A research brief from the Urban Institute and Moody’s Analytics, “Overcoming the Nation’s Daunting Housing Supply Shortage,” outlines explanations for our country’s housing shortage, and assesses how federal funding can increase supply. The report finds that land prices, limited access to bank loans, and material costs and labor all significantly affect affordable housing supply shortage. Greater funding for Low Income Housing Tax Credits, the Community Development Fund, and transportation infrastructure could help mitigate this constrained supply. The report also finds that funding for the national Housing Trust Fund (HTF) could increase affordable housing construction by nearly two million units over the next decade.
The supply of affordable housing in this country is at a critical low, with the annual supply of new housing at approximately 100,000 less than housing demand. This dearth in supply drives up home prices and rental costs, particularly among low- and moderate-income households. Home prices in the bottom quartile have grown approximately 8% annually over the last decade. For tenants who rent because they cannot afford to purchase a home, rental prices have increased 4% annually over the last decade. These increased prices result in households spending more of their income on housing, decreasing opportunities to save money and build wealth.
Using data from the Bureau of Labor Statistics, Federal Housing Finance Agency, Federal Reserve, and other sources, the authors assessed how several factors impact the country’s housing shortage. These include the availability and cost of land; acquisition, development, and construction loan standards; construction labor costs; and lumber prices. The authors employ regression analysis to assess the impact of these factors on housing supply and find that all four have a significant effect on the supply shortage. The cost and availability of land has affected supply shortages the most. In recent years, the cost of land has increased to 55% of the total median home price. The availability and cost of land is largely affected by zoning and permitting processes, which can restrict multi-family or dense development and make development processes unnecessarily complex.
To assess how federal programs can address this housing shortage, the authors analyzed the effect of increasing the annual funding to the HTF and CMF on housing supply. These programs provide funding to preserve and construct housing for low-income households. The authors estimate that if the federal government increased annual funding for the HTF to $46.5 billion, the program could increase affordable housing construction by approximately 197,823 units per year over a 10-year period. The authors go on to explain that if the federal government increased annual funding for the CMF to $3.2 billion, the program could increase affordable housing construction by approximately 76,284 units per year. Funding these programs would have other macroeconomic benefits as well, including increasing employment by creating over 400,000 jobs by the mid-2020s. The brief proposes a series of other policy recommendations, including investing in state and local transportation, increasing the Low-Income Housing Tax Credit, and increase funding to localities who commit to building affordable housing through the Community Development Block Grant.
The report can be found at: https://urbn.is/3rVa0vh