Calling the Bluff: First the Reforms, Then the Funds
Housing costs are a contentious political issue in most American cities. Demands for building more “affordable housing” run up against a variety of politically-powerful stakeholders, who are ambivalent (at best) about neighborhood change; many constituents are fiercely opposed to even the smallest hints of growth.
In response, many elected officials oppose naturally-affordable, market-rate multifamily housing while campaigning on the need for more subsidized, deed-restricted affordable housing.
In a recent white paper, Alex Armlovich, Christopher S. Elmendorf, and Sam Jacobson propose a novel solution: make big cities’ eligibility for Low Income Housing Tax Credits (LIHTCs), the single largest source of affordable housing subsidy funding, conditional on adopting pro-housing regulatory reforms.
Key Takeaways
- In many high-demand urban areas, interest groups exploit complex zoning regulations and subjective, politicized housing approvals processes to secure their own interests, which significantly raises the cost of housing by preventing the supply of homes from growing to meet demand.
- However, elected officials in these cities are strongly supportive of subsidized housing for low-income households
- As such, making affordable housing funding contingent on reforming zoning and permitting processes for all housing could break the political impasse over housing in high-cost cities.
The authors suggest that Congress should make LIHTC subsidies contingent on major cities adopting a pro-housing regulatory framework, including zoning reforms to allow reasonably dense housing, by-right permitting with objective standards, caps on development fees, and waivers for other exactions that can render projects financially infeasible.
By tying LIHTC eligibility to these pro-housing reforms, the proposal aims to shift the urban politics of housing. Affordable housing developers and advocates for low-income residents would lobby city councils to opt into the federal framework, creating a counterbalance to the interest groups that benefit from the status quo. Progressive politicians, particularly in Democratic cities, would face significant pressure to accept the federal conditions or risk being seen as obstructing affordable housing development. (Because suburban elected officials are often ambivalent about or staunchly opposed to affordable housing, they propose applying these rules exclusively to major cities.)
The proposed changes would apply to all housing development in the city, not just LIHTC-subsidized projects. Such a policy regime would significantly increase the housing supply, benefiting current tenants, would-be homeowners, and the entire metropolitan region. As housing markets are interconnected, increasing supply in big cities would also alleviate pressure on housing markets in other areas, making housing more affordable nationwide.