Federal and State Programs Can’t Fix the Housing Crisis, but Local Action Can
This week in my home state of Minnesota, Governor Tim Walz announced a new program to help first-generation homebuyers purchase a house. If you and your parents never owned a home or lost the home you owned to foreclosure, you are eligible for up to $35,000 from the state for a down payment and closing costs. The state anticipates helping 1,500 families through this program on a first-come-first-served basis.
While visiting Minnesota last month, Treasury Secretary Janet Yellen, who is the former chair of the Federal Reserve, announced a new program to provide $100 million over the next three years to support the financing of affordable housing. The Treasury Department announced this program in combination with other efforts to “increase the supply of housing” and to “lower costs.”
This all comes in the wake of President Biden’s announcement during the State of the Union address of a plan to provide a $10,000 tax credit for first-time homebuyers, a similar credit to people who sell to first-time homebuyers and $25,000 in down-payment assistance to first-generation homeowners. All of this is being done with the stated goal of “lower housing costs for working families.”
It's fair to assume that all three of these leaders genuinely want to help struggling people get into housing they can afford. If they could, they would create lots of housing and do what it takes to broadly lower home prices. So, why don’t they? Why such small and ineffective measures?
Walz's proposal will help 1,500 families, but in May alone there were over 6,400 homes sold in Minnesota, according to Redfin. That is a low figure; we are in a historically tight housing market. Helping 1,500 families pay $35,000 more for a home than they can afford isn’t going to broadly impact home prices. If anything, it is just another source of capital sustaining the current housing bubble.
The same is true for President Biden’s proposed tax credit and down-payment assistance programs. With a lack of homes for sale, receiving $25,000 in tax credits for purchasing a home simply means that people are going to bid $25,000 more for that home. This might help a few targeted families, but it comes at the expense of making the affordability problem worse for everyone else.
Secretary Yellen’s program is arguably more helpful because it focuses on increasing the supply of housing by financing its construction. Yet, while $100 million over three years is a lot of money, it’s a mere drop of capital in the multitrillion-dollar housing industry. In the Treasury Department’s announcement, they provided an example of a successful project where $4 million in federal funds helped finance the construction of 84 low-income units. With a $100 million fund, that trick can be repeated 25 more times, producing 2,100 new units over the next three years.
That’s an average of 14 new affordable units per state, per year, for the next three years. That’s not like bringing a knife to a gunfight. It's more like bringing a water balloon.
So why do well-intentioned people have such weak responses to one of America’s most urgent problems?
It’s simple: This is the housing trap. Housing is primarily an investment, a store of wealth and a financial safe haven for hundreds of millions of Americans. Mortgage-related products are also the foundational investment for our nation’s banks, both big and small. As such, housing prices can’t go down. More precisely, they can’t go down without wrecking a bunch of really important stuff.
All of our state and federal policy responses start and end with that understanding; housing prices can rise, but they cannot fall. People can use subsidies and credits to alleviate some of the symptoms of this situation, but they can never address the issue itself. Affordability can be a goal, but achieving affordability through broadly lower prices is not a viable policy option. It’s just not.
For those seeking broad housing affordability, the obvious conclusion is that the state and federal toolboxes are too constrained to solve this problem. They can no more sink housing prices than you can cut off your own arm to stop the spread of an infection. The path to housing affordability runs through local government. The only way to address this problem is from the bottom up.
That's what Strong Towns is here to help you with. Local leaders can make immediate progress without needing to ask for more power or permission by focusing on three things:
Reforming the local regulatory approach to make it easier to build units, especially entry-level units at lower price points.
Nurturing an ecosystem of incremental developers — local heroes who are ready to build the units you need.
Using the powers of the local government to localize the financing of entry-level housing units.
If you’re ready to address your housing problem, a good place to start is reading "Escaping the Housing Trap." If you want to dive even deeper, you can request a book-tour stop in your city; some spots are still being booked for 2024, and we're beginning to schedule stops for next year, as well. If you’re a Strong Towns member or part of a Local Conversation, you’re already an insider and will get the latest tools and engagement opportunities around housing and the other core campaigns. And if you’re new here, or interested in knowing more about how your community can pursue a Strong Towns approach, sign up to join one of our monthly “Bring Strong Towns to Your Community” sessions.
Most importantly, don’t feel helpless! You have everything you need to make your place stronger and more prosperous.
Charles Marohn (known as “Chuck” to friends and colleagues) is the founder and president of Strong Towns and the bestselling author of “Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis.” With decades of experience as a land use planner and civil engineer, Marohn is on a mission to help cities and towns become stronger and more prosperous. He spreads the Strong Towns message through in-person presentations, the Strong Towns Podcast, and his books and articles. In recognition of his efforts and impact, Planetizen named him one of the 15 Most Influential Urbanists of all time in 2017 and 2023.