Democrats have no plans to fight housing inflation in the Build Back Better plan

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Inflation takes center stage, and the White House desperately wants its bill to be the solution.

Wednesday, the Bureau of Labor Statistics announced that in October, its main measure of inflation saw a 6.2 percent increase, “the largest 12-month increase since the period ending November 1990”. The official response was to argue that the Build Back Better plan, President Biden’s social spending package, is the way to go to fight inflation. This line is not new.

“If your primary concern is inflation right now, you should be even more excited about this plan,” Biden She said return in July.

Wednesday, Washington Post journalists noticed that the White House message about fighting inflation hasn’t changed and that lowering prices for things like housing, prescription drugs and childcare is “the best response to inflationary pressures.”

But a key aspect of the White House’s argument is more careful: the idea that its planned investments in housing will help fight inflation. In late October, the White House released the latest iteration of Build Back Better Floor. Under the title “Reduce Costs, Reduce Inflationary Pressures and Strengthen the Middle Class,” he highlighted his investments in the accommodation.

During the pandemic, house prices have skyrocketed; the underlying problem is simply that there are not enough homes for the people who need them (particularly in places where people need to live for their jobs). This supply crisis is forcing an increasing number of people to bid on a small number of available homes, thus raising prices.

But not all “real estate investments” are created equal. Generally speaking, there are two ways you can attack an accessibility crisis: 1) you work to make the item itself less expensive (supply-side policies), or 2) you give people more money to be able to afford it (on the supply side). demand policies).

Both have their place in the decision making process. But if you pursue demand-side policies when addressing a massive supply shortage, you end up raising prices, not lowering them. And the nation is coping an estimated shortage of 3.8 million units.

The White House estimates that, in 10 years, its plan “will enable the construction, rehabilitation and improvement of more than 1 million affordable homes.” The words “rehabilitation” and “improvement” are doing a lot of work here; the number of new affordable homes that will actually be created is probably only a small fraction of that number.

While some of the money is earmarked for the construction of new homes, the bill also contains subsidies for home ownership and rental. In a vacuum, it sounds great! But given that the supply of affordable homes is at a relatively low level, subsidies could put upward pressure on prices, especially since it will likely take much longer for homes to actually be built than it will take to provide. subsidies.

This is of particular concern for low-income renters who don’t get rent subsidies – in one study, the increase in vouchers has increased rents by 16% on average and “caused [an] $ 8.2 billion increase in total rent paid by low-income non-beneficiaries providing only a $ 5.8 billion subsidy to beneficiaries. ”

More importantly, the reason rents increase for low-income tenants in these situations is because the subsidy comes without increasing the supply of low-income housing. Both must be done together to actually achieve the goal of accessibility.

The White House knows this. In JuneDeputy Treasury Secretary Wally Adeyemo wrote a note addressed to Congress on the matter, stating, “Critically, the Biden-Harris administration is undertaking a historic shift in US housing policy by focusing on supply constraints and unit availability. affordable housing, including multi-family housing units. rental units “.

It seems like a lot less of a historical change now.

The main constraint on building housing in places where people demand it the most are town planning laws. These laws limit the types of houses that can be built and where and regulate house sizes to the point that smaller or “main” houses are becoming incredibly scarce. For example, a law requiring plots of land to be no less than 4,000 square feet means that starting homes (less than 1,400 square feet) are illegal. The the story behind these laws is complicated, but essentially they are a way for some homeowners to block change in their communities, and in their original form they were a tool of the segregationists.

In addition to small single-family homes, it is illegal to build duplexes or small condos in most of the United States which could reduce the cost of housing. The White House has repeatedly acknowledged this problem, but in the Build Back Better bill, Democrats metaphorically raised their hands, repealing the driving force responsibility. behind the stars house prices.

The best way to tackle this problem would have been to tie dollars in the bipartisan infrastructure framework to zoning reform. Iowa law professor Greg Shill suggested tying existing highway dollars to zoning reform. That “There’s no reason the Iowan should subsidize a highway from Silicon Valley to San Francisco when the Valley makes it illegal to build homes under $ 1 million.”

Essentially, if California wants federal dollars to build highways or public transportation, it will have to reform policies such as minimum parking spaces and minimum lots to get it. Instead, states are given money by the federal government to build transportation networks that exclude the use of large sections of the American public.

In the past, the federal government has held highway financing hostage for other reasons, notably for 1984 National law on the minimum age for drinking alcohol, which “requires states to prohibit persons under the age of 21 from publicly purchasing or holding alcoholic beverages as a condition of receiving highway funds.” So did President Ronald Reagan conditioned the highway dollars to the setting of a national minimum speed limit; this was subsequently repealed, which a study shows it could have cost over 12,500 lives

If Democrats are serious about attacking housing inflation, they should invest real money in incentivizing states to hold localities accountable. States are ultimately in control of local zoning policy; California, for example, recently effectively single-family zoning prohibited throughout the state.

“Exclusion zoning is a product of state law, and if we can get states to deal with it through financial incentives, I think it could lead to real change at the local level,” Phil Tegeler, executive director of the civil rights group Poverty and Race Research Action Council, told Vox earlier this year. “Local governments have no inherent authority that is not granted to them by the state government.”

Aside from that, National Democrats should, like Paul Williams, a colleague at the Jain Family Institute and a housing expert suggested, cut “all small toy programs and homeownership subsidies and pour that money into the New Construction Housing Trust Fund.”

But maybe the Democrats aren’t serious about stopping housing inflation. In his statement on inflation numbers on Wednesday, Biden touted that “home values ​​are on the rise” as evidence that the economic recovery is progressing. It is a window into the confusing nature of American housing policy that the government cannot decide whether it is interested in lowering the price of homes or raising them.

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