š” Biden's $1.75T Build Back Better Act Will Not Solve The Housing Crisis
We need to build more homes. The Act does not address this.
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The US House of Representatives passed the Build Back Better act on November 19. It will now head to the Senate for a vote.
Build Back Better allocates $1.75T to clean energy, child care, housing and health care.
What is the Housing Crisis?
Thereās one major problem in the US housing market - there just arenāt enough homes available!
Low for-sale housing inventory is one reason why home prices will continue rising over the long term.
But the shortage of housing inventory also prices out a lot of potential homebuyers.
Do the housing programs in Build Back Better address this issue?
$150B for Renter and Homeownership programs
The total housing budget under Build Back Better is $150 B (reduced from $327 B).
Let's look at some of the major programs.
1. Public Housing funds will focus on repairing old units
Build Back Better allocates $65B for investments in Public Housing.
Public housing units are owned and managed by local public housing authorities (PHAs), which rent them to low-income residents.
Most of the funds will be used for repair and renovation, not new construction
51% of total public housing properties were constructed before 1975, and require regular upkeep. As Paul Williams notes in Vox:
This is public housing that we invested in over the decades, then cut funding for in the ā90s, and now those buildings have two decades of deferred maintenance. The funding is so that they donāt literally fall apart.
Investments in public housing will not add much to housing inventory.
2. Rental Assistance programs have one major flaw
There are two rental assistance programs in Build Back Better:
$24B in housing vouchers for extremely low-income families, households at risk of homelessness, and survivors of violence and sexual assault.
$1B for paying owners of private apartments to rent their homes to low-income families.
Rental assistance does not increase the availability of homes
Unless investments are made towards increasing supply of housing units, providing rental assistance will have a limited impact.
Providing housing vouchers to people will drive up demand for rental units. But if the supply rental units stays the same, the positive effect of the housing vouchers may be nullified by runaway rent increases.
3. The Affordable Housing program is under-funded
The HOME Investment Partnerships Program has the potential to tackle the US housing crisis.
It provides grants to State and Local Governments for expanding the housing supply.
These grants can be used to build units for both homeownership and renting.
The units can only be made available to low-income and extremely low-income families.
Build Back Better allocates $25B for this program over 5 years ($5B a year).
HOME barely moves the needle on supply of housing units
According to experts, the US faces a massive supply shortage. Estimates of this shortfall range from 3.8 million units to 5.5 million units.
Even if we assume that:
All the money in the HOME program goes to building units for homeowners
Each home costs only $100,000 to build on average
ā¦the total supply would only increase by 250,000 units.
The investments to the HOME program are a small solution to a huge problem.
4. The Down Payment fund doesnāt offer enough assistance
Many households have the income to make monthly mortgage payments - but only a few possess the wealth to make the up-front down payment.
The First-Generation Down Payment Fund allocates $10 B for providing down payment assistance to first-generation homeowners.
On first glance, this is a great and much-needed program. Butā¦
The down payment fund provides too little assistance to homebuyers
The maximum assistance provided for each individual home cannot exceed $20,000.
However, the median down payment for a house purchased in 2021 is much higher - $27,850.
Homebuyers will have trouble buying the majority of homes under this fund.
The housing programs in the Build Back Better package are a good start in improving housing accessibility for ordinary Americans.
So, there will be cheaters who will:
1. Find formally low-income families owning crappy houses.
2. Help them to get free govt money for renovation (maybe finance the rest of the money from their own pocket)
3. Help them to flip their renovated house :)