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Scarce housing supply for low- and middle-income Americans is driving housing costs beyond reach for many families. One way to address the problem, some argue, is tax incentives to boost housing construction.
That was the source of discussion among legislators on the Democrat-led Senate Finance Committee Tuesday, with the committee’s chairman, Sen. Ron Wyden of Oregon, describing the country’s existing low-income housing tax credit as “the most successful federal program for affordable housing that there is.”
Through that tax program, developers of lower-rent properties often sell the credits to finance their projects, and proponents say it has fueled the construction or preservation of millions of apartments since its inception in 1986. To create more homes in a country that’s short approximately 3.8 million of them, Wyden said, such tax credits for investors willing to build low-income and middle-income properties should be enhanced via multiple housing bills: the Affordable Housing Credit Improvement Act, the Neighborhood Homes Investment Act, and the Decent Affordable and Safe Housing for All (DASH) Act, which Wyden reintroduced Tuesday.
“For a long time, you were pretty much breaking the rules as a Democrat if you said you had some supply-side ideas,” the Senate Democrat said in remarks before the committee. “I want everybody to know, I’m a supply-sider when it comes to housing. Colleagues, we have got to create more housing supply.”
Steve Walker, the executive director of the Washington State Housing Finance Commission, said the lack of affordable housing in his state is pushing families in search of cheaper rents out of the increasingly expensive communities near their workplaces. Some of the families are even becoming homeless, he said.
The low-income housing tax credit enjoys broad support in Congress because it’s a “highly effective, proven tool,” he said, but a temporary increase to the credit nonetheless lapsed in 2021. Bringing that increase back through the Affordable Housing Credit Improvement Act is crucial to support the construction of more affordable units, he said.
“The truth is that the private sector simply cannot, and does not, produce apartments at rents that low-income folks can afford,” Walker said.
Without a doubt, the U.S. is in a housing-affordability crisis, Sharon Wilson Géno, the president of the National Multifamily Housing Council, testified during Tuesday’s hearing. In particular, there’s been a dramatic increase in the number of households spending more than the recommended 30% of their income on rent, she noted; a recent analysis from the Harvard Joint Center for Housing Studies found nearly half of all the nation’s tenants fell into that category in 2021.
Meanwhile, for extremely low-income tenants, there’s a deficit of 7 million affordable homes available to rent, according to the National Low Income Housing Coalition.
“Put simply, we have a housing-supply shortage — and while it has taken decades to get to this point [and] will take time to reverse, we must begin addressing this issue today,” Wilson Géno said. “NMHC and NAA estimate the U.S. needs to build 4.3 million more apartment homes by 2035 to make up for decades-long underbuilding, to meet future demand, and to avoid increasing expensive housing.”
“We have kicked the can down the road long enough,” she added.
Pushback and other solutions to the affordable-housing crisis
The committee’s ranking member, Republican Sen. Mike Crapo of Idaho, also agreed tax credits were an important tool to address affordable-housing supply and incentivize builders, but stressed that they’re less effective when costs and zoning barriers are high enough to block development.
“Zoning laws and regulatory barriers are often uncoordinated, unnecessary or overly cumbersome, and can ultimately work against the goal of providing affordable housing by creating excessive development costs,” Crapo said.
Meanwhile, Wyden’s newly reintroduced bill, the DASH Act, would also establish what he called a “middle-income housing tax credit,” which would supplement the low-income housing tax credit and allow state housing agencies the flexibility to increase “housing supply where it is needed most,” Wyden said. Other initiatives in the bill include a refundable tax credit for property owners who rent to low-income tenants, an expansion of the low-income housing tax credit, a tax credit for builders in neighborhoods with high poverty rates, and a down-payment tax credit for first-time buyers.
“‘Our tax policies reward giant real estate investors who raise fees, jack up rents, and evict families. Americans are already suffering from a severe lack of affordable homes. And any taxpayer money spent on housing should go towards fixing the problem, not making it worse.’”
On Tuesday, Diane Yentel of the National Low Income Housing Coalition called the directive misguided on Twitter, saying Wyden was “listening to developers, syndicators & landlords who — guess what? — want federal subsidies to build market rate [housing] thru a middle income [housing] tax credit.” Extremely low-income renters are the ones who need the most help affording rent, since they’re most likely to spend more than half their income or more on housing, and would benefit from the new tax break, she said.
“Don’t create a wasteful new subsidy,” Yentel added. “Eliminate restrictive local zoning to allow developers to build more market rate housing. Target scarce federal $ to build/make apartments affordable to [extremely low-income] households whom the market can’t serve without subsidy.”
Sen. Elizabeth Warren, a Democrat from Massachusetts, also said during Tuesday’s hearing that while the low-income housing tax credit helps boost development, some tax policies may be deepening housing-affordability issues.
“Our tax policies reward giant real estate investors who raise fees, jack up rents, and evict families,” she said. “Americans are already suffering from a severe lack of affordable homes. And any taxpayer money spent on housing should go towards fixing the problem, not making it worse.”
Aarthi Swaminathan contributed to this report.
