What the Treasury is doing to address the housing shortage

The Treasury Department is making moves to address the shortage of affordable housing across the U.S. — an issue that has only been exacerbated by pandemic complications, rising interest and soaring inflation. Treasury announced Wednesday that it’s making more money available for affordable housing loans as part of the nearly $2 trillion American Rescue Plan (ARP) fiscal stimulus package passed in 2021. 

The department’s new guidance allows state and local governments to use ARP funding to “finance long-term affordable housing loans, including the principal of any such loans, subject to certain conditions. These changes will facilitate significant additional financing for affordable housing projects, including those that would be eligible for additional assistance under Treasury’s Low Income Housing Credit.” 

Treasury’s rule changes also expand the range of federal programs that can use the funding, “permitting more options for how states and local governments can presumptively use funds for affordable housing.” 

“Treasury continues to strongly encourage state and local governments to dedicate a portion of the historic funding available through President Biden’s American Rescue Plan toward building and rehabilitating affordable housing in their communities and the actions being announced today will make it even easier for them to do so,” Deputy Treasury Secretary Wally Adeyemo said in a Wednesday statement. 

The latest initiatives come after affordable housing inventory was walloped by a dip in construction activity during the height of the pandemic and rising interest rates in response to inflation. These factors have led to a red-hot housing market that’s taking a greater cut of Americans’ paychecks and forcing people to live farther away from where they work. 

According to government lender Freddie Mac, the standard 30-year fixed-rate mortgage stands at 5.54 percent — double what it was a year ago. The 15-year fixed-rate mortgage is now 4.75 percent, and the standard adjustable-rate mortgage is now 4.3 percent for the first five years. 

But whether states, counties and municipalities heed the Treasury Department’s call to build cheaper houses is another matter. 

Efforts to build more affordable housing are often thwarted by local zoning laws and building restrictions that are designed to make property values high and keep low-income owners away from wealthy neighborhoods. 

This phenomenon is known as “NIMBYism,” a modern term derived from an acronym that stands for “not in my backyard.” 

Sen. Tim Kaine (D-Va.) told The Hill he’s encountered NIMBYism in drafting some of his housing legislation but that the reason a big housing package hasn’t been passed recently has more to do with the dynamics of the Senate and particularly the resistance of centrist Sen. Joe Manchin (D-W.Va.) to big-budget spending bills. 

“There is that aspect,” Kaine said, referring to local opposition to low-income housing. “We hear it, but we also hear employers and local officials saying we need more, we need more housing that our workforce can afford. So yeah, there’s occasional NIMBYism, but that’s not what’s keeping housing plans out of the reconciliation. It’s more, you know, Manchin’s concern about the overall size.” 

Developers and construction companies are also often discouraged by market forces from putting up lower-income housing because the profit margins on higher-end homes are usually bigger than the margins on more modest units. 

The low-income housing tax credit program is designed to overcome those forces by making up for those lost profits, and there are several legislative packages under discussion to increase their scope. 

“I’m a big fan of the program. You see [Sen.] Maria Cantwell, she and I have sponsored for years an effort to expand that program, because it is very focused in allowing states full flexibility to expand the stock of low- and moderate-income housing,” Kaine said. 

“One challenge right now is inadequate supply, so programs that expand the stock are very, very helpful. [The low-income housing tax credit] is a good program, and so I’ve certainly been a supporter of trying to make that more robust. It was our hope that we might have been able to do some of that in a reconciliation bill that’s not to be. But that doesn’t mean we will give up on looking for other ways to make that happen,” he added. 

Senate Finance Committee ranking member Mike Crapo (R-Idaho) said in an interview that he also supports the credit. 

“Particularly on the low-income housing tax credit, I’m a strong supporter of it,” Crapo said. “I’m not going to weigh in on any proposals to adjust or change it yet except to say that we do need to strengthen our access to low-income housing in the United States, and it’s a very important issue.” 

“There have been some efforts to try to put it into the China bill, which is not happening at this point in time. There have been some efforts to try to find other avenues to put some provisions in,” he said. 

Sen. Mike Rounds (R-S.D.) said he expects the tug of war between federal and state governments over the issue of affordable housing to continue. 

“It’s always going to be an ongoing battle,” Rounds said in an interview. “You’re not going to fix all of those challenges with a tax credit. What you’ve got to be able to do is to get to those zoning boards and say, ‘You need the housing, and if you want to have development in your area, you’re going to have to recognize that everybody’s not going to be able to put up the Taj Mahals that everybody would like to see in their developments.’ ”

Sen. Bernie Sanders (I-Vt.) suggested that governments should skip the private sector and do the building of affordable housing units themselves. 

“There is no question but that there is not only a crisis in some 600,000 Americans who are homeless, but some 18 million families who are spending half of their income on housing. We need a massive construction program to build low income and affordable housing. It’s one of the major priorities in this country,” he said on his way to a vote in the Senate on Wednesday. 

Bankers said that mortgage rates may have topped out in June and sounded hopeful that hesitant consumers may start buying more houses. 

“Mortgage rates may have already peaked and could stay between 5 percent and 5.5 percent through the remainder of 2022,” Mike Fratantoni, of the Mortgage Bankers Association, said in a statement. “If that were to be the case, potential buyers, who had been scared off by the rate spike, might find their way back to the housing market.”