The ongoing housing and jobs crises were submerged by the saga over what to do about federal debt. Unfortunately, with triggers in place for deeper cuts, the solution to the debt saga may come at the expense of a successful public/private partnership that actually addresses the housing and jobs crises.
For nearly 25 years, the federal government has encouraged the development of affordable rental housing by using a unique federal tax credit — one that fosters a strong partnership between public and private interests, while benefiting families and local communities. This housing tax credit, however, may be at risk of being a casualty in the bigger budget negotiation. But gutting this program would be counterproductive to economic recovery. Despite headlines filled with stories of vacant foreclosed houses, Baltimore and communities across the nation still face a shortage of reasonably priced rental housing. Maryland expects a net shortage of more than 130,000 rental units through 2015, according to the city's housing department.
Nearly 100 million people are renting, and this number is growing. Foreclosures are piling up particularly where unemployment is high. Families displaced by foreclosure are back in the rental market. And millions of "echo boomers" in their 20s and early 30s are leaving college and their parents' nest to set up their own households, gravitating toward apartments in urban areas rather than foreclosed suburban houses or vacant homes in high-unemployment regions.
Despite growth in rental demand, production of new, multifamily housing has lagged. According to the Census of Construction, completions of multifamily rentals are at their lowest level in 17 years. All this competition for apartments means one thing: Rents are rising, and renting is getting less affordable. According to Harvard's Joint Center for Housing Studies, 10 million renters now pay more than half their income for rent and utilities, and another 10 million renters pay more than 30 percent of their income just for housing.
Some economists assert as an article of faith that the "invisible hand" of the market will inexorably move millions of apartment seekers into foreclosed houses. If only it were that simple.
Private housing developers in the market will eventually respond to rising rents, but history shows that builders will produce apartments aimed at higher income, more economically profitable renters. Without some extra incentive, fewer of them will build for the Americans who work hard but earn modest wages.
The Nixon administration understood this, launching government programs in the early 1970s that boosted total apartment production to roughly 1 million units each year. And the Reagan administration, too, understood this, signing into law in 1986 the rental housing tax credit, the only major national program remaining that funds affordable rental development.
Support for the housing tax credit consistently has been broad and bipartisan because it has a track record of success. Tax credit properties operate under strict rules to ensure they stay affordable for at least 30 years. Because private for-profit investors are financially at risk, they stay diligent about keeping these properties well managed and affordable, and foreclosures on housing tax credit properties are rare.
Thanks to this tax credit, more than 2 million units of quality affordable rental housing have been produced that working families, seniors and individuals call home. And when the economy collapsed in 2009 and 2010 and housing construction plunged, this tax credit funded nearly half of all units still built, and generated good jobs in an otherwise struggling industry. The National Association of Home Builders estimates that tens of thousands of construction jobs are created annually by tax credit-driven development, with local economies benefiting from $2.4 billion in taxes and other revenues.
In Baltimore this year alone, roughly $5 million in housing tax credits just awarded will spark more than $60 million in new construction and rehabilitation of nearly 300 rental units. Thousands of construction and permanent jobs in the area would be lost annually without the housing credit.
Pressure is intense to slash government efforts in many directions, and housing programs will not be immune from scrutiny. But this public/private housing credit has been successfully doing its job for decades, and if we eliminate it today, we will pay a bigger price tomorrow.
Jack Manning (firstname.lastname@example.org) is the founder, President and CEO of Boston Capital, a real estate finance firm specializing in affordable multifamily housing. David Abromowitz (email@example.com) is a Senior Fellow at the Center for American Progress.