No Money Mo’ Problems
How the American Housing and Economic Mobility Act Plans to Tackle the Housing Affordability Crisis
The comprehensive legislation could be history-in-the-making
By Sarah Friedmann
Affordable housing is becoming increasingly scarce in the United States — something which could prevent many families from buying or renting a place to call their own. The causes of this crisis are multi-faceted and its effects disproportionately impact various groups of people, including low and middle-income (LMI) families and minorities. To address this affordability crisis, a bevy of Democratic senators reintroduced the American Housing and Economic Mobility Act in March, offering a comprehensive plan to ensure that more individuals can become homeowners or renters. Congress is currently considering this legislation and, resultantly, many Americans may wish to know more about how the bill seeks to make housing more affordable – and what’s unique about its approach to achieving this aim.
Reaching Tipping Point
Home prices and monthly rents are becoming significantly out of reach for many Americans. As Vice described in a December 2018 article, many believe this lack of housing affordability constitutes a significant emergency that could stand to affect Americans for years to come. The outlet noted that people in the United States are spending far too much of their income on housing costs, with half of Americans spending 30 percent of their take-home pay on rent — and more than 12 million who spend 50 percent or more of their income on rental payments. Housing prices and wage growth are so disparate across America that “a person working full-time, paid minimum wage, cannot afford a two-bedroom apartment in any county in the country,” Tara Raghuveer of Vice reported.
The affordability crisis has similarly affected would-be homeowners, BuzzFeed reported in December 2018. The outlet noted that the National Association of REALTORS®, which developed a Housing Affordability Index to assess whether a “median-income family earns enough to qualify for a mortgage loan on a median-priced house,” found that housing affordability has diminished significantly in the United States since 2012 – and that this trend is likely to continue. “Affordability will continue declining in 2019 … [as] prices and interest rates are expected to increase," George Ratiu, director of quantitative and commercial research at NAR, told BuzzFeed. Ratiu attributed rising home prices coupled with increasing interest rates as major contributory factors to diminishing housing affordability. As BuzzFeed explained, increasing interest rates significantly raise homeowners’ monthly mortgage payments, which makes it harder to sustain homeownership. Moreover, Robert Dietz, the chief economist for the National Association of Home Builders, told Forbes in January 2019 that limited housing supply, high-priced land, and a shortage of construction workers have also all contributed to housing scarcity and related price increases.
Furthermore, race and class-based discrimination cuts across all of these affordability and housing accessibility issues. Skyrocketing home and rental prices in cities across the country have driven many minority families out of neighborhoods in which they have resided for generations — an issue that’s compounded by the fact that minorities face wage discrimination that further inhibits them from affording housing. “It is in fact black and brown folks, people of color, typically low-income people of color, who are displaced from their communities [when housing prices rise],” Jahmese Myres, the deputy director of the East Bay Alliance for a Sustainable Economy, told The Mercury News in September 2018. “And then experiencing the stress of finding new housing, housing instability, longer commutes, disconnection from their communities, and then all the stress that goes along with that.” Minority families are not only being driven from their communities – but they are also facing significant barriers as potential new homeowners. Notably, minorities with similar credit scores and income levels are still less likely to qualify for mortgage loans than whites who have the same financial status, CNBC reported.
Tackling the Crisis
The American Housing and Economic Mobility Act seeks to address many of these multifaceted affordability issues head-on. The bill, which is sponsored by Senator Elizabeth Warren and multiple Democratic co-sponsors, was first introduced in September 2018. It was re-introduced in March 2019 following the commencement of the new (and current) session of Congress and has companion legislation in the House of Representatives. Senator Warren’s press office pointed the Daily Beast to press conference remarks from December 2018 when asked for comment on the bill, in which the senator emphasized that passing the legislation is imperative because it “confronts the shameful history of government-backed housing discrimination.”
The bill proposes significant government investment in housing to address affordability and accessibility issues for buyers and renters, especially those that have been perpetuated by discrimination. Notably, it establishes two assistance programs to help support homeownership in areas where the federal government has previously fallen short. A proposed down payment assistance program offers “payment grants to first-time homebuyers living in formerly redlined or officially segregated areas” as a means of helping bridge the discrimination-based wealth and homeownership gaps between minority families and white families. Furthermore, the legislation proposes a multi-billion dollar investment to help families with negative equities on their mortgages – a consequence that largely stems from the 2008 financial crisis that disproportionately negatively impacted minority communities.
The act also addresses housing discrimination and affordability by seeking to broaden Community Reinvestment Act (CRA) obligations. The CRA encourages banks to provide credit to the low- and middle-income communities that they serve, but has significant room for improvement as the banking industry evolves. The bill seeks to address these improvement areas to help make housing more affordable for LMI communities, especially communities of color. Moreover, the legislation also proposes expanding people’s ability to use housing vouchers in neighborhoods with strong economic and educational opportunities as a means of promoting equity and addressing discrimination.
Finally, the legislation takes a wide-ranging approach to increasing housing supply and affordability. It proposes extensive federal investment in several funds, including the Housing Trust Fund, Capital Magnet Fund, Middle-Class Housing Emergency Fund, Indian Housing Block Grant, and various rural housing programs, to build or rehabilitate millions of new homes for LMI buyers and renters. An independent analysis from Moody’s Analytics revealed that this influx in federal funding could lead to the creation of over 3 million housing units for LMI families, and reduce rents by around 10 percent. The bill proposes offsetting the cost of this funding influx by restoring estate taxes to the rates they were at the conclusion of the Bush administration.
Widespread Reforms, Wide-Ranging Support
The United States has enacted many federal, state, and local policies to address housing affordability over the years, though this bill constitutes one of the most sweeping pieces of housing reform legislation in recent history. While legislation and policies like the Fair Housing Act of 1968, the Community Reinvestment Act of 1977, the low-income housing tax credit of 1986, and the Rental Assistance Demonstration program of 2012 (among others) have all worked to remedy housing affordability and discrimination issues, this bill address some of the shortcomings of these pieces of legislation by taking a wide-ranging approach to reform. The act is “so comprehensive. It … ticks all the boxes of what is needed to comprehensively improve housing affordability in the U.S. across different markets, across different housing tenures, different housing types, and serving different populations,” Doug Ryan of Prosperity Now, a nonprofit working to expand economic opportunities for LMI families, tells the Daily Beast. “We often address housing issues on the margins, if at all ... that's why this is so remarkable and interesting.”
The bill is widely supported by a variety of organizations representing many different sectors. Senator Warren notes on her website that countless housing advocates and civil rights groups have backed the legislation – and written letters of support for the bill. One of these organizations, the National Community Reinvestment Coalition (NCRC), writes to the Daily Beast that it supports the bill because of the financing options with which it could provide LMI communities. "Among other reasons, NCRC is supporting this legislation because it is part of our broader effort to reframe the conversation around modernizing the Community Reinvestment Act (CRA) and national efforts to get more lending and investments to the nation’s underserved communities,” says Jesse Van Tol, the organization’s CEO. “[The bill has] opened the national conversation in new and game-changing ways for underserved borrowers and communities."
While real estate organizations, like the National Association of REALTORS®, haven’t specifically commented on the tenants of the act, previous industry advocacy work suggests that the sector strongly supports ensuring that more Americans can become homeowners – and that they can do so affordably. For example, in an issue summary espousing its support for the National Affordable Housing Trust Fund, NAR noted that policies that promote affordable housing are of utmost importance for the organization. As the group indicated:
The NATIONAL ASSOCIATION OF REALTORS®is unwavering in its commitment to assure that every American has the opportunity to attain a decent, safe and affordable home. This commitment must be addressed at the highest level of national priorities and must include the complete spectrum of the housing ladder -- from the homeless to the first-time homebuyer.
It’s not yet clear whether the American Housing and Economic Mobility Act will advance through Congress. But it already appears to be solidifying housing policy as part of the national conversation in unprecedented ways – so much so that it could potentially become a significant talking point during the 2020 presidential elections. Indeed, Ryan of Prosperity Now tells the Daily Beast that a comprehensive general election conversation on national housing policy has never taken place in his lifetime — and, if it did, it could be history-in-the-making.