My Critique of a Radical Housing Plan

I recently read the report HOMES FOR ALL: The Progressive 2020 Agenda for Housing - https://www.dataforprogress.org/homes-for-all

High level - ideas sounds good, but solutions do not seem to be based in reality or make financial sense. Here I provide my critique on the solutions made by the authors:

Part 1 - Exclusionary Zoning VS Equitable Zoning 

Authors' Solution - Allow multi-unit apartments to be built in single family zoned areas.  

I don’t understand how the solution makes sense to force apartments into areas zoned for single family. It is the job of the urban planner to create a look and feel for each city. These are decisions that should be made at the local level not federal level.

Forcing a denser planned community at the cost of the city's character is not a trade off I believe in. As an example, in Houston you can find single family homes next to a low rise apartment building with a high rise towering over both in the background. Tell me this is not awkwardly cringe worthy.

Part 2 – Build Millions of Homes through Publicly Owned and Other Affordable Social Housing

Authors' Solution #1 - Maximize the LIHTC by avoiding high poverty areas

LIHTC deals pencil where they pencil. Land cost in high opportunity areas are generally more expensive. Under the LIHTC program land does not produce tax credit equity. The higher the cost of land the tougher it is for a LIHTC deal to get done. However, it is possible to give favor to better areas. California's QAP is an example that pushes for this. 

Separately, the author makes a point to allow LIHTC deals to obtain local approvals by right. I would support this.

Authors' Solution #2 - Add 10 million housing units at $1.5 trillion over 10 years.

First issue: Math does not look right. Authors' claim subsidy per unit is at $150,000. At best, cost per unit of construction is close to $400,000 - $500,000 per unit in major metropolitan cities. Federal subsidy for construction accounts for at least half of cost. So we are looking at $200,000- $250,000 in subsidy. Adds up to $2-2.5 trillion over 10 years. Side note, these figures do not include rental subsidy.

Second issue: How is the federal government going to come up with these funds?

Part 3 Provide immediate relief to burdened renters

Authors' Solution #1 - Cap the Growth of Subsidies to Avoid Rent Increases

Structuring rental subsidies with caps to rent increases is not a good idea. Landlords will demand market rent. A tenant who doesn’t have rental subsidy at market will definitely be rejected/evicted.

Authors' Solution #2 - Rent Subsidies Should Scale Down as Social Housing Scales Up

The authors are imagining a scenario where the levers of government can be changed at a moments notice. This whole section is a bit far fetched for me. The author of this report is assuming their master plan is going to work perfectly and everything is just going to fall into place.

Very unlikely over a long time horizon. Shifts that occur in the political landscape can blow up the sustainability of this concept.

Authors' Solution #3 - Increase rental subsidies from 5 million to 21 million Americans.

I actually DO think this is possible because the current rental subsidy is small part of government's overall budget. Current rental subsidy budget is about $36 billion X 4 = $144 billion per year. Fact Sheet: https://nlihc.org/sites/default/files/NLIHC_HUD-USDA_Budget-Chart.pdf

Part 4 Make Homes for People, not Capital

I’m in love with the opening sentence of this section in the report, “The Great Recession showed the deep and fatal flaws in our policy of subsidizing home ownership. As a means of building wealth, it is largely an illusion. As a source of retirement savings, it could prove unreliable. And as a symbol of racial opportunity in America, it has either blocked communities or color from participating or preyed on them.”

I cannot agree more! Love this!!

Authors' Solution #1 Require Landlord’s to disclose their financial activity so residents can negotiate on a more fair deal playing field

This is a really interesting idea!

Authors' Solution #2 Limit tax deduction for property depreciation.

The report is misguided on how depreciation works based on how they outline it here. I would say how it is explained is a bit unfair and missing important information. This is a highly technical subject and a bit hard to explain which may be why the author skipped over it.

Accounting losses created from depreciation don’t just get written off and disappear for ever and ever. What really happens is the capital account of the investor is reduced by the amount of losses. This can catch up with the owner and have severe tax consequences. Real debate should be focused on capital gains taxation, not depreciation.

Authors' Solution #3 Community Land Trust through Land Value Taxation

This takes it for the most radical idea of the whole report. Basically the authors want all land to be taxed so high that it becomes worthless. Once it is worthless government can come in and buy the land to create housing. The authors' own words speak volumes to the value of this idea, “We recognize that this type of radical reform is nearly impossible to sell politically...”

That's it! I encourage healthy debate so feel free to add your thoughts in the comment section.