The Government Can Do More to Address the Housing Crisis

America is missing nearly five million homes, and this profound shortage is having profound effects. According to the U.S. Chamber of Commerce, the shortage has cost Texas over $38 billion in lost economic output and more than 300,000 jobs not generated. In Colorado, the cost has been nearly $11 billion in lost output and $6.5 billion in lost personal income. Georgia is missing more than 100,000 jobs and $13 billion in economic output. The list goes on.

A bipartisan consensus has emerged and recognized that housing is a crisis. Indeed, at a time when bipartisan legislation is rare, Congress recently passed the 21st Century ROAD to Housing Act. That law includes a range of regulatory updates and other initiatives designed to ease homebuilding. But there is still more that can be done. In two new papers released today, Vanderbilt professors Christopher Serkin and Daniel Sharfstein offer an invaluable look at America’s past and housing expert Dave Uejio offers a creative option for the future.

In their paper War Housing, Christopher Serkin and Daniel Sharfstein detail the U.S. response to the housing crisis during World War II. As production ramped up in the late 1930s, American workers had to move to industrial centers around the nation to build weapons needed for war. This resulted in a severe housing crisis, with these industrial centers unable to meet the housing needs of the new workforce. As detailed in Serkin and Sharfstein’s paper, the government responded with force, speed, and creativity.

“Congress, state governments, and labor leaders realized that addressing the housing crisis was quickly becoming an urgent, even existential national crisis,” write Serkin and Sharfstein. “They responded with a raft of innovations far beyond anything that is part of the national dialogue today.”

These innovations included reforms to mortgage markets, rental housing subsidies, conversion of hotels into apartments, investing in prefabricated housing techniques, and, critically, actually building housing itself. The government even went so far as to partner with leading contemporary architects like Frank Lloyd Wright to design innovative new structures that could improve speed, quality, and efficiency of new construction – including a proposal for a new “cloverleaf” neighborhood design.

Frank Lloyd Wright, “Cloverleaf” Quadruple Housing, Pittsfield, Massachusetts, 1942. Never built. Source: http://www.mediaarchitecture.at/architekturtheorie/broadacre_city/2011_ardmore_cloverleaf_en.shtml

In their paper, Serkin and Sharfstein describe the ambition and breadth of government action to address imminent housing needs. Though not all reforms were enacted in full and others fell victim to lobbying pressures, their history shows that there are many ways to expand housing supply in addition to tax incentives and zoning reform.

One such immediate and creative step is explored by Dave Uejio in his proposal Expanding Affordable Housing Supply without Legislation: A Plan for Scaling Community-Owned Housing. In this paper, Uejio argues that the federal government can take steps without new legislation or appropriations to facilitate the expansion of community-owned housing. This type of housing would enable families to buy homes, and importantly, build equity, at a far more reasonable cost.

Already in use in places ranging from Montana to New Hampshire to Denver, community land trusts enable speedy housing construction and enable homeowners to buy and build equity on the cost of the home alone, rather than defaulting to permanent rentership. While these models are widespread, they have not scaled up to meet demand.

Uejio argues that the federal government has the authority to clear the path for expanded home ownership under this model by “focusing additional capital, accelerating deal velocity, and leveraging standardization to extend it to lenders and borrowers alike.” Potential executive branch actions include:

• Directing the IRS to redirect low-income housing tax credits towards community ownership projects.

• Directing the Federal Housing Finance Agency (FHFA) to exempt community ownership projects from current caps on the amount of multi-family developer loans that Fannie and Freddie can purchase.

• Directing FHFA to instruct Fannie and Freddie to update their digital underwriting tools so that mortgages for community land trusts (CLT) and loans to finance CLT projects are automatically approved for purchase or guarantee.

The scale and scope of the housing crisis in the United States suggests a failure in the market that may not be able to be solved through deregulatory efforts alone. As these papers show, the government need not confine itself to being a passive player. It can look to the past to understand that in moments of great need, federal action has been bold and broad, at a scale comparable to the crisis. And it can use existing authorities to help address the need.