The Legacy and Future of Housing Policy

Written by Baptiste Jourdan

Edited by Tiffany Zhang

Design by Rakshita Sivakumar Venkataraman

Introduction

Across the developed world, there has recently been a surge in house prices. This has caused difficulty in finding affordable housing for many citizens. In light of the numerous entitlement programs that have been created by governments around the world to assist low-income households with their housing expenses, it is important to understand the reasons behind the persistence of this crisis. In this article, we will examine different aspects of the housing affordability crisis by firstly, taking a moment to understand the state of housing markets in the developed world; and secondly, seeing how public policy is affected by cultural ideals surrounding housing that have developed over time and how political rhetoric interacts with those ideals. We will also seek to gain a better understanding of the current housing policy and some solutions for the shortage in affordable housing.

Shortage of Affordable Housing

The existence of a persistent affordable housing crisis in the developed world, especially in the United States, is well backed up by evidence. In the short term, the median sale price of a family home in the United States has increased from $327,000 in 2019 to $408,000 in 2021 (Schaeffer). The pressure that this puts on households to leave the housing ladder is clear. Rising home prices have pushed 10 million families into the rental market in the US between 2007 and 2016 (Dorau). The threshold for qualifying as a 'burdened household', set by the United States Department of Housing and Urban Development (HUD), is 30% of the household's disposable income being spent on housing (Dorau). By this definition, 46% of US renters were burdened in 2020 (Schaeffer), as well as 30 million low-income households (Freemark and Steil). The unacceptably high rent payments by families, especially low-income households (who are more likely to rent), can be seen in how rent increases have outpaced inflation in most of the US between 2017 and 2022 (Schaeffer). The reason why households consistently struggle to find affordable housing in the US is also abundantly clear: affordable housing exists in insufficient quantities and is inefficiently distributed across United States territory (Freemark and Steil). This shortage of affordable housing is most likely one of the major causes of the recent increase in homelessness in the US (Freemark and Steil).

While difficulties in finding affordable housing exist across the developed world, housing markets differ in terms of the proportions of renters and homeowners, and the degree of difficulty that lower-income households have in covering their housing needs. The increase in housing prices seen in the US is reflected across the OECD, with the ratio of housing price to income increasing by over 30% since 1998 (OECD). We will examine the housing markets of the US, UK, Germany and France in order to understand the structural differences between housing markets across the developed world. The increase in housing prices between 2015 and 2021 in real terms is around 40% in the US and UK, and around 20% in Germany and France (OECD). This is an important indication that while the specifics of each housing market and the government policies that regulate them play a role in the prices that home-buyers must pay, a high increase in these prices is common to all of the markets concerned. The proportion of households that rent is a reflection of not only the affordability of housing but also the policies pursued by governments. In Germany, 53.9% of all households rented in 2020, compared to between 31% and 36% in the three other markets (OECD). The German market's heavy tilt towards renting compared to the others does not prevent large differences in the rates at which the general population and low-income households rent. In 2020, 74.5% of German households in the bottom quintile (in terms of income) chose to rent (OECD). In the United States, this same statistic was at 52.6% (OECD). Despite vastly different rates at which the general population rents, in both of these housing markets, lower-income households rented at much higher rates than the general population. This is indicative of the inability to afford homeownership for a very significant part of the population. The proportion of households in the US, UK, Germany and France that spent more than 40% of their income on a mortgage or rent in 2020 was 11% for the US, and 4% for Germany (OECD). This relative similarity makes the statistic on proportion spent by the bottom quintile of households in each of these nations surprising. In the US, this was 44%. In the UK it was 11%, 18% in France and 16% in Germany (OECD). In all of these markets, we can see that poor households are frequently heavily burdened, but the degree to which this is the case in the UK and especially the US is much greater.

The crisis is also reflected elsewhere in public perception. 49% of Americans reported that housing affordability is a 'major problem' in 2021, with 70% saying that young adults will be faced with more difficulties than previous generations in acquiring homes (Schaeffer). The public understands to a degree the existence and severity of the housing crisis. The crisis has also led to changes in the nature of houses, with increasing prices allowing these to become considered as financialised assets first and foremost (White and Nandedkar). It is also important to note that while national-level statistics may be useful in comparing housing markets, differences in housing markets exist at the national level between regions too (Heslop and Ormerod).

History of Ideas around Housing

The history of housing policy is heavily influenced by the history of ideas that surround housing, and how elected officials use and rely on these ideas to formulate policies. We will therefore examine historical developments in the US and see how housing's role in society is understood. In the United States, there has been a long-running focus on single-family housing, which began with the homestead movement in the 19th century, and which in the 20th century turned towards upholding single-family detached housing in the suburbs as the ideal model of housing. Over time, the American dream's meaning has been linked ever more closely to this form of housing (Dawkins 27). Housing is seen as an important part of an individual's identity as a citizen, and American culture and law have inherited this from the United Kingdom. Just as English common law's 'castle doctrine' allowed individuals with a great degree of control over their homes, the US Constitution contains numerous provisions protecting the sanctity of the home (Dawkins 36). At the founding of the US, private property rights were seen as forming part of the liberal values of individualism and limited government (Dawkins 43). Many of the Founding Fathers of the United States believed that the single-family home was essential to the stability of the new nation's political system (Dawkins 44). While these ideas and the way they were understood over two hundred years ago have no direct effect on modern-day government housing policy, they have influenced its development over the course of American history.

Throughout American history, the 'civic virtues' of self-reliance and individualism have often been invoked to implement housing policy that is exclusionary (Dawkins 32). The idea of the homestead begins to be challenged during the mid-late 19th century, with America's rapid industrialisation and urbanisation. Slums in large cities, which grew during this period, were seen as contradicting the ideal of single-family, individualised housing (Dawkins 69). In the early 20th century, housing reform movements promoted a number of policies, which governments began to experiment with. It is at this moment that zoning emerged as a means to insulate single-family housing (Dawkins). While it originated from a reformist movement that seeks a fairer distribution and ownership of land, zoning became a tool to segregate neighbourhoods both racially and socio-economically (Dawkins). 'Protecting' homeowners from anyone whose presence in their neighbourhood may negatively affect the value of real estate was an intentional choice. The promotion of homeownership as the form of housing best adapted to all 'good citizens' was seen as especially important by the federal government in the aftermath of World War I in order to combat communism (Dawkins 91). It was during the two World Wars that tenants' rights movements in the United States experienced successes in their promotion of rent control as a way of protecting tenants (Dawkins 110). After World War II, suburban homeownership was consistently promoted by invoking individualism and freedom, while once again using single-family detached zoning as a means to exclude individuals from neighbourhoods (Dawkins 98). At the same time, as the Cold War was beginning, and as the ideological fight against communism was seen as increasingly important, the modest New Deal Era public housing initiatives were seen as suspect and obsolete, with the middle-class having gained a sense security through suburban homeownership (Dawkins 100).

As the late twentieth century began and the neoliberal movement gained traction, ideas surrounding housing evolved once again. In the UK, Margaret Thatcher's sale of council housing to tenants was justified using the language of individual rights and freedom (Dawkins 121). In the US, where public housing existed in smaller quantities, the neoliberal value of a smaller government led federal subsidies for the construction of housing to be gradually replaced by housing vouchers given to low-income renters (Dawkins 124). With government intervention in the housing market increasingly being seen as unwarranted, Ronald Reagan reduced HUD's budget by 70% (Dawkins 127). It was also at this time that housing became a much more financialised asset and seen as an important store of wealth (Dawkins). Some efforts were made in the late 90s to reform exclusionary zoning, such as the federal PATH program, but the attachment of residents and local governments to the suburban landscape and the values associated with it meant that no meaningful zoning reform took place (Dawkins 136). In the modern era, there exists numerous groups who seek to reform current housing policies in order to address the affordable housing crisis. However, the complex implications and effects of current policies mean that groups often differ over what policies to promote. Tenants' rights advocates often recommend the development of large-scale public housing and regulations such as rent control, bringing them into conflict with those who see the reduction of restrictions that private developers face (which include not only zoning but also environmental regulations) (Dawkins 145). There also exists conflicts between those who seek the socio-economic and racial integration of neighbourhoods as the best way to distribute public services and opportunity fairly and those who see these efforts as simply a means to allow disadvantaged residents to be forced out of their own neighbourhoods through gentrification, and therefore paradoxically favour a stronger ability for owners to block new developments (Dawkins 149). Many of the policy reforms that are promoted can have unintended side-effects, such as strong anti-eviction laws, which do not reduce homelessness, but instead reduce turnover in the rental market and make it more difficult for the homeless to find affordable housing (Dawkins 147).

The case of French housing policy allows us to see quite clearly how political and historical events can change the course and focus of housing policy. In 1952, Napoleon III became Emperor of the French, and led an authoritarian government that repressed opposition at home and expanded France's colonial empire abroad. In this context he appointed Baron Haussmann to oversee Paris. The latter launched a large-scale public works program aimed at entirely remodelling Paris's appearance. In conducting this program, Haussmann was attentive to the needs of Paris's bourgeois population, but the large-scale demolition of existing buildings marginalised slum dwellers and disrupted the lives of low-income households (Fijalkow). At this time, concerns raised about low-quality urban housing were chiefly about 'household congestion', so the modest public housing programs that were set up for low-income households focus on dividing units into different rooms (Fijalkow). This approach could easily be compared to that of the 'civic republican' ideal that was widespread in the US at this time: only those who fully participate in society as citizens by owning and using a specific form of housing have their interests protected, while lower-income households who are unable to meet this standard are only seen as a threat to the 'preferred' lifestyle and housing type. World War II and all the disruption that it brought allowed France to see housing in a new light. At this time, the public and the government began to show concern for standards of living for low-income families and an interest in raising them (Fijalkow). In 1953, the government began to fund the construction of social housing on a large scale (Fijalkow). This shift in policy was indicative of a change of the way in which housing is understood, namely, as a right and not a privilege.

While we have just seen the link between ideas, some political movements and government policy concerning housing, it is also important to understand the role that political discourse plays in how ideas are used to justify certain policy choices by governments. White and Nandedkar highlight that political rhetoric in New Zealand treats housing as promoting 'responsible citizenship'. In the UK, the issue of the lack of affordable housing is framed by all political parties as a 'technocratic' and 'isolated' issue (Heslop and Ormerod), while in New Zealand, governments have sought to portray it as a lack of sufficient supply of land (White and Nandedkar). The similarity in rhetoric used by parties across the political spectrum to describe the causes of the crisis and the nature of the solutions required supports minimalist approaches that do not see the structure of the housing market as being problematic. Like in New Zealand, political parties in the UK unquestioningly agree that the crisis is an issue of supply of housing (Heslop and Ormerod). This quite naturally leads to policy solutions that rely on the free market, such as the deregulation of the housing market. Heslop and Ormerod note the role that newspapers play in furthering this model for understanding the crisis. In both of these nations, counternarratives have occasional success in establishing themselves. In the UK, the aftermath of the Grenfell fire in 2017 allowed attention to be focused on the role of government neglect for conditions in low-income housing and the effects of wealth inequality (Heslop and Ormerod). In New Zealand, explanations for the crisis in terms of stagnating wages and the low-quality housing that the marginalised are unable to escape have had seen some use in political rhetoric (White and Nandedkar). Both of these countries in the Anglosphere have shown us that ideas that exist in intellectual or policy circles enter political discourse, and that their dominance in political rhetoric allows them to be used to justify certain policy solutions while ignoring others.

Housing Policy: Past, Present and Future

Having examined some of the ideas that surround how society thinks about housing, we will now explore in some more detail past and current housing policy in the US and potential solutions to the affordable housing crisis. Casey Dawkins is careful to emphasise that while the preferred form of housing shifted from the homestead in the beginning of the nineteenth century, to the suburban single-family home at the outset of the twentieth century, the same cultural values were used to justify considering these as the 'ideal' forms of housing (173). Thus, once New Deal programs began to be implemented in the 30s under the Roosevelt Administration, they tended to promote this new, suburban, single-family form of housing. Under the 1934 Housing Act, low-income homebuyers were granted government insurance for their mortgages, allowing them to benefit from reduced monthly payments (Dorau). Slightly later, the 1937 Housing Act provided funding to local government authorities for them to provide housing to low-income households at greatly subsidised rates (Dorau). After World War II, a similar approach to housing policy continued to be used by the federal government. The 1949 Housing Act's focus on public housing allowed the construction of over 300,000 of these units in the decade following its passage (Dorau). While the New Deal housing policy and similar policies enacted following the end of the war did benefit many low-income families, they did nothing to resolve the exclusionary aspects of housing policy that had developed previously. In fact, these public housing programs were often poorly located in terms of access to amenities and heavily racially segregated (Dorau), and isolated residents from the rest of their communities (Dawkins 130). The New Deal era policies relating to housing were extremely successful in their promotion of single-family housing (Dawkins 160). It is important to note that this led to an increasing dependency on cars for access to basic services (Dawkins 162).

While the general focus on suburban single-family housing and homeownership continues to this day, a number of slight shifts in housing policy have occurred since the end of the war. One of the most interesting experiments in housing policy was the Nixon-era Open Communities program, which interpreted the Fair Housing Act's 'Affirmatively Further' mandate broadly, and attempted to condition the receipt of federal funding by local governments on the abolition of regulations that prevented the emergence of affordable housing (Dawkins 148). One of the aims of this program was to further the racial integration of housing, but it is impossible to know how successful it would have been, as Nixon ended the program only shortly after its creation. In addition, HUD sees a great reduction in its role of intervening in the housing market in the 70s and 80s. In 1973, President Nixon freezed funding for public housing, and in the 80s, Reagan massively reduced the department's budget (Dorau). In 1986, Regan replaced spending on public housing and mortage subsidies with the Low-Income Housing Tax Credit, which is provided directly to private developers as long as they meet federally defined conditions (Dawkins 127). This tendency to rely increasingly on the free market instead of regulation with regards to housing policy continued during the Clinton Administration. In 1992 the HOPE VI program established public-private partnerships to upgrade public housing units that had been falling into disrepair, and while some of the aims were attained, the total number of subsidies housing units decreased while the program was in place (Dawkins 130). This reduction in government involvement in housing policy in the neoliberal era coincided with a number of changes on the housing market. For example, the US's housing stock has slid behind demand since the 1980s (Dorau). It should also be of concern that most of the recent increase in global wealth inequality is attributable to an increase in global housing wealth inequality (Dawkins 137).

We will now turn to a few of the policy solutions that have been suggested in response to the affordable housing crisis. These solutions tend to challenge assumptions of post-war American housing policy, such as that homeownership should be promoted through significant fiscal incentives. Casey Dawkins proposes to reform both how taxes are collected on housing and how subsidies are allocated, by creating a universal monthly housing allowance to replace housing vouchers, and two new taxes on housing to reduce the unfair advantages that homeowners have over renters, and conditioned grants to local governments (216). The two taxes would be made up of a housing consumption tax that would apply to all spending on rent or mortgages (Dawkins 220), and a progressive capital gains tax on houses (Dawkins 222). The combination of the consumption tax and the universal housing allowance would mean that those who spend under a certain amount on housing would receive a net subsidy, while those who spend above this level would pay a net tax. This proposed system has the benefit of treating renters and homeowners equally, and thus aiming to reduce massive increases in wealth inequality and to increase generalised access to affordable housing. The progressive capital gains tax would ensure that owners are unable to benefit as much from appreciation in the value of their properties resulting from investment in public goods (Dawkins 221). This prevents renters, who pay income tax just as much as homeowners, from subsidising the increase in the value of the very homes that become even more unaffordable for them to purchase, should they wish to do so. The proposed block grants to local governments would be be higher in areas with higher housing costs (Dawkins 228). They would be used by local governments to supplement the housing allowance, subsidise the construction of affordable public or private housing and to fund local public services in areas with lower-priced housing (Dawkins 228). Others have highlighted that taxing real estate transactions progressively in California would bring in revenue that could be used to increase the availability of affordable housing in the most troubled areas of that state (Arredondo et al.). The repeal of California's Proposition 13, which has frozen property tax levels at very low levels for a number of years, has also been suggested. This measure alone has cost the state $262 billion in lost revenue (Arredondo et al.). The current system of providing housing vouchers to low-income households means that number of landlords discriminate against tenants who attempt to use housing vouchers, exacerbating the scarcity of affordable housing for the poor. It has been recommended to implement strong legal protections from discrimination against those who use housing vouchers (Freemark and Steil). While comparing the current situation of the housing market in the US to what it could be is important, in order to gain a sense of what has already been done elsewhere, it is meaningful to explore other housing markets.

After the end of the Second World War, France pursued a different housing policy to the US. While the government promoted homeownership and private rental as important components of a functioning housing market, it also sought to create a robust public housing sector (Schaefer). The financing of public housing on a large scale in France began in the 50s (Fijalkow), and now it has the fastest growing housing stock of the EU, of which one quarter is made up of publicly owned housing (Schaefer). In the three largest urban centres in France, between 32% and 37% of residents receive some form of assisted affordable housing, while in the US is, this is between 4% and 9% (Freemark and Steil). Concerning homeownership, the French government set up for low-income households very-low-interest government-provided loans beginning in the 50s, and which continue in a modified form to this day (Schaefer). These loans have consistently seen a very low default rate (Schaefer). France's housing market differs from the US's today, in part due to these differences in policy. France currently has as many public housing units as the US has federally subsidised units in nominal terms (Freemark and Steil). Strikingly, housing entitlements are available to all low-income households in France, whereas in the US, enough funds exist to give only one-fifth of eligible families access to federal housing vouchers (Freemark and Steil). These stark differences in how governments protect access to affordable housing affect many.

Conclusion

This article has explored in some detail the facts of the housing affordability crisis across the developed world, some of policy reasons for this as well as some of the cultural values and ideals that have lead to these policy choices. We have also seen some policy changes that could help alleviate the crisis.

In the United States, housing policy has been heavily defined by cultural values. Linking housing to participation in the political process has led to the understanding that homeowners make better citizens. Thus, governments have heavily promoted homeownership over the past hundred years. But in seeking to protect homeowners, governments have also implemented exclusionary policies that make affordable housing more difficult to find for low-income households. Later, when faced with the possibility of putting an end to practices that segregate neighbourhoods socio-economically and racially, while some administrations have attempted initiatives do so, these have been small and unsuccessful. The way that these cultural values and ideas find their way into policy is in part through political rhetoric. We have seen how it has been used in the UK and New Zealand to frame the affordability crisis in a way that promoted market-based solutions. We have also seen how different groups of individuals who have a stake in the resolution of the crisis are often divided about the appropriate policy responses, due to the complexity of the housing market today.

We have compared the US's housing market to that of other developed nations. The US's housing market and housing policy protect renters, and especially low-income renters, poorly compared to these other countries. In all of the countries examined, low-income households are significantly burdened by housing costs. If the housing affordability crisis is to be solved, governments must be willing implement policies that will often conflict with the interests of homeowners, something that many are unwilling to do. Unless they do this, the rising cost of buying a home across the OECD means that poorer households will become even more financially burdened.

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