Category Archives: Housing Policy

Fixer-Upper Chapter 5: Homeownership Should Be Only One Component of Household Wealth

“For most middle-income Americans, the equity accumulated in their homes is the largest single source of wealth. Homeownership has been marketed as a cornerstone of the American lifestyle, as a source of both individual wealth-building and community stability. But there are substantial downsides – for families and for the nation – to relying on homeownership as the primary strategy for accumulating wealth.”

Key takeaways are:

  • A more balanced approach to wealth-building would reconfigure homeownership subsidies to better target first-time homeowners in addition to encouraging other short-term and long-term wealth building strategies.
  • The most common approach to financing homes in the US – a fully amortizing, thirty-year fixed-rate mortgage, is a great forced savings mechanism that is one of the most effective ways to combat short-term spending and build wealth over time.
  • On the other hand homeownership violates a key rule of finance: diversification. Putting all one’s eggs in one basket is risky, especially since housing prices are not guaranteed (witness the aftermath of the Great Recession).
  • Another drawback to homeownership is that it is illiquid, so it is difficult to convert your house into cash if you need to.
  • Homeownership is at the root of the racial wealth gap. Despite the Fair Housing Act (FHA) passing in 1968 and allowing explicit racial discrimination in housing, we are still seeing the inequity that traces its roots back to the redlining and discriminatory lending that preceded it.
  • Homevoters contribute to toxic politics. NIMBY-ism is in part a product of people wanting to protect their most valuable asset, so they turn out in droves to fight anything that might threaten it.

Proposed Solutions:

  • Redesign homeownership subsidies to be more effective and more equitable
    • Page 92-93 of the book offer some background on proposals that would move incentives away from the current Mortgage Interest Deduction (MID) structure to something that would more effectively enable moderate- and middle-income renters to buy their first home.
  • Help all households build short-term liquidity through matched savings accounts. Think 401(k) but for but for building savings; could included matches from employers and could be eligible for preferred tax treatment. Much like MID this would be an incentivized forced-savings product that helps fight the human tendency to spend now.
  • Address the racial wealth gap through individual and child development accounts. Similar to the 401(k) idea, but instead of an employer match these could possibly have the Federal government providing a match through a subsidy, and it would be on a sliding scale so that the lower the income of the family the higher the potential subsidy level.

I definitely recommend buying the book so you can get the full benefit of Schuetz’s full analysis of the challenge and detailed solution proposals. You can buy it here.

Link to Chapter 1 of Fixer-Upper post.

Link to Chapter 2 of Fixer-Upper post.

Link to Chapter 3 of Fixer-Upper post.

Link to Chapter 4 of Fixer-Upper post.

Link to main Fixer-Upper post.

Fixer-Upper Chapter 4: Give Poor People Money

“Housing is the largest single budget item for most low- and moderate-income families. Keeping a roof over one’s head is just as important as being able to buy food and receive health care. Yet, in contrast to food stamps and Medicaid, housing assistance for low-income households is not an entitlement. Rather, Congress allocates a pot of funds (really, several different pots) that can be distributed to households until the money runs out. About one in four eligible low-income households receives federal housing assistance at any given time. Many poor households who qualify for benefits will never receive them because the queue ahead of them is too long.”

Key takeaways are:

  • Poor families face a gap between their incomes and housing costs.
  • Renters spending a large share of their monthly income on housing are at high risk of housing instability and displacement.
  • A common strategy to stretch a tight housing budget is to double-up, or share one house or apartment with multiple families.
  • Another strategy is to live in unregulated informal housing.
  • Many with limited housing budgets live in poor quality housing, sometimes below minimum housing standards.
  • Lack of decent and stable housing doesn’t just harm poor families. Overcrowding can affect public health – perfectly illustrated during the COVID-19 pandemic. It also impedes childhood development.

Proposed Solutions:

  • To address the problem of low incomes, give poor people more money. Questions that need to be answered: Which level of government should provide funding? How much money should each person or family receive? Can the program be designed to minimize unintended consequences, like reducing people’s incentive to work or encouraging landlords to raise rents?
    • Tax policies are one area the federal government already uses to supplement income, like the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). A significant disadvantage of these is that they are an annual occurrence while rent is due on a monthly basis.
    • Raising the federal minimum wage would likely make it easier for some low-income families to pay for housing, but it would be a less precisely targeted mechanism, even if there were no off-setting job losses.
    • One approach that has been tested in some localities is universal basic income (UBI). There hasn’t been a large-scale UBI tested in the US, and one challenge would be incorporating geographic differences in the program.
  • Better functioning, more flexible housing markets are necessary but not sufficient
    • Three types of regulatory reforms would be particularly helpful to low- and moderate-income households: Relax zoning restrictions on housing density; rethink building codes that require full kitchens and separate bathrooms for every household; remove regulatory barriers to manufactured and modular housing.
    • Fix the HUD’s housing voucher program. Recent research has indicated that a variety of technical fixes could increase landlords’ acceptance.
  • Market-based approaches won’t solve housing problems for everyone.
    • Private LIHTC developments are popular with both Democrats and Republicans, but construction subsidies are more expensive than vouchers (in California developing new LIHTC projects costs $480,000 per unit), and thus the impact is limited.
    • The clearest case to be made for public or nonprofit ownership of subsidized properties is that some people require more than just an apartment and a voucher to remain safely housed. People with chronic mental or physical health problems need supportive services.
    • In addition to supportive housing some local housing markets will probably always require non-privately owned housing because of the deficit of available housing, and the privately-owned housing is prohibitively expensive. These are markets like New York and San Francisco.
  • Vulnerable renters need consistent legal protection.
    • Landlord-tenant laws are adopted at the state level, so there is wide variation in legal protections. Most other developed countries regulate leases at the federal level, which provides greater consistency and transparency.
    • Laws that make it very difficult for landlords to remove problematic tenants have the potential to backfire, encouraging landlords to screen out perceived less desirable renters up front.
    • Overly strong tenant protections can deter property owners from becoming landlords, leading to a smaller rental housing stock.

I definitely recommend buying the book so you can get the full benefit of Schuetz’s full analysis of the challenge and detailed solution proposals. You can buy it here.

Link to Chapter 1 of Fixer-Upper post.

Link to Chapter 2 of Fixer-Upper post.

Link to Chapter 3 of Fixer-Upper post.

Link to Chapter 5 of Fixer-Upper post.

Link to main Fixer-Upper post.

Fixer-Upper Chapter 3: Stop Building Homes in the Wrong Places

“The United States continues to build – and rebuild – too many homes in the wrong places, environmentally speaking. Since the 1950s, most new housing in the United States has been build in low-density suburbs, far from downtown job clusters and public transportation. Single-family homes – the predominant structure type in suburban areas – have a larger carbon footprint than apartment buildings.” This excerpt gives you a good indication of what this chapter focuses on.

Key takeaways are:

  • One “wrong” place to build a home is a long distance from places of work.
  • Large homes in car-dependent suburbs create large environmental footprints.
  • While transportation contributes to each individual’s footprint (Schuetz notes that that the majority of commuters drive, and drive alone), so does the energy they consume in their homes. Larger homes require more energy for heating and cooling, kitchens in a 3,000 SF single family home have more electronic items than an apartment, etc.
  • A second “wrong” place to build housing is anywhere that there are increased risks of recurring damage from the climate, and consequently those places are impacted by climate change. Flood zones, low-lying coastal areas, areas prone to wildfire, areas prone to hurricanes, etc.
  • Burdens of climate change fall heavily on low-income, black and brown communities.

Proposed Solutions:

  • Homes in high-risk locations should be more expensive for buyers, not taxpayers. One idea – Fannie Mae and Freddie Mac could continue securitizing loans in high-risk areas, but incorporate climate risk into prices through higher interest rates, lower loan-to-value ratios, or other fees.
  • Climate insurance and disaster recovery programs should discourage risk and mitigate racial disparities. In addition to assessing the National Flood Insurance Program, the government needs to look at funding levels for the Community Development Block Grant – Disaster Recovery (CDBG-DR) and FEMA’s Hazard Mitigation Grant Program. Those programs provide funds for homeowners to sell flood-damaged or high-risk properties in order to relocate to safer locations, and prohibits future rebuilding on properties acquired through the programs.
  • Tax driving and legalize climate-friendly land use.
  • Climate-friendly suburbs need to integrate housing, land use, and transportation.

I definitely recommend buying the book so you can get the full benefit of Schuetz’s full analysis of the challenge and detailed solution proposals. You can buy it here.

Link to Chapter 1 of Fixer-Upper post.

Link to Chapter 2 of Fixer-Upper post.

Link to Chapter 4 of Fixer-Upper post.

Link to main Fixer-Upper post.

Fixer-Upper Chapter 2: Build More Homes Where People Want to Live

The chapter’s title is entirely descriptive of its contents. Key takeaways are:

  • Land is more expensive in places where people want to live
  • To make housing in desirable locations more affordable, use less land per home. Schuetz uses an example from Wellesley, MA to make the point. A typical residential lot costs $850,000. A single-family home would cost $1.2 million to build, so all-in it would cost $2 million. On the same lot five side-by-side townhouses would be $800,000/unit and a four-story multifamily building with 11 condos would be $500,000.
  • Local governments exercise tight control over how much housing can be built and where. Schuetz makes the very important point that the way that local governments regulate housing supply has social and economic costs, and those costs are borne more heavily by younger, lower-income, and nonwhite households. This is done largely by zoning the majority of housing for single family detached homes, and prohibiting higher-density housing options like townhomes, duplexes, condos, etc.
  • Measuring “excessively strict” zoning is difficult. If state and federal governments want to incentivize less restrictive zoning, it will be essential for them to develop accurate, fair, transparent metrics.
  • Exclusionary zoning exists everywhere, but it creates the most damage in large coastal metros. My note here: as some who works on housing related issues in a non-coastal, smaller metro area in North Carolina, I can tell you that exclusionary zoning practices have had a significant impact here as well. That’s because the area is growing increasingly rapidly in population, but housing production has not kept up. The current regulatory environment is hampering development and the growing supply-demand gap is reflected in skyrocketing housing costs, including rent – not just homeownership.
  • Not building homes in the right places has economic, environmental and human costs.

In this chapter, and subsequent chapters, Schuetz offers solutions. To address the issue of building homes where people want to live she says policy solutions need to address two separate sets of questions: “First, what do better land use policies and better housing incomes look like? Second, what kind of fiscal, legal, or political levers could be used to nudge local governments to adopt better policies?” In this chapter she addresses the first question, and she addresses the second in chapters 6,7, and 8.

To begin she says that “there are two clear principles for better land use policies, but many variations in implementation. First principle that each jurisdiction should allow a diverse range of residential structure types and home sizes. Second, the development process should be simpler, shorter, and more transparent.”

Her other primary point is that “localities should target better housing outcomes, not just better policies on paper.” Here she offers a great thought:

“Defining better outcomes and setting concrete benchmarks would help local governments, housing advocates, and potentially state and federal agencies to measure progress. Mayors and county supervisors often run for office promising vague or unrealistic improvements (“ending homelessness” or “making housing more affordable”), but campaign statements are rarely helpful in measuring day-to-day improvements.”

I definitely recommend buying the book so you can get the full benefit of Schuetz’s full analysis of the challenge and detailed solution proposals. You can buy it here.

Link to Chapter 1 of Fixer-Upper post.

Link to Chapter 3 of Fixer-Upper post.

Link to Chapter 4 of Fixer-Upper post.

Link to Chapter 5 of Fixer-Upper post.

Link to main Fixer-Upper post.

Fixer-Upper Notes

In an effort to go beyond my normal “we have a housing crisis, not just an affordable housing crisis” rap, I read Fixer-Upper: How to Repair America’s Broken Housing Systems by Jenny Schuetz. I was interested in it because it looked like it would be prescriptive, not just descriptive in nature and I was not disappointed. The chapter headings pretty much tell the story:

  1. Housing Sits at the Intersection of Several Complex Systems
  2. Build More Homes Where People Want to Live
  3. Stop Building Homes in the Wrong Places
  4. Give Poor People Money
  5. Homeownership Should Be Only One Component of Household Wealth
  6. High-Quality Community Infrastructure is Expensive, but it Benefits Everyone
  7. Overcoming the Limits of Localism
  8. Build Political Coalitions around Better Policies

I’ll be doing a separate post on each chapter and as I do I’ll link to them from the list above. In the meantime you can see a presentation by Schuetz related to this over at Harvard’s Joint Center for Housing Studies’ website.