help others or treating younger children kindly. Among adults in
these families, vouchers reduce rates of domestic violence, drug and
alcohol misuse, and psychological distress. \14\
---------------------------------------------------------------------------
\14\ Will Fischer, Douglas Rice, and Alicia Mazzara, ``Research
Shows Rental Assistance Reduces Hardship and Provides Platform To
Expand Opportunity for Low-Income Families'', CBPP, December 5, 2019,
https://www.cbpp.org/research/housing/research-shows-rental-assistance-
reduces-hardship-and-provides-platform-to-expand.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Expanding rental assistance can also sharply reduce racial
disparities in poverty rates and a range of housing hardships. For
example, one study estimated that providing vouchers to all eligible
households would lift 9.3 million people above the poverty line, using
a measure of poverty that counts in-kind benefits such as rental
assistance as income. Poverty rates would drop for all racial and
ethnic groups but most among Black and Latino households, reducing the
gap in poverty rates between Black and White households by one-third
and the gap between Latino and White households by nearly half.
Similarly, people of color would be particularly likely to benefit
from the reductions in homelessness, overcrowding, and evictions and
other housing instability that the added vouchers would bring about.
\15\ Moreover, resources for tribal housing programs, such as the
Indian Housing Block Grant, would be particularly helpful for reducing
housing hardship in tribal areas. American Indians and Alaska Natives
living on tribal lands face higher rates of overcrowding and
substandard housing, \16\ compared to the national average, but tribes
are ineligible for vouchers and other HUD rental assistance programs.
---------------------------------------------------------------------------
\15\ Alicia Mazzara, ``Expanding Housing Vouchers Would Cut
Poverty and Reduce Racial Disparities'', CBPP, May 11, 2021, https://
www.cbpp.org/blog/expanding-housing-vouchers-would-cut-poverty-and-
reduce-racial-disparities.
\16\ Gartland, 2022 op. cit.
---------------------------------------------------------------------------
Racism has also prevented many people of color from choosing what
community or neighborhood to live in, as Federal, State, and local
policies ranging from discriminatory lending rules to exclusionary
zoning that prevented development of low-cost housing have blocked
Black people and others from moving to areas with predominantly White
populations. Moreover, due to neglect by public officials and other
factors, many neighborhoods with large shares of people of color suffer
from high poverty rates, poorly performing schools, unhealthy
environmental conditions, and lack of other services and amenities.
Despite antidiscrimination measures such as the 1968 Fair Housing Act,
housing discrimination and local government practices that continue to
drive investment away from communities of color remain widespread.
Housing vouchers can provide people with low incomes--including
people of color--with more choice about where they live. Families with
vouchers are much more likely--in one study, nearly four times as
likely--to be able to move to low-poverty neighborhoods if they receive
mobility assistance. \17\ But currently, programs like PBRA, public
housing, and the Low-Income Housing Tax Credit don't automatically
provide assistance to tenants if they'd like to move to a new building
or community. These families, if they qualify, must be placed on the
local housing voucher waiting list, which can be years long. But even
without any special assistance, among Black children in households with
incomes below the poverty line, children whose families use a voucher
are twice as likely as children overall to live in a neighborhood with
a low poverty rate.
---------------------------------------------------------------------------
\17\ Peter Bergman et al., ``Creating Moves to Opportunity:
Experimental Evidence on Barriers to Neighborhood Choice'', National
Bureau of Economic Research Working Paper 26164, August 2019, https://
www.nber.org/papers/w26164.
---------------------------------------------------------------------------
Many New Vouchers Could Be Put To Use
The voucher program has long used nearly every dollar of funding it
receives, so the number of families it helps is limited primarily by
inadequate funding, not by a shortage of units. From 2011 to 2020,
housing agencies on average spent 99.9 percent of the voucher subsidy
funds they received. (This figure excludes agencies participating in
the Moving to Work demonstration, which allows agencies to shift
voucher funds to other purposes.) \18\ This percentage dipped during
2021 in the face of an unusually tight rental market, but agencies
still used an average of over 96 percent of their funds, and many
individual agencies used all or nearly all of their voucher funds.
Agencies would be able to use many additional vouchers if they received
the funds to do so, particularly if new resources are targeted toward
agencies that have high utilization rates today.
---------------------------------------------------------------------------
\18\ Will Fischer, ``Rental Markets Can Absorb Many Additional
Housing Vouchers'', CBPP, May 28, 2021, https://www.cbpp.org/blog/
rental-markets-can-absorb-many-additional-housing-vouchers.
---------------------------------------------------------------------------
Most households that receive a voucher (two-thirds, in one study)
already rent a housing unit, so their vouchers do not add to the number
of units demanded in the market. \19\ Typically, these households paid
very high shares of their income for rent before receiving the voucher,
and some use the voucher to help them afford their current unit without
diverting resources from other basic needs. (The voucher also helps
protect them from eviction if their earnings drop or they face
unexpected expenses.) More than 8 million extremely low-income
households have a home but spend more than half their income to rent
it, so many vouchers could be absorbed simply by helping those
households either to stay in their current housing or to move to a more
suitable unit (such as one that provides adequate space given the
household's size or is closer to a worker's job), thus freeing up the
household's current unit for another household to occupy.
---------------------------------------------------------------------------
\19\ For example, one 6-city study of vouchers' impact on families
with children found that about one-third of families with vouchers
would have been homeless or doubled up without the voucher and about
two-thirds would have been renting their own unit. Gregory Mills et
al., ``Effects of Housing Vouchers on Welfare Families'', prepared for
Department of Housing and Urban Development Office of Policy
Development and Research, September 2006, https://www.huduser.gov/
portal//Publications/pdf/hsgvouchers-1-2011.pdf.
---------------------------------------------------------------------------
New vouchers would also help people who don't have their own unit,
such as those living in a shelter or on the streets or who are doubled
up with another family. But most rental markets could absorb many such
households just as they absorb other new renters, such as young adults
leaving their parents' homes or workers relocating to pursue a job
opportunity. Rental markets in some parts of the Nation have sizeable
numbers of vacant units, \20\ and even relatively tight markets could
likely absorb the vouchers on the scale proposed in recent legislation
(such as the 140,000 vouchers funded in the 2023 Transportation-HUD
appropriations legislation passed by the House Appropriations
Committee) because the number of units needed would be low compared to
the overall housing stock.
---------------------------------------------------------------------------
\20\ Close to two-thirds of the Nation's population live in
counties where rental vacancy rates from 2014-2018 averaged more than 5
percent (which is often used as a benchmark to separate low-vacancy
markets from high-vacancy ones). In the first quarter of 2022, 46 of
the Nation's 75 largest metropolitan areas had vacancy rates above 5
percent. CBPP analysis of Census Bureau data.
---------------------------------------------------------------------------
In fact, the Emergency Housing Voucher (EHV) program, funded
through the American Rescue Plan Act, demonstrates housing agencies'
ability to use new vouchers, even in tight rental markets. So far, the
program has helped more than 26,000 households who were experiencing or
at risk of homelessness or who were survivors of domestic violence.
Those receiving EHVs on average have an income of $11,349, which is
about 27 percent less than the typical voucher household. \21\ The
success of this program demonstrates that additional rental assistance
can be used and provides some lessons on how to work with community
partners and use administrative fees to make the program more
effective.
---------------------------------------------------------------------------
\21\ U.S. Department of Housing and Urban Development, ``Fact
Sheet: Update on the American Rescue Plan's Emergency Housing Voucher
Program'', July 12, 2022, https://www.hud.gov/sites/dfiles/PA/
documents/FactSheetEHVProgress.pdf.
---------------------------------------------------------------------------
Policymakers should also make vouchers easier to use and expand
choice for voucher holders, for example by allowing voucher subsidies
to be used for security deposits, ensuring that voucher subsidy caps
(which are set based on Fair Market Rent levels determined by HUD for
metropolitan areas, rural counties, and zip codes around the country)
are adequate to cover rising rent and utility costs, funding services
to help families search for housing in a wide range of neighborhoods,
conducting outreach to landlords to encourage them to participate in
the program, and prohibiting landlords from discriminating against
voucher holders.
Measures To Build and Preserve Housing Also Play an Important Role in
Addressing Housing Need
Rental assistance won't solve those problems alone, and should be
part of a broader, comprehensive policy.
Many parts of the country face serious housing shortages, estimated
at 3.8 million units by one study, that drive up home prices and rents
and limit the housing options available to families and individuals and
that could be addressed through a range of subsidies and regulatory
changes to expand the housing stock. \22\ In some parts of the country,
there is an urgent need for investments to address housing quality
problems in the existing housing stock, including serious health
concerns such as lead paint. The Nation's stock of public housing and
to a lesser extent its privately owned affordable housing face large
backlogs of unmet renovation needs that can place residents at risk and
ultimately result in the loss of badly needed affordable housing. \23\
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\22\ Up for Growth, ``Housing Underproduction in the U.S. 2022'',
2022, https://www.upforgrowth.org/sites/default/files/2022-07/UFG-
Underproduction-Report-Pages.pdf.
\23\ Will Fischer, Sonya Acosta, and Anna Bailey, ``An Agenda for
the Future of Public Housing'', CBPP, March 11, 2021, https://
www.cbpp.org/research/housing/an-agenda-for-the-future-of-public-
housing.
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Investments in the housing stock can further other important goals
as well. Housing construction and renovation can play a key role in
community development efforts that improve quality of life in the
surrounding neighborhoods, including in urban neighborhoods affected by
redlining and disinvestment, rural areas suffering from declining
populations and economies, and tribal areas that often face severe
problems with overcrowding and substandard housing. Supply-side
investments can also increase the number of units accessible to people
with disabilities and improve energy efficiency in ways that can
potentially reduce costs, make units safer and more comfortable for
residents, and reduce emissions of greenhouse gases and other
pollutants.
In allocating resources for housing renovation and development,
policymakers should prioritize investments that benefit the lowest-
income people and other underserved groups, including the National
Housing Trust Fund, Public Housing Capital Fund, and tribal housing
programs. The great majority of households that pay very high shares of
their incomes for housing have extremely low incomes--below half of the
median income and nearly all below 80 percent of median income--so
policymakers should generally not use scarce funding for supply efforts
that will benefit households with incomes above that income level.
Policymakers can, however, help make housing more affordable for both
low- and moderate-income households through reforms to State and local
zoning rules and other regulations that constrain the amount of new
housing that is built in many areas.
Funding for Native American housing programs is also critical for
advancing equity because they are the main resource for affordable
housing for American Indians and Alaska Natives living in tribal areas
and Native Hawaiians on the Hawaiian homelands. To respect sovereignty,
tribal governments get Federal housing funding through separate HUD
grants, such as the Indian Housing Block Grant and the Indian Community
Development Block Grant, instead of through Housing Choice Vouchers,
public housing, and many other HUD programs. Similarly, the Native
Hawaiian Housing Block Grant helps eligible Native Hawaiians with low
incomes live on their homelands.
And while State-level allocations of the National Housing Trust
Fund or the Low-Income Housing Tax Credit could be used to build or
rehabilitate housing on tribal lands, such projects would have to
compete with those in the rest of the State under structures not
designed to address land-use barriers specific to tribal areas. Some
68,000 new homes are needed to eliminate overcrowding and replace
inadequate housing on tribal lands, according to one 2017 estimate.
\24\ Funding for tribal housing development and assistance programs,
however, has remained relatively flat since the 1996 enactment of the
tribal housing law. Annual Indian Housing Block Grant appropriations
haven't kept pace with inflation, although Congress has provided some
helpful increases in the past few years. \25\
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\24\ Nancy Pindus et al., ``Housing Needs of American Indians and
Alaska Natives in Tribal Areas'', U.S. Department of Housing and Urban
Development, February 21, 2017, https://www.huduser.gov/portal/pdredge/
pdr-edge-research-022117.html.
\25\ CBPP, ``Funding for Tribal Housing Program Has Less Buying
Power Now Than When Created'', December 9, 2021, https://www.cbpp.org/
funding-for-tribal-housing-program-has-less-buying-power-now-than-when-
created.
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Pair Supply Measures With Rental Assistance To Help the Lowest-Income
Households
While investments in housing construction and renovation are
important, unless a household also receives a voucher or other similar
ongoing rental assistance, construction subsidies rarely produce
housing with rents that are affordable for households with incomes
around or below the poverty line. Since most households that pay over
half their income for rent or that experience homelessness have
extremely low incomes, it is critical that supply investments are
married with rental assistance investments. The supply investments can
help create more affordable housing and the rental assistance can then
fill the gap between what families with very low incomes can afford and
the cost of units defined as ``affordable.''
One reason supply investments alone are rarely enough to enable the
lowest-income households to afford housing is that these households
typically can't afford rent set at a high enough level for an owner to
cover the ongoing cost of operating and managing housing. The average
extremely low-income renter household had an income of $11,318 in 2019,
the latest year for which data are available. \26\ As explained above,
Government programs and private-sector owners and lenders often
consider housing affordable if it costs no more than 30 percent of
household income, which for this household works out to $283 a month
for rent and utilities. Many households, including those most at risk
of homelessness, have much lower incomes and can afford even less in
rent. But in 2019 the average market rental unit's operating cost was
$520 a month (over $580 when the owner paid for utilities), according
to National Apartment Association data. \27\ By 2020, these figures had
increased to $534 without utilities and $614 with utilities, and these
figures have surely risen substantially since then. \28\ Consequently,
even if development subsidies pay for the full cost of building
housing, rents in the new units will generally be too high for lower-
income families to afford without the added, ongoing help a voucher can
provide.
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\26\ CBPP analysis of 2019 1-year American Community Survey data.
\27\ Paula Munger and Leah Cuffy, ``Strong Performance To Close
Record Economic Expansion: 2020 NAA Survey of Operating Income and
Expenses in Rental Apartment Communities'', National Apartment
Association, October 2020, https://www.naahq.org/sites/default/files/
2020-ies-exec-summary-final.pdf.
\28\ National Apartment Association, ``National Apartment
Association 2021 Survey of Operating Income and Expenses in Rental
Apartment Communities'', October 20, 2021, https://www.naahq.org/
national-apartment-association-2021-survey-operating-income-expenses-
rental-apartment-communities.
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The largest Federal affordable housing development program, the
Low-Income Housing Tax Credit, illustrates this. LIHTC allows rents to
be set up to levels affordable to families with incomes at 60 percent
of the local median, more than 200 percent of the poverty line in many
areas. Fortunately, LIHTC developments house many families with incomes
around or below the poverty line, but nearly all of those families
either pay high shares of their income for rent or receive a voucher or
similar rental assistance that enables them to afford the unit. \29\ If
policymakers expand LIHTC or other development subsidies but do not
adequately expand rental assistance, there will be a serious risk that
many of the families who struggle most to keep a roof over their heads
will not be able to afford the new homes.
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\29\ Megan Bolton, Elina Bravve, and Sheila Crowley, ``Aligning
Federal Low-Income Housing Programs With Housing Need'', National Low
Income Housing Coalition, December 2014, https://nlihc.org/sites/
default/files/Alignment-Report-1214.pdf; Katherine M. O'Regan and Keren
M. Horn, ``What Can We Learn About the Low-Income Housing Tax Credit
Program by Looking at the Tenants?'' Housing Policy Debate, Vol. 23,
No. 3, May 16, 2013, https://www.tandfonline.com/doi/abs/10.1080/
10511482.2013.772909.
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Vouchers can help reduce rents to affordable levels for families
with low incomes in two ways. First, most vouchers are tenant-based,
meaning they can be used in a modest unit of the family's choice.
Federal law prohibits owners of most buildings that receive Federal
development subsidies from discriminating against voucher holders, so a
family with a tenant-based voucher could opt to use it in such a
development or elsewhere.
Second, housing agencies can also enter into long-term project-
basing agreements that require some vouchers to be used in a particular
development. A family living in a project-based voucher unit is
permitted to move with the next available tenant-based voucher after
one year, and a new family from the voucher waiting list then moves
into the project-based voucher unit. Project-based vouchers can play a
useful role, for example by enabling housing agencies to enter into
long-term agreements ensuring that some units are available to voucher
holders in neighborhoods where vouchers are otherwise difficult to use,
or for supportive housing that provides rental assistance together with
services for people with disabilities or with a history of
homelessness. In addition, a long-term project-based voucher contract
can help finance affordable housing development, since a portion of the
voucher subsidies can be used to pay back debts incurred during
construction.
Agencies can project-base up to 30 percent of their vouchers with
exceptions allowing agencies to go higher under certain circumstances.
Only a few dozen of the Nation's 2,100 voucher agencies are approaching
the 30 percent limit once those exceptions are considered, so nearly
all agencies could project-base many additional vouchers to make units
in new developments affordable to people with the lowest incomes,
without additional funding or any change to current law. (Other
project-based subsidies such as public housing and PBRA can play a
similar role, but don't allow families to move, as project-based
vouchers do. Policymakers should consider extending this option and
some other characteristics of project-based vouchers to public housing
and PBRA, particularly if they opt to expand either of those programs.)
It is important, however, that most vouchers remain tenant-based
and that any housing investment package sharply expand the voucher
program as a whole so that housing agencies can increase the
availability of both tenant-based and project-based vouchers. Tenant-
based vouchers are essential to ensuring that Federal housing
investments allow low-income people to choose where they live. A
housing investment package focused solely on development or on project-
based rental assistance would limit the housing choices available to
low-income renters (who are disproportionately people of color). Those
families would receive help to rent a particular unit but would usually
have to give up their subsidy if they need to move elsewhere (for
example, to be close to a job opportunity, to a relative who can act as
a caregiver, or to a school they would like their child to attend).
Tying most rental subsidies to particular units would repeat a mistake
housing policymakers made in the past, particularly during the
establishment and expansion of the current public housing and PBRA
programs.
This risk from limiting choice is compounded by a long history of
discriminatory housing policies that have contributed to the
segregation of low-income people, especially Black families, into
poorer communities with under-resourced schools and other
disadvantages. That history has been reinforced by ongoing resistance
to affordable housing development in many predominantly White
neighborhoods. \30\ It is critical that new housing supply and rental
assistance investments not reinforce these patterns. Policymakers could
avoid this by seeking to locate new affordable housing developments in
neighborhoods that offer residents good opportunities and quality
public services and encouraging developments that serve households with
a mix of income levels. But coupling investments in affordable housing
development with a major voucher expansion can help too, by making it
easier for people with low incomes to move to a different neighborhood
if they wish.
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\30\ Katherine Levine Einstein, Maxwell Palmer, and David Glick,
``Racial Disparities in Housing Politics: Evidence From Administrative
Data'', Boston University, August 29, 2018, https://maxwellpalmer.com/
research/racial-disparities-in-housing-politics.pdf; Jonathan Rothwell,
``Land Use Politics, Housing Costs, and Segregation in California
Cities'', Terner Center for Housing Innovation, September 2019, http://
californialanduse.org/download/Land%20Use%20Politics%20Rothwell.pdf.
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Without Aggressive Action, We'll Miss an Opportunity That May Not Come
Again
Immediate action is critical. The Joint Center for Housing Studies
at Harvard University and other industry leaders recognize that, while
many parts of the country continue to experience housing shortages,
through early 2022 we have been in a housing development boom as
markets respond to those shortages. New housing starts are reaching
levels we haven't seen since the 1990s. \31\ However, these new rental
housing developments are largely targeted at the upper end of the
housing market. The average asking rent for new units in 2021 was
$1,740 per month, but the median renter could only afford $1,080 per
month. These new developments are targeted to this segment of the
rental market partly because of these renters' inability to move to
home ownership, and, absent Government action, will not be affordable
for even families with moderate incomes. Yes, it may take several years
for these new projects to begin to be occupied but now is the time to
add rental subsidies, incentives, or contract requirements that ensure
a significant amount of these units will be affordable.
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\31\ Joint Center for Housing Studies of Harvard University, ``The
State of the Nation's Housing 2022'', 2022, https://
www.jchs.harvard.edu/state-nations-housing-2022.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM LAWRENCE YUN
Q.1. The market right now is more daunting than ever for a
first time homebuyer. That is why it is so important for
Congress to fund programs with proven records of helping
improve access to housing like HUD's Housing Counseling
Assistance Program.
How do housing counseling services help improve housing
outcomes for families?
A.1. Home ownership education and counseling provides potential
buyers with tools and information to help them make housing
choices that are affordable and sustainable. For those already
purchased but encountering economic hardship, foreclosure
counseling and reverse mortgage education should be widely
available. Studies suggest that buyers who participate in
education and counseling programs are less likely to experience
mortgage delinquencies and foreclosures, according to
NeighborWorks study. There are many offers for help that charge
fees for service and advice. Potential buyers may be more
likely to opt-into counseling programs if they are provided for
free, but enrollment would be even higher if offered a
financial incentive to do so.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM LAWRENCE YUN
Q.1. I know there have been substantial supply chain
disruptions of critical housing inputs, like steel and lumber,
that have caused delays and driven up prices. I've heard these
disruptions are starting to resolve themselves, though it is
still challenging to find qualified, skilled workers to
construct homes. Relative to where we were last year, what is
your assessment of the current supply chain situation for
housing?
A.1. There has been easing of supply chain disruption. Input
prices of lumber and steel and other materials that go into
construction have come down from peak prices. At the same time,
the price gypsum, a material in drywall, is increasing in price
so now drywall is becoming more expensive. The main items that
builders are experience issues obtaining are: garage doors,
windows, doors, heating and air conditioning equipment,
appliances, and cabinets. Ocean freight rates are continuing to
decline from their record high, making it cheaper to ship
materials internationally.
However, the shortage of construction workers to build
homes is an ongoing challenge facing the industry. More new
supply of homes is critically needed over the long term. There
has been increased cancellations from signed contracts to buy a
new home arising due to recent jumps in mortgage rate. Unlike
existing homes, new home construction takes time. From the
initiation to build to the completion it may take more than 7
months for majority of new homes coming onto the market. Over
the course of this time, the mortgage may have move up by 300
basis points, and essentially pricing out the homebuyer.
Therefore, the supply of homes still under construction has
risen. There were 308,000 homes under construction for sale in
June 2022 compared to 266,000 before the increase in mortgage
rates in December 2021 and 194,000 in February 2020 right
before the onset of the pandemic. But the data also shows that
the supply of fully completed homes still remain tight. There
were only 39,000 newly finished homes on the market in June
compared to 80,000 in February 2020. Moreover, the median
number of months to make the sale since completion remains at
near historic lows at 2.5 months at the end of June this year.
It was 3.6 months in February 2020 and averaged 3.9 months over
the past 20 years.
The job openings in the construction industry are at
historic highs. In March of this year, there were 481,000 job
openings in construction--an all-time high. Figures are a bit
lower in recent months but still much above prepandemic job
opening levels.
Finally, according to the Global Supply Chain Pressure
Index provided by the New York Fed, the supply chain issues
have been decreasing since May. The decline in June was largely
due to large decrease in Chinese supply delivery time. While
supply chain issues have been decreasing since the all-time
high experienced in December 2021, they are still at
historically high levels.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM DOUGLAS HOLTZ-EAKIN
Q.1. The Federal Reserve's efforts to combat inflation through
raising interest rates will necessarily raise mortgage interest
rates for prospective homeowners. I wanted to ask you about a
second element of the Fed's plan to combat inflation--which is
to cease the $30 billion in monthly purchases of mortgage-
backed securities (MBS) and to draw down MBS holdings by $35
billion each month. My understanding is that these actions will
require the market to offer higher interest rates in order to
attract private capital to offset the $65 billion that the Fed
is pulling out of the market. Do you agree with this
assessment, and if so, do you have a sense of how much rates
will need to increase in order to attract this private capital?
A.1. I agree entirely with this assessment and made the same
point in both my written and oral testimony. While I would
hesitate to put a precise number as to the amount housing rates
will increase to absorb excess MBS in the market the impact
will of course be significant. However, while the Fed's exit
from the MBS market will necessarily raise mortgage rates for
prospective homeowners, this is the Fed's designed intent.
Decreasing demand in the housing market is the most pressing
goal for the Fed in attempting to bring down inflation overall.
Q.2. Recognizing the current inflationary environment, do you
believe that addressing overly restrictive zoning laws may be a
productive way to increase housing supply without exacerbating
inflation? Could doing so even be counter-inflationary?
A.2. One of the very few tools that Congress has available to
address the chronic housing supply shortage in the short term
is to focus on the panoply of bureaucracy facing the
construction industry, including but not limited to restrictive
zoning, the cost of permits, and challenges unique to the
multifamily market. A significant short-term expansion in the
Nation's total housing inventory would do much to bring housing
supply in line with housing demand, which could lower the
shelter component of the Consumer Price Index. It is, however,
unlikely that this hypothetical supply boom would appreciably
influence the macroeconomic environment in the short term in
such a way as to be described as counter-inflationary.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM PEGGY BAILEY
Q.1. Housing and Inflation--Ms. Bailey, in your testimony you
call for additional investments in rental assistance. Do you
believe you believe that these investments will contribute to
inflation?
A.1. No, I do not think that the investments in rental
assistance that I call for in my testimony will contribute to
inflation. Actually, it will help people with low and extremely
low incomes be able to afford rising rents and manage increased
costs for other household needs. There are millions of families
who pay more than 30 percent of their income on rent who do not
receive Federal assistance.
An additional 200,000 vouchers, as proposed by President
Biden in his FY 2023 budget proposal, is not enough to
influence rent prices. And in any case, research on previous
voucher expansions has found that vouchers have little or no
impact on overall market rents. That's partly because most
vouchers help families who already rent housing (but typically
pay very high rent burdens), so they don't fill up more units
in the market. In addition, the voucher program has safeguards
that limit the amount of rent landlords can charge.
Q.2. Homelessness: Causes and Solutions--Ms. Bailey, what do
you regard as the primary causes of homelessness? What do we
know about the best ways to end homelessness? Recently we have
heard proposals to criminalize homelessness, including imposing
fines or criminal penalties for people experiencing unsheltered
homelessness. What effect do you believe proposals to
criminalize or otherwise penalize people experiencing
homelessness are likely to have?
A.2. The primary driver of homelessness is the gap between
incomes for people with low incomes and their rent costs, which
is rooted in a history of discriminatory housing policies and
systemic inequities in employment and education. People
struggle to afford rent and Federal rental assistance reaches
only 1 in 4 likely eligible households. In addition, people
need services and supports to help them remain stably housed.
We need to make sure people are connected to quality schools,
jobs, health care, mental health, substance use treatment and
other services that help them thrive, all of which are more
effective when people are housed.
The best ways to end homelessness are models that couple
low-barrier affordable housing (typically including a housing
voucher) with access to flexible support services that can
adjust to the tenant's needs. These models, such as permanent
supportive housing, have been shown to end homelessness for
people who have spent months, years, and sometimes decades
without a home.
Communities implementing policies that criminalize
homelessness only make the problem worse and more expensive.
These counterproductive policies subject people to fines or
jail time for being unable to afford a place to live and leave
them with criminal records. It is harder for people with a
criminal record to access housing due to landlord screening
practices, that are often discriminatory, and outdated Federal
rules and restrictions. So, criminalization is likely to
prolong homelessness which then makes people more at risk of
arrest and jail stays and this leads to communities spending
more on homelessness through the criminal legal system, rather
than less, while producing worse outcomes. People live without
a home because the inability to afford housing (described
above), which is exacerbated by failures in other systems, such
as the primary and behavioral health care systems. It is not
people's fault that they are unhoused and policies or practices
that operate as if people have a ``choice'' not to live on the
street are misguided.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM PEGGY BAILEY
Q.1. The market right now is more daunting than ever for a
first-time homebuyer. That is why it is so important for
Congress to fund programs with proven records of helping
improve access to housing like HUD's Housing Counseling
Assistance Program.
How do housing counseling services help improve housing
outcomes for families?
A.1. Housing counseling services help families with low incomes
navigate entry into home ownerships. They identify downpayment
assistance programs, help families build or improve credit
histories, and help families understand their financial
responsibilities as homeowners so they save and budget
appropriately. They can also help families find good realtors
and other resources that ease the home buying process.
Housing counselors are increasingly helping renters. They
were excellent partners in local eviction prevention efforts.
Sometimes housing counselors were located in eviction court
proceedings to immediately connect renters with assistance,
often ending the threat of eviction, ensuring landlords were
paid, and stabilizing families for the future.
Q.2. Right now, there aren't enough homes where families want
to live and work at price points they can afford. That is why I
introduced the Livable Communities Act, which creates a Federal
grant program to incentivize the development of new affordable
housing near existing mass transit.
How critical is it to build more affordable housing near
public transit?
A.2. It is extremely critical to build more affordable housing
near public transit and other important community services such
as schools and health care providers. Living near public
transit can eliminate the need for a car or, at least, reduce
the need for gas or frequency of car maintenance. It can also
give people more time with their families which can improve
childhood outcomes and other family outcomes.
Q.3. According to the Urban Institute, of the 16.1 million new
household formations over the next 20 years, more than 80
percent of them will be senior households. Due to lack of
affordable housing options and lasting damage from the
Financial and COVID crises--many of these senior households
will be renters.
Ms. Bailey, what does this projected increase in senior
households mean for our senior public and assisted housing
capacity and the housing needs that Congress must prepare for?
A.3. This projected increase is definitely a concern. In 2018,
five million low-income senior renters paid more than half
their income on rent, three million of whom paid more than half
their income on rent. We are already seeing slight but steady
increases in homelessness among older adults and seniors, which
some researchers expect to grow over the next decade.
Without resources, it could also unnecessarily force people
into nursing homes and other health care institutions because
people won't have access to affordable housing and services in
their communities, further straining long-term care
institutions. This is despite the fact that seniors
overwhelmingly want to live in their own homes instead of
congregate care settings. Therefore, Congress needs to think
now about providing housing and rental assistance that is
accessible to health and other elderly support services--
including supportive housing--to meet people's needs so they
can avoid homelessness and unnecessary institutionalization.
Vouchers--which serve more older adults than any other
federal rental assistance program--are critical for meeting
this need. Vouchers can help older adults age in place by
helping them afford their current home or move into more
accessible homes that will meet their needs as they age, such
as a ground-floor or wheelchair-accessible unit. Vouchers are
also well-suited for increasing access to supportive housing
for seniors who need supportive services. Vouchers can be
tenant-based, letting people choose a unit on the private
market, or project-based, meaning the rental assistance is tied
to specific units. Having vouchers readily available would help
communities create a variety of integrated housing options--
including supportive housing--so that seniors could choose one
that meets their needs without being isolated from the
community.
Q.4. Would increase funding for programs that directly address
senior housing, such as HUD's Section 202 Housing for the
elderly program, help mitigate this crisis?
A.4. Yes, increased funding for HUD's Section 202 Housing for
the Elderly Program would help mitigate this crisis. However,
building more housing isn't the only solution and can take
time. To help people now and allow people to stay in their
current home longer, Congress should also increase funding for
the Housing Choice Voucher (HCV) program, which assists more
seniors than any other rental assistance program and more than
five times as many as Section 202. Many public housing agencies
prioritize vouchers for seniors, but they do not have enough
resources to give a voucher to everyone, even just to every
senior, who needs help paying their rent. Increases in the HCV
program would help housing agencies give assistance to seniors
in their current residence. Congress should also strengthen the
health care system so that it pays appropriately for both the
primary and behavioral health care needs for seniors. Including
tenancy support services that keep people housed and home
modifications for seniors with mobility challenges.
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