Even If Congress Dithers, U.S. Housing Policy Pivots

As a presidential candidate, Joe Biden published ambitious plans for housing, including boosting funding, implementing various strategies to address discrimination in the housing sector and reversing Trump administration rules on fair housing.

Roughly nine months into Biden's administration, that work has begun in earnest.

Two bills being hotly debated in Congress could push that platform forward another huge step. The fate of both the infrastructure bill, known as the Bipartisan Infrastructure Framework, and the potentially much larger budget reconciliation bill, the Build Back Better Act, are in limbo. Both of them, but especially the reconciliation bill, promise major new funding for housing programs.

Yet even if neither bill musters the complete support of the wafer-thin Democratic majorities in Congress, and thus both fail to pass, federal housing policy is slowly shifting under the Biden administration, which has started the process of undoing Trump administration regulations and has kicked off initiatives of its own that don't require congressional approval.

Of the two bills, reconciliation would have the greatest impact on housing, even if the final version is smaller than the massive $3.5 trillion proposed by the administration, experts say. Lately, a ceiling of $1.5 trillion has been seen as most likely, should the bill pass.

“We certainly hope that a compromise can be reached on the reconciliation bill, because it includes historic investments in affordable housing initiatives to help address the pressing needs of low- and moderate-income residents,” Preservation of Affordable Housing Inc. President and CEO Aaron Gornstein said.

Though it is to be seen what actually passes, early versions of the bill include funding for a spectrum of affordable housing initiatives, including building new affordable rental apartments, renovating existing properties, and funding various services to families, seniors, veterans and people with disabilities. 

The initial version of the $3.5 trillion reconciliation bill calls for $327B for housing, a vast sum. Congress has not hashed out how much would go for housing in the $1.5 trillion reconciliation bill, but if the same proportion held true in the trimmed-down bill as the original proposal — 10.9% of the total — about $160B would be earmarked for housing. That would be large by historical standards, three to four times more than a single year's outlay for housing most years.

The federal government spent $51B on housing assistance in 2019, most of which went to Housing and Urban Development programs to provide rental assistance to low-income households, but also to support public housing upgrades, block grants and vouchers. Over the past 20 years, the entire budget for HUD (in real 2020 dollars) has usually been between $40B and $50B, though one year (2010) it exceeded $50B, and for a run of years after that (2011-13) HUD's budget was less than $40B.

The other measure still pending in Congress, the infrastructure bill, is mostly about transit spending. The bill does include a provision that would allow the Secretary of Transportation to transfer federal assets to a local government, nonprofit or other third party to create a transit-oriented development under certain conditions, especially that it includes an affordable housing component.

Much of the Democratic ambition for housing legislation this year was encapsulated by House Financial Services recommendations, largely the work of Rep. Maxine Waters, a Democrat from California and chair of the committee. The committee recommended funds to pay for a backlog in repairs to public housing, build new affordable units, provide rental vouchers and assist first-generation homebuyers with down payments, among other programs.

If the industry does get a massive infusion of capital, the challenge would be staying patient while state agencies and local jurisdictions determine how to get the resources to the organizations that can, in turn, deploy them where they are most effective, said Innovative Housing Opportunities President and CEO Rochelle Mills, who is an affordable housing developer in California.

The timing of HUD distributions varies widely, and in some cases has been measured in years. After Hurricane Maria hit Puerto Rico in September 2017, Congress allocated nearly $20B in relief for the commonwealth. About half of that total had yet to be distributed by early 2021, according to the HUD Inspector General.

And even such a large amount of money into affordable housing would not address all of the sector's issues, said housing activist Peter Rosario, president and CEO of New Jersey-based La Casa de Don Pedro.

“We have two primary concerns,” Rosario said. “First, the legislation fails to develop a pathway to eradicate racial discrimination and systemic inequities that have formed the basis for all of the issues the legislation is trying to combat.”

Also, he said, there isn't enough funding for the infrastructure, technology or human capital necessary for on-the-ground providers to effectively distribute these resources provided in the bill.

“Like everybody else, we're waiting to what happens to take these measures across the finish line,” National Low Income Housing Coalition Vice President of Public Policy Sarah Saadian said, adding that housing policy is slowly shifting in any case, as the new administration works its way forward.

Though few disagree with giving more money to housing initiatives, some of the changes Biden is eyeing are more controversial.

The biggest impact on policy in the Trump era was in rolling back policies intended to guide fair housing and civil rights protection, Saadian said, and restoring those has been a major focus of the Biden administration so far. 

Because there was a divided Congress under the last two years of the Trump administration, President Donald Trump relied on executive action and rule-making to change housing policies. Thus they can also be undone through executive action by the current administration, Saadian said.

Indeed, during the first days of his administration, Biden began the process of reversing some of the Trump administration's policies on housing, most notably the HUD rule known as “Preserving Community and Neighborhood Choice."

The Trump-era rule itself was a repeal of an Obama administration rule, "Affirmatively Furthering Fair Housing," which governed part of the enforcement of the 1968 Fair Housing Act, requiring local governments to document the steps they plan to take to eliminate discriminatory roadblocks in their markets.

Civil rights organizations were highly critical of Trump's reversal of AFFH.

"This administration continues its anti-civil rights agenda by rescinding the Affirmatively Furthering Fair Housing rule,” said Shamus Roller, executive director of the National Housing Law Project.

Proponents of the Trump action characterized the Obama rules as burdensome red tape.

"After reviewing thousands of comments on the proposed changes to the [AFFH] regulation, we found it to be unworkable and ultimately a waste of time for localities to comply with, too often resulting in funds being steered away from communities that need them most," HUD Secretary Ben Carson told Politico at the time.

In June, the Trump administration's reversal was itself reversed.

Another major shift in housing policy by the Biden administration so far came as the result of a Supreme Court decision handed down in June (Collins v. Yellen). The high court found that the Federal Housing Finance Agency was structured unconstitutionally, in that the director could only be removed for cause, instead of serving at the pleasure of the president of the United States. 

As soon as the court ruled that an FHFA director could be removed at any time, Biden removed FHFA Director Mark Calabria.

“Calabria had been following a policy of increasing the capital of the [government-sponsored entities] in preparation for privatizing them, and of reducing their risk to the taxpayers; his acting replacement forthwith reversed this course,” American Enterprise Institute Housing Center Director Edward Pinto and Alex Pollock wrote in Housing Finance International, in a critical assessment of the new direction of the agency and Fannie Mae and Freddie Mac, which are under its control.

“We are already seeing a sharp change in the regulatory marching orders for Fannie and Freddie — from a future as privatized companies to a future of being used to accumulate the risk of the government’s housing policies,” they wrote.

The new acting director of the agency, Sandra Thompson, counters that argument, asserting that the changes are necessary to expand the nation's housing supply.

“The severe shortage of affordable housing in America requires coordinated government action,” she said in a statement.

As part of the federal government's response, FHFA instructed Fannie Mae and Freddie Mac to increase their Low-Income Housing Tax Credit investments, with a goal of boosting the housing supply.

The Biden administration has also relaunched the partnership between the Department of Treasury’s Federal Financing Bank and the HUD Risk Sharing Program to enable eligible state housing finance agencies to provide low-cost capital for affordable housing development, and it has made more funding available to Community Development Finance Institutions and nonprofit housing groups for affordable housing production under the Capital Magnet Fund.

Though the administration has been in office less than a year, Mills said she is optimistic about the momentum to address affordable housing problems, both in the public and private sectors, which has been spurred as the coronavirus pandemic resulted in more housing displacement.

“I see more people offering thoughtful, viable suggestions to help move this process along than I have in quite a while,” she said. “Collaboration is critical, and seeing a willingness to do so gives me hope. I hope the public can hang on and maintain their support while we try to get this right.”