In a follow-up to RESPA News’ coverage of the House Committee on Financial Services’ hearing titled, “Boom and Bust: The Need for Bold Investments in Fair and Affordable Housing to Combat Inflation,” representatives and witnesses discussed what can be done to combat inflation, particularly in the housing market.
Those who testified were National Fair Housing Alliance Executive Vice President Nikitra Bailey; an activist and housing seeker from Virginia currently battling homelessness; Groundwork Collaborative Director of Policy & Research Michael Mitchell; American Action Forum President Douglas Holtz-Eakin; and Moody’s Analytics Chief Economist Mark Zandi.
After witnesses made their opening statements, the floor was opened up to committee members to ask questions and seek policy recommendations.
Rep. David Scott (D-Ga.) spoke about his concerns related to aging housing and issues with public housing construction. He stated Congress’ failure to act on the U.S. Department of Housing and Urban Development’s (HUD) decade-old estimation that $26 billion was needed to repair the nation’s stock of aging housing has led to $80 billion backlog on this type of construction.
He asked Bailey about the impact of this backlog on public housing construction projects.
“Even before this crisis, families were struggling and our infrastructures were struggling,” Bailey answered. “We have a massive under load. We are not properly resourcing the communities that have been left out of opportunity for the entirety of our nation…. So, we need a ton of investment to address the public housing deficiencies all over our country.”
Rep. Brad Sherman (D-Calif.) agreed with Holtz-Eakin’s earlier recommendation that issues in housing supply need to be addressed before investing further in subsidizing demand.
“Keep in mind, we have more square footage of housing in our country than any other major country in the world,” Sherman said. “It’s just we have giant homes for some people and others are living on the streets. We’re urged to be patient – it’s hard to be patient when you’re living in your car.”
Sherman said the federal government can do what it can to incentivize the building of homes, but issues with local government putting up barriers to projects like workforce housing are stunting the construction of affordable buildings at the volume necessary to fix the problem.
“It is absolutely absurd that we provide cities with money based upon how rich their residents are,” Sherman said. “If every city in every state got the same amount of money per resident, we would have a fair provision of local services and the end of an incentive to keep out workforce housing.”
Sherman asked Mitchell whether there is any way to create sufficient housing if cities are allowed to charge exorbitant fees per unit for hook up to local utilities and prohibit no more than four or five housing units per acre.
“It’d be critical for local governments to make sure they are creating zoning laws that allow for the construction of the kinds of units that are necessary to house the number of people to meet demand, and currently we’re not doing that,” Mitchell said. “In most localities, it’s not possible at this moment.”
Rep. Bill Posey (R-Fl.) asked Holtz-Eakin to comment on the proposals made in recent legislation like the Inflation Reduction Act that seek to solve inflation and high housing prices by giving more money to those seeking housing to pay the higher prices.
“This is subsidizing demand, when the problem is demand is too high relative to supply,” Holtz-Eakin responded. “So it just exacerbates the problem in the long run and undermines the intent of the program.”
Rep. Blaine Luetkemeyer (R-Mo.) and Holtz-Eakin addressed the vulnerabilities with rent control, as Luetkemeyer stated the Federal Housing Finance Agency is considering these types of programs to address the affordability crisis.
“We did a survey of our nation’s economists, and more than eight out of 10 of them believe that rent control ordinances would harm both the quality and quantity of affordable housing in areas where it’s implemented,” Luetkemeyer said. “American economist Walter Williams once said, ‘short of aerial bombardment, the best way to destroy a city is through rent controls.’”
Holtz-Eakin agreed with this analysis, citing a track record of rent control ordinances failing in localities across the country.
Luetkemeyer also asked Zandi his opinion on local restrictions that can cause high costs for builders when trying to construct new housing, such as the ones Sherman mentioned earlier in the hearing.
“It’s extremely high cost in California to try and build a house or building, a short commercial building, just for the permits and all the other things you have to go through,” Luetkemeyer said. “These are costs that drive the cost of construction up, which means it has to be recouped from the rents that are charged to the occupants of that building. There’s got to be a way to control those and find a better way to do this.”
Zandi said many of the people who study these local programs come to the same conclusion: that an enormous amount of compliance costs stems from decisions made at the local level, be it land use/zoning restrictions or construction codes. And it is a difficult thing to control. However, the federal government’s tools are far more limited, often leading to the demand subsidies some of the witnesses said are exacerbating the problem.
“We keep track of the burden placed on the private sector with every new final regulation in the federal government,” Zandi said. “The Biden Administration finalized $200 billion of regulatory costs in its first year. That’s the highest we’ve ever seen in our time doing this. It’s well over $100 [billion], and those are costs that will have to be passed on to consumers and show up as higher prices.”