Biden’s Housing Plan? More Vouchers and Tax Credits Mean Inflation and Dependency

T he news that housing prices have spiraled upward in the last twelve months has reached the White House, prompting it to announce what it calls its Housing Supply Action Plan. According to the Biden administration, the plan will help provide an estimated 1.5 million additional housing units that the United States desperately needs.

Unfortunately, its mishmash of subsidies and federal incentives will not close that gap anytime soon, if ever.

Worse still, the administration’s most significant near-term change in housing policy, not mentioned in the action plan, will make matters worse — leading to a sad combination of inflation and government dependency. That would be the impact of a vast proposed expansion — by no fewer than 200,000 vouchers — of the housing-voucher program for poor households.

Housing policy is overwhelmingly a matter of local zoning and regulation. The Biden administration’s plan, to its credit, acknowledges that — and proposes an original approach to rewarding localities that opt to allow more construction through higher density. Not dissimilar to the Obama administration’s Race to the Top, which dared to reward charter schools, this $1.75 billion competitive-grant program would reward communities that relax zoning barriers. It’s the same idea that was included in the House-passed version of the ill-fated Build Back Better bill.

The devil here will be in the details.  If the grants are tied to all sorts of social goals — such as school diversity or green energy — we’d be better off without HUD sticking its nose further into local government. We’ve seen that happen before with the Obama-era Affirmatively Furthering Fair Housing program, which sought to influence school location and other traditionally local decisions through the rubric of housing. One wishes here for a less intrusive approach overall — model zoning ideas for municipalities to consider, for instance, rather than grants, with their inevitable complexity.

Less ambiguously counterproductive is the administration’s expansion of the Low Income Housing Tax Credit program, which subsidizes private construction of apartment buildings that combine market-rate units with income-restricted ones. Since its inception in 1986, this approach has financed 3 million housing units — through annual tax subsidies of $8 billion. Not only would expansion of such credits be slow to have any effect on the current housing shortage, but the program has long fanned housing-cost inflation. Construction costs have long averaged 20 percent more than non-subsidized counterparts. Indeed, the per-unit costs are eye-popping. In California, they average $480,000 per apartment.

The Biden proposal that will have the most immediate inflationary effect is not only bad housing policy, but terrible social policy. The administration’s proposed $71.9 billion HUD budget for fiscal year 2023 would add 200,000 housing vouchers. That’s a 14 percent addition to the nearly 1.4 million vouchers already distributed to local housing authorities. Voucher households are marked by a high percentage of single-parent families (56 percent), compared with those in which children are raised by two parents (8 percent).

Because deeper poverty leads to voucher priority, the program effectively rewards single parenthood and likely encourages the formation of such households. In contrast to cash welfare assistance, vouchers come without a time limit. And because rent is tied to income, an increase in earnings leads to higher rent — a powerful disincentive to upward mobility. African Americans, who make up 40 percent of voucher households, are particularly harmed.

What’s more, the additional vouchers will inject a wave of new federal funding, juicing demand — and price inflation — for all rental housing. That’s the effect of subsidized demand in a market without much new supply. The move will not diminish inflation; it will increase it.

Since the advent of public housing, federal policies have distorted housing markets for the worse. The Biden administration has at least signaled that it understands that regulation discourages construction. More broadly, however, it continues to double down on costly construction subsidies and dependency-inducing housing assistance. If diminishing inflation were really its top priority, it would not be pursuing the housing policies it has embraced.