US Affordable Housing Policy Works for Wall Street and Rich Developers, Not Renters

Posted on by

Yves here. We’ve long said that the US actually does have industrial policy. You can see it via which sectors get big tax breaks, subsidized lending, and even explicit gimmies. Real estate is one of those alpha beneficiaries. The irony with the complaint post is the US once had a good affordable housing program, as in Section 8 housing. We also built low income housing but it was too often intended to be and succeeded in being punitively dreary. By contrast, in the UK, some council flat developments, like the Barbican in the City, have been converted to market price housing and sells for pretty handsome prices. That would be an extreme outlier for US projects.

By Algernon Austin, a Senior Research Fellow at CEPR. Originally published at Common Dreams

Affordable rental housing policy fails to provide sufficient affordable rental housing decade after decade, yet policymakers continue to do largely the same things. A researcher at the Joint Center for Housing Studies recently observed that in 1960, about 45% of renters in the bottom income quintile spent more than 50% of their income on housing costs. Today, it is about 65%. Renters below the official poverty line spend on average 78% of their income on housing. At what point will policymakers admit that their policies have failed renters?

It Doesn’t Make Sense: The Low-Income Housing Tax Credit

Affordable rental housing policy now primarily relies on the Low-Income Housing Tax Credit (LIHTC). LIHTC seems like a rather bad idea if one is interested in addressing the affordable rental housing crisis. LIHTC has a number of problems, but two of them should be considered fatal flaws. First, LIHTC is not very good at providing low-income rental housing. The Joint Center for Housing Studies states, “LIHTC does not necessarily protect a renter from cost burdens” and that “lower-income renters living in LIHTC units often require additional subsidies to make this housing affordable.” The primary policy to create affordable rental housing does not do a very good job at creating affordable rental housing, yet policymakers rely on it more and more.

The second major problem is that LIHTC rentals typically convert to market rate after 30 years (in some cases 15 years). This transition rate might be reasonable if there were an adequate supply of affordable rental housing, but there isn’t. The National Low-Income Housing Coalition estimates that the United States has a shortage of 7.3 million rental homes for the lowest-income renters. The Joint Center for Housing Studies finds that the country lost 2.1 million rental units for these lowest-income renters between 2012 and 2022. Affordable rentals are too scarce to allow them to be converted to market-rate housing.

The current estimate is that 325,000 LIHTC rental units will transition to market rate by 2029. LIHTC creates a rental housing bucket with a hole in the bottom. Since more and more of our affordable rental housing is created by LIHTC, the amount of affordable rentals lost to market conversion will increase over time. The United States already does not build enough affordable rental housing to keep up with demand, but policymakers have created a system that will lead to accelerating losses of affordable rental housing over time. This doesn’t make sense.

Affordable Rental Policy Is Working Well for Corporations and Investors

Current affordable rental housing policy doesn’t make sense if the goal is to provide affordable housing. If the goal is to create market conditions beneficial to real estate developers and investors, it appears to be working quite well.

Public housing, especially when adequately funded, is a far more effective method of providing affordable rental housing than LIHTC. The rate of cost-burdened renters is quite low in public housing—much lower than in LIHTC housing. Because of this fact, there are very long waiting lists and tremendous demand for public housing.

From the private real estate industry’s perspective, public housing is a serious threat. “From the beginning, the real estate industry bitterly fought public housing of any kind,” Richard Rothstein stated in The Color of Law: A Forgotten History of How Our Government Segregated America. Rothstein adds that the industry later lobbied to structure public housing so that it would be underfunded. Today, after the passing of the Faircloth Amendment, Congress has prohibited the increase in the number of public housing units built by the federal government in spite of the fact that people are, in some cases, waiting for decades to get into public housing.

In addition to investors receiving more and more via tax credits from the LIHTC program, the Joint Center for Housing Studies reports that corporate owners make up a growing share of the rental housing market. (The corporate share of rental properties ranging from 5 to 24 units nearly doubled between 2001 and 2021.) More private equity firms have also moved into the rental housing market. While more and more renters are being cost-burdened, it appears that more corporations and investors are making good profits.

It is possible to create affordable rental housing policies that work well for renters. There are good social housing models in Europe and Asia. Social housing is nonprofit housing. In the European models, it is not restricted to just the lowest income households, which tends to provide it with a stronger political and economic base. The good news is that U.S. city and state governments are beginning to explore these models. In Congress, Reps. Alexandria Ocasio-Cortez(D-N.Y.), Cori Bush (D-Mo.), and Becca Balint (D-Vt.), Sen. Bernard Sanders (I-Vt.), and other members of Congress have recognized the need to repeal the Faircloth Amendment. Once that amendment is gone, the federal government can move toward constructing affordable, quality social housing.

Print Friendly, PDF & Email


  1. Carla

    Special thanks for posting this article today, Yves. Our town is just about to sign off on an LIHTC apartment building project intended for “moderate income” renters. It has momentum and I’m sure it will go forward, but at least our elected officials and a few members of the public will have the benefit of seeing this information first.

  2. KLG

    The tax credit shenanigans where I live in a deindustrialized small city that is trying to come back are breathtaking, mostly for the erection of “lofts” that have a maximum life expectancy of 20 years based on observation of their assembly, not construction. The real lofts downtown will still be there for the next 200 years if the roofs are kept in good order. The local Housing Authority has built a few remarkably successful developments on land that was not gentrified for the benefit of local old money, however. Those are an outlier but show what can be done. We also still have a local Water Authority that does an excellent job. The water system where we lived previously fought hard and successfully to remain “private” by demonizing a purchase by the local unified city-county government, even as it was pointed out that all of their easements were granted free of charge by public spirited landowners back in the day. Water there costs about 300% of our local “public” water, as all water should be. And electricity, natural gas, phone, broadband, but I digress. Still, the new ATT (our only choice other than Cox) fiber optic service is good and came with extenders that actually work in our 165-year-old house with plaster walls.

  3. Neutrino

    Ctrl-F Obama does not return any results.
    Then again, he didn’t return results to his voters on that little 2008 GFC.
    Bailing out the banksters to allow them to plunder again, and maiming the housing market, a two-fer. Kill housing growth, drive up prices, watch homelessness explode, all according to plan. But at least you got those campaign contributions so it is all okay.
    Thanks, Obama, once again.
    Your plan to change America included debt peonage for the many and asset grabbing for the few. What a POS.

  4. earthling

    By the time a handful of these laudable efforts get people housed in new quarters, we will be seeing the great emptying of homes by boomers–and that is still quite a few years away.

    Whatever we are doing is just not working for young families, solo renters, or anyone who is not sitting on a fat pile of paid-off housing, or building ‘luxury’ subdivisions.

    We need a drastic change in the tax code, like this year, that will send a million entrepreneurs racing to build affordable homes and rehab neglected ones, and stops giving existing home owners and investors tax-free candy and incentives which encourage them to own multiple homes.

    We need model zoning/residential codes that communities can pass as a clean package to reform restrictive NIMBY zoning where it is a problem, entice the building of more duplexes, quads, etc, and clean up onerous requirements for small single-family homes.

    Unfortunately, this requires public officials who give a damn about anyone but their developer buddies.

  5. Alice X

    I’m glad to see a reference to Richard Rothstein’s The Color of Law, which I have read. While it is a bit rambling, it does effectively convey the facts that the demise of public housing in the US was a joint effort of public policy and private interests.

  6. Yaiyen

    Today, it is about 65%. Renters below the official poverty line spend on average 78% of their income on housing. At what point will policymakers admit that their policies have failed renters?

    I would say its working perfectly, why would policymakers make more affordable housing if it lower property price and landlords would have to lower rent.Rich people have it good

    1. Carla

      Funny thing is, in good times or bad, rich people ALWAYS have it good. Except for once in a great while at the guillotine. But that is the exception that proves the rule.

      1. Yaiyen

        True but i think this is the first time in history the rich can create wealth out of the air, they dont need workers anymore they control printing machine. Negative interest rate also help stock market, they took loan and buyback their stocks.

        1. Captain Obvious

          Workers are still need, but there is an extra degree of separation. It’s slavery with extra steps. They print money in order to buy stuff, and that stuff has to be made by someone somewhere far away. Diamonds still have to be mined.

  7. responseTwo

    I have my doubts about this. These Democrats are under the supervision of the DNC, including Bernie. I can’t see them intruding on private equity profits. They will put on a good show, though

  8. JBird4049

    >>>LIHTC creates a rental housing bucket with a hole in the bottom.

    This reminds me of the the donut hole in Medicare Part D. Whatever the various programs are supposed to do, they all contain gotchas and financial cliffs. Much like how I was accidentally(?) dropped off Medi-Cal due to this year’s cost of living increase pushing me over California’s income limit being as it is all done automatically by computer program. Cost me an additional $90 last month.

    Even if Senator Sanders and others manage to kill the Faircloth Amendment, which was done to make money for investors, I believe that the grifters will find new ways to shift funding away from those in need.

    Meanwhile, the county I am in has had its waiting list closed for over a decade, which means that you can’t get into the list. While, you can if you have connections, are in in more than one category of need, and luck. If you have all three, you might get it. Being poor and in need doesn’t cut it.

  9. Nevermore

    There wont be any housing issue or affordability if the government wasn’t involved.
    I spent years developing such projects and can tell you that the amount of waste and corruption involved is mind boggling. The cost of such low quality builds exceeds by far the cost of high end apartments given all the requirements by the government.
    First you have to pay prevailing wages , which means at least $45 /hour for labor, then fill up envelopes with cash for inspectors, lots of works are done on a time sheet basis which means that countless hours are spent on a job that will be done by a fraction of the time and cost by a private contractor and in the end the quality of the product is total crap.
    But is there anything where the government gets involved that doesnt turn into crap?

  10. Paul Art

    Quick note, the Faircloth amendment was passed in the 1990s per the link. Good work AOC for her amendment to remove it.

Comments are closed.