Senior Policy Analyst
The Senate Finance Committee’s hearing tomorrow on affordable housing should focus on housing policies that help the lowest-income households, including low-wage workers and poor seniors and people with disabilities. Those households are by far the likeliest to struggle to keep a roof over their heads, but federal housing expenditures today disproportionately benefit higher-income families that could afford homes without assistance.
Of the 11 million renters that pay more than half their income for housing, 73 percent have what the federal government terms extremely low incomes, meaning that their income is below either the poverty line or 30 percent of local median income. Households that pay so much of their income for housing are likelier to have to shift money from other basic needs to pay the rent and face the greatest risk of eviction and homelessness — which can have far-reaching harmful consequences for children’s health and development.
The lowest-income households account for the bulk of those facing severe housing cost burdens in every state, as the graph shows. Even in most high-cost states, where housing has become less affordable at all income levels, at least two-thirds of renters paying over half their income for housing have extremely low incomes.
The federal government spends close to $200 billion a year to help families buy or rent homes, counting tax expenditures like the mortgage interest deduction. But more than 60 percent of federal housing benefits for which income data are available — and over 80 percent of tax benefits — go to households with incomes of $100,000 or more. Rental assistance programs such as Housing Choice Vouchers are highly effective at helping the lowest-income families afford decent, stable homes, but three-fourths of eligible households go without such assistance due to funding limitations.
The Low-Income Housing Tax Credit (LIHTC) is an effective subsidy for developing housing affordable to families with incomes at 60 percent of the local median. But it’s hard for states or developers to make LIHTC rents affordable to extremely low-income families; LIHTC only subsidizes construction and renovation costs, but most of the lowest-income families can’t afford rents that are high enough to cover even the ongoing costs of operating a unit (such as maintenance and utilities). As a result, rents in LIHTC units are rarely affordable to extremely low-income families unless the family also has a voucher or other rental assistance.
Senator Maria Cantwell has introduced legislation, cosponsored by Finance Committee Chairman Orrin Hatch and Ranking Democrat Ron Wyden, that expands states’ flexibility to lower LIHTC rents and makes other changes to the tax credit. These changes wouldn’t, however, dedicate resources to serving the lowest-income families, so states would have to choose between building more total LIHTC units or building fewer units but making some of them affordable to lower-income families. In addition, even if states used the new flexibility, the changes would permit rents that — while lower than regular LIHTC rent limits — still exceed what many families, including those most at risk of homelessness, can afford. Moreover, the new options could only be used in developments that are undergoing major construction or rehabilitation through LIHTC, which is a small share of the overall rental stock.
Policymakers should move forward with the Cantwell proposals, which are worthwhile and important, but they should also expand resources targeted directly on making housing affordable to those at the bottom of the income scale. This should include providing more funding for existing rental assistance programs, expanding the National Housing Trust Fund, and establishing a new renters’ tax credit to reduce rents in LIHTC developments and in other housing to levels that extremely low-income families can afford.