But is the president dangling enough federal grants to convince them?
On Monday, President Joe Biden unveiled a new housing initiative aiming to “help close America’s housing supply shortfall in five years.” Toward that end, Biden has requested $10 billion in competitive housing grants to “reward jurisdictions that have reformed zoning and land-use policies.” The president’s 2023 budget also includes another $25 billion for affordable housing production grants, which his administration estimates would support the development of 500,000 homes over a decade when “combined with complementary proposals in the Budget.”
The White House flagged that rapidly rising housing prices are a major factor in rising inflation rate, accounting for one-third of inflation they said, and that runaway price growth is squeezing many Americans. Biden reiterated that tackling inflation is his top economic priority, which adds urgency to his housing reform plans, and he identified restrictive and exclusionary zoning policies key culprits in inflating housing costs and hampering solutions.
“One of the most significant issues constraining housing supply and production is the lack of available and affordable land, which is in large part driven by state and local zoning and land use laws and regulations that limit housing density,” the plan states. “Exclusionary land use and zoning policies constrain land use, artificially inflate prices, perpetuate historical patterns of segregation, keep workers in lower productivity regions, and limit economic growth.”
The zoning reforms that the plan highlights include allowing backyard cottages, triplexes, fourplexes, and small apartment buildings in the broad swathes of the country set aside exclusively for detached single family homes. That suite of changes is very similar to a statewide package of reforms that the Washington State Legislature considered but ultimately rejected on multiple fronts in the last chaotic short legislative session.
Given broad extent to which Biden’s climate and social infrastructure plans were rejected, Congress may not take him up on the increase in funding to Housing and Urban Development (HUD) for the grants, but the president has also outlined a plan to prioritize transportation grants toward these reformed pro-growth jurisdictions.
Congress passed a trillion-dollar Bipartisan Infrastructure Law last November and set hearts aflutter at transportation departments across the country; a credible threat to pull or decrease those grants could force local leaders to rethink their zoning decisions. It’s an idea that has been floating around in progressive housing plans, such as those of Sen. Elizabeth Warren, of Massachusetts, Sen. Bernie Sanders, of Vermont, and Sen. Cory Booker, of New Jersey. Of course, the Biden administration will likely need to be willing to play hardball with iffy applications for jurisdictions to get the message.
If the Biden-Harris Administration is serious about embracing the “stick” approach, it could represent a shift for them. However, as recently as last month, Route Fifty‘s Kery Murakami reported Biden was planning a softer approach: “By offering to direct extra money to places that move to overhaul their land-use rules, Biden is pursuing a ‘carrot’ approach—one that differs from the more ‘stick’-oriented plans proposed by some congressional Democrats. For instance, Sen. Cory Booker, of New Jersey, and Rep. Alexandria Ocasio-Cortez, of New York, have gotten behind the idea of withholding federal transportation funding from cities that continue to allow single-family zoning.”
As of Monday, Biden had committed to running $6 billion in transportation grants through the competitive process rewarding jurisdictions that “have put in place land-use policies to promote density and rural main street revitalization with higher scores in the grant process.” He also pledged to consider land use in the U.S. Economic Development Administration’s (EDA) investment decisions and prioritize projects that enhance density.
In addition to threatening to withhold transportation grants to growth averse jurisdiction, the plan promised to allow Department of Transportation (DOT) funding to be used on affordable housing creation: “DOT will also issue updated program guidelines that increase financial support for Transportation Infrastructure Finance and Innovation Act (TIFIA) program projects that include residential development.”
Sound Transit is increasingly pairing its station plans with affordable housing developments (see: Spring District, Roosevelt, and Capitol Hill for prime examples). The agency enacted an equitable transit-oriented development policy in 2018 that allows the agency to transfer surplus land (such as construction staging areas after work is complete) to affordable housing providers at below market rates or no cost. Biden appears to be signaling that transit agencies could now add affordable housing plans into their TIFIA requests with expectation the feds would kick in some extra money.
Overall the president’s plan pledged the following five broad policy approaches:
- “Reward jurisdictions that have reformed zoning and land-use policies with higher scores in certain federal grant processes, for the first time at scale.”
- “Deploy new financing mechanisms to build and preserve more housing where financing gaps currently exist: manufactured housing (including with chattel loans that the majority of manufactured housing purchasers rely on), accessory dwelling units (ADUs), 2-4 unit properties, and smaller multifamily buildings.”
- “Expand and improve existing forms of federal financing, including for affordable multifamily development and preservation. This includes making Construction to Permanent loans (where one loan finances the construction but is also a long-term mortgage) more widely available by exploring the feasibility of Fannie Mae purchase of these loans; promoting the use of state, local, and Tribal government COVID-19 recovery funds to expand affordable housing supply; and announcing reforms to the Low Income Housing Tax Credit (LIHTC), which provides credits to private investors developing affordable rental housing, and the HOME Investment Partnerships Program (HOME), which provides grants to states and localities that communities use to fund a wide range of housing activities.”
- “Ensure that more government-owned supply of homes and other housing goes to owners who will live in them – or non-profits who will rehab them – not large institutional investors.”
- “Work with the private sector to address supply chain challenges and improve building techniques to finish construction in 2022 on the most new homes in any year since 2006.”
Given we’re well into the year, the president’s pledge to set a 16 year-high in housing production this year also appears to be an acknowledgment that housing production is trending up nationally. That jump in production is seeking to make up for a severe shortage of homes that has grown to crisis levels in the aftermath of the 2008 Housing Crash and rippled through the economy and increased pressure on working class communities.
“While estimates vary, Moody’s Analytics estimates that the shortfall in the housing supply is more than 1.5 million homes nationwide,” the president’s plan states. “This shortfall burdens family budgets, drives up inflation, limits economic growth, maintains residential segregation, and exacerbates climate change. Rising housing costs have burdened families of all incomes, with a particular impact on low- and moderate-income families, and people and communities of color.”
Last year, Congress rejected Biden’s initial $2.25 trillion Build Back Better Jobs Plan, which included $1.75 billion for affordable housing grants, set a goal of creating or preserving two million affordable homes, and funded a whole host of other “social infrastructure” spending. The Biden administration noted the House did back the idea: “The Unlocking Possibilities Program, proposed by President Biden and included in the reconciliation bill passed by the House last year, would establish a new, $1.75 billion competitive grant program, administered by HUD, to help states and localities eliminate needless barriers to affordable housing production, including permitting for manufactured housing communities.”
Negotiations with centrist Democrats whittled Biden’s broader jobs plan down to a $1.2 billion infrastructure law that was much centered around traditional transportation spending (read: highway expansion) with some leeway for states to dictate their own priorities (history suggests most will still mostly pick highways). The fact Biden is renewing the push for affordable housing with rezone incentives and boosting the pot to $10 billion suggests it was one of the Build Back Better elements he was most frustrated to see on the cutting room floor. Housing is also an issue where Americans are increasingly demanding action and solutions, as polls show.
The more conservative members of Congress may not be any more willing to boost affordable housing funding and link it to a preference for liberalized zoning policies this time around. Nonetheless, the administrative actions laid out in the plan may allow Biden to make some headway without Congress.
Through federal mortgage corporations Freddie Mac and Fannie Mae, the Biden-Harris administration is seeking to increase financing options for manufactured homes and for accessory dwelling units (ADU’s), such as backyard cottages and basement apartments.
The administration is seeking to capitalize on a wave of reforms across the county liberalizing ADU rules, a wave which has included Seattle and many other Washingtonian cities. “According to a recent independent analysis, these kinds of state and local reforms — when combined with policies to improve financing options — could lead to the creation of more than 1 million ADUs in the next five years,” the president’s release stated. “In addition to zoning and land use changes, achieving that goal will require simpler and more affordable financing options for homeowners and builders. To that end, FHA and FHFA are exploring avenues to help lenders pilot and scale renovation and construction financing for ADUs — particularly for low- and moderate-income homeowners — in addition to new financing options for other single-family renovations and for 2-4-unit rehabilitation.”
Biden also laid out Low Income Housing Tax Credit (LIHTC) reform plan aiming to use a new income-averaging rule to allow developers to provide a portion of very-low income housing instead of a larger amount of moderate income housing.
“Income averaging allows a developer to meet the same affordability goals by taking the average of the income for some households who are in the property as opposed to requiring all to meet the same threshold,” the plan states. “This ‘average-income test’ for LIHTC qualification will enable the creation of more financially-stable, mixed-income developments and make LIHTC-supported housing more feasible in sparsely populated rural areas. It will also facilitate the production of additional affordable and available units for extremely low-income tenants. By the end of September, Treasury will finalize regulations to provide needed guidance to developers using LIHTC equity to build multifamily housing that is rented to tenants across a wider income spectrum.”
Surprisingly, the LIHTC has been the federal government’s primarily tool for promoting affordable housing development since it was passed into law in 1986 via a Reagan tax cut package — LIHTC is credited with supporting development of three million homes, but developers can opt out of the affordability requirements as early as 15 years in.
Meanwhile, Reagan slashed investments in public housing, which ended the era of public housing expansion that had kicked off with New Deal programs in the Great Depression. In 1998, the Faircloth Amendment made shrinking public housing supply official U.S. policy as public housing authorities were banned from increasing their supply above from the 1999 baseline.
Relying on a tax credit to entice wealthy investors to contribute to affordable housing has the downsides of being not the most direct and efficient way to finance and develop housing, and it also is a volatile source that can try up when tax liabilities of the wealthy are low. Developers did report a downturn in LIHTC funding after the Trump administration tax cuts on corporations and the mega-wealthy.
Correcting America’s stunted housing system could require a lot more than a modest uptick in affordable housing grants, rezoning incentives, and some LIHTC reforms. Some progressives are calling for a massive investment in social housing, and among them are House Our Neighbors coalition in Seattle and Rep. Ilhan Omar‘s (D-Minneapolis), who has a plan to build 12 million homes.
Doug Trumm is the executive director of The Urbanist. An Urbanist writer since 2015, he dreams of pedestrianizing streets, blanketing the city in bus lanes, and unleashing a mass timber building spree to end the affordable housing shortage and avert our coming climate catastrophe. He graduated from the Evans School of Public Policy and Governance at the University of Washington. He lives in East Fremont and loves to explore the city on his bike.