To Rebuild America’s Post-Pandemic Economy, We Need to Rethink Housing
The economic pain we are experiencing in the wake of the pandemic calls for unprecedented government action to contain the fallout from a policy-induced economic coma. It also presents an opportunity to reconsider how the economy works and whether it can work better for more people.
One of the best ways we can expand opportunity for more people? We can change the way we think about housing.
Why focus on housing? Because it’s economic destiny.
A house and neighborhood play a critical role in every household member’s life. In some cases, your zip code can be a matter of life and death. In Chicago, average life expectancy for those born at the same time but in different neighborhoods can differ by as much as 30 years. Poor-quality housing is directly tied to child emotional and behavioral problems and early development delays. Housing-related issues are responsible for as much as 40 percent of children’s asthma episodes, and research indicates that moving an asthmatic child from poor-quality housing into a healthier home reduces asthma-related doctor visits by 66 percent.
Where you live can also affect your earning potential. Research finds that low-income boys who grow up in high-crime, poor communities earn about 35 percent less on average than otherwise similar low-income children who grow up in the best areas for mobility. For girls, the gap is closer to 25 percent. Seattle children whose lower-income families used federal housing vouchers to switch neighborhoods in a random control experiment were found to be on track to earn an extra $210,000 in the course of their lives. Such moves also produced significant health benefits for poor parents, including lower prevalence of such co-morbidity conditions implicated in the higher death rates from Coronavirus infections for minorities, such as diabetes and extreme obesity.
Where you live also affects the education you receive. Attending high-quality schools can be a great equalizer in setting a poor child’s economic trajectory, but access to such schools has a much higher price of entry. In the 100 largest metropolitan areas, a household must spend $11,000 more per year in housing costs to live by a high-scoring school.
How can we make it easier for people to access good housing? For starters, reconsider the housing aid lottery system. It never made policy sense that something as central to life and opportunity as safe, stable, and affordable housing be subject to a lottery where three out of every four players are losers. Yet this is how the housing social safety net has played out over the past 50 years, with only a quarter of all income-eligible households receiving aid. Congress could instead make rental assistance available to all who qualify, and to build into the Housing Choice Voucher program opportunities for poor families to move to high-opportunity neighborhoods that can have transformative effects on adults’ health and lifetime economic benefits for young children. Congress should also ban discrimination based on a renter’s source of income, which would prevent property owners from discriminating against voucher holders, a documented barrier to the effectiveness of the program.
Short of making rental assistance an entitlement, there has been some bipartisan support for increasing funding for rental assistance. Co-sponsored by Senators Chris Van Hollen (D-MD) and Todd Young (R-IN), the Family Stability and Opportunity Vouchers Act would create an additional 500,000 housing vouchers over five years for low-income, high-need families with young children. They would bundle the vouchers with counseling and case management services that have a proven track record of helping families move out of areas of concentrated poverty into neighborhoods of opportunity in an effort to improve childhood outcomes.
Reforming the eviction process, stemming homelessness
The pandemic has put a harsh spotlight on homelessness, as local officials scramble to configure street encampments to meet social distancing requirements. With stay at home orders and canceling of in-class learning, this crisis threatens to further disadvantage homeless children and those without access to remote learning. The most recent data from the US Department of Education reports there are more than 1.3 million public school students classified as homeless, which is about 2.6 percent of the total public school population, an increase of 70 percent over the past decade. Since 2012, over 150,000 New York City public school kids have endured homelessness, with a third second graders or younger. This instability exacts a toll on student performance. Just 30 percent of homeless students achieve proficiency in reading and 25 percent in math, according to the Department of Education.
Universal access to rental assistance and social services for those who need it would help stabilize these fragile families’ lives. In the meantime, we can do more to keep families from losing their homes by reforming the eviction process. Long before the pandemic, landlords were typically filing more than 2 million eviction cases a year, with about half resulting in completed evictions. Along with a patchwork of emergency local actions, Congress put a temporary halt to evictions in buildings with federally backed mortgages in the wake of the pandemic, which only covers about a quarter of all rental units in the country. With the federal moratorium expiring in July and a dozen states having already lifted their bans, a tidal wave of eviction actions is likely.
What can help stem this tide? Governments could prohibit landlords from retaliating against tenants who accumulated virus-related rent arrears. Officials could also prohibit landlords from charging fees for late or missed rent during the emergency and fund local eviction diversion/mediation programs that can help landlords and tenants resolve disputes. There is some evidence that a sizable share of eviction filings are for tenants who are less than $600 in arrears, suggesting that short-term rent assistance could go a long way in helping to keep people in their homes.
Last year, Senate Democrat Michael Bennett of Colorado and Republican Rob Portman of Ohio introduced a bill called the Eviction Crisis Act that would provide emergency funding to tenants facing eviction and establish a nationwide database to track eviction cases. Another recent bill — from Maggie Hassan of New Hampshire, Tim Kaine of Virginia and Chris Van Hollen of Maryland — would create federal grants for landlord-tenant mediation programs and translators.
However, nothing would level the playing field more for families on the edge than providing them with free legal representation during an eviction proceeding. When a tenant has an attorney in an eviction proceeding, “this significantly diminishes the likelihood of eviction, and often results in more time or better terms for those who are evicted,” according to the National Housing Law Project. This idea is not as farfetched as some might think. Bennett and Portman’s Eviction Crisis Act would fund legal representation for tenants. Congress could take these issues up as part of a package of post-pandemic housing reforms.
Ending exclusionary zoning should be a civil rights priority.
Higher property taxes isn’t the only thing that keeps lower-income families from moving into good neighborhoods with good schools. Exclusionary zoning and land use controls continue to block low-income and minority Americans from moving to opportunity-rich neighborhoods and communities by raising construction costs and restricting new supply. According to one estimate, it is illegal to build anything other than a detached single-family home on 75 percent of the residential space in many American cities. Regional housing affordability barriers limit access to locations with high-wage jobs, which in turn reduces worker mobility and economic opportunities for all workers, not just the poor. Economists Chang-Tai Hsieh and Enrico Moretti estimate that limits on the supply of housing lowered economic growth in the US by more than a third between 1964 and 2009.
So, what can be done? A lot. Much of this is in the hands of governors, mayors, and other local officials. In December 2019, Minneapolis passed a zoning plan aimed at building more affordable housing throughout the city by allowing duplexes and triplexes in areas zoned for single-family homes. Oregon lawmakers passed a bill in July of this year that required cities with populations above 25,000 to follow Minneapolis’ lead, allowing duplexes, triplexes, fourplexes, and “cottage clusters.”
Until Atlanta adopted its current zoning ordinance in 1982, duplexes, triplexes, and small apartment houses were permitted throughout the city. However, between 2005 and 2014, Atlanta lost more than 9,000 residential units in small multifamily buildings. With passage of a new “missing middle-housing” law, the city hopes to encourage a range of more affordable housing options, including townhomes, row-houses, duplexes, and small apartment houses.
This patchwork of local innovations is welcome. However, without a national response, it is hard to see them adding up to systemic change. We need a national missing middle-housing law that would over-ride local zoning codes and allow 2-to-4-unit structures in all single-family residential zones. History suggests that such a law would dramatically change the affordable housing landscape and improve economic mobility for future generations of low- and moderate-income and minority families. In 1940, for example, 15 percent of all residential buildings with fewer than five living units had two to four units, compared to just 8 percent today. According to one study, a return to the 1940s’ pattern would result in a 10 percent increase in total housing units with minimal additional infrastructure cost.
Narrow the Black homeownership and wealth gaps
Expanding access to affordable housing is also about redressing historical injustices inflicted on Black Americans by generations of racist government housing policies. It was not until 1917 that the US Supreme Court banned race-based zoning; 31 years later, it declared racially restrictive housing covenants to be unconstitutional. The latter came too late to enable Black Americans to participate fully in the postwar suburban housing boom that propelled explosive growth of the white middle class, because it denied them access to government-backed mortgages. Between 1934 and 1962, Black people received just 2 percent of all government-backed mortgages. This sad legacy is reflected in the 30-percentage point gap between Black and white homeownership rates (41 percent vs. 71 percent). This gap has been largely unchanged over the past 50 years, when the federal Fair Housing Act first banned racial discrimination in the sale and rental of housing.
This homeownership gap feeds into an overarching, and growing, wealth gap: the median net worth of white households is about 10 times that of Black households. Among homeowners, the age you purchase a first home is a key contributor to the wealth gap. Some 87 percent of white homeowners bought their first home before age 35, compared with only 53 percent of black homeowners. And researchers at the Urban Institute found that inflation-adjusted average housing equity for white households approaching retirement age was more than twice that of Black households.
The Black-white wealth gap is also due to a disparity in home values. Black majority neighborhoods are valued at roughly half the price of homes in communities with no Black people. Older, urban, and minority neighborhoods are not valued as highly. Scattered, vacant and deteriorated homes depress overall property values, making the cost to build new homes or rehabilitate existing ones prohibitive. A targeted tax credit could help close this appraisal gap and stimulate the construction and renovation of older homes, revitalizing these communities and bolstering the housing investments of existing, largely minority, homeowners. Last year, such a bill was introduced in the House of Representatives by Brian Higgins (D-NY), and it has attracted bipartisan support.
Having enough money for a down payment remains one of the biggest barriers to obtaining a home mortgage, which helps explain the explosive growth of privately- and government-funded down payment assistance programs (DPA) across the country. In fiscal 2019, almost 40 percent of all Federal Housing Authority home loans included form of down payment assistance. But the federal Housing Department has said it plans to tighten government-funded down-payment assistance, claiming that loans with this kind of assistance have high default rates.
But the difference in default rates between those with- and without assistance is not that meaningful. For loans originated in 2015, for example, default rates have been only slightly higher for those with government-sponsored down payment assistance compared to those who received financial help from family to make a down payment. Just over seven more DPA borrowers defaulted for every 1,000 loans, compared to those who had help from mom and dad. And when you consider that Black borrowers are more likely to rely on government-sponsored down-payment assistance than white borrowers, it is easy to see how clamping down on public DPA programs could do disproportionate harm to aspiring Black homeowners.
What we need is more public disclosure of down payment assisted loans by provider, public or private, — with the worst performers losing their eligibility to participate in the program — rather than eliminating a vital source of support to Black homebuyers.
Finally, if we are to make any headway in narrowing the Black-white homeownership deficit, Fannie Mae and Freddie Mac — which guarantee over 40 percent of all mortgage loans originated today — and their regulator, the Federal Housing Finance Agency (FHFA), need to do a better job of serving credit-challenged families who need low down payment loans. In a recent year, only about 1 percent of all low down payment Fannie and Freddie single-family purchase loans went to borrowers with a credit score of less than 660. The standard credit score range is 300-850, while the median for today’s Fannie or Freddie borrower is 766. One reason for this dismal showing? On top of the guarantee fee charged to all borrowers, Fannie and Freddie impose additional up-front surcharges on loans to higher-risk borrowers, which can run up to 3.75 percent of the mortgage amount for the highest risk loans. In setting their risk-based surcharges, Fannie and Freddie divide loans into eight different credit score buckets <620, 621-640, etc), and nine different down payment buckets (<3 percent down, 3-5 percent, down, etc.) creating up to 72 different prices for loans of varying credit risk. By cutting the number of credit score buckets in half and reducing the number of down payment buckets from nine to five, you could create much larger risk pools and lower loan surcharges for the highest risk borrowers. This would help make Fannie and Freddie loans more affordable to low- and moderate-income, and minority, borrowers.
Making up for lost time, and money
As of mid-June, Congress and the Federal Reserve have pumped more than $3 trillion to support households and businesses to help offset shuttered businesses and lost income due to the pandemic. And with infection rates on the rise in several states, we will need more emergency aid to get us to the other side of this crisis.
Researchers at the Urban Institute estimate it will take $1.8 billion a month in rental assistance just to get all renter households back to their pre-pandemic rent burdens, and that’s assuming unemployment insurance and the CARES Act’s $600 weekly supplement will continue. Returning to pre-pandemic rates of housing stress may seem acceptable as a short-term goal. But that would assume we are okay with more than 30 percent of Black renters spending half their income just for rent and utilities. Clearly, getting back to pre-pandemic conditions would do nothing to address an affordability crisis aggravated by systemic racism that is embedded in America’s housing system. We must do better than this.
The pandemic has made clear how systemic racism in housing can endanger people’s lives. Health outcomes are as much about where people live as they are about racial identity. And age-adjusted Coronavirus death rates for Black people are 3.6 times what it has been for white people, according to the Brookings Institution. Black Americans are more likely to be part of the “essential workforce.” And because of the nature of housing in America, this has put the entire Black community at greater risk of exposure throughout the pandemic.
We have to do better. But no collection of housing policy changes can overcome the effects of structural racism that prevented generations of Black people from building wealth. Economist Darrick Hamilton has proposed that the federal government fund an endowment of $50,000 for children born into households with the least wealth, while those born into the wealthiest households would receive lesser amounts of $500 or less. The endowment would sit in a centralized government trust account, accruing interest at Treasury rates, withdrawable at age 18 for such things as buying a home or business, or paying for education. And while this program would be race neutral, Black and Brown children would benefit disproportionately because of the racial wealth gap.
Last year, Senator Corey Booker (D-NJ) sponsored legislation to create a more modest baby bond program called the American Opportunity Accounts Act. His measure would provide every newborn with $1,000 that, like Hamilton’s proposal, the Treasury Department would hold and manage in a centralized account. However, instead of basing contributions on wealth, they would vary inversely with household income. And, instead of a large, one-time endowment for the least wealthy, Booker’s plan would provide additional contributions of up to $2,000 per year for children in the poorest households, with lower amounts going to higher income households, and falling to zero for households at 500 percent of the poverty level. According to Booker’s staff, kids from the lowest income families would accrue around $46,000 when they come of age.
Foundation-funded research has confirmed the importance of housing as a gateway to opportunity, and they have sponsored a variety of pilot programs to test-drive possible solutions. We are in a good position to introduce housing policies that can expand economic opportunity on a national scale using proven best practices. We just need the political will. Let’s hope that the growing chorus of voices calling for a racially just economic recovery will push us to act.