Introduction 1184 I. Diagnosis of the Affordable Housing Crisis 1189 A. Prioritizing Housing Need 1191 B. Supply Allocation and Demand Elasticity 1195 C. Ability to Pay 1202 D. Quality of Home, Quality of Community 1205 II. Treating Symptoms and Searching for a Cure 1209 A. Controlling the Price 1210 B. Public Ownership 1215 C. Subsidizing Production Costs to Increase Affordable Housing Supply 1220 D. Subsidizing Households' Ability to Pay for Housing 1232 III. Optimizing the Federal Government's Role 1242 A. Full Funding for Housing Affordability Programs 1243 B. Pragmatic, Economic, and Moral Justifications for Federal Responsibility 1247 IV. Federal Housing Policy Risk Management 1254 Conclusion 1264 INTRODUCTION
At its inception in 1934, the Federal Housing Administration (FHA) established underwriting guidelines to ensure that taxpayer-funded home mortgage insurance would be channeled to neighborhoods with stable or increasing property values, defined by the government as white-only neighborhoods. (1) For many decades, homeowners in the United States have had the particular benefit of deducting mortgage interest payments from their federally taxable income, a tax policy that has provided a disproportionate benefit (80%) to the highest income quintile, at a fiscal cost of more than $70 billion a year. (2) Federal programs helped to raze entire urban communities and replace them with concrete mega-block public housing structures, simultaneously concentrating poverty and entrenching racial housing segregation. (3) Five million households currently live in rental homes subsidized by and ultimately under the supervision of the U.S. Department of Housing and Urban Development (HUD), (4) but thousands of these dwellings are uninhabitable, infested with rodents, covered in mold, or exposing children to poisonous lead. (5) Half of low-income households cannot afford their housing costs, but for every one such household receiving government housing assistance, another three go without. (6) Affordable housing need is critical and increasing, but funding is erratic. When it comes to achieving lasting and equitable housing improvements, the government's record is abysmal.
Housing costs today are so high relative to income that affordability is deemed a national "crisis." (7) The federal government's inequitable and ineffective historic impact on housing markets suggests that, when it comes to promoting housing affordability, perhaps Uncle Sam is not the right man for the job. Housing markets are quintessentially local, and the affordability challenges facing a given community may arise from any of a number of different underlying factors. In some communities, the lack and misallocation of affordably priced housing units inflates housing prices. (8) In other communities, there are a sufficient number of housing units, but affordable units are of unacceptable quality. (9) Impoverished neighborhoods and neighborhoods of color face disparate residential realities in terms of the quality of schools, transportation, and community services. (10) In many areas, unaffordable housing is primarily a symptom of intractable poverty. (11) Different housing problems require different strategic responses, and the specific challenges faced by a given locality are likely best understood and addressed at the local level.
Nevertheless, there are several justifications for broader, federal-level involvement in the realm of housing. National funding for local housing projects is likely necessary to create sustainable and equitable housing support in all parts of the country, particularly in more impoverished areas. (12) Coordination among jurisdictions in a given region is critical for assessing and addressing problems of housing and poverty, particularly in cases where communities individually would prefer to offload and ignore affordability issues. (13) Negative externalities from local housing affordability crunches impact the country as a whole. (14) Furthermore, it was the federal government, through its policies and programs, that created some of the biggest obstacles to accessing affordable housing today. (15) Regional inequalities and the need for regional coordination, economic externalities of inequitable housing systems, and the persistent, adverse effects of historic federal housing policies all justify a national framework to adequately address housing affordability.
Part I of this Article describes the ubiquity and impacts of the problem of unaffordable housing. Part II examines the spectrum of approaches that a government can use to address housing unaffordability, from police power mandates to supply-and-demand-side subsidies. Part III makes the normative case for significant but reimagined federal involvement in the affordable housing sphere. Part IV points out the risks inherent in relying on federal funding and oversight and suggests ways the law might mitigate such risks.
DIAGNOSIS OF THE AFFORDABLE HOUSING CRISIS
Housing today is unaffordable for one-third of all U.S. households, and nearly half of Americans who rent. (16) Because of rapidly inflating purchase prices and rental rates, more than 38 million households in the United States spend more than 30% of their income on housing costs (an allocation that renders housing "unaffordable" according to HUD metrics). (17) Half of all renter households cannot afford to pay their rent and still have sufficient income remaining for food, healthcare, childcare, transportation, and other necessities. (18) Housing unaffordability deepens inequalities and leads to housing instability with its myriad ill-effects. (19) Unaffordable housing is not a new problem, 20 but over the past decade, the issue has broadened and deepened. (21) From 2001 to 2015, the number of "very low-income" renter households (making less than 50% of the area median income) has increased by 4.181 million, with 2.551 million of those households earning less than 30 of the average median income. (22) In 2018, the average amount of monthly rent that a very low-income household (family of four) could afford was only $660, but the average cost of a two-bedroom apartment that year was $1149. (23) From 2001 to 2015, median rental rates increased by 8.6%, but median income for renters decreased by 6.2%. (24) Seventy-five percent of low-income, cost-burdened households obtain no government assistance to help them afford a home. (25)
Part I of this Article explores the complexity of the problem of unaffordable housing, conceptualizing it along a spectrum of need with variations driven by multiple factors including, for example, income, location, race, marital status, and job type. After Section A frames the problem as involving different levels of housing inadequacy, Section B then examines the extent to which unaffordability is driven by lack and misallocation of affordable housing unit supply. Section C discusses the problem from the other side of the equation, namely, the lack of adequate household income. Finally, Section D focuses on a less quantifiable but equally important aspect of affordability, specifically, the cost of poor-quality housing and poor-quality neighborhoods.
Prioritizing Housing Need
Affordability concerns exist both in the context of homeownership and in the context of renting. In the two decades from 1998 to 2018, the median sales price of homes in the United States has more than doubled, from $153,000 (Q4 1998) to $322,880 (Q4 2018). (26) Household incomes grew during this same period, but only at a modest 4.7%, from $58,612 (1998) to $61,372 (2017), (27) and nearly all income gains have been concentrated in the top income quintile. (28) The disproportion between the growth in home prices and the growth in incomes makes buying a home relatively less affordable today than it was 20 years ago, and comparisons over a longer period (three or four decades instead of two) show an even larger disparity. (29) Increases in rental rates during the past two decades are steeper than home purchase price increases, however, and incomes of renters as a group have grown at a slower pace than owners' incomes. Rental unaffordability, therefore, continues to be an even more pronounced problem than unaffordability caused by high home prices. In 1990, the median monthly rental rate for an unfurnished apartment was $600; in 2017, the median monthly rental rate was $1492, nearly 150 higher. (30) In the 1960s, less than a quarter of renter households were cost burdened, but today, nearly half of all renter households are cost burdened--a statistic that has been called "the new normal." (31)
Housing affordability affects households at most income levels, but its impact is the greatest among the lowest income households, particularly low-income renter households. Renters are on average more housing cost burdened than owners, low-income households are more likely to rent than own, and among renters, the poorest households bear the most significant housing cost burdens. (32) For example, in 2016, 80% of rental households earning less than $30,000 were cost burdened, and 55% were severely cost burdened. (33) Among owner households earning less than $30,000, 63% were cost burdened, and 42% were severely cost burdened. (34) As a comparison, only 6% of renter households with an income of over $75,000 in 2016 were cost burdened. (35) Low-income households, those earning less than 80% of the local area median income (AMI) are often further categorized into very low-income, earning between 30% and 50% of AMI, and extremely low-income, earning below 30% of AMI. (36) The rough estimate snapshot of housing burdens faced by low-income families is stark. The majority of low-income households spend half their income on housing, and a quarter of such households must dedicate more than 70% of their income to stay sheltered. (37) Low-income households are disproportionately composed of seniors, disabled persons...