A Post-Housing-Bust Prescription for Federal Real Estate Programs

The federal government subsidizes housing and real estate to the tune of about $450 billion a year. Roughly 50 uncoordinated programs influence the housing market, often in unintended and insidious ways.

Federal real estate subsidies help ensure that we get more of this than we otherwise would. Image: ##http://walkablesuburb.com/walking/just-say-no-to-suburban-sprawl-and-yes-to-towns-like-maplewood/attachment/suburban-sprawl-miami/## Walkable Suburb##

The Federal Housing Administration’s Single-Family Loan Program, for instance, decreases the relative attractiveness of building multi-family housing — which is more energy efficient and in ever-greater demand since the housing bust. Meanwhile, the granddaddy of all housing subsidies, the mortgage interest deduction, rewards wealthy families who own two homes but does nothing for renters.

Smart Growth America and Locus, a nationwide coalition of developers focused on walkable growth, those programs are in need of retooling as Americans’ needs change. The two groups have reviewed all the federal housing programs and found them to lack a cohesive vision. Together, these programs often serve to undermine public preferences and create all kinds of distorted, less-than-optimal outcomes.

“People increasingly want to live in walkable urban places,” said Chris Leinberger today in a conference call with real estate leaders, but current federal housing policy undermines those kinds of communities. “Today’s programs significantly favor single family homes above all other types. Today’s programs are failing to support existing neighborhoods.”

In response, Locus and SGA have developed seven recommendations that could help ensure private and public investment is spent in the most productive ways, with the best outcomes for middle-income Americans. By the way, these reductions would result in some $33 billion in overall savings.

“Better strategies can make entire regions more competitive,” said Smart Growth America’s Ilana Preuss. “It’s time for our federal programs to reflect that.”

Here are some of the highlights:

Improve the Rehabilitation Tax Credit

This program provides a tax credit of 10 percent for the rehabilitation of non-historic buildings constructed before 1936. But currently, despite the increasing demand for walkable, mixed-use housing, this program entirely excludes residential rehabilitation.

SGA recommends opening the program to residential rehabilitation, expanding the credit to 15 percent and making all buildings older than 50 years eligible. That would cost about $1.6 billion annually but it would also help save money by taking advantage of existing infrastructure, rather than promoting new development that would require building new sewers and streets in a greenfield location.

Better target real estate tax expenditures

The federal mortgage interest deduction costs the U.S. Government $26 billion annually.

This program is hugely regressive and largely fails at its ostensible purpose of helping moderate-income families become homeowners. Roughly 77 percent of mortgage interest deductions in 2012 went to families with incomes of $100,000 or higher. Families making less than $50,000 annually received only 4 percent of these benefits.

SGA recommends limiting the mortgage interest deduction to the first home, and capping the program at $500,000 instead of $1 million in home value. That type of reform would help reduce real estate speculation — like the kind that produced the housing crisis — and make housing policy more equitable.

Preserve and increase the Low Income Housing Tax Credit

Some lawmakers have recently proposed altogether eliminating this program, which has helped build 2.5 million affordable rental units since its introduction in the 1970s. But Richard Baron at the St. Louis-based national real estate firm McCormack Baron Salazar says demand for the program has never been stronger, as the rental market swells following the housing crisis.

“State housing finance agencies are overwhelmed with the requests they are receiving,” he said.

Locus and SGA recommend increasing funding for the program 50 percent, at a cost of about $4 billion annually, making it easier for nonprofit and for-profit developers to build affordable rental housing that is in such high demand across the country.

ALSO ON STREETSBLOG

Has the Government Been Bailing Out Sprawl?

|
One of the themes of the financial and economic crisis we’ve faced over the past two years is that government, pressed into responding to serious economic pain, has often found itself supporting the activities that got us into this mess in the first place. Sign of the times? Side-by-side foreclosures in Massachusetts. (Photo: Yovani via […]

The Suburbs Aren’t Dying — They’re Growing Differently

|
Cross-posted from the Frontier Group. Sommer Mathis said much of what needed to be said about the recent round of “the suburbs are back, baby!” stories on housing trends, including this analysis from Jed Kolko, housing economist at Trulia.com, and the related commentary from Matt Yglesias at Vox. Mathis argues that the concept of a battle for supremacy between cities and […]
The Red Line bus rapid transit project in Indianapolis, which voters approved as part of a package in November, is one of dozens of projects threatened by Donald Trump's budget proposal. Image: IndyGo

Think of Trump’s Budget as an Attack on Cities

|
Yesterday Donald Trump released a budget outline that calls for severe cuts to transit, and the reaction was swift and scathing. The National Association of City Transportation Officials called it "a disaster" for cities. Transportation for America said it was a "slap in the face" for local communities that have raised funds to expand transit.