Economic Risks from Housing Unaffordability

"The Costs of Inaction: Housing Affordability" addresses the growing crisis of inequitable housing opportunities and its far-reaching impacts on communities.

By Charlie Bordenave September 26, 2024

SUBJECT: The Costs of Inaction: Economic Risks from Housing Unaffordability

DATE: September 25, 2024

OVERVIEW: During the United States Senate committee, both parties addressed critical issues regarding the ongoing affordable housing crisis and the economic disparities that continue to aggravate the situation. Senator Sheldon Whitehouse and Charles Grassley firmly contend that building legislative platforms for affordable housing is tantamount to the financial welfare of US citizens and combating the widespread epidemic of mass homelessness throughout the nation. With this being said, the hearing deconstructs both the legitimacies and misjudgments of implementing federal housing initiatives and policies- discussing the efficacy of legislative housing acts.

HEARING RECORDING LINK: https://www.budget.senate.gov/hearings/the-costs-of-inaction-economic-risks-from-housing-unaffordability

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Witnesses

  • The Honorable Joseph Shekarchi, Rhode Island House of Representatives
  • Mr Paul Williams, Founder and Executive Director Center for Public Enterprise
  • Ms. Greta Harris, President and CEO of Better Housing Coalition
  • Mr. Ed Pinto, Senior Fellow and Co-Director AEI Housing Center
  • Mr. Jack Salmon, Director of Policy Research Philanthropy Roundtable

Key Themes & Highlights

  • Republican Concerns:
    • Regulatory Burdens: Republicans, led by Chairman Grassley emphasized that excessive federal involvement will contort the effects of the housing market and inflate the costs of rental and housing industries. He also argued that specific legislation has similarly backfired before, contesting that Harris’ 2025 induced housing subsidies will only exacerbate the regulations and zoning laws that limit housing implementation. 
    • Economic Impact: Republicans led by Senator Grassley stated massive concern regarding the detrimental impact of housing inflation. They acknowledged that in recent years interest inflation has gone down however they still raise caution about extensive spending and idle funding from the federal government.
    • Fiscal Responsibility: Republicans expressed distress about how government funding and programs may be leading to increased tax rates developing implicit inflation.
    • Rent Control: Republicans discussed how rent control policies have had disastrous results on state and regional levels and when adopted at the federal level would revive a damaging stage of our nation's economic history- aggravating the situation of property ownership and gratifying the government’s authority to incite eminent domain.
  • Democratic Concerns:
    • Equity and Access: Democrats, led by Chairman Whitehouse acknowledged existing measures of ownership bias which has historically stratified housing markets and has disproportionately affected low-income families and marginalized communities.
    • Economic Mobility: Democrats contest that because of market inflation and long lacking housing production individuals’ and families’ are restricted in their ability to apply for higher ranking jobs and careers which has led to a stagnation in economic growth and a rise in job and educational inequality.
    • Local Government Revenue: Democrats argued that because of legal barriers obtaining mortgages for first time home buyers and families has increased the demand of rental markets, issuing a second crisis of declining property tax revenues, impacting their ability to fund other essential services such as infrastructure, transportation, and schooling.
  • Witness Testimonies:
    • Joseph Shekarchi: He advocates for the promotion of bipartisan legislation, the promotion of  housing committees and the importance of integrated action versus continuous policy programming. Shekarchi insists that intensive housing ratification and reforms be taken, justifying that it would make rules for development clearer, more consistent, and more streamlined. To combat the recent housing crisis, Shekarchi’s final proposal introduces the implementation of ADU’s (Accessory Dwelling Units) as they provide integral housing for college students, underprivileged families, and the elderly while supporting the positive development of gentle density planning.
    • Paul Williams: Argues that the growing consensus for housing affordability is connected with accumulating a higher housing supply alongside a definitive department that would address issues of streamlining, zoning and land use issues, and easing finance constraints. He then contends that the federal government must help bring stability to the housing investment cycles as a lack of equity in the housing and finance market has rapidly depreciated the reality of home buying in America. 
    • Greta Harris: Asserts that housing affordability is a deeply systemic issue that impacts and entertains every facet of our economy and American life. Harris recognizes major issues of the housing crisis and how it has suppressed consumer demand and economic growth in latter years, correlating the recent economic reductions with the apparent social dissension in communities, lack of small businesses, and stifling of economical innovation. Harris also contends that the lack of housing accessibility is directly linked to worse health outcomes, depletion of mental health, and the lower learning achievement of children- addressing that such disruption to education and job opportunities exacerbates racial/wealth ratios and national economic mobility. 
    • Ed Pinto: The problem of affordable housing can be tied to the 3-8 million housing shortage which has surfaced as a consequence of obsolete legislation and inaction on account of the federal government. Pinto then argues that Kamala Harris’ 2025 housing plan would only worsen the situation of the seller’s market due to the fact that demand will be further stimulated causing an upward price pressure. Despite this fact, Pinto does not discourage the plan from being undertaken as the housing crisis is in a critical stage, arguing that land zoning, building codes, and land use rules makes buildable land scarce and increases construction costs. As a solution, Ed Pinto proposes a ten year plan to auction surplus federal land to decrease new market rate construction and increase housing unit production.
    • Jack Salmon: Concerned with the nation’s fiscal condition, Jack Salmon argues that more spending and investment within the market would be massively harmful to the economy and the nation. Specifically, Salmon contends that attempting to address the housing crisis through further subsidizing demand would be counterproductive as long as supply remains limited. He asserts that rising interest rates have spiked the cost of servicing debt- arguing that policy makers have less ‘fiscal space’ to implement policy objectives implicitly raising public debts. Such public debt burdens diminishes economic growth potential of our broader economy which is especially concerning to demographics at the lower end of the income distribution- with less economic growth, potential income revenue decreases contracting wage growth, and standards of living. As a solution he proposes that charity programs have made great strides in alleviating homelessness and eliminating issues of drug abuse and unemployment.
  • Contentious Points:
    • Republicans: Focused on the extent of pressure the housing market endures and debated the terms of involvement that the government should take arguing for a free-market approach where there are less regulations restricting property ownership.
    • Democrats: Emphasized the importance of implementing future initiatives and incentivizing legislation such as rent control, increase in housing subsidies, and zoning laws.
  • Key Discussions:
    • Current Housing Market Conditions: Both parties discussed the critical role of the seller’s market in inducing and restraining efforts of obtaining affordable housing. In general, the committee discussed current trends with housing prices such as multi-family housing units averaging an annual increase of 22% in the last year alone along with vacancy rates in apartments rising to an annual high of 6%.
    • Impact on Families: Several testimonies focused on highlighting data that examines how housing costs affect families, including discussions about how they implicitly affect job and educational opportunities, physical and mental outcomes, alongside sanctioning generational poverty.
    • Government Role: Much of the committee debated on the responsibilities of federal, state, and local governments in addressing housing unaffordability, including potential policy solutions and funding mechanisms. 

In-Depth Notes

  • Mr Joseph Shekarchi asserts that housing prices in Rhode Island have increased almost double over the past 5 years, discussing how the rise in median housing is a direct consequence of an accumulation of neglected societal factors including severe housing shortages, a lack of housing production, and increased inflation within overall markets. 
  • Mr. Joseph Shekarchi highlights recent policy achievements in the state of Rhode Island including an expansive list of 50+ housing laws that the state government has helped draft and implement since 2020. Shekarchi displayed particular optimism with regards to Rhode Island's new comprehensive packages of housing legislation which has enjoyed full bipartisan support. The initiative in particular focuses on reducing barriers to development, eliminating red tape, redundancy and increasing housing production. 
  • Mr Joseph Shekarchi identifies some of Rhode Island’s new, successful housing laws such as creating the first ever, permanent revenue stream for affordable housing development, a committed funding project for a new secretary and department of housing to allocate efforts and resource consumption. 
  • Mr. Joseph Shekarchi expresses that housing is vital to growing our economy and workforce, to expanding education, and ensuring the growth of the job market.
  • Mr. Joseph Shekarchi recognizes the importance of maintaining progressive legislation and the expansion of housing projects, detailing specific action taken by the state government to endorse public housing models from Montgomery, Maryland, recent studies on the cost efficiencies of manufactured housing, and the proposal of a pilot program for home buying in Rhode Island funded by state fiscal recovery funds and including assistance for down payment.
  • Mr. Paul Williams argues that one of the main suspects of housing inflation is the lack of efficient housing production/construction. Williams argues that while policy engagement at large remains enthusiastic, implementation on sites remains forthcoming and stalled due to financial constraints despite clear incentives where the permits are in place, the housing demand is there, and where ownership vacancy is below 4%. 
  • Greta Harris pushed commissions that invested $300 million towards local communities and another $300 million towards the pipeline in order to ensure that the general public has and can afford a good and safe home.
  • Greta Harris summarizes that affordable housing is a common good, it strengthens communities, supports families, and boosts economies by contributing 16% to the US GDP annually spurring the proper incentives for poor-modest families to thrive.
  • Ed Pinto relays that reducing mortgages on secondary housing units would add to supply by creating primary residences and reducing demand.
  • Ed Pinto argues about the importance of finding long term solutions, putting strong emphasis on long term programs focused on housing production, and ways to reduce deficit spending due to the fact that they could lower the ten-year treasury. Pinto also acknowledges that establishing accountability of expenditures for federal housing subsidies is critically important for combating financial constraints which detrimentally limit housing construction. 
  • Jack Salmon states that the immense debt burden will induce spikes of inflation-acknowledging how in the last four years prices have increased 20% while the cost for shelter grew 23% higher.
  • Jack Salmon comments how national debt burdens can be tied to the fiscal stimulus of American rescue plans- arguing such programs are responsible for the spike in inflation we have experienced in recent years.
  • Ed Pinto argues that the responsibility of housing inflation in the past 5-10 years can be attributed to deficit spending during CoVid, and the federal government keeping interest rates under 3%.
  • Joseph Shekarchi argues that the private sector is willing and able to invest funds on account that the federal government takes responsibility for the affordable housing market and utilizes sustainable housing policies to incentivize production.
  • Mr. Johnson argues that the federal government does not have the financial capacity to continue expanding housing deficits especially when trends have consistently shown it to drive up inflation.
  • Mr. Johnson comments on how low-income housing subsidies impair critical rescue initiatives such as the Axe Program in Wisconsin due to tax credits which buy surplus homes no longer allowing low income individuals access to equal housing amenities.