Deputy Secretary of the Treasury Wally Adeyemo
In June 2021, I wrote a blog post about the state of the American housing market, highlighting the impacts of the COVID-19 pandemic and the steps the Biden-Harris Administration was taking to address the challenges Americans faced. Today, I want to provide an overview of four new actions Treasury is taking in support of increasing the supply of housing.
Housing Supply
I want to start by putting the current state of the housing market in the context of the robust economic recovery. Real wages are rising, our labor market is historically strong, and inflation has substantially declined. Americans have seen gas prices at the pump decrease by around $1.70, and they’re starting to see the price of goods at the grocery store like eggs and milk decrease significantly as well.
The resilience of the American people and our economy is impressive. But the strength of the recovery is also due to the policy choices the Administration has taken to address supply constraints within the economy—from alleviating bottlenecks at ports toward the start of the pandemic to the President’s authorization to release 180 million barrels from the Strategic Petroleum Reserve. But despite supply-side progress across many parts of our economy, we know that today, the supply of housing is not keeping up with demand.
As I wrote in my previous blog post, a lack of affordable housing is a challenge that pre-dates the pandemic. In the years since the 2008 financial crisis, we have not built nearly enough new housing units, and the effects of the pandemic exacerbated the shortfall. That’s why we encouraged state and local governments to use American Rescue Plan Act (ARP) money to support affordable housing. The $18.5 billion in State, Local, and Fiscal Recovery Funds (SLFRF) currently budgeted for housing-related uses will only have a modest impact on America’s housing shortfall. We know that we need to construct millions of new units to meet the demand for housing.
The lack of supply is helping to drive up housing costs for American families. Half of all renting households spend more than 30% of their income on housing costs—leaving little for food, healthcare, and education, let alone for the little things our children need or money to invest in a small business. As Americans across the country know, these rising housing costs are not only concentrated in coastal cities, but they are also felt in cities in the heartland, in rural areas, and suburbs across the country.
That’s why the President has called on Congress to invest more than $175 billion to advance our housing agenda. It’s also why the Administration supports the bipartisan Congressional tax package that would expand the Low-Income Housing Credit (LIHTC) and help create approximately 200,000 housing units. While these investments are much needed, we are not waiting for Congress to act. In the short term, we are taking a number of administrative steps to help preserve or increase the supply of housing throughout the country.
Treasury’s Ongoing Housing Efforts
When most people think of the Treasury Department, they don’t immediately think about housing policy. Yet over the last several decades, Congress has provided Treasury with a number of tools that we are using to incentivize the preservation and building of more housing.
Most recently, Congress provided funding through the ARP that can be used for housing. We are calling on states and local government to use the billions of dollars of remaining ARP money to make investments that will improve housing supply. We are sharing this best practices guide with states and local governments to make it easy for them to use these federal resources to invest in housing supply before the obligation deadline at the end of 2024.
In addition, we are supporting the construction of new affordable housing through tax incentives. The Low-Income Housing Credit is the largest source of federal support for construction and rehabilitation of affordable rental housing across the country. LIHTC has supported over 3.8 million units over the lifetime of the credit. And our new income-averaging rule has enabled the creation of more financially stable, mixed-income LIHTC developments, and made LIHTC-supported housing more feasible in sparsely populated rural areas. The New Markets Tax Credit (NMTC) has also supported the development of mixed-use housing and working capital funds for housing construction.
Finally, we are making leveraged investments in housing markets through our support for community development financial institutions (CDFIs) and minority deposit institutions (MDIs), with $12 billion in additional resources invested during the first three years of the Biden-Harris Administration. By injecting $9 billion of capital into these institutions, we put these mission-driven lenders in a position to make housing loans and other investments in communities that disproportionately suffered from the impacts of the pandemic. In the first seven months after Treasury’s investments, recipients originated approximately $586 million in loans for affordable multifamily housing.
Earlier this year, the CFDI Fund released new funds for the Capital Magnet Fund (CMF), a dedicated program to support affordable housing solutions and community revitalization efforts. Our three rounds of CMF awards since 2021 are projected to develop 96,700 affordable housing units. Last month, the CDFI Fund announced another round of funding availability through the CMF, and we anticipate making more than $246 million available for housing-related uses. And recipients of several other CDFI Fund programs reported lending to support 166,738 affordable housing units in FY2021 and FY2022.
Today’s Actions
Today, we are taking four additional steps to enable state and local governments to use federal resources to preserve and expand the supply of housing.
First, we are making it easier for recipients to use available recovery funds to boost housing supply. Treasury is updating the guidance for the ARP’s State and Local Fiscal Recovery Funds (SLFRF) to enable states and localities with remaining funds to support a much larger universe of eligible housing projects. Recipients will be presumptively eligible to spend funds on housing for families earning up to 120% of area median income, as well as projects that meet the terms of other federal housing programs. While we will continue to advocate for state and local governments to use this money to support affordable housing, we also want to give these jurisdictions the flexibility needed to meet their most pressing housing needs. Those include projects supported by Fannie Mae and Freddie Mac that meet the needs of teachers, firefighters, nurses, and other workers increasingly priced out of certain markets.
Second, we are also announcing new clarifications to the Emergency Rental Assistance program to make clear that qualifying recipients can use their remaining funds for predevelopment and acquisition costs for affordable housing serving very low-income families—in addition to other eligible uses like the construction of affordable housing. The ERA program has already benefited millions of Americans, with more than 12.3 million household payments issued to keep renting families in their homes. These changes will build out the pipeline to bring additional rental units onto the market.
These changes to the SLFRF and ERA programs respond to feedback we have received from stakeholders who requested more flexibility in order to help support shovel-ready projects across the country. We are also urging local governments to take this opportunity to re-evaluate zoning and land use restrictions that too often restrain affordable housing from being built.
Third, we are working to lower the cost of capital for certain low-risk housing developments. Through an agreement with the Department of Housing and Urban Development (HUD) announced last week, we are extending the Federal Financing Bank’s (FFB) financing support for a risk-sharing initiative between HUD and state and local housing finance agencies. Prior iterations of this FFB program, which was restarted by the Biden Administration in 2021, leveraged nearly $5 billion for the development or substantial rehabilitation of 42,000 affordable rental homes for low-income families, seniors, and persons with disabilities. We estimate that tens of thousands of additional affordable homes will be created or preserved through this initiative over the next decade.
Fourth, we are working with federal and state regulators studying rising insurance costs and decreasing insurance coverage so that we can understand the impact of lack of affordable insurance on housing supply in different parts of the country. In part due to the frequency of climate-related disasters, we know that some homeowners are facing rising insurance costs or decreased coverage. Today, we lack granular data about where homeowners have been hardest-hit, and where and to what extent insurers are pulling back from certain markets. That’s why Treasury’s Federal Insurance Office is advancing an effort to collect data on homeowners insurance. Beyond a challenge to today’s homeowners, we also know that these insurance issues can strain operators of multifamily housing. Building on a convening we held last week, we intend to continue monitoring these impacts in close coordination with states, who are the primary regulators of the insurance industry. Finally, while Treasury is focused on increased supply of housing, regulators must also remain attentive to the impact that redlining can have on the cost of housing in certain communities.
Treasury’s 2024 Housing Agenda
The actions we are taking today will have a modest but important impact on housing supply. We know that there is much more to be done to address a problem of this magnitude. That’s why we are committed to building on these efforts to make other critical investments to preserve and expand the housing supply in the year ahead and beyond.
Over the course of the next several months, we will hold a series of engagements with stakeholders in the housing community and examine all the tools at our disposal to determine what actions we can take that will have the greatest impact on preserving and, where feasible, expanding housing supply. When we ensure that every American has access to stable housing, we unlock their potential to flourish and contribute to our collective well-being.