Costly Complexity
Happy Tuesday and welcome to another edition of Rent Free.
I wanted to change up the newsletter’s format a little bit to write about an underappreciated benefit of increasing the production of private, market-rate housing: It’s an incredibly simple strategy for improving housing affordability!
If states and cities remove zoning restrictions, complex permitting processes, and the like, builders will construct more housing and prices will fall. There’s endless evidence that this neat-and-tidy free market story is true.
America’s non-market affordable housing strategies, in contrast, rely on a bewildering system of price controls, mandates, and subsidies to achieve the same results.
In addition to being costly to taxpayers, hard to navigate for program participants, and occasionally constitutionally problematic, this needless complexity is also self-defeating.
The beneficiaries of complex affordable housing programs often end up being a near-random group of people who are poor candidates for public subsidy. Meanwhile, many of the people who policymakers are trying to help end up being worse off. And affordable apartments that are supposed to be housing people are instead left vacant.
Three recent stories make this clear.
White House Rent Control Plan Caps Rents for Some, Kicks Others Out of Affordable Housing
Earlier this month, the White House finalized new rules that impose a 10 percent cap on annual rent increases at federally subsidized affordable housing developments.
Crucially, the White House’s rent caps aren’t directly rent caps but rather caps on the incomes that make one eligible for affordable housing programs. In effect, this means that the Biden administration is holding rents down for some tenants by excluding others from affordable housing completely.
Understanding how this will work requires a little bit of explanation.
Federal affordable housing programs like the Low-Income Housing Tax Credit (LIHTC) give developers tax credits to build income-restricted housing that’s available only to low-income tenants making (typically) 60 percent of an area’s median income. Rents are then capped at 30 percent of that income eligibility limit.
Under the Biden administration’s rent cap plan, the income cut-off for a LIHTC unit (and other affordable housing programs) can only rise by 10 percent a year at most.
This is a de facto rent cap. If the income cut-off for LIHTC eligibility can only rise by 10 percent, the rents based on that income cap can likewise only rise by 10 percent.
That’s a benefit for many existing tenants at LIHTC properties and participants in other federal housing programs whose incomes are often comfortably below the eligibility cut-off.
But the White House’s plan does pose a problem for tenants whose incomes are closer to the eligibility cut-off and whose incomes might rise faster than that 10 percent cap. They could end up making too much money to qualify for affordable housing benefits, even if their income is still low enough to qualify them as low-income tenants that federal programs were intended to support.
This is a particular risk for people who receive disability benefits from the Department of Veterans Affairs (VA). Those payments factor in measures of inflation that federal affordable housing income limits do not. That means beneficiaries of VA programs can see their benefit payments rise above affordable housing income cut-offs.
Veterans’ advocates have long complained that the difference between the VA’s calculations of disability payments and the U.S. Department of Housing and Urban Development’s (HUD) adjustment of income limits is excluding many veterans from affordable housing.
Already, at least 8,000 veterans are excluded from affordable housing programs because of this incongruity, said the National Coalition for Homeless Veterans (NCHV) in a February comment letter, citing a VA analysis.
The incongruity “keeps homeless veterans who sacrificed the most in military service to our country out from units designed to served them,” reads the NCHV letter.
By further suppressing eligible incomes for affordable housing programs, the White House’s new policy will likely make this problem worse.
In a recent FAQ for the White House’s new policy, HUD sa
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