At The Urban Institute
As Prepared for Delivery
It is a pleasure to join you at the Urban Institute, which has been at the forefront of research on housing for decades.
During the State of the Union Address, President Biden proposed the boldest housing plan in a generation – a plan that would lower housing costs for renters and homebuyers and expand access to quality, affordable housing. The President called on Congress to support the construction of 2 million additional homes, lower costs for renters, and unlock the housing market for first time homebuyers and families seeking to trade up or downsize. And he announced new administrative actions to lower closing costs and make rental markets fairer. The President’s Fiscal Year 2025 budget included a historic $185 billion investment in housing, in mandatory funding, to give working families a fair shot, while reducing the deficit by asking the wealthy to pay their fair share.
The Challenge of Housing Affordability
In communities across the country, too many Americans face high housing costs. It is important to understand how today’s housing challenges came to pass.
America used to build a lot more housing, and housing costs were lower as a result. For much of the four decades preceding the Global Financial Crisis (GFC), housing construction was high, housing costs and wages grew at similar rates, and fewer families faced housing cost burdens that strained their budgets. But residential construction collapsed during the GFC, with completions falling from a peak of 2 million units in 2006 to just 585,000 in 2011. And housing construction never fully recovered after that.
Over the same decade, the most populous generation in American history was aging into the housing market. With demand outstripping supply, construction over that decade skewed to higher value units rather than the starter homes needed for first-time homebuyers and workforce housing. For example, just 5 percent of all newly completed units in 2022 had asking rents that were affordable to a household with a median renter income.
The combination of a missing decade of homebuilding after the GFC and historically high demand led to unsustainable growth in rental and for-sale home prices that prevented many Americans from building savings and wealth. On top of that, the pandemic changed patterns of demand, in effect exporting the housing crisis from the coasts and large urban centers to the rest of the country.
We are beginning to dig ourselves out of this supply shortfall. Actions taken by the Biden-Harris Administration to enable more builders to get access to federal financing have contributed to a record high 1.7 million units under construction right now. But the chronic underbuilding of housing over the past decade and a half means that we must build even more housing to meet demand and lower housing costs.
That is why President Biden laid out an ambitious set of budget proposals that would build and preserve 2 million additional homes over the next decade. But we also need to take action to unlock the housing market now, which is why the President is proposing bold actions to help homebuyers and renters in the near-term.
Unlocking the Housing Market
In today’s market, too many households that want to buy their first home are locked-out by high costs, while many homeowners looking to right-size their housing needs are locked-in because the rate they’d get on a new mortgage is higher than the rate on their current mortgage.
To expand access for would be homebuyers that are locked out of the market, the President called on Congress to pass a mortgage relief credit that would provide first-time homebuyers with up to $10,000. This amounts to around $400 per month for two years– the equivalent of reducing the mortgage rate by 1.5 percentage points for two years on the median home. The mortgage relief credit would help more than 3.5 million middle-class families purchase their first home over the next two years. These tax credits would serve as a bridge, as rates are projected to continue to fall with inflation and as our supply investments come online. The President’s Budget also includes a first generation down payment assistance program, which would provide households without intergenerational wealth with $25,000 on average to afford their down payment and achieve homeownership.
The President’s proposal would couple a buyers’ tax credit with a sellers’ tax credit to unlock the existing inventory of starter homes. Approximately 90% of homeowners with mortgages have a rate below 6%, prompting many homeowners who would like to move to stay put. To unlock starter home inventory and allow middle-class families to move up the housing ladder and empty nesters to right size, the President is calling on Congress to provide a one-year tax credit of up to $10,000 to middle-class families who sell their starter home to another owner-occupant. The sellers mortgage relief credit is estimated to help nearly 3 million families, and provide a much-needed boost to the inventory at the bottom of the market, where inventory has been most limited and home price appreciation has been most acute.
We are not waiting for Congress to act. The President last week announced a new effort to lower closing costs for new home purchases and for refinancing. The Federal Housing Finance Agency has approved a pilot program to save households an average of $750 by no longer requiring them to purchase lender’s title insurance when they are refinancing their mortgage. Reducing closing costs on refinancing will enable more households to refinance as rates continue to fall, unlocking substantial savings for homeowners over the duration of their mortgage. In addition, the Consumer Financial Protection Bureau will pursue rulemaking and guidance to increase competition on the closing costs imposed by lenders, which can add thousands of dollars in closing costs for homebuyers.
Promoting a Fair and Affordable Rental Market
As part of our Blueprint for a Renters Bill of Rights, we are also taking action now to promote a fair and affordable rental market – including for the lowest-income households whose incomes are not sufficient to afford market rents.
The Administration has already secured rental assistance for over 100,000 additional low-income households through the Housing Choice Voucher program – guaranteeing them affordable rents. The President’s Budget proposes expanding rental assistance to hundreds of thousands of additional households. And the Administration recently proposed to cap annual rent increases in Low Income Housing Tax Credit units to between 5 and 10 percent annually, which, if finalized, would prevent unmanageably large single-year rent increases for 2 million households.
We are taking actions to improve fairness and competition in the rental market more broadly. Last fall, the FTC proposed a rule banning misleading and hidden fees across the economy, including in housing rental agreements, and is currently working to finalize that rule. We are going after rental junk fees, from rental application fees to surprise “convenience fees.” Many renters report fees for payment by mail, on-line, and in-person. One renter reported that the true cost for a unit listed for $1,100 in South Carolina could be as high as $1,800 once all fees are taken into account.
And we are working to ensure that renter protections evolve with changing market dynamics among housing providers. The President earlier this month established an Unfair Pricing Strike Force to leverage investigative and enforcement authorities to address unfair and predatory practices across the economy, including in the housing market. For example, in recent filings in cases against multiple property management companies, the Department of Justice and the Federal Trade Commission have made clear that inflated rents caused by algorithmic use of sensitive nonpublic pricing and supply information violate antitrust laws.
“Build, Build, Build.”
Long-term, durable action is required to build our way out of the decades long housing supply shortfall. As the President put it yesterday, “The bottom line is we have to build, build, build.” The President’s plan, if passed by Congress, would produce or preserve over 2 million additional homes – helping to close the housing supply shortfall and improve housing affordability for American families.
There is a gap between how much it costs to build new housing and how much households on the lower end of the income spectrum can afford to pay—which is why tax credits have been a critical support for private construction in the affordable housing market for nearly four decades. The centerpiece of the President’s Plan is an expansion of the Low Income Housing Tax Credit (LIHTC) that would produce or preserve 1.2 million affordable units over the next decade. The President’s plan represents the largest increase in LIHTC resources since 2000, which will help to address the shortage of affordable housing.LIHTC accounts for nearly all new federally-funded affordable rental housing. In fact, LIHTC has been instrumental in the construction of one-quarter of all multifamily units since its creation.
And we could get started right away if the Senate passes the bipartisan Tax Relief for American Families and Workers Act passed by the House, which would create or preserve more than 200,000 affordable rental units through improvements in LIHTC.
The President also called on Congress to pass the bipartisan Neighborhood Homes Tax Credit, which would lead to the construction or preservation of over 400,000 starter homes in communities throughout the country. In many communities, low property values and high construction costs mean that it costs more to build single-family homes than the developer could earn, even though increasing the supply of affordable for sale homes would bring important value to the community overall.
While tax credits are a proven way to boost supply, it is also vital to support the efforts of governors, county executives, and mayors who are pioneering new approaches that can be scaled. That’s why the President is proposing a new $20 billion Innovation Fund for Housing Expansion to help communities expand their housing supply, including in amenity-rich neighborhoods that promote the Administration’s fair housing goals. These competitive grants would support cities, states, and tribes to make significant investments in housing supply, through removing barriers to new development, providing low-interest loans and other financing to support affordable multifamily production, supporting mixed-income public development and community land trusts, and building starter homes.
This fund reflects the lessons we learned from the State and Local Fiscal Recovery Funds in the American Rescue Plan. States, cities, and tribes committed over $18 billion to housing initiatives, with about one-third, or $6 billion, of these funds going towards housing production and preservation. These investments will support more than 20,000 units of affordable housing and counting. For example, New Hampshire used its allocation to support a $100 million initiative to provide grants to help developers fill funding gaps for affordable housing projects and to help local governments update land use regulations.
These legislative proposals build on actions the Administration is taking through our Housing Supply Action Plan. In fact, just last month, HUD and Treasury extended the Federal Finance Bank risk share program, which will lead to the production or preservation of 38,000 units over the next decade. In the months ahead, we will take further action– from supporting communities in identifying and removing barriers to housing production to promoting the use of federal resources for conversions from office to residential and transit-oriented development.
Closing
Housing is a top priority for communities across the country—rural, urban, and suburban. President Biden has a bold plan to meet the needs of renters and aspiring homeowners, unlock today’s housing market, and build housing to meet tomorrow’s needs. It lowers housing costs, increases access to affordable housing, and enables working families to build wealth and savings. We look forward to working in partnership with all of you to meet this vital shared goal.
