Dr. Ben Carson will likely take over the Department of Housing and Urban Development (HUD) and its budget. HUD provides significant resources to cities and their residents – so when it comes to affordable housing assistance, what does that mean for cities?
This article was made possible with the research support of American University Department of Public Administration and Policy graduate students.
In the first installment of this series, we looked at the basics of federalism and why it matters for cities. In this post, we’ll look at how one policy – affordable housing assistance – has changed with the interpretation of federalism, and what that means for cities today.
An Affordable Housing Crisis
There is an unprecedented demand for rental housing, among all income levels. With rental markets tight, low- and moderate-income renters are having a difficult time finding housing. In America’s central cities, which house the majority of low-income renters, the problem is exacerbated by an overall decline in public housing developments and a steady increase in transferable vouchers. These cities are seeing an increase in the number of severely distressed renters and a decrease in the affordable housing supply.
While the federal government takes an active role in the housing space, local governments face tough decisions daily. The negative effects of homelessness and poor housing have real effects on resident well-being. And because property values are usually tied to revenues, city budgets are strongly affected by changes in the real estate market. The federal government works to support housing in all of these areas, but the tools available sometimes reflect past problems.
With his likely confirmation, Dr. Ben Carson will take over the Department of Housing and Urban Development (HUD) and its budget of over $40 billion (FY17 requested outlays). HUD provides significant resources to cities and their residents, including both rental and homeownership assistance. For this reason and others, housing policy offers an interesting look at the federal-city relationship.
Federal Housing Policy
The nature of federalism over the past 30 years has been defined by an interplay between economic and political realities. As the economy has expanded and contracted, governments at all levels have responded by expanding or cutting spending. Similarly, different administrations have had drastically different viewpoints on the size of government and the degree to which local problems warrant national solutions.
During the 1980s, a changing economy and the Reagan administration combined to drastically change the face of federalism. Increased reliance on block grants, incentivizing third-party partnerships, and limiting unrestricted funding all began during this time. To meet their aggressive fiscal goals, the federal government shifted from place-based to person-based aid. By redirecting the flow of federal assistance to people instead of places, housing vouchers became more portable since they were attached to eligible persons instead of eligible units; however, this shift decreased the amount of funding received by local governments. As a result, although federal aid increased by 78 percent from 1989 to 1994, states captured approximately 89 percent of the increase because states are the principal administrators of intergovernmental aid-to-persons programs.
By decreasing the use of direct federal funds allocated to affordable housing, localities were forced to become more involved in supplying affordable housing. This led to the practice of combining grants such as the Community Development Block Grant (CDBG), HOME block grant, and the Low-Income Housing Tax Credit (LIHTC). The Reagan administration’s emphasis on less federal spending and more private market solutions laid the foundation for the relationship of federalism and affordable housing policies that can still be felt by localities today.
In 1998, Bill Clinton and a Republican Congress enacted the Quality Housing and Work Responsibility Act, which sought to address the issues of deteriorating public housing, concentrations of poverty, and the allocation of subsidized rental assistance to individual households. The law continued the trend of devolving responsibility to lower levels of government by granting public housing authorities greater flexibility and authority.
Today, with the election of Donald Trump as president, the future of the Low-Income Housing Tax Credit has been called into question. The tax credit has subsidized the construction or renovation of a substantial number of multifamily units since its inception in 1986. Funding for new projects funded with LIHTCs have become less attractive as investors anticipate the new administration to reduce corporate tax rates. If the trend holds, this presents a significant worry to cities.
It is likely that the trend toward greater private involvement in affordable housing policy will continue into the future. Members of the new administration, including Dr. Carson, view housing assistance as a government handout that is not necessary to escape poverty. Undoubtedly, local leaders need to be innovative if they want to use yesterday’s tools to address today’s crisis. The following are recommendations for dealing with housing policy in the current federalism context:
Successfully leverage federal aid by drawing from as many programs as possible. Take advantage of the entire package. There are a number of programs and resources available to cities. Each has a different purpose and structure. Working in concert, these funds can be powerful tools for combating a city’s affordable housing crisis from all angles.
Low-cost initiatives like Inclusionary Zones can be successful, but don’t assume that they will work in all situations. There are always going to be new and innovative programs. Make sure these work for your city. When copying a successful model, cities must always evaluate whether administrative structures that have been used elsewhere can be duplicated. When copying a model program that relies on the cooperation of private actors, cities must also assess if there are enough similarities between the extra-governmental environment in the model city and their own.
Make the most of federal programs by making your city attractive to the private sector. Despite the difficulties brought by increased reliance on the private sector, cities can increase the odds of success by making themselves attractive to outside investment. Perhaps the easiest way to do this is to simply market existing opportunities to developers. Even if LIHTCs are distributed through state governments, cities can work to help developers apply for them and make the process to attain them as smooth as possible. Similarly, inclusionary zones with density bonuses are more likely to draw investment than inclusionary zones with punitive fees. The less organic interest there is in development, the more cities must do to encourage it. Unfortunately, there can come a point where no amount of promotion can overcome economic realities, and even the most innovating third-party partnership policies will flounder. It is these situations that highlight the continued need for stable federal aid more than what the market will provide.
To learn more about what NLC is doing in this policy arena – and make your voice heard at the federal level – join us at the Congressional City Conference in Washington, D.C., March 11-15.
About the author: Trevor Langan is the Research Associate for City Solutions and Applied Research at the National League of Cities.