by Wilhelmina A. Leigh, Ph.D.
remarks given at the Howard University Fourth Annual African American Economic Summit
Legislation in the 1930s established the nation’s housing goal as decent, safe, sanitary housing that is affordable for all. Over the decades since the declaration of this goal, however, the nation’s housing policy problem has remained how to narrow the gap between household incomes and housing costs. This gap, in fact, increased between 1960 and 2008 (before the subprime mortgage market collapsed) for both renters and owners. Other methods than those heavily relied on to date should be considered and funded to help address this enduring housing problem and achieve our national goal.
The tool kit of options to narrow the gap between household income and housing costs contains three types of approaches. If we choose the first approach, we accept both household incomes and housing costs as fixed and use various financing mechanisms to bridge the gap between them. These mechanisms include mortgage loans made by financial institutions and mortgage market products developed and sold in the secondary market by Fannie Mae, and Freddie Mac. The subprime mortgage market collapse and The Great Recession have shown us the worst case outcome associated with these activities. The second approach involves accepting the cost of housing as fixed and increasing household incomes as a way to narrow the gap. This approach is most often applied via the tax system with deductions and credits that increase income in ways that benefit the wealthy more than the poor. The third approach requires us to accept that household incomes are fixed and involves modifying the cost of housing production as a way to decrease its cost. Examples of programs that use this third approach include Habitat for Humanity and the Nehemiah housing program (currently operating in New York City). If we target this core housing problem by bringing to scale tools that reduce the cost of housing by reducing its production costs, we will be able to assist more households to become homeowners in a sustainable and affordable manner.
In this “zero-sum” era, how can we afford to take this approach to scale? We can do so if we reduce the amount of tax revenue that the federal government chooses not to collect via the mortgage interest deduction on the federal personal income tax form. Collecting as federal revenue some of the $100.9 billion in tax expenditures (estimated for FY 2013) from this deduction and using it to expand programs that close the gap between household income and housing costs in a sustainable manner should be high on our nation’s “to do” list.