Disaster of the House

In late March, President Biden was at a local community center in Las Vegas, Nevada, touting his housing plan as the most “consequential” in the last fifty years. Las Vegas—a city in a battleground state that was first decimated by the subprime mortgage crisis and is now inundated by corporate landlords and evictions—is a good place to pitch a big federal housing plan. And a focus on housing at an early campaign stop indicates that Biden’s team sees housing as an issue that will shape voter decision-making in November. In fact, a recent Politico article described Biden as having a “personal preoccupation” with housing, “quizzing aides on mortgage rates and rental prices.”

Centering housing in a presidential election at all is consequential. Both parties have long treated housing policy as a local issue, though the tide began to turn in 2020, when most Democratic presidential candidates released extensive housing policy agendas. Of course, any candidate’s policy proposals are pure agitprop: even if you sublimate healthy skepticism about politicians’ promises, meaningful policy change is dependent on unpredictable socioeconomic factors, as well as buy-in from the legislative branch. This means that Biden’s housing plan could, in theory, call for anything: a federal rent control program to prevent price gouging; a new, robust public housing program to build low-rent apartments across the country; full enforcement of the 1968 Civil Rights Act to break geographic racist strongholds; tighter financial regulations to prevent corporate landlords from speculating on manufactured home communities and single-family rentals.

Instead, Biden’s housing plan doubles down on homeownership, which has been at the center of American mythmaking about itself since the 1930s, when the federal government first created the United States’ unique, publicly-backed mortgage system. It also calls for major funding commitments for existing income-restricted housing production models, including $20 billion toward a new grant program and $55.5 billion over ten years toward tax credit expansion.

Biden packaged the homeownership portion of his Las Vegas speech with a personal anecdote about his family’s temporary descent into renterdom, mitigated by their purchase of a three-bedroom home in the early 1950s, undoubtedly aided by direct and indirect housing subsidies heaped upon upwardly mobile white families after WWII. This rhetorical choice underlines the plan’s ideological commitment to a brief postwar period where American economic ascendancy subsidized white homeowners while excluding Black households and others who did not fit into a 1950s definition of whiteness. Biden’s plan calls on Congress to enact a $10,000 tax credit for first time homebuyers and a $10,000 tax credit for home sellers so as to encourage the sale of “starter homes.” It also calls for a $10 billion program to provide down payment assistance, capped at $25,000 per household, for first-generation homebuyers.

This proxy identifier points to, but avoids the mention of, racist lending practices that excluded Black families from the dominant form of generational asset building in the United States. While down payment assistance-targeting is a concrete effort to mitigate the legacy of racist exclusion, it fails to grapple with the reality of continuing racist practices within the real estate and adjacent industries. The plan ignores decades of research by scholars like Keeanga-Yamahtta Taylor, who point to the structural problem with continuing to suture “economic well-being to a privately owned asset in a society where the value of that asset will be weighed by the race or ethnicity of whoever possesses it.”

Portions of the plan that challenge other aspects of contemporary real estate lenders’ profit-making potential are similarly timid: there is a small pilot to waive title insurance requirements when homeowners refinance their mortgages and a promise that the Consumer Financial Protection Bureau will make rules to regulate closing costs for some people, in some situations.

Beyond homeownership, Biden’s team does seem to be aware that renting is not a temporary condition for a sizable portion of younger people in the United States, a key demographic in his winning coalition in 2020: two-thirds of people under thirty-five are renters. The plan includes some stern words about corporate landlords, zeroing in on the Department of Justice’s actions against RealPage, a tech company at the center of a landlord rent-fixing scandal. While this case will likely create new guardrails within the nascent “proptech” sector, it is not a comprehensive challenge to speculative practices of corporate landlords and the lenders that support them, which are driving up rents across the country. The plan also wishes for an expanded Section 8 rental assistance program, which directly subsidizes income-tested tenants’ rents. Unlike Biden’s campaign in 2020—which called for a universal expansion of rental assistance to all rent-burdened low-income tenants—the 2024 campaign calls for targeted expansion to youth aging out of foster care and veterans.

The renter section of the plan is the most underwhelming, failing to pick up on the mobilizing potential of local tenants’ movements across the country, like those fighting for rent control in Florida, eviction protections in Colorado, or social housing in Washington. The plan mirrors four years of milquetoast proclamations. These include the “tenant protections” announced by the administration in July 2023, which feature nonbinding guidance to private landlords about how to best communicate rental application denials and a rule requiring public housing agencies to give tenants thirty day’s notice before kicking them out of their homes.

The most expensive portion of Biden’s housing plan calls for funding for new and existing programs that bribe and cajole private developers into building income-restricted housing. Unlike down payment assistance, housing vouchers, or rent control—which offer immediate relief to existing tenants or homeowners—these programs offer generous subsidies to developers now, with a hope that means-tested families will also benefit down the line. They include the Innovation Fund for Housing Expansion, a new $20 billion competitive grant program for states and municipalities to expand rental housing construction and loosen zoning rules, as well as a new Neighborhood Homes Tax Credit, which would direct the government to allocate $18.8 billion in tax credits over the next ten years to produce new owner-occupied homes. Centrally, the plan calls for an expansion of the Low Income Housing Tax Credit (LIHTC), the United States’ primary tool for new income-restricted housing construction. The LIHTC (pronounced ligh-TECK) program allocates tax credits to encourage investment in income-restricted rental housing construction. The expansion would cost $36.6 billion in foregone tax revenue over the next ten years.

A massive expansion of LIHTC is undoubtedly viewed by the Biden campaign as a wonky, but safe, housing policy proposal. In Las Vegas, Biden characterized it as being “supported by lenders, builders, families, and housing advocates alike.” To understand why the federal government is so skittish around housing policy and why the most the Democrats could muster in their consequential housing plan is just a lot more of the same, we have to understand LIHTC, and the economic and political conditions of the era that birthed it.

A temporary provision in President Reagan’s 1986 Tax Reform Act, LIHTC is what editor Alyssa Katz calls “a variant of trickle-down economics” that has grown to cost $9 billion a year in forgone tax revenue, supporting 90 percent of all new income-restricted housing construction today. Instead of following a straightforward path from public coffers to newly built homes like a direct housing subsidy, LIHTC winds the promise of tax avoidance through a labyrinth of government agencies, developers, financial institutions, and real estate–adjacent intermediaries.

The U.S. Treasury—not the U.S. Department of Housing and Urban Development (HUD)—distributes a formula-determined number of tax credits to state housing agencies each year, which determine eligibility criteria for their allocation to support new housing construction. Housing developers compete for these credits, but not to use them directly. Instead, they enter into temporary partnerships with investors (usually large financial institutions), which provide equity to fund the construction. When the buildings are built, investors become temporary co-owners. While they do not take an active role in operations, the ownership stake allows investors to reduce their tax payments for ten years. They are also allowed to write off the depreciation of the property, further reducing their tax liability. Further, some financial institutions are able to use their investment to meet their Community Reinvestment Act obligations, tripling their benefit.

There are much needed affordable units at the end of the maze: there are approximately 2.6 million LIHTC-supported units in the United States today. However, it is a profoundly flawed program. It is expensive, with per-unit development costs ballooned by syndication, asset management, and transaction fees that cut into the affordability of future rents. Despite its cost, income-restricted housing development deals rarely rely on LIHTC alone. An average project will pull together a plethora of additional tax breaks, subsidies, and bonds, which also come with sizable fees. Many rely on Section 8 vouchers to provide ongoing operating assistance. And, despite all of this investment, a study by the federal government found that 40 percent of LIHTC tenants are rent burdened, paying more than 30 percent of their income toward rent.

LIHTC is speculative by design, tying affordable housing production to the vagaries of the market. Research by the Urban Institute has shown that in times of economic hardship—when the need for income-restricted housing rises—developers have trouble assembling the multiple financing sources needed for LIHTC deals.

During the Great Recession, for example, developers returned tax credits to housing agencies en masse. Most crucially, LIHTC units are only temporarily affordable, creating an incentive for developers to privatize their buildings at the first opportunity, especially in gentrifying neighborhoods. This means that the public sector has to periodically entice landlords with additional subsidy, or risk mass tenant displacement.

Despite its centrality to all affordable housing policy in the United States, LIHTC’s primary programmatic focus is to ensure frictionless delivery of a tax benefit to investors and the provision of upfront equity to developers. Its initial shape gave very little thought to the people who would live in the apartments it would help build. It is also a performance of financial complexity: descriptors of the program warn up front that it is all very complicated and usually feature a diagram with arrows pointing in all different directions.

LIHTC’s design and presentation are reflective of federal power dynamics set in place in the 1980s: an ascendant hard right and a shrinking, conciliatory center-left. After Reagan came to power in 1981, he set out to reshape the federal government in his own anticommunist and white supremacist image, gutting and deregulating what he could. In the administration’s first year, Reagan’s housing secretary announced the end of the federal government’s role in solving the country’s housing programs. The administration moved toward no longer having a centralized federal housing policy of any kind, cutting HUD’s budget by three quarters and ending all new construction of federally-assisted housing. Direct federal subsidies to cities and other social service programs experienced parallel cuts. Municipal government officials understood what the federal government was doing but had limited power to do anything about it. When the federal government ended direct investment in new income-restricted housing construction, Seattle’s then mayor Charles Royer mourned “the abandonment of the federal commitment to provide shelter.”

These attacks on the social safety net were accompanied by a slew of banking deregulations, including the erosion of protections against speculation put in place after the Great Depression. This allowed for increasingly complex securitization of housing debt, which created the conditions for both aggressive investment in low-income neighborhoods that undergirds gentrification and the wanton speculation on housing mortgages, precipitating housing crises to come.

Federal withdrawal from housing provisions and the deregulation of the financial industry did not start or end with Reagan. While hampered by the real estate industry and inherent racism of property rights, direct federal allocation of funding for housing was central to affordable housing development in the postwar period.

This commitment began to erode under Nixon, who put an end to public housing construction, instead embracing private investment in low-rent housing and launching a series of disastrous homeownership programs. Carter’s housing programs continued this trend, seeking to frame federal housing funding as mere “seed” money for financing from the private sector, according to historian Rebecca Marchiel. And it was Clinton who partially repealed the Glass-Steagall Act, precipitating the 2008 mortgage crisis.

Nonetheless, Reagan was the accelerant for the privatization and abstraction of income-restricted housing provision. As a replacement to direct federal subsidies, the administration first tried to entice random rich people to invest in low-rent housing with a passive loss provision written into the Economic Recovery Tax Act of 1981, which allowed landlords to write off property depreciation. In some cases, this encouraged landlords to buy up apartment buildings, run them into the ground, and use their tenants’ misery to minimize their tax liability. Reagan’s second round of tax reforms, in 1986, presented an opportunity to fix this wholly foreseeable problem. The professionalizing community development field, emerging out of neighborhood struggles against disinvestment and focused on economic and housing growth, helped push for a tax credit replacement to the passive loss provision. As Miriam Axel-Lute, editor of the community development trade publication Shelterforce wrote in a multipart series on LIHTC, some affordable housing advocates like the president of the National Low Income Housing Coalition understood the potential inefficiency of a tax credit as compared to direct housing subsidies but viewed it as the only politically viable possibility.

As other programs withered, the newly invented LIHTC became the dominant affordable housing production program. It took a couple of years for financial institutions to understand how to exploit it, helped along by new organizations that acted as intermediaries between local community development groups and multinational corporations. Organizations like LISC and Enterprise, founded by the Ford Foundation in 1979 and a wealthy developer in 1982 respectively, lobbied for LIHTC extensively. After the tax law passed, they then figured out how to structure LIHTC deals in a way that minimized risk for investors while making themselves indispensable for all future deals. As sociologist Michael McQuarrie put it in his study of the emergence of LIHTC, intermediaries created a “new logic around which the organizational field would be constituted” in the late 1980s.

LIHTC did not succeed because it was particularly good policy but because its design aligned with dominant political ideology, which abhorred direct social spending and centralized planning. With time, the credit became normalized, and even celebrated as a bipartisan success story, despite its technical absurdity as policy. McQuarrie, after fellow sociologist Vivek Chibber, attributes this to the fact that our political system quickly “locks in place” laws and policies that favor powerful corporate actors.

Despite all its complexity, LIHTC became a lifeline for state and local governments, community development organizations, and business interests geographically situated in cities. Like other social issues, the federal government made housing a local problem to solve, while depriving cities of resources and championing economic policies that depressed wages (like financial deregulation and union busting). While intermediaries figured out how to use LIHTC in the late 1980s, cities struggled to contain skyrocketing homelessness, rising rent burdens, and landlord abandonment. The first LIHTC deal in 1987 supported an affordable housing development in Cleveland, a city cracking under the weight of Midwestern deindustrialization. According to McQuarrie, it was brokered by Enterprise’s key executives, midwestern financiers, and the local business improvement groups. A 1988 deal in New York’s Chinatown followed, where LIHTC equity helped pay for gut rehabilitation of two tenements that a local community development corporation, Asian Americans for Equality, was using as a temporary shelter.

Over time, state and local governments built an affordable housing development system oriented around LIHTC, developing housing financing mechanisms (including local tax breaks, capital subsidies, land use variances, and bonds) that depend on LIHTC equity. This orientation means that the needs of financial institutions define housing policy, and that local governments’ and community-based developers’ advocacy is intricately tied to the needs of the financial industry. Community developers who remain competitive have restructured their internal operations to revolve around LIHTC dealmaking and asset management: for-profit developers now dominate the income-restricted housing business because it is so lucrative. In a Shelterforce piece, housing expert Alan Mallach calls this organizational field the “Tax Credit Industrial Complex, a network of for-profit and nonprofit developers, investors, syndicators, and others for whom the LIHTC is a multibillion-dollar industry.”

The federal government fostered a policy environment where LIHTC was the only option: there was no alternative. LIHTC’s centrality in the United States’ affordable housing system—which replicates Reaganite biases and put the needs of low-income tenants in third place, at best—has created what Axel-Lute has described as an affordable housing finance monoculture. As reporting in Shelterforce shows, policies that don’t work with LIHTC or that pose a challenge to the financial industry are not taken seriously or are forever relegated to be studied or piloted on the side. This has been the story in local housing plans over the past thirty years and is playing out on a national scale, with Biden’s $37 billion commitment to LIHTC’s expansion.

Over the past thirty-eight years, the public has spent billions on an inefficient and haphazard affordable housing system that has everything to do with corporate tax avoidance and the shadow of the Cold War and little to do with housing. Like other neoliberal policies, LIHTC creates a hierarchy that exposes the most vulnerable to the most risk: investors are protected from nearly all risk in a LIHTC deal, large for-profit developers carry some, while smaller community developers carry more.

Tenants living in LIHTC-developments are most exposed and have the most to lose, living with minimal protections from rent hikes or bad conditions. Over time, the federal government and local housing agencies have worked to secure additional protections for LIHTC tenants. Today, thirty-one states award credits to developers who guarantee extended affordability in their buildings. In late March, the Biden administration announced that it would cap rent increases in LIHTC-supported apartments at 10 percent annually. Biden has championed other fixes to the program in his housing plan, including closing a loophole that has allowed predatory investors to bully community development groups into giving up their LIHTC buildings. These fixes are important for making LIHTC a little better, but do not address the fundamental problem with how affordable housing finance works in the United States, who it serves, and why it fails.

To move forward, we have to dethrone the financial industry from its role as the quiet housing policy kingmaker. Local community activists understood the danger of over-reliance on the market for housing provision in the 1980s, articulating, as Marchiel writes, “a variant of social democratic populism that ran contrary to the faith-in-free-markets meritocracy gaining credence in the suburbs and in Washington during this same period.”

In the past several years, a new generation of tenant organizers and nascent social democratic institutions have articulated a similar ethos, calling for investment in non-speculative forms of housing development, regulation of rents, and curbs on aggressive forms of real estate investment. Their proposals call for the rehabilitation of the federal public housing stock, the creation of state-based social housing development authorities, as well as laws that limit rent increases, extend eviction protections, and proactively enforce housing codes.

These types of housing policies limit the speculative potential of housing, privileging their social use. Taken together, they present a cohesive post-Reaganite housing vision, articulated by grassroots groups throughout the United States. But will mainstream Democrats listen?