Addressing affordable housing and housing insecurity – a conversation at Columbia Business School
Last month I moderated a panel on the topic of affordable housing and housing insecurity hosted by Columbia Business School. It was an impressive panel of public- and private-sector leaders, including the renowned author Dr. Jill Khadduri (Homelessness in the Midst of Plenty), Columbia Professor Brendan O’Flaherty (Making Room: The economics of homelessness), Dr. Jonathan Woetzel (No Ordinary Disruption), and Jennie Nevin. Here are some highlights from the conversation. The full video can be found here .
Why is this an important issue?
The panelists stressed the importance of both homelessness and broader housing insecurity. Dr. Khadduri’s book Homelessness in the Midst of Plenty calls out that the most common age of people in homeless shelters is infancy. Dr. Khadduri explained that homelessness is just the most extreme form of housing insecurity, and many more Americans are rent-burdened, paying more than 30-40% of their income on housing. This leads to frequent moving, involuntary doubling up, and ultimately, homelessness. Dr. Woetzel added that “housing is a right, a fundamental [prerequisite] to contribute to society,” and that this widespread housing insecurity contributes to negative social outcomes such as higher divorce rates, higher crime rates, and lower education rates.
“The unhoused population or people experiencing homelessness is just the tip of the iceberg. In Los Angeles we have 60,000 – 70,000 people on the street, another 20,000 – 30,000 in their cars, but easily 3 million paying more than 30-40% of their income on housing. It’s unproductive and it’s a tax on their economic activity as a straight wealth transfer.” – Dr Jonathan Woetzel.
What are the key drivers of housing insecurity?
One of the largest drivers mentioned was the lack of a strong social support in the U.S., particularly in housing. Dr. Khadduri discussed this issue in depth:
“In theory if a household income is less than 50% of the area median income (AMI), they can get housing assistance. But in reality, only 1 in 4 receive it. The housing dimension of the social safety net is broken”
Current U.S. housing assistance is structured as a block grant, not an entitlement, which means that not all who qualify for assistance can receive it. Dr. Khadduri also mentioned how other income support programs can reduce housing insecurity. An example of this is how there was a large reduction in family homelessness caused from financial support to families during COVID.
In terms of housing supply, we talked about state and local policies that either restrain supply or distort the housing market. This includes not in my backyard (NIMBY) local zoning[i] and property tax provisions that disincentivize moving[ii] .
From a macroeconomic lens, we discussed the impact of COVID on housing prices, the impact of real estate investing on housing prices, and the opportunity for innovation in construction. Dr. O’Flaherty commented on the impact of COVID on rising housing prices:
“We’ve seen an increase in demand for locations close to the center of the city by highly skilled, highly paid professionals. Other things also drive housing prices – houses need to have Wi-Fi now, and better windows because the weather is worse, and the number of adults per household have been decreasing significantly since the 1970s. People are going to spend more time at home, which takes more space. We are going to see this for schools (no more snow days because of remote options), offices, warehouses, doctors’ offices (e.g., telehealth), and nursing homes. This all creates a massive increase in the demand for housing, and the primary demand for more land is from the top half of the income distribution, so prices for the bottom half will go up”
Dr. Woetzel commented on how housing as an investment pushes up prices.
“One price does not clear two markets – there is a market for shelter and a market for investment. And when one person who wants a piece of land for investment is competing with a person who wants a piece of land for shelter, I can more or less guarantee you that the person who wants it for investment is going to win.”
Dr. Woetzel also mentioned that productivity of real estate construction has not kept up with other sectors of the economy, and so hopefully there is an opportunity for technology to play a role in making construction more efficient.
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What are the potential solutions?
One potential solution to housing insecurity that was discussed is expansion of the federal housing voucher program. Dr. Khadduri comments:
“Currently those experiencing homelessness can easily live in a place of their own; all it takes is giving them the ability to afford it. A housing voucher pays the difference between 30% of household income, however low that income is, and a rent at about the middle of the market. Currently about 2 million households are using vouchers, and that needs to be at least twice that. I’m not saying we add those immediately, but a couple hundred thousand more per year would do a lot to alleviate the problem.”
In terms of objections to housing vouchers and how they might impact the housing market, Dr. O’Flaherty shared that the only large experiment on this was conducted in the 1970s and led to the creation of housing vouchers. In South Bend and Green Bay, the market was flooded with vouchers as part of a randomized control trial, and the housing prices were not observed to change significantly.
Another federal policy suggestion was to reform the low-income housing tax credit program, or LIHTC. Currently the program gives subsidies to developers for building affordable housing. However, the subsidies are distributed on a per capita basis instead of where there is most need. Dr. Khadduri suggested requiring a matching fund from states to incentivize more inclusive local housing policies.
In terms of more regional solutions, several were proposed, including providing advantages to buyers who own as primary housing rather than investment, and incorporating a tax on land as proposed by 19th century author Henry George[iii] . California’s Regional Housing Needs Allocation Plan may also serve as a model for state intervention in unlocking local housing supply, and state enforcement of housing voucher discrimination is critical to ensure equal access to housing. Finally, it is important to politically mobilize people for whom affordable housing is critical, as such people may often not be able to attend zoning board meetings or actively advocate for affordable housing.
Conclusion
The panelists closed with some practical advice to Columbia Business School students.
[i] For example, restricting development to single-family homes which restricts housing supply.
[ii] California’s Proposition 13 was discussed in particular, which establishes property taxes based on the year of purchase.
[iii] Henry George was nearly elected Mayor of New York City and wrote Progress and Poverty one of the most popular books of the 19th century