[Senate Hearing 117-827]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 117-827


                    PRICED OUT: THE STATE OF HOUSING IN  
                                  AMERICA

=======================================================================

                                
                                
                                
                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                                   ON

               EXAMINING THE STATE OF HOUSING IN AMERICA

                               __________

                             JULY 21, 2022
                               __________ 
                               



                               

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs 
 
 
 
 
 
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                 U.S. GOVERNMENT PUBLISHING OFFICE  
                 
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                        Pat Lally, Hearing Clerk

                                  (ii) 


















                                  

                            C O N T E N T S

                              ----------                              

                        THURSDAY, JULY 21, 2022

                                                                   Page

Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    26

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    27

                               WITNESSES

Lawrence Yun, Chief Economist and Senior Vice President for 
  Research, National Association of Realtors.....................     6
    Prepared statement...........................................    29
    Responses to written questions of:
        Senator Menendez.........................................    53
        Senator Sinema...........................................    53
Douglas Holtz-Eakin, President, American Action Forum............     7
    Prepared statement...........................................    40
    Responses to written questions of:
        Senator Sinema...........................................    54
Peggy Bailey, Vice President for Housing Policy, Center on Budget 
  and Policy Priorities..........................................     9
    Prepared statement...........................................    42
    Responses to written questions of:
        Chairman Brown...........................................    55
        Senator Menendez.........................................    56

                                 (iii) 
                                 


 
              PRICED OUT: THE STATE OF HOUSING IN AMERICA

                              ----------                              


                        THURSDAY, JULY 21, 2022

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order. Welcome to our witnesses.
    This hearing is in the hybrid format. Our three witnesses 
are in person today. At least one of our Committee colleagues 
may attend from their offices, and we have continued that and 
will likely for a good while.
    You cannot open up a paper or turn on the news without 
hearing about housing--how much it costs and how hard it is to 
find. The headlines tell the story.
    ``The Housing Shortage Isn't Just a Coastal Crisis 
Anymore'';
    ``Why High Housing Costs Could Keep Climbing'';
    ``High costs spur more baby boomers to find roommates'';
    ``What's up with the crazy housing market?''
    And those are just headlines in the past month.
    It is not a new problem. Wages have not kept up with the 
cost of housing for years and years. This country has not done 
enough to produce the housing we need. From 2000 to 2015, 23 
States, about half the country, fell 7.3 million homes short on 
housing production. This shortage, of course, makes housing 
more expensive.
    Congress has not done its job for years. It was just last 
year that we hosted in this Committee the first hearing on the 
state of housing in America in nearly a decade, one of the 
first things we did after I took the chairmanship.
    We talk about housing so much because it is the foundation 
of everything else in our lives. Where you live determines so 
much about your life--where you work, where your kids go to 
school, where you do your grocery shopping--and it eats up the 
biggest chunk of most people's paychecks. As Matthew Desmond, 
the author of the book Evicted, says, ``the rent eats first.''
    When housing costs are up, it means less money left over 
for groceries and gas and school supplies and prescriptions. 
For a lot of families, it also means crippling stress at the 
end of each month. How do I pay my rent? After I pay my rent, 
do I pay my electric bill or the water bill or the internet or 
daycare or pay off the credit card, or make a payment on the 
credit card, more likely?
    For years, the market has not produced enough housing that 
working people can afford.
    Home health aides, nursing assistants, and restaurant 
workers, working full-time, have long been paid too little to 
afford even a one-bedroom apartment, let alone fulfill the 
dream of actually owning their own home.
    Meanwhile, young, aspiring homebuyers have long faced 
insurmountable barriers to home ownership. They are crushed by 
student loan debt. Black and Brown families' parents were 
denied the dream of home ownership or had it ripped out from 
under them by predatory lending and cannot help with a 
downpayment, as many kids have been able to be helped.
    Over the past 2 years, with low rates making monthly 
mortgage costs just a little more affordable, some of these 
families thought that maybe, just maybe, now was their chance 
to buy a home. But they found themselves competing with wealthy 
buyers for too few homes. Often they were not losing out to a 
family with a little more money, they were outbid by Wall 
Street investors from out of town, paying in cash.
    Families told stories of spending more than a year looking 
for a home. A man in Senator Tester's State, in Bozeman, even 
resorted to standing on the side of the road wearing a sandwich 
board asking someone, anyone, to sell him their home. He had 
put in 18 unsuccessful bids. There was just nothing to buy.
    And now, with home prices rising to record levels and 
mortgage rates going up, home ownership is increasingly out of 
reach for renters hoping to lock in a steady monthly payment, 
find some stability, and build wealth.
    Recent cost increases have priced an estimated 4 million 
families out of home ownership. These are families who will now 
be renting, in a rental market that was already too tight.
    Median rents in May topped $2,000 a month, and that is if 
you can find somewhere to live at all.
    Bidding wars that used to be limited to homebuyers in 
``hot'' housing markets are now breaking out between renters in 
communities from Chicago to Port Orange, Florida, who are just 
trying to find a place they can afford.
    This exacerbates the wealth gaps we already had and put 
first-time home ownership further out of reach, especially for 
families of color. Because while millions of existing 
homeowners, who already had 40 times the wealth of the average 
renter, saw their wealth skyrocket as home values rose, 
renters, again disproportionately people of color, fell further 
and further behind.
    We have underinvested in housing and communities for 
decades. Now we see the consequences. A recent report found a 
shortage of nearly 3.8 million homes nationwide, double the 
shortfall we had just 10 years ago. Not a single State has 
enough homes to meet its families' needs.
    Unless we act, it is tough to see how renters, whether or 
not they want to buy a home, will ever catch up.
    The answer is clear. We need more housing. We need more 
housing available to buy for the millions of aspiring 
homeowners just starting out. We need more housing for renters, 
especially those with the lowest incomes.
    Our Committee Members are leading on efforts to find 
solutions. I would like to mention a handful of them.
    Senator Van Hollen has a bipartisan proposal with Senator 
Young to expand support for renters with the lowest incomes, 
because we know the market does not build housing that they can 
afford.
    Senators Reed and Collins have a bill to increase energy 
efficiency of our housing.
    Senator Menendez, also a Member of this Committee, has a 
proposal to help communities that want to make comprehensive 
housing and transit investments.
    Senator Warren, a Member of this Committee, has a bill to 
repair more of the homes we have, and to produce new housing 
that lower-income families, including families in rural areas 
and Tribal communities, can afford.
    Senator Cortez Masto, here today and a Member of this 
Committee, from Nevada, has a proposal to fund repairs in 
manufactured housing communities, to keep those communities, a 
key part of our housing in our country, to keep those 
communities affordable for their residents.
    And Senators Warnock and Van Hollen are cosponsoring a 
proposal to help communities invest in meaningful local 
projects and preserve the housing we have. We can do this while 
ensuring that we are not displacing families and seniors from 
the neighborhoods they love.
    I look forward to hearing from the three witnesses today 
about the challenges you are seeing, and your recommendations 
to support new housing in communities. We cannot deny this 
problem any longer. It is a problem across the country. It has 
been decades in the building. It is not a Republican or a 
Democratic problem. Congress must do better.
    Senator Toomey.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman, and welcome to our 
witnesses. Today we are discussing the recent, rapid rise of 
home prices and its impact on affordability. Of course, home 
price appreciation is not occurring in a vacuum. Inflation in 
the Biden economy is broad-based and severe.
    And despite promises to the contrary from the President and 
his advisors, inflation, fueled by reckless spending and lax 
monetary policy, has been an enduring phenomenon. Adjusted for 
inflation, wages have fallen almost every month since President 
Biden took office. The average American's real wages have 
fallen by 5 percent, and it has been even worse for blue-collar 
workers. So, it should come as no surprise that home ownership, 
like most goods and services, has become increasingly 
unaffordable.
    And with demand for home housing specifically, demand far 
outpaces supply in many, many regions. Why is this happening 
and why is the housing market not naturally correcting these 
imbalances? I would point to some bad policy decisions, 
especially those made by this Administration and some of my 
Democratic colleagues.
    During COVID, the Federal Government made a number of 
mistakes. Eight billion dollars went to rental assistance, 
vouchers, and other housing subsidies, and that is $80 billion 
above and beyond the hundreds of billions in ordinary housing 
subsidies we spend every year, and a significant sum of that 
remains still unspent.
    The Administration and Democrats in Congress dropped 
hundreds of billions of dollars, essentially helicopter money, 
to stimulate an already strong economy. They also unnecessarily 
extended and expanded foreclosure and eviction moratoria.
    Outside of the COVID emergency, the number and cost of 
housing subsidies boggles the mind. We provide tax breaks such 
as the mortgage interest and PMI deductions; capital gains 
exclusion on home sales; tax deduction on local property taxes; 
and Low-Income Housing Tax Credit. We subsidize mortgages with 
GSE securities guarantees; FHA, VA, and USDA mortgage insurance 
and Ginnie MBS guarantees; and downpayment assistance programs.
    We have an overlapping array of HUD and USDA programs, 
including project-based rental assistance; tenant-based rental 
assistance; public housing funding; Section 202 housing for the 
elderly; Section 811 housing for persons with disabilities; 
Section 521 rural rental housing; CDBG; HOME block grants; and 
homelessness assistance. It is unbelievable.
    And it is a fact that the vast majority of the massive 
Government support in housing subsidizes demand rather than 
supply. And even more amazingly, all this spending has not 
meaningfully changed home ownership rates over the decades nor 
narrowed the racial home ownership gap.
    In 1970, 52 years ago, the home ownership rate in America 
was 64 percent. Today, maybe trillions of dollars later, it is 
65 percent. And Black home ownership levels are almost the same 
as when the Fair Housing Act was passed in 1968. These 
Government policies have run up a lot of debt but they have 
mostly just made housing more expensive.
    If the Administration were serious about immediately 
lowering housing costs it would start by removing misguided 
trade barriers that drive up the cost of home construction. It 
could lift tariffs on lumber, steel, and aluminum, materials 
that are universally used in home construction across the 
country and which have cost consumers billions.
    In the last 3 years, American consumers paid at least $14 
billion more just on steel and aluminum imports because of the 
tariffs. We know lumber tariffs have contributed to price 
increases too.
    Unfortunately, the Administration is continuing to promote 
a reckless spending agenda that will make soaring housing costs 
even worse. In May, the White House released a plan to 
supposedly boost housing supply, but instead used the 
opportunity to add upward pressure on pricing by endorsing a 
partisan House-passed proposal to increase spending by $75 
billion on housing vouchers and $80 billion on public housing. 
Additional spending of this kind is only going to further fuel 
inflation.
    The White House plan also proposed pushing Fannie and 
Freddie into activities that prior Administrations understood 
created too much risk for taxpayers. In a break from decades of 
bipartisan efforts to reform the GSEs, the White House has now 
embraced the GSE conservatorships as a means for social 
engineering of its housing and racial equity policies.
    The FHFA recently relaxed restrictions on the GSEs' risk 
layering and acquisitions of investor and second home loans, it 
reduced the GSEs' guarantee fees, and it required the GSEs to 
develop equitable housing finance. Stunningly, the GSEs' new 
proposed pilot programs limit eligibility based on borrower 
race, and even go so far as to give taxpayer money to certain 
borrowers based on the color of their skin, to make 
downpayments.
    Yesterday, all Banking Republicans sent a letter organized 
by Senator Tillis to FHFA expressing grave concern about the 
legality and discriminatory nature of these new programs. I 
hope the FHFA Director will reconsider this discrimination on 
the basis of race and instead act to protect taxpayers from 
excessive risk as conservatorship envisions.
    Racial discrimination is always wrong, and this is no 
exception. Further, relaxing underwriting requirements to chase 
political priorities risks exposing low-income families, in 
this case minority families, to wealth loss.
    The state of the housing market only affirms the urgency of 
GSE reform. To improve housing affordability for both renters 
and owners, we should favor policies that leverage the power of 
free enterprise.
    We should phaseout demand-side subsidies like downpayment 
assistance and focus FHA on a narrow subset of borrowers. We 
should end the GSE conservatorships to ensure this and future 
Administrations cannot use conservatorships to influence the 
pricing and allocation of mortgage credit.
    For decades we have spent countless sums, and we have 
virtually nothing to show for it. It is time for meaningful 
reform that does not feature the same tax-and-spend strategies 
of the past.
    Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    We have three witnesses today. Dr. Lawrence Yun is the 
Chief Economist and Senior Vice President of Research in the 
National Association of Realtors. Dr. Yun served as an 
economist at the Realtors for now more than 20 years. Welcome.
    Dr. Douglas Holtz-Eakin has been on and off a regular at 
this Committee. He is the President and Founder of American 
Action Forum. He served as a commissioner in the congressional 
charged Financial Crisis Inquiry Commission, Director of the 
Congressional Budget Office, and on the President's Council of 
Economic Advisors. Thanks for your years of public service and 
your joining this Committee frequently.
    Ms. Peggy Bailey is also a familiar face, the Vice 
President for Housing Policy at the Center on Budget and Policy 
Priorities. She recently return to CBPP after serving as a 
senior advisor and rental assistance at the Department of 
Housing and Urban Development. Thank you for your public 
service and for joining us today.
    We will begin with Dr. Yun. Welcome.

  STATEMENT OF LAWRENCE YUN, CHIEF ECONOMIST AND SENIOR VICE 
    PRESIDENT FOR RESEARCH, NATIONAL ASSOCIATION OF REALTORS

    Mr. Yun. Chairman Brown, Ranking Member Toomey, Members of 
the Committee, thank you for inviting me to testify at this 
hearing.
    I am Lawrence Yun, Chief Economist and Senior Vice 
President of Research at the National Association of Realtors. 
I lead a research team as we gather pertinent and timely 
housing data and oversee research activity pertaining to the 
real estate industry. Most of our 1.5 million members are small 
business owners. Eighty-seven percent are classified as 
independent contractors. The most pressing concern expressed by 
our members over the years has been consistently lack of 
inventory and its impact on the housing market.
    The housing market activity, since the onset of the 
pandemic, has been quite surprising and extraordinary. Home 
sales reached multiyear highs. Home prices set new records. But 
beginning this year, market conditions have shifted 
dramatically. Our latest home sales activity shows five 
straight months of decline through June. The latest data, on an 
annualized basis, 5.12 million home sales. That would be 
actually below the 2019 annual total. In other words, current 
sales activity is trending below prepandemic activity.
    Single-family housing starts, the building activity, in 
June also fell for the fifth straight month, and now at the 
lowest point since the lockdown months in 2020.
    So even as home sales have softened in recent months, the 
median home price continues to set new records, in June 
reaching $416,000, which is a rise of 13.4 percent from 1 year 
ago. Other price measurement has shown appreciation rate of 
closer to 20 percent.
    I believe home prices are set to decelerate given the home 
sales' softening conditions, but I do not foresee any national 
home price decline. Some local markets may pull back somewhat 
from record-high home prices but any short-term price 
adjustment in these markets, if they occur, will be less 
consequential compared to the immense, long-term housing 
affordability challenges facing the country.
    Lack of supply in the housing market is not a new 
phenomenon. While it is certainly more noticeable now, even 
before the pandemic NAR estimated, our organization estimated 
nearly 5 to 6 million housing unit deficit in relation to the 
population and job growth in the country. The fast rise in 
rents and home prices are a direct consequence of the housing 
shortage that persisted even before the onset of the pandemic.
    So what does it exactly mean to be priced out when a solid 
majority of Americans are homeowners? Homeowners today are 
enjoying wealth gains arising from home price growth. After 
reasonably accounting for the 30 percent price rise over the 
past 3 years and very little cash-withdrawal refinancing that 
has been taking place, my estimate, because Federal Reserve 
data is as of 2019 and we are currently in 2022, so my estimate 
put the typical homeowner's wealth conservatively at $320,000. 
So that would be a median net worth for a homeowner.
    By contrast, the median renter net worth is likely to be in 
the $5,000 to $10,000 range, again, a vast difference between 
renters and homeowners.
    So homeowners, I would think, are quite content about the 
recent market developments and have fewer financial worries 
than non-owners. But this is the crux of the current housing 
affordability crisis. Renters are paying ever-higher rents with 
disappearing prospects of ever realizing the American dream, 
which many Americans associate with ownership, essentially 
owning part of America.
    So not only is home ownership more difficult to attain due 
to the housing shortage but the same housing shortage pressures 
are causing rents to accelerate in the current environment and 
crowding out savings. Unless we can address the supply issue, 
housing unaffordability will continue to be an ongoing issue 
for many Americans for many years to come.
    Thank you for the opportunity to present my views today.
    Chairman Brown. Thank you, Dr. Yun.
    Dr. Holtz-Eakin, welcome again.

           STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT, 
                      AMERICAN ACTION FORUM 

    Mr. Holtz-Eakin. Thank you, Chairman Brown, Ranking Member 
Toomey, Members of the Committee. It is an honor to be able to 
talk about the state of housing in America, and the key 
characteristic, as has been mentioned, is the high and rising 
prices in both the owner-occupied sector and in the rental 
sector. This has occurred despite the fact that in 2021, we saw 
record increases in supply, the largest number of single-family 
units in about 13 years, the largest number of multifamily 
units in three decades. All of that should lead you to suspect 
that the problem lies on the demand side of the market, and 
indeed I think there is a lot of evidence that that is the 
problem.
    Recently we have seen additional demand subsidies, the 
fiscal policies that Senator Toomey mentioned in his opening 
statement, but in particular the monetary policies of the 
Federal Reserve. In addition to keeping interest rates very 
low, zero, which means very low mortgage rates, they had a 
quantitative easing that included buying $30 billion of 
mortgage-backed securities each month. Why they chose to 
allocate $30 billion of capital to the mortgage market I do not 
know, but it had the unmistakable impact of fueling demand in 
the housing sector, and the house price appreciation came with 
it.
    Looking forward, that is about to reverse. So one thing we 
can expect is an enormously stressed housing market over the 
next year or 2 years. The Fed is reversing course and, yes, 
rates are going to be higher, and that means higher mortgage 
rates, and we have seen impacts on that already, as Dr. Yun 
mentioned. They are also going to unload about $35 billion a 
month of those MBSs, essentially switching, by $65 billion, 
that net impact on capital available in the mortgage market, 
and that financial tightening is going to have a very big 
impact.
    The Fed needs to do this. If you look at the consumer price 
index, shelter is about a third of the consumer price index. 
Shelter inflation is about 5.6 percent, and has been rising 
since January of 2021, uninterrupted. We have yet to see a 
peak, and it probably will not peak below 6 percent.
    If the Fed wants to hit a 2 percent target and shelter 
inflation is at 6 percent, everything else has to be zero. That 
is not going to happen. So the Fed needs to bring down shelter 
price inflation and it will increasingly raise rates and 
tighten financial conditions until it does.
    This is also a traditional channel for monetary policy, to 
lower the demand for housing, lower the construction of 
housing, and thus lower the production of furnaces and water 
heaters and all the things that go into housing. It has broad 
impacts on the economy. Ironically, they are in the position of 
having to do this because of the policy errors we have made at 
a time when there is record-low inventory. So I expect a very 
stressed housing market over the next couple of years.
    Longer term, there is this array of demand subsidies that 
exist and have done very little to change the overall rate of 
ownership in the United States. And I would highlight 
especially the continued role of the GSEs. They have been in 
conservatorship for 14 years, they remain seriously 
undercapitalized, and yet we have done a U-turn and relaxed the 
capital standards in recent months. They have now undertaken 
this initiative for equitable housing finance plans. These are 
demand subsidies by another name. They go the wrong direction 
at the wrong time and have an array of defects in the form of 
social engineering and racial discrimination.
    I would very much fear that this is a return to the mission 
creep that we have seen out of the GSEs in the past that 
exposed taxpayers to enormous risk, and which resulted in 
generational wealth losses for many communities of color in the 
housing bubble.
    So I think it would be wise for the FHFA to finalize a rule 
on prior approval of enterprise products and make sure that the 
mission drift gets stopped and the taxpayer gets protected.
    If there are going to be some policy changes they should 
focus on the supply side and the production of housing. I would 
second the recommendation of dropping the tariffs that make 
construction more expensive. They are simply wrong-headed 
policy moves. I think it would be wise to think hard about the 
workforce available in the construction sector, and that would 
mean returning to some of the apprenticeship programs that were 
in place under the previous Administration and were abandoned, 
the IRAPs. Immigration reform is a great way to improve the 
availability of labor in the construction sector. That should 
be on the table. And it would be wise to pare back any 
permitting obstructions and other unwanted land use 
restrictions at the local level in order to increase the 
supply.
    I thank you for the chance to be here and I look forward to 
your questions.
    Chairman Brown. Thank you for being here.
    Ms. Bailey, welcome. Thank you for joining us.

 STATEMENT OF PEGGY BAILEY, VICE PRESIDENT FOR HOUSING POLICY, 
             CENTER ON BUDGET AND POLICY PRIORITIES

    Ms. Bailey. Thank you. Chair Brown, Ranking Member Toomey, 
and Members of the Committee, thank you for the opportunity to 
testify before you today. My name is Peggy Bailey. I am the 
Vice President for Housing Policy with the Center on Budget and 
Policy Priorities, a nonpartisan policy research institute.
    The Nation's most pressing housing problem centers on the 
millions of people with low and extremely low incomes who are 
not able to afford stable housing. Several factors contribute 
to this problem. First, we obviously lack sufficient supply of 
affordable rental housing. Data show that over the last 18 
months we had a housing development boom. However, this boom 
may have plateaued and is not enough to overcome the existing 
rental housing deficit, plus without Federal and State 
intervention these new units will largely be unaffordable for 
people with low and extremely low incomes.
    Second, shortages of affordable housing single-family homes 
means that renters that might be ready for home ownership stay 
in rental housing longer, reducing vacancy rates, and driving 
up rental costs. Also, we are losing affordable rental housing 
stock as properties come to the end of their initial 
affordability obligations, typically about 20 to 30 years, or 
become so deteriorated that they must be demolished without 
being replaced.
    And finally, often missing from the housing supply 
discussion is the importance of housing vouchers which help 
low-income families better afford housing. For families with 
the lowest incomes it is too simplistic to call vouchers or 
rental subsidies purely a demand-side intervention. These 
families do not have incomes high enough to afford any quality 
housing unit because landlords must set rents at least high 
enough levels to cover their own costs to operate the building, 
to properly maintain the building, and to pay any debt that 
they owe.
    We have seen what happens to rental housing when operating 
costs are not adequately funded. That is what has happened to 
public housing, project-based rental assistance units, and 
other Federal programs with inadequate or no ongoing operating 
support. Vouchers correct this mistake by helping families 
afford rent and giving landlords and owners the resources they 
need to pay their bills and maintain their properties, which 
bolsters supply.
    To make this point clearer, the average extremely low-
income renter household had an average income of about $11,000 
in 2019, thirty percent of that income the industry benchmarked 
for housing affordability. For this family it was about $280 a 
month. But in 2019, the average market rental units' operating 
costs were $520 a month, and over $580 a month if the landlord 
paid utilities. These figures have surely risen substantially 
since then.
    In the past, our solution as to build public housing. Now 
we use housing vouchers. Vouchers allow people more choice of 
where to live and are a tool to reduce segregation of people 
with low incomes, which are disproportionately people of color, 
into neighborhoods that have historically been disinvested in. 
It is important to know that housing agencies can project-base 
vouchers to guarantee that developments include units 
affordable for families with low or extremely low incomes.
    Investing in the housing voucher program can also mitigate 
the need for new, affordable units by allowing people who live 
in high-quality units and their desired neighborhood to stay in 
place. We are confident that housing agencies, if properly 
resourced with funding for the vouchers and for the 
administrative costs, would be able to use many additional 
vouchers, particularly if new resources are targeted to 
agencies that already have high utilization rates today.
    In fact, the Emergency Housing Voucher Program, funded 
through the American Rescue Plan, demonstrates housing 
agencies' ability to utilize new vouchers. Even under difficult 
rental markets, so far they have been able to house 26,000 
households who were experiencing or at risk of homelessness or 
survivors of domestic violence.
    To effectively address these issues, Congress should 
support major increases to the Housing Voucher Program. Most 
immediately the Senate Transportation and HUD Appropriations 
Subcommittee should fund at least 140,000 new vouchers passed 
by the House Appropriations Committee along with adequate 
funding for voucher administration; increase capital funding 
for deeply affordable rental housing; prevent the loss of 
existing affordable housing; remove barriers to home ownership; 
and as noted more thoroughly in my written testimony, we cannot 
forget the unique housing challenges for people living in 
Tribal lands. Increasing resources for Native American, Alaska 
Native, and Native Hawaiian affordable housing is essential.
    Thank you for the opportunity to testify and I look forward 
to answering your questions.
    Chairman Brown. Thank you, Ms. Bailey.
    The questioning will begin with the Senator from Georgia, 
Senator Warnock.
    Senator Warnock. Thank you so very much, Chairman Brown.
    Since 2019, rent in Georgia has increased 13.7 percent, one 
of the highest increases in the country and far exceeding 
income growth over the same period. Meanwhile, for the first 
time since it began tracking data, the Federal Reserve Bank of 
Atlanta has deemed the Atlanta housing market as unaffordable, 
forcing more and more prospective homeowners, as you point out, 
to keep paying rent.
    And let us be clear. This is not just a city of Atlanta 
problem. Everywhere in Georgia people are feeling the pinch. 
Dawson County, which has a population of around 25,000, has a 
lower home ownership affordability index than Fulton County.
    The best way we can lower prices is to increase supply, and 
I have supported several bills that do just that. But Georgians 
do not have the luxury to wait several years for home prices 
and rents to fall.
    Ms. Bailey, what are some immediate solutions we can offer 
renters, especially those who spend a significant proportion of 
their income on rent, to help them provide the relief they so 
desperately need?
    Ms. Bailey. Thank you, Senator, for that question. The most 
immediate thing that we can do to help renters is to provide 
rental assistance, mainly through the Housing Choice Voucher 
Program. That can immediately give renters the relief that they 
need to be able to afford the other things that Senator Brown 
mentioned in his opening statement--food, transportation, 
clothing, school supplies. Giving someone a housing voucher 
will allow them to only pay about 30 percent of their income 
toward their rent so that it frees up more income for other 
needs.
    Senator Warnock. Do you think that offering tax cuts to 
rent-burdened individuals might be helpful?
    Ms. Bailey. Tax credits can be helpful to renters. Being 
able to give renters more cash to just be able to pay their 
basic bills can be more helpful.
    Senator Warnock. OK. And when we passed the American Rescue 
Plan one of the provisions in that bill was the single largest 
tax cut for middle- and working-class families in American 
history, and I regret the fact that we were not able to get it 
extended. But do you think that kind of tax cut could have been 
helpful?
    Ms. Bailey. Absolutely. As you mentioned, those provisions 
in the American Rescue Plan helped significantly reduce poverty 
for children, and so extending those, doing more of those can 
only help low- and middle-income families.
    Senator Warnock. Georgia is in the middle of a housing 
crisis, as we point out, and understanding how large, 
institutional investors and Wall Street private equity firms 
from outside Georgia affect the market is also an important 
part of this puzzle, it seems to me. According to the National 
Association of Realtors, institutional buyers made up 13 
percent of the residential sales in 2021. However, 
institutional landlords do not look to acquire properties 
uniformly across the country. In Georgia, institutional buyers 
made up 19 percent of all sales--19 percent--the second-highest 
in the Nation, and according to a survey by CoreLogic mostly 
out-of-State investors made almost 43 percent of all purchases 
in the Atlanta area in late 2021.
    Dr. Yun, what effects are targeted, private equity 
investments having on the housing market in cities like Atlanta 
and the surrounding areas?
    Mr. Yun. Well, certainly we hear that from our members in 
Georgia realtors, that institutional buyers are coming in and 
essentially pushing away first-time buyers, especially those 
requiring first-generation buyers such as taking out an FHA 
mortgage or VA mortgages. They have very little chance. And 
furthermore, it changes the dynamics of the neighborhood, where 
you have a distant landlord overseeing renters and having 
homeowners who are deeply rooted into a community.
    Senator Warnock. What data do we need to fully understand 
how institutional investors are influencing our housing 
markets?
    Mr. Yun. Data collection is very important. So the 13 
percent institutional buyers you referred to certainly are 
people who are buying. They may be upgrading it in order to 
sell. But they are also people who are permanent, corporate 
landlords, and I think that is where the concerns are expressed 
among our members, where it is essentially just leading into 
more renter Nation rather than giving opportunity to buy a home 
for people who are of a more moderate income.
    Senator Warnock. I think that we need research to 
effectively understand how private equity is impacting markets 
in Atlanta and Georgia and all across the country, and I look 
forward to introducing legislation very soon to address that 
very issue.
    Thank you so much. Thank you, Brother Chairman, for letting 
the most junior member of the Senate go first. I appreciate it.
    Chairman Brown. Thank you, but not junior in wisdom. Thank 
you, Senator Warnock.
    Senator Toomey is recognized.
    Senator Toomey. Thank you, Mr. Chairman. Dr. Holtz-Eakin, I 
want to follow up on a point that you made, and actually I 
think that Ms. Bailey touched on this point, which is that in 
recent years we actually have seen a big surge in supply. Does 
the data suggest that that is true about both single-family and 
multifamily housing?
    Mr. Holtz-Eakin. Correct.
    Senator Toomey. Yeah. So it seems to me, especially given 
in light of that fact, and when you look at the prices across 
the whole economy, a lot of the price escalation is probably a 
reflection of the general inflationary environment we are in. 
Does that make sense?
    Mr. Holtz-Eakin. Yes.
    Senator Toomey. And as you point out, the Fed made it 
particularly egregious, in my mind, by choosing to allocate 
credit in the mortgage space, where there was no problem. It is 
not as though the mortgage market was not functioning. And for 
months and months and months, arguably over a year after we 
were well past the crisis, they kept pumping money into 
subsidizing mortgages, which lowered the rate of mortgages 
relative to where they would otherwise be, at a time when the 
housing market was clearly overheating, as the economy was 
generally.
    But it certainly seems as though we still need more supply, 
and you alluded to, you touched on a few of the factors that 
seem to be contributing to higher costs and holding back supply 
material costs, which I mentioned----
    Mr. Holtz-Eakin. I agree.
    Senator Toomey. ----permitting and land use, which in some 
cases restricts the ability to build new homes, labor shortage. 
Could you elaborate at all on, you know, what is holding back 
the supply that the market seems to be looking for?
    Mr. Holtz-Eakin. I do not think any single one of those 
issues stands out as the key. It is the combination. There are 
just too many impediments to finding suitable land, building 
the density necessary, if you had an urban area and you need to 
produce affordable rental units, and finding the workers to do 
it. Those problems exist across the economy.
    Senator Toomey. Right, and they do not go away with the 
wave of a wand.
    Mr. Holtz-Eakin. No.
    Senator Toomey. So we have gotten kind of a surge in 
supply, but it is probably not realistic to think we are going 
to have this massive boom. I just want to ask----
    Mr. Holtz-Eakin. Can I emphasize one thing?
    Senator Toomey. Yeah. Go ahead.
    Mr. Holtz-Eakin. You know, people would love to solve this 
problem quickly. That would be great. But to solve it quickly 
requires an enormous residential construction boom, which is 
exactly the wrong thing for the economy right now. So thinking 
short-term fixes is not the solution. You have to put it into a 
long-term strategy.
    Senator Toomey. So the other thing that I am concerned 
about is further demand-side subsidy is going to make the 
pricing problem worse.
    Mr. Holtz-Eakin. I agree.
    Senator Toomey. I think of the analogy that comes to mind 
is what we have seen in higher education for years. With all 
good intentions there are all kinds of Federal programs that 
have subsidized higher education. And what have we seen? 
Skyrocketing costs in higher education, long before inflation 
occurred generally in the economy. It was happening there 
because the Federal Government just kept throwing money at it. 
And yet we see all these proposals for further demand-side 
subsidies.
    Recently your fellow witness, Mr. Yun, was quoted as saying 
a proposal for downpayment assistance featured in the 
Democrats' Build Back Better plan would, and I quote, ``add 
demand on top of already strong demand so you will push up 
housing prices even further,'' end quote. He also stated that, 
quote, ``that is a game for current homeowners, not home 
buyers,'' end quote. And I wonder if you agree with that 
assessment. Is that a big part of the net effect of these 
further demand-side subsidies?
    Mr. Holtz-Eakin. Yes. I completely agree, and this is a 
common strategy in Federal policy where there is a high price 
and rather than dealing with the supply problem you subsidize 
demand further and make your problem harder.
    Senator Toomey. And then with respect to the FHFA, we have 
seen this new requirement that the GSEs submit this Equitable 
Housing Finance Plan, which is meant to promote housing equity. 
The plan, as I understand it, proposes subsidizing downpayments 
and other mortgage costs such as appraisals and title insurance 
on the basis of race. So this seems to be a mechanism that is 
likely to contribute to inflation, but it is also a very 
disturbing exercise of social engineering on the part of 
unelected folks over at FHFA.
    First of all, do you see that whole mechanism as consistent 
with FHFA's statutory obligation for their conservatorship to 
require to return the GSEs to sound and solvent condition and 
preserve and conserve their assets? Is this really supposed to 
be part of their mission?
    Mr. Holtz-Eakin. No, it is not, and after 14 years they are 
still not adequately capitalized and they are now expanding the 
credit blocks in many ways, and they will, as a result, be at 
greater risk of losses, and that is exactly the wrong direction 
for the FHFA to take them.
    Senator Toomey. All right. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey.
    Senator Tester, from Montana, is recognized.
    Senator Tester. Thank you, Mr. Chairman. I do not think 
Montana is an outlier here. I mean, I think just about 
everywhere in the country there are housing shortages. In the 
faster-growing areas it has come to the point where we have 
teachers in Montana that either do not take the job or live in 
a KOA campground because the houses are just too unaffordable. 
This is occurring because, of course, demand, we have got a lot 
of folks from Texas, we have got a lot of folks from the coast 
that are moving into Montana, which would make me think that 
there would be houses for sale in Texas and in San Francisco 
and L.A. and those kinds of places, but I am not hearing about 
any housing surpluses there.
    Dr. Yun, could you give me at least a little insight into 
what the hell is going on and why 1 month we have housing 
surplus and then 6 months later we have not near--I mean, not 
near enough houses.
    Mr. Yun. Well, any economic data, particularly on housing, 
there could be some volatility on the month-to-month movement 
part. But if one looks at the longer-term trend what one finds 
is that in the aftermath of the terrible foreclosure crisis of 
15 years ago, home builders, especially the small home 
builders, really never came back to the market, and 
consequently there has been a decade of underproduction across 
the country in relation to the population growth. So if you are 
not producing houses while the population is rising then we 
have a shortage.
    But this shortage continues to intensify with each passing 
year and consequently the Nation, as a whole, we estimated that 
there were about 5 million housing units short--apartments, 
single-family, you name it, we were short. So that is why we 
have a housing shortage in Texas, California, Montana, because 
we have simply not built enough.
    Now in relation to the recent trend that you are 
absorbing--people from Texas moving into your State--there was 
a housing shortage in Texas. So maybe people who are moving to 
Montana, they are just creating the demand in Montana, causing 
a housing shortage in your area, but people who are leaving 
Texas, that is a small drop in the bucket compared to the 
housing shortage that they are currently experiencing.
    Senator Tester. So Senator Toomey and I disagree once in a 
while but every once in a while we agree too. But one of the 
things that is obvious to me is the fact that we have got a 
problem. It is having some major impacts on economic growth in 
the small towns, because there is no place for workforce to 
live, there is no place for entrepreneurs to live. Doing the 
right thing is important here. We do not want to exacerbate the 
problem. We want to make it better.
    Dr. Holtz-Eakin said that we need a long-term plan. I have 
got 2 minutes left and I do not want you to spend 2 minutes on 
a long-term plan, Doctor, but could you give me a little 
insight? I mean, this problem will fix itself but it may take 
30 years. I do not know that 30 years is particularly good for 
businesses that, by the way, have a hard time under the best of 
circumstances.
    So could you give me just a little insight into what should 
be in the long-term plan that actually would result in more 
houses on the market?
    Mr. Holtz-Eakin. I think that broadly you want to take the 
dollars that are being currently devoted to demand subsidies, 
the long array that Senator Toomey mentioned is opening, and 
channel those toward things which would generally expand the 
production, the physical production of housing, including 
providing, in some cases, the land necessary. I saw something 
yesterday that the Federal Government owns 40 percent of the 
land in California. Land is the scarce good in the California 
housing market. They might want to supply some land to the 
housing market.
    Senator Tester. So what you are talking about is investing 
in workforce training? Is that part of the deal?
    Mr. Holtz-Eakin. I do not think we need a big, new 
workforce training program. We have workforce training 
programs. I think we need to think hard about our immigration 
strategy and have it work as a tool of economic policy. I am 
happy to expand on that at some other time. And I think we had 
some really promising apprenticeship programs that were started 
under the previous Administration and have been abandoned, 
these IRAPs which were very popular and could be deployed 
across different sectors of the economy. Those, I think, would 
be promising ways to go.
    Senator Tester. Ms. Bailey, in the little time that I have 
left, from a rural perspective what would you view the state of 
housing in rural America, and is it markedly different than in 
urban America?
    Ms. Bailey. I appreciate that question and it is really 
important to have a focus on rural America. I think that the 
issues are related but need to be addressed in a different way, 
because it is not necessarily the case that we should build a 
100- or 200-unit building in rural America. What we need are 
things like manufactured housing and tools to be able to 
finance smaller projects to exist throughout a community so 
that it blends in with the rest of the community and we can 
address the housing need in rural America.
    The Low-Income Housing Tax Credit is not designed right now 
to be able to do that. The properties that the Low-Income 
Housing Tax Credit fund are usually larger.
    So we need tools like what President Biden included in his 
fiscal year 2023 budget, the $50 billion in supply that would 
allow for smaller projects to be able to financed so that they 
do not rely on the Low-Income Housing Tax Credit and they do 
not need as many pieces of the capital stack to be created.
    Senator Tester. All right. Thank you. Thank you to all 
three of you. I appreciate you being here, and thank you.
    Chairman Brown. Thank you, Senator Tester.
    Ms. Bailey, thank you, and I appreciate what you said about 
manufactured housing. Let us dwell on not necessarily that but 
just demand generally.
    We have seen reports that housing starts are up, but a 
$3,000-a-month apartment in Washington does not help a low-
income resident in East Cleveland. What kind of housing you are 
building and where, obviously, those things matter. Is the 
housing we are building matching up with incomes and size and 
accessibility needs of renters? If not, talk through that and 
what do we need to do to make sure we have enough housing that 
is affordable to families?
    Ms. Bailey. Thank you for that question. You are hitting 
the nail on the head on the challenge. As I said in my 
testimony, we have partly been in a development boom over the 
last 18 months, but as the Joint Center for Housing Studies 
shows the average rent in those multifamily properties is about 
$1,700 to $1,800 a month, where the median renter can only 
afford about $1,000 a month.
    So that right there shows you that the market is targeting 
units to the upper end of the market and not making units 
affordable.
    So what we need are strategies that both enhance supply and 
add capital dollars to supply, but then add subsidies to be 
able to make those units affordable so that we can properly 
operate those buildings, owners can pay their bills, and 
programs like the Housing Choice Voucher Program do that. They 
allow for renters, especially low- and extremely low-income 
renters to be able to afford market housing.
    Chairman Brown. Thank you. And Dr. Yun, expand on what Ms. 
Bailey just said about making housing more affordable for 
families.
    Mr. Yun. Certainly the supply is required, and I know it is 
not a 1-year solution but we also have to combine the rental 
subsidy with the long-term supply solution. If one looks back 
in the U.S. history, there were times when we encountered 
recession and then we came out of the recession. Often when we 
came out of the recession it was due to the housing production, 
building more apartments, building more single-family homes.
    The recent Great Recession was a little different because 
the housing market came slowly. The building activity came 
slowly with the small mom-and-pop buildings really reentering 
the market.
    So if we look at, in the past, we had a tremendous amount 
of economic boom as we built more homes, whether it was 
apartments, single-family, certainly it creates jobs, adds to 
the economic impact, and certainly it would lessen the pressure 
on the housing costs, whether on the rent side or on home 
prices.
    So I think something to address that we need to boost 
supply, and then of course we need to address the short-term 
needs on the demand subsidy for people who are in that 
difficult situation.
    Chairman Brown. Thank you. Continue on that, Dr. Yun. We 
know the Fed has raised interest rates three times so far this 
year. They may do it again, people expect. Discuss what rising 
interest rates meant for homeowners in terms of their monthly 
costs, and if you can, estimate how many people do you estimate 
this might push out of the home ownership market and what 
affect does it have on the rental market.
    Mr. Yun. So you combine the impact of the higher prices 
along with higher mortgage rates currently prevailing versus 
what it was just 1 year ago, or even December of last year. We 
estimate that monthly mortgage payments on a typical home in 
America has risen by close to 50 percent, 48 percent. Just 
consider what people find very dear, trying to purchase a home, 
it has risen by 48 percent, in our estimation, from the changes 
in prices and mortgage rates.
    Chairman Brown. That is the monthly payment goes up.
    Mr. Yun. Monthly payment for a new set of buyers. Now for 
existing homeowners who locked in of course their monthly 
payment----
    Chairman Brown. Not the price of the house but the monthly 
payment.
    Mr. Yun. Yes.
    Chairman Brown. OK. Got it. So what effect does that have 
on the rental market then?
    Mr. Yun. So naturally we are seeing the home buying demand 
soften, which means that people who thought they had a chance 
to buy a home essentially being locked out. They have to renew 
their lease, and now we are seeing rental demand rising, which 
now is leading to rent acceleration. The official Government 
data is showing rent rising about 5 percent, but many private 
sector information is saying rents are rising even faster than 
that.
    So right now we are in very low vacancy rates for 
apartments, and consequently the rent rising is a heavy burden 
for renters.
    Chairman Brown. Ms. Bailey, any additional thoughts on 
that?
    Ms. Bailey. Only that to just put a point on the fact that 
this is an extremely important issue for extremely low and low-
income families, that they feel the pressures the most, which 
leads to housing instability for them, including homelessness.
    Chairman Brown. So pushing someone who was on the verge of 
buying a home back into the rental market, or staying in the 
rental market and the pressure that puts all the way down to 
lower-income renters.
    Ms. Bailey. Exactly.
    Chairman Brown. Thank you. Senator Hagerty, of Tennessee, 
is recognized, if you are ready.
    Senator Hagerty. Thank you, Mr. Chairman. Thank you very 
much, and to our witnesses, thank you.
    Dr. Yun, you and I have actually met before. You used to 
frequent Professor Dewey Daane's events at Vanderbilt 
University, my alma mater, so it is good to see you here. Dr. 
Holtz-Eakin, it is good to see you again too. We met a number 
of years ago, in a different role. And welcome to you, Ms. 
Bailey.
    I thought I would start out with you, Dr. Holtz-Eakin. 
Today in your testimony, earlier, you did a very convincing job 
of relaying how housing prices have been moving upward very 
dramatically here in the United States. And one of the issues 
that I wanted to discuss with you is the artificial increase in 
price that the Davis-Bacon Act forces for affordable housing.
    You seemed to describe very well what is to me a supply 
problem here, and we have got Davis-Bacon Act requirements that 
essentially add roughly $30 per square foot to the cost of the 
home. I would just like to get your thoughts on what that might 
do in terms of incentivizing developers to go in a different 
direction. Where does that impact the supply of housing when we 
are desperately in need of more supply?
    Mr. Holtz-Eakin. Well, certainly an artificially inflated 
wage is a cost that has to be included in the prices of the 
unit, and it does not really make sense to have a law that does 
it, that you should pay prevailing wages, you know, set by 
market conditions wherever you are building. That would be a 
preferable way to go, in my opinion.
    It leads to higher costs--there is no question about that--
but it also changes the builder's calculation of what kind of 
unit to build. Will you build a low-income unit when you have 
already got that base cost in there? You might want to build 
something at the upper end of the market, and we have seen that 
happen in recent years.
    So I think it is on that list of things that is causing the 
costs of building to be artificially inflated, and taking those 
costs out would be a good idea.
    Senator Hagerty. Yeah, I think the Berkeley study indicated 
a $30-per-square-foot impact. You know, that could be 10 to 20 
percent, depending on the State that you live in. In my State 
of Tennessee it is going be on the higher end of that spectrum. 
But this is a significant increase in the cost of affordable 
housing, and I think your point is well taken that it would 
have a very negative impact on price.
    I would like to stay with you for a few more minutes, Dr. 
Holtz-Eakin. There is now a voucher program that is being 
negotiated by appropriators. They are talking about 140,000 
vouchers, roughly $30 billion of more demand, it looks to me, 
coming into a marketplace again that is constrained on the 
supply side. What would you predict the impact of these 
vouchers to be on the supply of housing and the price?
    Mr. Holtz-Eakin. A permanent expansion in subsidies for 
demand is going to raise prices. That is an unmistakable 
directional implication of this. And perversely, at the moment, 
you could spend that money, say, next year, and the Fed will do 
everything within its power to undo the impact of that demand 
stimulus because they are trying to cool the market, and need 
to. And so it will be a lot of taxpayer dollars to no 
particular good effect.
    Senator Hagerty. You mentioned the Fed. I would like to 
come to you, Dr. Yun, to talk a bit about what is happening 
right now. I think the Fed's job has been made enormously 
difficult because of the policies that have been implemented, 
whether they are policies that have waged war on the oil and 
gas industry here that have driven prices through the roof--
everybody that has been to the pump knows this--the policies 
that drove, you know, massive stimulus package that was passed 
on a completely partisan basis in March of last year. We have 
got inflation at levels that we have not seen in more than 40 
years.
    So the Fed has been required to do a couple of things. One, 
the mortgage-backed securities on their balance sheet are an 
enormous number, and they are letting those run off right now. 
Chair Powell actually indicated to me that he would not rule 
out selling at a loss these mortgage-backed securities. So I 
can imagine what impact that might have on the marketplace and 
also raising rates.
    So if you think about this in the context of the Fed's 
required actions right now, whether it be selling mortgage-
backed securities or raising rates, how does that impact? These 
inflationary policies that have driven it are having a very 
important impact on the housing market. If you could just take 
us through the logic of that.
    Mr. Yun. You know, the spread between the 10-year Treasury, 
this morning I saw it at 3 percent. Under normal circumstances 
the mortgage rate should be about 4.8 percent. Rather, we have 
a mortgage rate that is 5.8 percent because of the undoing of 
the quantitative easing and quoting the potential sell of the 
mortgage-backed security and also not repurchasing. So we have 
a much larger spread which is leading to a home sales decline.
    Many Realtors--again, we have 1.5 million Realtors across 
the country, including from Tennessee, and they ask, ``When 
will the mortgage rate stop rising?'' And I say once the 
inflation begins to top out and begins to show that it is 
peaking and we will decelerate.
    So anything to constrain the overall consumer price 
inflation, then the market, I think, will begin to say, well, 
maybe we have topped out on inflation and mortgage rates could 
also top and maybe even decline somewhat.
    Senator Hagerty. Well, it seems that inflation continues to 
go just one direction now, and that is up. You look at last 
month's posting of 9.1 percent. That was an acceleration from 
8.6 the month before. I am very concerned about the direction 
that it is going. And again, the policy decisions that are 
being made by this Administration seem to be all in favor of 
more inflation.
    So I am concerned about the impact on the housing market in 
my own home State. We are hearing it loud and clear; mortgage 
rates are up. That makes housing less affordable. And I am very 
concerned about the negative impact it will have on the housing 
market, and long term the effect it will have on supply that 
you have both done such a good job of explaining that is indeed 
what the problem is.
    Thank you all for your testimony. I appreciate it. Thank 
you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Hagerty.
    Senator Menendez, from New Jersey, is recognized.
    Senator Menendez. Thank you, Mr. Chairman. Home ownership 
has long been a cornerstone of the American dream, and 
countless American families have purchased homes as a pathway 
to the middle class. Yet according to the National Association 
of Realtors the home ownership rate for Black and Hispanic 
households is significantly less than it is for its White 
households.
    Dr. Yun, what do you believe are the top three reasons that 
the Black and Hispanic home ownership rates have consistently 
lagged behind those of White households?
    Mr. Yun. America is a great country but we also have to 
recognize some of the past mistakes, some legal discrimination 
that was taking place prior to the Fair Housing Act, which has 
a legacy impact throughout. We are seeing the downpayment as 
the major barrier for first-time buyers. So they try to save it 
up. Sometimes it requires getting help from the family members. 
And due to, again, the past situation that sometimes you have 
the members of minority households who are less able to get 
assistance from family members, which then places the others at 
an advantage, or one group at an advantage over the other. So 
downpayment assistance is very important.
    One has to also look at the proper credit underwriting 
standards. Is there something that is preventing minority 
households from being able to get a mortgage given other 
circumstances? I like the ideas of, say, changing some credit 
scoring models who have demonstrated the financial 
responsibility of paying, say, rents on time, utility bills on 
time. Certainly they will be in a much better position to take 
on responsibility for home ownership.
    And finally, it is about the supply. Lack of supply means 
home prices zoom up, but even as people's income rises, if 
prices rise even faster that will be a major barrier.
    Senator Menendez. I appreciate that answer. I would add 
that Federal lens and policies created racial segregation, a 
dual credit market, institutionalized redlining, and other 
structural barriers, some of which you have mentioned, that 
contribute to the differences between the rates of ownership.
    What has not been mentioned is how property tax assessments 
have contributed to lower Black and Hispanic home ownership 
rates and how this has worsened the racial wealth gap. It is 
well established by historians such as Andrew Kahrl at the 
University of Virginia that Black and Hispanic households have 
been subject to higher property tax assessments than their 
White counterparts. Higher property tax rates inflect a double 
penalty on homeowners.
    I am sorry. I cannot hear myself. I am sorry.
    Higher property tax rates lead to lower home values, making 
Black and Hispanic homeowners more vulnerable to tax 
foreclosure and tax sales, and that is by design. Being taxed 
more for less limits the ability to build wealth through home 
ownership. Annual overassessment eats away at Black and 
Hispanic homeowners' income and wealth yearly, and when their 
neighborhoods become gentrified their property values suddenly 
and rapidly increase, leaving them vulnerable to foreclosures, 
liens, and sales if they are unable to pay their increased 
property tax bills.
    So the State and local property tax deduction, which we 
commonly refer to as SALT, is the only deduction in the tax 
code that allows homeowners to deduct their property taxes. 
Thus, SALT deduction is essential for encouraging and 
preserving home ownership and wealth for Black and Hispanic 
homeowners, especially for those that are over-assessed.
    That is one of the many reasons that on Tuesday the NAACP 
passed a resolution to support lifting the Trump $10,000 SALT 
cap. Now this has been a favorite target of my Republican 
colleagues since Ronald Reagan's presidency. They argue that 
SALT is an unfair tax break to the wealthy. But that argument 
completely ignores all contexts. Republicans want to get rid of 
this deduction because they want to create an environment where 
States and local governments are forced to cut taxes, defund 
public education, privatize public services, and adopt fee-for-
service models of Government.
    They want to ignore that SALT is an essential driver in how 
States and municipalities pay for education, health care, 
public welfare programs, transportation, and public safety, and 
that even though students, patients, residents, and employees 
may not claim the SALT deduction themselves, they benefit from 
SALT. These factors cannot be captured in a distributional 
analysis. That is what makes SALT so different.
    That is why, in 1984, an entire coalition of States, 
Governors, counties, mayors, unions, and organizations came 
together to push back against its elimination by President 
Reagan. That is why the same group came together in 2017, with 
the unified support of all Democrats.
    So this is not about rich or poor or coastal elites. This 
is about who gets to benefit from the American dream, purchase 
a home, and build wealth. This is about who is entitled to hold 
on to that wealth and pass it to the next generation, and this 
is about getting to and staying in the middle class by owning a 
home, attending a good school, and having access to good public 
services.
    And I just wanted to use this hearing to drive that point, 
Mr. Chairman. I have other questions which I will submit for 
the record.
    Chairman Brown. Thank you, Senator Menendez.
    Senator Warner, from Virginia, is recognized from his 
office.
    Senator Warner. Thank you, Mr. Chairman, and again, thank 
you for holding this hearing. I know a lot of us are very 
interested in this issue, and, you know, it is kind of a one-
two punch with the hearing that we were jointly together on 
yesterday in Finance. And I want to repeat some of the things 
that were said yesterday.
    One of the things I actually discovered, and COVID drove 
home, enormous challenges in our country around racial wealth 
gap, and depending on the survey, racial wealth gap between 
Black families and White families is as much as 10-to-1, maybe 
down to 9-to-1. But the biggest driver of that racial wealth 
gap is not even any more job opportunities or educational 
background, but it increasingly is about home ownership. We saw 
disproportionate relief during COVID. For example, under the 
PPP that went to White-owned businesses rather than Black-owned 
businesses or rather than women-owned businesses, not 
necessarily because the banks were bad but because the 
community banks work with their traditional customers.
    And I was very proud of the fact that, Chairman, you and 
Senator Crapo, and a big bipartisan group, Senator Van Hollen, 
and I, we worked with actually the Trump administration and got 
$12 billion for CDFIs and MDIs, again, on issues of access to 
capital.
    One of the things that I have worked on with Senator Ossoff 
and Senator Warnock and Senator Van Hollen was a proposal that 
I would like the panel to comment on, which was the LIFT Act, 
which says if we are going to address the racial wealth gap in 
a fair way one approach would be to look at first-generation, 
first-time homebuyers, so this would be available to anyone. 
That definition would actually drive about 60 percent people of 
color because they do not have the same level of home ownership 
as majority communities do, although in many rural communities 
there are lots of White families that do not have any history 
of home ownership.
    And it would say that if you qualify for a traditional 30-
year mortgage, and while we are supportive of downpayment 
assistance, what we do not want to do is push people into homes 
that they cannot long-term afford. If you qualify for that 
traditional 30-year mortgage and you meet these certain 
criteria within a certain income strata and a certain price 
range we would provide, in a sense, a 20-year mortgage rather 
than a 30-year mortgage, and we call this program the LIFT Act, 
and it would directly address this racial wealth gap issue and 
put some points on the board for a lot of families, to give 
them that equity they need to make sure the kid has the access 
later, down the line, of getting a college education or having 
that equity you can draw upon.
    Dr. Yun, in your testimony you talked about the widening 
home ownership gap that exists between White and non-White 
families. Could you talk a little bit about how something like 
the LIFT Act might apply, and then Ms. Bailey, if you would 
make some comments on that as well, I would appreciate it.
    Mr. Yun. Thanks for asking the question, Senator. I am a 
numbers guy, so I think one of the requirements for all high 
school students is to just run the numbers through the mortgage 
calculator just to see how the numbers change by changing 
interest rates and the duration of the mortgage. A 20-year 
mortgage would certainly build up equity much, much quicker, 
and given the very wide home ownership rate gap between various 
ethnic and racial groups, to address some of the past mistakes 
it is moving in the right direction, certainly.
    But we also have to understand that we have to combine it 
with increased supply, because if we are simply raising the 
demand opportunity but with limited supply, most of the gain 
would go to the current owners, and given the current, again, 
disparity in home ownership rate, the current owners are likely 
to be White Americans.
    So we have to address the demand health. The 20-year 
mortgage timeline, I think that is terrific and a quick way to 
build wealth. But we have to assure that supply comes along so 
that demand can access that increased supply.
    Senator Warner. Yeah, and Dr. Yun, I 100 percent agree, and 
that is why I did not focus my question on the supply side and 
other colleagues have. This LIFT program would be only 
applicable to first-time, first-generation homebuyers, because 
again, we know the second- and third-generation folks, as you 
build that equity in your history you have got an easier 
availability.
    Very quickly, Ms. Bailey, and I am over time, but if you 
could quickly address this issue as well I would be grateful. 
And thank you, Mr. Chairman.
    Ms. Bailey. Sure. Thank you, Senator, for the question. And 
so when following Dr. Yun's recommendations that would help 
alleviate some of the pressure at the upper end of the rental 
market, which would then alleviate the fact that we do not have 
the tenant vacancies that we need in order to keep costs down, 
and it would allow those upper-income individuals to be able to 
move into the home ownership space so that we would have those 
units available for renters.
    So anything that helps first-time, first-generation 
potential homeowners move into home ownership helps renters as 
well.
    Senator Warner. Thank you, Mr. Chairman, for having this 
hearing. Thank you, Ms. Bailey.
    Chairman Brown. Thank you, Senator Warner.
    Senator Cortez Masto, from Nevada, is recognized.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chair. 
Thank you to the panelists here. Such an important issue across 
the country but including in Nevada, the issue of affordable 
housing, which I have been working on with so many stakeholders 
in my State.
    I do have a question, Dr. Yun. In Nevada, in 2021, 28 
percent of homes purchased in the Las Vegas metro area were 
bought by investors. Investors bought about $1.9 billion worth 
of homes with a median sales price of $373,000, and Nevada is 
not the only place where corporations are snapping up single-
family homes.
    My question to you is what trends are you seeing in home 
purchases by investors, and what impact do you think this is 
having on home prices in places like the Las Vegas metro area?
    Mr. Yun. The presence of investors, that is an extra 
demand, especially if the money is backed by Wall Street 
funding. It certainly boosts the extra demand from it so the 
home prices will naturally be higher. And furthermore, as they 
are purchasing single-family homes and turning it into rentals, 
that is essentially making less chance for, say, first-time 
buyers or first-generation buyers to have a chance, because 
often the downpayment comes from sale of a previous home, using 
the proceeds as a downpayment, but naturally the first-
generation or first-time buyers do not have that. So, 
consequently, it makes it much more difficult for the first-
time buyers to compete against especially the Wall Street bank 
investors.
    Senator Cortez Masto. And that is my biggest concern. 
Nevada is one of these places where the subprime mortgage 
crisis hit us so hard, and right after that I saw a lot of 
investor-owned, equity-owned homes being bought up and 
purchased. And this is my concern. Not only are they taking 
them off the market, they are turning them into rentals, and 
the rental prices are increasing exorbitantly.
    So for me, and I think so many, this is a challenge we are 
dealing with in trying to understand it and make sure that we 
can help renters and homeowners have access to those homes, 
which are so important.
    Ms. Bailey, let me talk a little bit about vouchers. When I 
talk to developers in Nevada they tell me that they cannot 
build an apartment building that is affordable to people 
earning under $50,000 a year without a subsidy. So why are 
vouchers among the most important layers of this subsidy?
    Ms. Bailey. That is exactly why it is so important to have 
vouchers is because landlords and owners have to be able to 
charge rent that is at least high enough for them to pay their 
own bills and to properly maintain their properties. And for a 
wide array of renters that is still more than 30 percent of 
their income. So vouchers play that critical role of paying for 
that gap between 30 percent of the family's income and what the 
landlord or owner needs in order to properly maintain that 
property.
    Senator Cortez Masto. Right, and you touched on it. It not 
only gives the tenants the stability but also for the property 
managers as well there is the stability there.
    Ms. Bailey. Exactly. Exactly.
    Senator Cortez Masto. Thank you. Thank you, Mr. Chair. I 
appreciate it.
    Chairman Brown. Thank you, Senator Cortez Masto.
    Senator Warren, of Massachusetts, is recognized.
    Senator Warren. Thank you, Mr. Chairman. Our country has 
faced an affordable housing crisis for decades now. And we have 
a shortage now. The estimates are as many as 6.8 million units 
that we need. Everyone needs housing. There is just not enough 
to go around. It is a classic case of demand outstrips supply.
    So this is Econ 101, and that says we are going to end up 
with higher prices. Indeed, this severe lack of supply has 
relentlessly pushed up the cost of rent for families, taking 
bigger and bigger bites out of budgets, as you identified, that 
are now doubly strained by rising prices on everything else, 
from gasoline to groceries. Rents are up nearly 6 percent more 
than they were just a year ago, and higher housing costs are 
one of the biggest overall drivers of inflation.
    So to tackle rising costs, the Federal Reserve is raising 
interest rates at an aggressive pace, but we should be clear 
about the impact of the Fed's rate hikes on the housing market.
    Dr. Yun, the Fed claims its rate hikes will bring down 
prices for families by taming inflation. So let me ask you, do 
you expect the Fed's interest rate hikes will meaningfully 
bring down rental costs for families?
    Mr. Yun. The rental component in the consumer price index 
comprises about 30 percent, including something called 
homeowner equivalency rent. Given that there will be fewer 
buying activity and more renters, rents will be rising. In 
fact, one can say at least a rental component, with higher 
interest rates it will be rising even faster.
    Senator Warren. So the Fed's actions on aggressive interest 
rate increases are likely to drive up the cost of rent, and as 
you said, that is about 30 percent of the inflation 
calculation.
    So it is not going to bring down rental costs. It is not 
going to bring down the cost of food or gas or other 
necessities that have spiked because of Putin's war in Ukraine. 
It is not going to fix supply chain kinks. It is not going to 
stop corporate price gouging.
    But by increasing borrowing costs the Fed's rate hikes will 
do two things, first, make it more expensive to build new 
housing, which dampens investment in construction and makes the 
housing shortage even worse, and second, make it more expensive 
for families to take out a mortgage and buy a home. The cost of 
a mortgage, as you have pointed out, has already doubled since 
last year.
    So Dr. Yun, people renting and buying homes are worse off 
when the Fed jacks up rates, but are there any participants in 
the housing market who are relatively better off under these 
conditions, like big investors and private equity firms?
    Mr. Yun. The intense multiple offers were prevalent 
throughout last year. Now the multiple offers are far less 
occurring, which means that people who are still in the market 
are able to grab property with much easier access, and 
certainly the corporate investors will be in that category.
    Senator Warren. And corporate investors, I take it, often 
are buying for cash.
    Mr. Yun. Cash buyers, which consequently makes it very 
difficult for the first-time buyer who needs to take out a 
mortgage to compete.
    Senator Warren. Right. So private equity firms are buying 
in, they swoop up what little housing is available, they rent 
it out to families at a premium. In fact, in the first quarter 
of this year, investors purchased one out of every five homes 
that were sold, which is a national record.
    Ms. Bailey, if private equity and other big investors buy 
more of the housing stock what do you expect will be the impact 
on rent prices on the families that are living in those homes?
    Ms. Bailey. Thank you, Senator, for that question. I think 
that we can expect that rents will increase, putting more 
pressure on families' incomes and having them have to stretch 
their already thin budgets even further.
    The other thing, though, that often gets missed is that 
that also can lead to gentrification of neighborhoods and 
displacement of families that live in those neighborhoods, 
which is also a challenge when equity firms purchase property.
    Senator Warren. Yes. Thank you.
    The solution to bringing down housing costs for families is 
clear: step one, build more housing, and step two, loosen big 
investors' grip on the market to make sure that it is families, 
not just private equity firms, that have an opportunity to buy 
a home.
    There is also a third step that the Federal Reserve 
Chairman, Jerome Powell, should take: think twice before 
jamming through overly aggressive rate hikes that are only 
going to make the housing crisis worse.
    Thank you very much for being with us today. Thank you, Mr. 
Chairman, for holding this hearing.
    Chairman Brown. Thank you, Senator Warren.
    That concludes the questioning, it looks like. Thank you to 
the witnesses for being here today and providing testimony.
    For Senators who wish to submit questions for the record 
those questions are due by the close of business 1 week from 
today, Thursday, July 28th. To our witnesses, per Committee 
rules, we ask you to respond to any questions within 45 days 
from the day you receive them.
    Thank you again. With that the hearing is adjourned.
    [Whereupon, at 11:19 a.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    You can't open up a paper or turn on the news without hearing about 
housing--how much it costs, and how hard it is to find. The headlines 
tell the story.
    ``The Housing Shortage Isn't Just a Coastal Crisis Anymore'';
    ``Why High Housing Costs Could Keep Climbing'';
    ``High costs spur more baby boomers to find roommates'';
    ``What's up with the crazy housing market?''
    And that's just in the past month.
    But this isn't a new problem. Wages haven't kept up with the cost 
of housing for years.
    And this country hasn't done enough to produce the housing we need. 
From 2000 to 2015, 23 States--about half the country--fell 7.3 million 
homes short on housing production.
    And this shortage makes housing more expensive.
    Congress hasn't done its job for years. It was just last year that 
we hosted the first hearing on the state of housing in America in 
nearly a decade.
    We talk about housing so much because it's the foundation of 
everything else in our lives. Where you live determines so much about 
your life--where you work, where your kids go to school, where you do 
your grocery shopping.
    And it eats up the biggest chunk of most people's paychecks. As 
Matthew Desmond, the author of the book Evicted, says, ``the rent eats 
first.''
    When housing costs are up, it means less money left over for 
groceries and gas and school supplies and prescription drugs.
    For a lot of families, it also means crippling stress at the end of 
each month. How do I pay my rent? After I pay my rent, do I pay my 
electric bill or the water bill or the internet or daycare or the 
credit card?
    For years, the market hasn't produced enough housing that working 
people can afford.
    Home health aides, nursing assistants, and restaurant workers, 
working full-time, have long been paid too little to afford even a one-
bedroom apartment, let alone dream of owning a home.
    Meanwhile, young aspiring homebuyers have long faced insurmountable 
barriers to home ownership. They're crushed by student loan debt. Black 
and Brown families' parents were denied the dream of home ownership or 
had it ripped out from under them by predatory lending and can't help 
with a downpayment.
    Over the past 2 years, with low rates making monthly mortgage costs 
just a little more affordable, some of these families thought that 
maybe, just maybe, now was their chance to finally buy a home.
    But they found themselves competing with wealthy buyers for too few 
homes. Often they weren't losing out to a family with a little more 
money--they were outbid by Wall Street investors from out of town, 
paying all in cash.
    Families told stories of spending more than a year looking for a 
home. A man in Bozeman, Montana, even resorted to standing on the side 
of the road wearing a sandwich board asking someone, anyone, to sell 
him their home after he'd put in 18 unsuccessful offers.
    But there was just nothing to buy.
    And now, with home prices rising to record levels and mortgage 
rates going up, home ownership is increasingly out of reach for renters 
hoping to lock in a steady monthly payment, find some stability, and 
build wealth.
    Recent cost increases have priced an estimated 4 million families 
out of home ownership. These are families who will now be renting, in a 
rental market that was already too tight.
    In May, median rents topped $2,000 a month.
    And that's if you can find somewhere to live at all.
    Bidding wars that used to be limited to homebuyers in ``hot'' 
housing markets are now breaking out between renters in communities 
from Chicago to Port Orange, Florida, who are just trying to find a 
place they can afford.
    All this will exacerbate the wealth gaps we already had and put 
first-time home ownership further out of reach, especially for families 
of color.
    Because while millions of existing homeowners, who already had 40 
times the wealth of the average renter, saw their wealth skyrocket as 
home values rose, renters--disproportionately people of color--fell 
further and further behind.
    We have underinvested in our housing and communities for decades. 
Now we're seeing the consequences.
    A recent report found a shortage of nearly 3.8 million homes 
nationwide, more than double the shortfall we had just 10 years ago.
    Not a single State has enough homes to meet its families' needs.
    Unless we act, it's tough to see how renters--whether or not they 
want to buy a home--will ever catch up.
    The answer is clear. We need more housing.
    We need more housing available to buy for the millions of aspiring 
homeowners just starting out.
    We need more housing for renters, especially those with the lowest 
incomes.
    Our Committee Members are leading on efforts to find solutions.
    Senator Van Hollen has a bipartisan proposal with Senator Young to 
expand support for renters with the lowest incomes, because we know the 
market doesn't build housing that they can afford.
    Senator Reed and Senator Collins have a bill to increase the 
efficiency of our housing.
    Senator Menendez has a proposal to help communities that want to 
make comprehensive housing and transit investments.
    Senator Warren has a bill to repair more of the homes we have, and 
to produce new housing that lower-income families, including families 
in rural areas and Tribal communities, can afford.
    Senator Cortez Masto has a proposal to fund repairs in manufactured 
housing communities, to keep those communities affordable for their 
residents.
    And Senators Warnock and Van Hollen are cosponsoring a proposal to 
help communities invest in meaningful local projects and preserve the 
housing we have, so we don't fall further behind.
    And we can do this while ensuring that we're not displacing 
families and seniors from the neighborhoods they love.
    I look forward to hearing from today's witnesses, the challenges 
they're seeing, and their recommendations to support new housing in 
communities across the country.
    We can't deny this problem any longer--we see it in every community 
across the country. It's not a Republican or Democratic problem. 
Congress must act.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Today we are discussing the recent, rapid rise of home prices and 
its impact on affordability. Of course, home price appreciation is not 
occurring in a vacuum. Inflation in the Biden economy is broad-based 
and severe.
    And despites promises to the contrary from the President and his 
advisors, inflation, fueled by reckless spending and lax monetary 
policy, has been an enduring phenomenon. Adjusted for inflation, wages 
have fallen almost every month since President Biden took office.
    The average American's real wages have fallen by 5 percent. And, it 
has been even worse for blue-collar workers. So, it should come as no 
surprise that home ownership, like most goods and services, has become 
increasingly unaffordable.
    Turning to housing specifically, demand far outpaces supply in many 
regions. Why is this happening and why isn't the housing market 
naturally correcting these imbalances? I'd point to bad policy 
decisions, especially by Democrats.
    During COVID, the Federal Government made a number of mistakes. $80 
billion went to rental assistance, vouchers, and other housing 
subsidies. That's above and beyond the hundreds of billions in ordinary 
housing subsidies we spend every year, and a significant sum remains 
unspent.
    Democrats and the Administration dropped hundreds of billions in 
helicopter money to stimulate an already strong economy. They also 
unnecessarily extended and expanded foreclosure and eviction moratoria.
    Outside of the COVID emergency, the number and cost of housing 
subsidies boggles the mind. We provide tax breaks such as the mortgage 
interest and PMI deductions; capital gains exclusion on home sales; tax 
deduction on local property taxes; and Low Income Housing Tax Credit.
    We subsidize mortgages with GSE securities guarantees; FHA, VA, and 
USDA mortgage insurance and Ginnie MBS guarantees; and downpayment 
assistance programs.
    And we have an overlapping array of HUD and USDA programs, 
including project-based rental assistance; tenant-based rental 
assistance; public housing funding; section 202 housing for the 
elderly; section 811 housing for persons with disabilities; section 521 
rural rental housing; CDBG; HOME block grants; and homelessness 
assistance.
    It's a fact that Government housing spending is massive and the 
vast majority of it subsidizes demand rather than supply. What should 
be embarrassing to its advocates, all this spending hasn't meaningfully 
changed home ownership rates over the decades nor narrowed the racial 
home ownership gap.
    In 1970, the home ownership rate in America was 64 percent. Now, 
it's 65 percent. And Black home ownership levels are similar to when 
the Fair Housing Act was passed in 1968. These Government policies have 
just made housing more expensive.
    If the Administration were serious about immediately lowering 
housing costs, it would start by removing misguided trade barriers that 
drive-up the cost of home construction. It could lift tariffs on 
lumber, steel, and aluminum, materials that are universally used in 
buildings across the country and which have cost consumers billions.
    In the last 3 years, American consumers paid at least $14.2 billion 
more on steel and aluminum imports. And we know lumber tariffs have 
contributed to price increases too.
    Unfortunately, the Administration is continuing to promote a 
reckless spending agenda that will make soaring housing costs worse. In 
May, the White House released a plan to supposedly boost housing 
supply, but instead used the opportunity to add upward pressure on 
pricing by endorsing a partisan House-passed proposal to increase 
spending by $75 billion on housing vouchers and $80 billion on public 
housing. Additional spending of this kind will only further fuel 
inflation.
    The White House plan also proposed pushing Fannie and Freddie into 
activities that prior Administrations understood created too much risk 
for taxpayers. In a break from decades of bipartisan efforts to reform 
the GSEs, the White House has embraced the GSE conservatorships as a 
means to social engineer its housing and racial equity policies.
    FHFA recently relaxed restrictions on the GSEs' risk layering and 
acquisitions of investor and second home loans; reduced the GSEs' 
guarantee fees; and required the GSEs to develop equitable housing 
finance. Stunningly, the GSEs' new proposed pilot programs limit 
eligibility based on borrower race, and even go so far as to give 
taxpayer money to certain borrowers based on their skin color to make 
downpayments.
    Yesterday, all Banking Republicans sent a letter organized by 
Senator Tillis to FHFA expressing grave concern about the legality and 
discriminatory nature of these new programs. I hope the FHFA Director 
will reconsider this discrimination on the basis of race and instead 
act to protect taxpayers from excessive risk as conservatorship 
envisions.
    Racial discrimination is always wrong, and this is no exception. 
Further, relaxing underwriting requirements to chase political 
priorities risks exposing low-income families--in this case 
minorities--to wealth loss.
    The state of the housing market only affirms the urgency of GSE 
reform. To improve housing affordability for both renters and owners, 
we should favor policies that leverage the power of free enterprise.
    We should phase-out demand-side subsidies like downpayment 
assistance and focus FHA on a narrow subset of borrowers. We should end 
the GSE conservatorships to ensure this and future Administrations 
cannot use conservatorships to influence the pricing and allocation of 
mortgage credit.
    For decades we've spent countless sums without much to show for it. 
It's time for meaningful reform that doesn't feature the same tax-and-
spend strategies of the past.
                   PREPARED STATEMENT OF LAWRENCE YUN
   Chief Economist and Senior Vice President for Research, National 
                        Association of Realtors
                             July 21, 2022 
                             
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 




               PREPARED STATEMENT OF DOUGLAS HOLTZ-EAKIN
                    President, American Action Forum
                             July 21, 2022
Introduction
    Chairman Brown, Ranking Member Toomey, and Members of the 
Committee, thank you for the opportunity to discuss the state of U.S. 
housing markets. In this testimony, I hope to make three main points:

    The dominant characteristic of owner-occupied and rental 
        housing is high and rising prices, despite a recent 
        construction boom. This suggests that the primary underlying 
        cause of stress is demand stimulus from Federal subsidies, 
        especially those from the Government-sponsored enterprises 
        (GSEs) Fannie Mae and Freddie Mac.

    Before looking to new initiatives, Congress would be better 
        served by a more complete understanding of the current state of 
        existing subsidies, both from existing Housing and Urban 
        Development initiatives and COVID-19 grants, from which a 
        significant amount of funding remains unspent.

    To the extent that Congress attempts to meaningfully impact 
        supply, it may look to remove tariffs that increase the cost of 
        construction materials, expand the workforce of skilled 
        construction workers, and reduce bureaucratic barriers such as 
        unwanted land-use restrictions and the permit process.

    Let me discuss each of these in greater detail.
The State of Housing Markets
    House prices and rents rose rapidly in 2021. These price increases 
reflect some combination of slow expansion in the supply of units and 
rapid expansion in the demand for units. Supply has been at the center 
of attention. The total inventory of homes available for sale fell 26 
percent in January 2021 year-over-year.\1\ At its lowest point, the 
Federal Reserve Bank of St. Louis estimated that there remained only 
3\1/2\ months of total housing inventory--in other words, there would 
be only 3\1/2\ months without construction until there would be no 
homes available in the United States. Housing inventory remains 
stressed following COVID-19-related eviction moratoria and 
forbearances.
    Nevertheless, in the main, U.S. price pressures seemingly reflect 
growth in demand. According to the Joint Center for Housing Studies: 
``Single-family starts hit 1.1 million in 2021, exceeding the million-
unit mark for the first time in 13 years. Multifamily starts were also 
at a 30-year high of 470,000 units.''\2\
    If a record pace of construction is unable to alleviate price 
pressures, policymakers must be cautious about interventions that boost 
demand further. Unfortunately, these efforts continue. Demand has in 
part been fueled by Federal Reserve policy. As part of its monetary 
stimulus, the Fed purchased $30 billion monthly in mortgage-backed 
securities (MBS), pumping $30 billion in capital into the mortgage 
market each month. This reduced the cost of mortgage capital, 
subsidized mortgages, and stimulated demand.
    Looking forward, the Fed will have to take aim at housing as a 
matter of fighting inflation; this will be part of its approach to 
broadly slowing the economy and will have a disproportionate effect on 
housing markets.
    The shelter component of the Consumer Price Index (responsible for 
one-third of the index) has exhibited an uninterrupted rise in 
inflation, from 1.6 percent in January 2021 to 5.6 percent in June 
2022, with no signs yet of peaking. Notice that if shelter inflation 
gets to 6 percent, inflation on everything else must be zero for the 
Fed to hit its 2 percent target.
    Next, note that as housing starts and residential construction 
decline, so does the demand for all sorts of goods and services 
associated with homebuilding--durable goods such as furnaces, air 
conditioners, ovens, and the like; household items such as furniture, 
carpeting, curtains, and so forth; and services such as inspections, 
landscaping, and others. Housing has always been an important channel 
for the transmission of monetary policy and slowing the housing market 
reduces demand in a broad swath of the economy.
    Finally, the Fed's plan cannot avoid affecting housing especially 
strongly. As the Fed raises the Federal funds rate, all interest rates 
will rise. Credit cards and auto loans will go up, and so will mortgage 
interest rates. (Indeed, mortgage rates have already risen sharply.) 
But there is a second channel of impact. As noted above, the Fed 
purchased $30 billion monthly in MBS. As part of tightening financial 
conditions, this will no longer occur. That means to get the same total 
amount of funds into the mortgage market, rates will have to rise even 
further to attract the $30 billion in capital. But it doesn't end 
there. The Fed intends to draw down its holdings of MBS by $35 billion 
a month, essentially pulling $35 billion in capital out of the market. 
The upshot is that rates would need to rise even a bit more to 
completely offset the $65 billion (roughly 20 percent of mortgage funds 
at 2021 rates) net swing in mortgage funds.
Government Intervention in Housing Has Frequently Done More Harm Than 
        Good
    Housing finance was at the center of the 2008 financial crisis that 
visited substantial economic stress on Americans and spawned dramatic 
Government intervention. Yet more than a decade later, the central 
actors in the crisis and response--Fannie Mae, Freddie Mac, and the 
Federal Housing Finance Administration (FHFA)--remain essentially 
unchanged.
    Fannie Mae and Freddie Mac need to be wound down and closed as a 
matter of both policy and politics. From a policy perspective, the GSEs 
were central elements of the 2008 crisis. First, they were part of the 
securitization process that lowered mortgage credit quality standards. 
Second, as large financial institutions whose failures risked 
contagion, they were massive and multidimensional cases of the too-big-
to-fail problem. Policymakers were unwilling to let them fail because 
financial institutions around the world bore significant counterparty 
risk to them through holdings of GSE debt, certain funding markets 
depended on the value of their debt, and ongoing mortgage market 
operation depended on their continued existence. They were by far the 
most expensive institutional failures to the taxpayer and are an 
ongoing cost.
    Moreover, despite 14 years under the conservatorship of the FHFA, 
``each Enterprise remains undercapitalized.'' Nevertheless, the FHFA 
just moved to relax the capital requirements. Worse, the FHFA announced 
it would require Fannie and Freddie to put in place Equitable Housing 
Finance Plans that would deploy a number of ``special purpose credit 
program'' that would assist racial minorities and particularly African 
American borrowers with home buying costs such as title insurance, 
appraisals, and downpayments. Typically, these costs are the 
responsibility of the homebuyer and in the case of downpayments, some 
of the capital risk is taken by private mortgage insurance for 
borrowers who do not provide 20 percent down. This approach takes 
capital that is supposed to protect taxpayers to subsidize home 
purchases by borrowers who simply don't have the financial preparation 
to do so.
    This strategy seems destined to repeat the errors of the past that 
yielded a wave of foreclosures that wiped out millions of homeowners, 
hurting many minority families that were beginning to accrue 
generational wealth. Congress should urge the FHFA to reconsider these 
housing subsidy plans. It risks setting up another generation of 
minority borrowers for failure.
    These plans also suggest a return to GSE mission creep. Instead, 
the FHFA should finalize the rulemaking on Prior Approval of Enterprise 
Products, which was proposed in October 2020 and would ensure there is 
adequate oversight and transparency around new products and activities 
the GSEs bring to the market.
    Efforts such as the Equitable Housing Finance Plans are simply 
demand subsidies by another name. They build upon the questionable 
track record of the housing trust fund, the HOME program, and Community 
Development Block Grants and will not serve to alleviate house price 
pressures. Instead, they will simply exacerbate the problem. Similarly, 
the Biden administration's Housing Supply Action Plan contains as many 
demand subsidies as ideas to expand housing supply. These are steps in 
the wrong direction.
Multiple Avenues for Congressional Support Already Exist
    The Federal Government already provides multiple avenues of support 
for the construction of affordable housing and assistance for low-
income renters and homebuyers, including seniors. The most prominent of 
these is the Low-Income Housing Tax Credit (LIHTC). Unfortunately, a 
recent review by Desai, Dharmapala, and Singhal casts considerable 
doubt on the efficacy of this program. In addition, the Federal 
Government provides appropriated funding through more than 30 programs 
within the Department of Housing and Urban Development, tax credits and 
deductions for both corporations and individuals, housing programs for 
veterans through the Department of Veterans' Affairs, rural housing 
programs through the Department of Agriculture, and mortgage insurance 
programs through the Federal Housing Administration and Government 
corporation Ginnie Mae.
    The failures of this overly complex constellation of programs not 
performing as designed are clear. House price indices are at record 
highs, housing affordability indices are declining,\3\ and home 
ownership rates have barely changed since the 1970s.\4\ The housing 
market is under considerable stress, further impacted by the challenges 
of the recent pandemic. It is difficult, however, to point to stressed 
markets as a justification for further Government intervention if the 
Government itself is responsible for significant portions of that 
stress. There is less evidence of market failure than there is of 
Government failure.
Policies To Alleviate Housing Prices
    Even if Congress could design legislation that does not duplicate 
existing efforts, works perfectly as intended, creates sensible market 
incentives, and empowers private actors, while at the same time not 
putting overt pressure on inflation and the deficit, any legislative 
solution focusing on demand rather than supply will only exacerbate the 
high prices facing Americans.
    Housing demand is especially high as a result of low mortgage rates 
and a coronavirus-inspired flight from large urban centers and into 
homes better suited to remote work.\5\ Despite these high prices, the 
risks of an economic crash as a result of a collapse of the housing 
market appear low due to the low availability of mortgage credit and 
better underwriting standards. The rate of home ownership is on track 
to fall, however, and housing inequalities, felt disproportionately by 
seniors and other vulnerable populations, will be exacerbated.
    Housing supply is constrained by low labor availability, the high 
cost of materials, and restrictive local regulations. Existing homes 
are not returning to the market at typical rates as economic stresses, 
the low mortgage rate environment, and the unknowns of listing a home 
in the backdrop of a global pandemic caused homeowners to delay or 
cancel their plans to list. Housing inventory, while on track to rise, 
is at historic lows.
    Fortunately, there exist positive steps Congress could take to 
alleviate some of short-term stresses on the housing market. Congress 
could take steps to reduce tariffs that raise the prices of key 
construction materials, most obviously those on Canadian lumber.\6\ 
Congress can investigate the labor market forces leading to an 
estimated shortfall of 650,000 skilled construction workers in 2022.\7\ 
Finally, Congress can work to reduce the red tape requirements of new 
construction, ranging from the building permit process to unwanted 
land-use restrictions.
    Outside of short-term fixes, the most effective action Congress can 
take to improve the overall health of the housing market is to continue 
the effort to reform the GSEs. The United States does not have a 
functioning private secondary mortgage market and has a distorted 
primary market thanks to Fannie and Freddie. If Congress seeks a 
healthy and functioning housing market that benefits all participants, 
including seniors, then it must continue its efforts to reform the 
GSEs. Instead, this Administration has reversed previous improvements, 
decreasing the amount of capital the GSEs are required to hold and once 
again allowing them to purchase the riskiest mortgages.\8\
    Thank you and I look forward to your questions.
Notes
1. https://www.bankrate.com/real-estate/why-are-house-prices-going-up/
2. https://www.jchs.harvard.edu/sites/default/files/reports/files/
    Harvard-JCHS-State-Nations-Housing-2022.pdf
3. https://www.americanactionforum.org/chartbook/housing-chartbook-q4-
    2021/
4. https://www.census.gov/housing/hvs/data/histtabs.html
5. https://www.americanactionforum.org/insight/understanding-the-
    national-increase-in-house-prices/
6. https://www.nahb.org/blog/2022/01/nahb-welcomes-biden-
    administration-move-to-lower-lumber-tariffs/
7. https://www.abc.org/News-Media/News-Releases/entryid/19255/abc-
    construction-industry-faces-workforce-shortage-of-650-000-in-2022
8. https://www.americanactionforum.org/insight/fhfa-reverses-previous-
    housing-market-reform-progress/
                                 ______
                                 
                   PREPARED STATEMENT OF PEGGY BAILEY
    Vice President for Housing Policy, Center on Budget and Policy 
                               Priorities
                             July 21, 2022
    Chairman Brown, Ranking Member Toomey, Members of the Committee, 
thank you for the opportunity to testify before you this morning at 
this important hearing. I am Peggy Bailey, Vice President for Housing 
Policy at the Center on Budget and Policy Priorities, a nonpartisan 
research and policy institute in Washington, DC.
    In this testimony, I will discuss the pressing housing 
affordability crisis affecting people with the lowest incomes and 
recommend policies that will move us toward the goal of ensuring that 
everyone in this country is able to afford safe, stable housing.
Solving the Affordable Housing Crisis Must Include Subsidizing Rent 
        Costs
    Addressing the Nation's affordable housing crisis must include 
housing subsidies, such as Housing Choice Vouchers, for people with 
little to no income. These families do not have incomes high enough to 
afford quality housing because landlords must set rents at least high 
enough to cover their own operating costs, perform general maintenance, 
and pay any debt owed. Housing agencies can ``project-base'' vouchers 
to guarantee that developments include units affordable for families 
with low and extremely low incomes. For example, many buildings with 
units dedicated as permanent supportive housing for people experiencing 
homelessness who also have disabilities use project-based vouchers to 
make units affordable for this population. The voucher program can also 
mitigate the need to build new units by allowing people to remain in 
modest, decent units that are appropriate to their family size. Voucher 
holders do not need to move but can have their rent burden reduced, 
which allows them to afford other basic needs or survive a small 
financial crisis.
    Closing the housing affordability gap will require a long-term 
strategy but progress can be made in the short term. Most immediately, 
Congress should fund at least the 140,000 new vouchers included in the 
2023 Transportation-HUD funding bill passed by the House Appropriations 
Committee, together with adequate funding for existing vouchers to 
cover rising housing costs. As part of that bill, Congress should also 
provide adequate voucher administrative funding, fund services to help 
voucher holders search for housing, and allow voucher subsidy funds to 
be used for security deposits. \1\ Over the longer term, lawmakers 
should enact major additional voucher expansions, with the goal of 
making vouchers available to everyone who is eligible.
---------------------------------------------------------------------------
     \1\ Sonya Acosta, ``House Bill Would Fund Housing Vouchers and 
Other Key Investments To Reduce Homelessness, Help With Rising Housing 
Costs'', CBPP, July 5, 2022, https://www.cbpp.org/research/housing/
house-bill-would-fund-housing-vouchers-and-other-key-investments-to-
reduce.
---------------------------------------------------------------------------
    Congress must take additional steps, including:

    Reducing the shortage of deeply affordable rental housing. 
        There is a need to increase affordable rental housing stock 
        through multifamily and manufactured housing developments. 
        Actions such as expanding the capacity of the Low-Income 
        Housing Tax Credit; increasing funding for Department of 
        Housing and Urban Development (HUD) programs like HOME, the 
        Community Development Block Grant, and the Housing Trust Fund; 
        implementing new strategies such as a renters' tax credit; \2\ 
        and directing more resources for manufactured housing are 
        needed. HUD's Our Way Home Initiative recognizes the need for a 
        comprehensive strategy to increase housing supply. HUD's 
        programs often work with the LIHTC to make rents affordable for 
        families with the lowest incomes by subsidizing predevelopment 
        and ongoing operating costs, which helps keep rents lower. 
        Alongside these actions, there's also a need to address zoning 
        practices and other local actions that can stand in the way of 
        building new affordable housing.
---------------------------------------------------------------------------
     \2\ For additional information on this proposed renters' tax 
credit, see https://www.cbpp.org/topics/renters-credit.

    Prevent the loss of existing affordable housing. Resources 
        are needed to preserve the existing affordable housing stock 
        along with actions to improve the properties. Estimates are 
        that about 6 percent of the Federal assisted housing stock is 
        set to lose affordability restrictions by 2025. Based on past 
        data, about half will likely not stay affordable, resulting in 
        the loss of about 176,000 units in the near term. \3\
---------------------------------------------------------------------------
     \3\ Andrew Aurand et al., ``2021 Picture of Preservation'', Public 
and Affordable Housing and Research Corporation and National Low Income 
Housing Coalition, October 2021, https://preservationdatabase.org/wp-
content/uploads/2021/10/NHPD-2021Report.pdf.

---------------------------------------------------------------------------
        Several actions are needed to preserve affordable housing:

     Redevelop existing public housing properties through HUD 
        tools such as the Rental Assistance Demonstration program;

     Incentivize Low-Income Housing Tax Credit property owners 
        to keep their developments affordable once their initial 
        contract term ends;

     Invest in redevelopment resources for properties that 
        receive HUD assistance such as through the Project Based Rental 
        Assistance program; and

     Incentivize landlords to rent to families with low 
        incomes--especially families receiving Housing Choice Vouchers.

    Remove barriers to home ownership. There is a shortage of 
        affordable single-family home ownership opportunities due to a 
        low supply of homes and challenges first-time buyers are facing 
        accessing mortgages. If fewer people can successfully purchase 
        homes, then more people remain in the rental market, creating a 
        shortage of rental units and driving up costs. Downpayment 
        assistance for first-time homebuyers and other policies to make 
        it easier for families to obtain mortgages are critical to 
        relieving pressure from the rental market.

    Reform existing public and multifamily housing. Most 
        project-based Federal assistance does not allow families to 
        move and maintain their housing subsidy. These programs should 
        be reformed to allow tenants true choice in where they live. 
        This will put pressure on landlords and owners to make their 
        units more attractive and reduce neighborhood segregation of 
        people with low incomes.

    Improve the Low-Income Housing Tax Credit Program. LIHTC 
        should be reformed to make it easier for States and developers 
        to ensure that more units are affordable to people with incomes 
        well below the program's eligibility limit (although many low-
        paid workers and others with extremely low incomes will still 
        need a voucher or other rental assistance to afford these 
        units). This can include amending State Qualified Action Plans 
        to include extra points for projects that will allow people 
        with lower incomes to rent units and dedicating Federal or 
        State resources that reduce the predevelopment costs for 
        developers.

    Address housing needs in tribal communities. Increase 
        resources for Native American housing programs, particularly 
        the Indian Housing Block Grant, the Indian Community 
        Development Block Grant, and the Native Hawaiian Housing Block 
        Grant, to address the high rates of housing hardship faced by 
        American Indians and Alaska Natives living on tribal lands and 
        Native Hawaiians on the Hawaiian homelands while continuing to 
        honor tribal sovereignty.
Millions of People Struggle To Afford Housing, With Needs Heavily 
        Concentrated Among People With the Lowest Incomes and People of 
        Color
    The Nation's most pressing housing problem centers on the millions 
of people with low incomes who are not able to afford safe, stable 
housing. This often is characterized as a problem due to the supply of 
hard units. While supply is an issue in some places, it is important to 
recognize that most people have a place to live and are not seeking to 
move; they simply struggle to afford their current residence. Even 
before the pandemic and economic downturn, 23 million people lived in 
11 million low-income households that paid more than 50 percent of 
their income for rent. (See Figure 1.) Government programs and private 
owners and lenders often use 30 percent of income as a benchmark for 
the amount households can afford to pay for housing. \4\
---------------------------------------------------------------------------
     \4\ CBPP, ``United States Federal Rental Assistance Fact Sheet'', 
January 19, 2022, https://www.cbpp.org/research/housing/federal-rental-
assistance-fact-sheets#US. 


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    While most people who need housing to be more affordable already 
have a place to live, many do not. Unaffordable housing compels many 
people with low incomes to live in homes that are overcrowded or 
unsafe, and hundreds of thousands of people can't afford a home at all; 
580,000 people slept in shelters or on the streets on the night in 
January 2020 when HUD conducted its annual point-in-time homeless 
count.
    These affordability challenges are becoming increasingly urgent for 
many people around the country for two reasons:

    First, rent and utility costs have risen sharply since the 
        summer of 2021. By June 2022, rents for newly leased units were 
        15 percent higher than a year earlier, according to one 
        national index. \5\ And in the 12 months through June, prices 
        for residential fuel and utilities rose 18 percent. Typically, 
        renters who must pay very high shares of their income for 
        housing have to divert money away from other necessities to 
        keep a roof over their heads, such as by going without needed 
        food, medicine, clothing, or school supplies. As those unmet 
        needs pile up, families often find themselves one setback--a 
        cut in their work hours or an unexpected bill--away from 
        eviction. In March 2022, 10.4 million adult renters reported 
        that they were not caught up on rent. \6\ Inflation can make 
        this problem more acute.
---------------------------------------------------------------------------
     \5\ Jeff Tucker, ``Housing Affordability Obstacles Are Mounting, 
But Buyers Who Can Weather the Storm Have More Time and Options'' (June 
2022 Market Report), Zillow, July 19, 2022, https://www.zillow.com/
research/june-2022-market-report-31239/.
     \6\ Erik Gartland, ``Relief Measures Reduce Hardship, But Many 
Still Struggle To Pay Rent in Every State'', CBPP, June 17, 2022, 
https://www.cbpp.org/research/housing/relief-measures-reduced-hardship-
for-renters-during-pandemic-but-many-still#scene-0.

    Second, many States and localities are beginning to exhaust 
        the Emergency Rental Assistance funding provided through 
        pandemic relief legislation. This assistance has helped at 
        least 5.7 million households pay rental debt accumulated during 
        the pandemic and accompanying economic downturn and to afford 
        ongoing rent and utility costs. The exhaustion of these funds 
        will eliminate a key source of help for people struggling to 
---------------------------------------------------------------------------
        stay housed.

    Difficulty affording housing is heavily concentrated among 
households at the bottom of the income scale. More than 70 percent of 
households that pay over half their income for rent have extremely low 
incomes (defined by HUD as below the Federal poverty line or 30 percent 
of the local median income, whichever is higher), and these households 
are far more likely than higher-income households to experience 
homelessness and other housing-related hardship. Nearly everywhere in 
the country, rents are too high to be affordable to people with the 
lowest incomes, including low-paid workers \7\ and seniors and people 
with disabilities with low fixed incomes. \8\
---------------------------------------------------------------------------
     \7\ Andrew Aurand et al., ``Out of Reach: The High Cost of 
Housing'', National Low Income Housing Coalition, 2021, https://
nlihc.org/sites/default/files/oor/2021/Out-of-Reach-2021.pdf.
     \8\ TAC, ``Priced Out: The Housing Crisis for People With 
Disabilities'', 2021, https://www.tacinc.org/resources/priced-out/.
---------------------------------------------------------------------------
    Due to a long history of racial discrimination in housing and other 
areas, these problems are disproportionately concentrated among people 
of color. As a result, people of color are already more likely to rent 
their homes because they have historically been denied home ownership 
opportunities; 55 percent of renters identify as a race other than 
White, compared to 39 percent of the general population. \9\
---------------------------------------------------------------------------
     \9\ CBPP analysis of the American Community Survey 2015-2019 
microdata and Table B03002.
---------------------------------------------------------------------------
    People of color are also more likely to face housing hardship, 
instability, and homelessness. More than 60 percent of people in low-
income households that pay more than half their incomes for housing are 
people of color. These renters are more likely than White renters to 
live in crowded conditions. Asian and Pacific Islander and Latino 
renters face the highest levels of doubling up and overcrowding, with 1 
in 10 living in households that are both doubled up and overcrowded. 
\10\ And people of color are at much greater risk of experiencing 
homelessness. Nearly 40 percent of those who experienced homelessness 
in 2020 were Black and 23 percent were Latino, far above these groups' 
shares of the U.S. population (13 and 18 percent, respectively). Native 
Hawaiians and Pacific Islanders have the highest rate of homelessness, 
followed by American Indians and Alaska Natives. \11\
---------------------------------------------------------------------------
     \10\ Erik Gartland, ``Funding Limitations Create Widespread Unmet 
Need for Rental Assistance'', CBPP, February 15, 2022, https://
www.cbpp.org/research/housing/funding-limitations-create-widespread-
unmet-need-for-rental-assistance.
     \11\ National Alliance to End Homelessness, ``Racial Inequalities 
in Homelessness, by the Numbers'', June 1, 2020, https://
endhomelessness.org/resource/racial-inequalities-homelessness-numbers.
---------------------------------------------------------------------------
Rental Assistance Is the Best Way To Address Housing Needs Among 
        Families With the Lowest Incomes
    Rental assistance programs play a crucial role in closing the 
affordable housing gap and preventing housing instability, including 
homelessness, evictions, and overcrowding.
    Federal rental assistance helps 10 million people in 5 million 
households afford housing, mainly through three major programs: Housing 
Choice Vouchers, Section 8 Project-Based Rental Assistance (PBRA), and 
public housing. In each of these programs, participants pay about 30 
percent of their income for rent and utilities and a Federal subsidy 
covers the remaining costs. Because of inadequate funding, these 
programs, along with several other programs administered by HUD and 
some by the Department of Agriculture, only assist about 1 in 4 
households in need, \12\ and most applicants for rental assistance face 
waiting lists that are very long or closed. \13\
---------------------------------------------------------------------------
     \12\ CBPP, ``76% of Low-Income Renters Needing Federal Rental 
Assistance Don't Receive It'', 2022, https://www.cbpp.org/research/
housing/three-out-of-four-low-income-at-risk-renters-do-not-receive-
federal-rental-assistance.
     \13\ Sonya Acosta and Erik Gartland, ``Families Wait Years for 
Housing Vouchers Due to Inadequate Funding'', CBPP, July 22, 2021, 
https://www.cbpp.org/research/housing/families-wait-years-for-housing-
vouchers-due-to-inadequate-funding.
---------------------------------------------------------------------------
    Rental assistance is by far the most direct, effective way to 
address the Nation's most severe housing problems. Research shows that 
vouchers sharply reduce homelessness, overcrowding, and housing 
instability. (See Figure 2.) And because stable housing is crucial to 
many other aspects of a family's life, those same studies show numerous 
additional benefits to vouchers. Children in families with vouchers are 
less likely to be placed in foster care, switch schools less 
frequently, experience fewer sleep disruptions and behavioral problems, 
and are likelier to exhibit positive social behaviors such as offering 
to help others or treating younger children kindly. Among adults in 
these families, vouchers reduce rates of domestic violence, drug and 
alcohol misuse, and psychological distress. \14\
---------------------------------------------------------------------------
     \14\ Will Fischer, Douglas Rice, and Alicia Mazzara, ``Research 
Shows Rental Assistance Reduces Hardship and Provides Platform To 
Expand Opportunity for Low-Income Families'', CBPP, December 5, 2019, 
https://www.cbpp.org/research/housing/research-shows-rental-assistance-
reduces-hardship-and-provides-platform-to-expand. 

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    Expanding rental assistance can also sharply reduce racial 
disparities in poverty rates and a range of housing hardships. For 
example, one study estimated that providing vouchers to all eligible 
households would lift 9.3 million people above the poverty line, using 
a measure of poverty that counts in-kind benefits such as rental 
assistance as income. Poverty rates would drop for all racial and 
ethnic groups but most among Black and Latino households, reducing the 
gap in poverty rates between Black and White households by one-third 
and the gap between Latino and White households by nearly half.
    Similarly, people of color would be particularly likely to benefit 
from the reductions in homelessness, overcrowding, and evictions and 
other housing instability that the added vouchers would bring about. 
\15\ Moreover, resources for tribal housing programs, such as the 
Indian Housing Block Grant, would be particularly helpful for reducing 
housing hardship in tribal areas. American Indians and Alaska Natives 
living on tribal lands face higher rates of overcrowding and 
substandard housing, \16\ compared to the national average, but tribes 
are ineligible for vouchers and other HUD rental assistance programs.
---------------------------------------------------------------------------
     \15\ Alicia Mazzara, ``Expanding Housing Vouchers Would Cut 
Poverty and Reduce Racial Disparities'', CBPP, May 11, 2021, https://
www.cbpp.org/blog/expanding-housing-vouchers-would-cut-poverty-and-
reduce-racial-disparities.
     \16\ Gartland, 2022 op. cit.
---------------------------------------------------------------------------
    Racism has also prevented many people of color from choosing what 
community or neighborhood to live in, as Federal, State, and local 
policies ranging from discriminatory lending rules to exclusionary 
zoning that prevented development of low-cost housing have blocked 
Black people and others from moving to areas with predominantly White 
populations. Moreover, due to neglect by public officials and other 
factors, many neighborhoods with large shares of people of color suffer 
from high poverty rates, poorly performing schools, unhealthy 
environmental conditions, and lack of other services and amenities. 
Despite antidiscrimination measures such as the 1968 Fair Housing Act, 
housing discrimination and local government practices that continue to 
drive investment away from communities of color remain widespread.
    Housing vouchers can provide people with low incomes--including 
people of color--with more choice about where they live. Families with 
vouchers are much more likely--in one study, nearly four times as 
likely--to be able to move to low-poverty neighborhoods if they receive 
mobility assistance. \17\ But currently, programs like PBRA, public 
housing, and the Low-Income Housing Tax Credit don't automatically 
provide assistance to tenants if they'd like to move to a new building 
or community. These families, if they qualify, must be placed on the 
local housing voucher waiting list, which can be years long. But even 
without any special assistance, among Black children in households with 
incomes below the poverty line, children whose families use a voucher 
are twice as likely as children overall to live in a neighborhood with 
a low poverty rate.
---------------------------------------------------------------------------
     \17\ Peter Bergman et al., ``Creating Moves to Opportunity: 
Experimental Evidence on Barriers to Neighborhood Choice'', National 
Bureau of Economic Research Working Paper 26164, August 2019, https://
www.nber.org/papers/w26164.
---------------------------------------------------------------------------
Many New Vouchers Could Be Put To Use
    The voucher program has long used nearly every dollar of funding it 
receives, so the number of families it helps is limited primarily by 
inadequate funding, not by a shortage of units. From 2011 to 2020, 
housing agencies on average spent 99.9 percent of the voucher subsidy 
funds they received. (This figure excludes agencies participating in 
the Moving to Work demonstration, which allows agencies to shift 
voucher funds to other purposes.) \18\ This percentage dipped during 
2021 in the face of an unusually tight rental market, but agencies 
still used an average of over 96 percent of their funds, and many 
individual agencies used all or nearly all of their voucher funds. 
Agencies would be able to use many additional vouchers if they received 
the funds to do so, particularly if new resources are targeted toward 
agencies that have high utilization rates today.
---------------------------------------------------------------------------
     \18\ Will Fischer, ``Rental Markets Can Absorb Many Additional 
Housing Vouchers'', CBPP, May 28, 2021, https://www.cbpp.org/blog/
rental-markets-can-absorb-many-additional-housing-vouchers.
---------------------------------------------------------------------------
    Most households that receive a voucher (two-thirds, in one study) 
already rent a housing unit, so their vouchers do not add to the number 
of units demanded in the market. \19\ Typically, these households paid 
very high shares of their income for rent before receiving the voucher, 
and some use the voucher to help them afford their current unit without 
diverting resources from other basic needs. (The voucher also helps 
protect them from eviction if their earnings drop or they face 
unexpected expenses.) More than 8 million extremely low-income 
households have a home but spend more than half their income to rent 
it, so many vouchers could be absorbed simply by helping those 
households either to stay in their current housing or to move to a more 
suitable unit (such as one that provides adequate space given the 
household's size or is closer to a worker's job), thus freeing up the 
household's current unit for another household to occupy.
---------------------------------------------------------------------------
     \19\ For example, one 6-city study of vouchers' impact on families 
with children found that about one-third of families with vouchers 
would have been homeless or doubled up without the voucher and about 
two-thirds would have been renting their own unit. Gregory Mills et 
al., ``Effects of Housing Vouchers on Welfare Families'', prepared for 
Department of Housing and Urban Development Office of Policy 
Development and Research, September 2006, https://www.huduser.gov/
portal//Publications/pdf/hsgvouchers-1-2011.pdf.
---------------------------------------------------------------------------
    New vouchers would also help people who don't have their own unit, 
such as those living in a shelter or on the streets or who are doubled 
up with another family. But most rental markets could absorb many such 
households just as they absorb other new renters, such as young adults 
leaving their parents' homes or workers relocating to pursue a job 
opportunity. Rental markets in some parts of the Nation have sizeable 
numbers of vacant units, \20\ and even relatively tight markets could 
likely absorb the vouchers on the scale proposed in recent legislation 
(such as the 140,000 vouchers funded in the 2023 Transportation-HUD 
appropriations legislation passed by the House Appropriations 
Committee) because the number of units needed would be low compared to 
the overall housing stock.
---------------------------------------------------------------------------
     \20\ Close to two-thirds of the Nation's population live in 
counties where rental vacancy rates from 2014-2018 averaged more than 5 
percent (which is often used as a benchmark to separate low-vacancy 
markets from high-vacancy ones). In the first quarter of 2022, 46 of 
the Nation's 75 largest metropolitan areas had vacancy rates above 5 
percent. CBPP analysis of Census Bureau data.
---------------------------------------------------------------------------
    In fact, the Emergency Housing Voucher (EHV) program, funded 
through the American Rescue Plan Act, demonstrates housing agencies' 
ability to use new vouchers, even in tight rental markets. So far, the 
program has helped more than 26,000 households who were experiencing or 
at risk of homelessness or who were survivors of domestic violence. 
Those receiving EHVs on average have an income of $11,349, which is 
about 27 percent less than the typical voucher household. \21\ The 
success of this program demonstrates that additional rental assistance 
can be used and provides some lessons on how to work with community 
partners and use administrative fees to make the program more 
effective.
---------------------------------------------------------------------------
     \21\ U.S. Department of Housing and Urban Development, ``Fact 
Sheet: Update on the American Rescue Plan's Emergency Housing Voucher 
Program'', July 12, 2022, https://www.hud.gov/sites/dfiles/PA/
documents/FactSheetEHVProgress.pdf.
---------------------------------------------------------------------------
    Policymakers should also make vouchers easier to use and expand 
choice for voucher holders, for example by allowing voucher subsidies 
to be used for security deposits, ensuring that voucher subsidy caps 
(which are set based on Fair Market Rent levels determined by HUD for 
metropolitan areas, rural counties, and zip codes around the country) 
are adequate to cover rising rent and utility costs, funding services 
to help families search for housing in a wide range of neighborhoods, 
conducting outreach to landlords to encourage them to participate in 
the program, and prohibiting landlords from discriminating against 
voucher holders.
Measures To Build and Preserve Housing Also Play an Important Role in 
        Addressing Housing Need
    Rental assistance won't solve those problems alone, and should be 
part of a broader, comprehensive policy.
    Many parts of the country face serious housing shortages, estimated 
at 3.8 million units by one study, that drive up home prices and rents 
and limit the housing options available to families and individuals and 
that could be addressed through a range of subsidies and regulatory 
changes to expand the housing stock. \22\ In some parts of the country, 
there is an urgent need for investments to address housing quality 
problems in the existing housing stock, including serious health 
concerns such as lead paint. The Nation's stock of public housing and 
to a lesser extent its privately owned affordable housing face large 
backlogs of unmet renovation needs that can place residents at risk and 
ultimately result in the loss of badly needed affordable housing. \23\
---------------------------------------------------------------------------
     \22\ Up for Growth, ``Housing Underproduction in the U.S. 2022'', 
2022, https://www.upforgrowth.org/sites/default/files/2022-07/UFG-
Underproduction-Report-Pages.pdf.
     \23\ Will Fischer, Sonya Acosta, and Anna Bailey, ``An Agenda for 
the Future of Public Housing'', CBPP, March 11, 2021, https://
www.cbpp.org/research/housing/an-agenda-for-the-future-of-public-
housing.
---------------------------------------------------------------------------
    Investments in the housing stock can further other important goals 
as well. Housing construction and renovation can play a key role in 
community development efforts that improve quality of life in the 
surrounding neighborhoods, including in urban neighborhoods affected by 
redlining and disinvestment, rural areas suffering from declining 
populations and economies, and tribal areas that often face severe 
problems with overcrowding and substandard housing. Supply-side 
investments can also increase the number of units accessible to people 
with disabilities and improve energy efficiency in ways that can 
potentially reduce costs, make units safer and more comfortable for 
residents, and reduce emissions of greenhouse gases and other 
pollutants.
    In allocating resources for housing renovation and development, 
policymakers should prioritize investments that benefit the lowest-
income people and other underserved groups, including the National 
Housing Trust Fund, Public Housing Capital Fund, and tribal housing 
programs. The great majority of households that pay very high shares of 
their incomes for housing have extremely low incomes--below half of the 
median income and nearly all below 80 percent of median income--so 
policymakers should generally not use scarce funding for supply efforts 
that will benefit households with incomes above that income level. 
Policymakers can, however, help make housing more affordable for both 
low- and moderate-income households through reforms to State and local 
zoning rules and other regulations that constrain the amount of new 
housing that is built in many areas.
    Funding for Native American housing programs is also critical for 
advancing equity because they are the main resource for affordable 
housing for American Indians and Alaska Natives living in tribal areas 
and Native Hawaiians on the Hawaiian homelands. To respect sovereignty, 
tribal governments get Federal housing funding through separate HUD 
grants, such as the Indian Housing Block Grant and the Indian Community 
Development Block Grant, instead of through Housing Choice Vouchers, 
public housing, and many other HUD programs. Similarly, the Native 
Hawaiian Housing Block Grant helps eligible Native Hawaiians with low 
incomes live on their homelands.
    And while State-level allocations of the National Housing Trust 
Fund or the Low-Income Housing Tax Credit could be used to build or 
rehabilitate housing on tribal lands, such projects would have to 
compete with those in the rest of the State under structures not 
designed to address land-use barriers specific to tribal areas. Some 
68,000 new homes are needed to eliminate overcrowding and replace 
inadequate housing on tribal lands, according to one 2017 estimate. 
\24\ Funding for tribal housing development and assistance programs, 
however, has remained relatively flat since the 1996 enactment of the 
tribal housing law. Annual Indian Housing Block Grant appropriations 
haven't kept pace with inflation, although Congress has provided some 
helpful increases in the past few years. \25\
---------------------------------------------------------------------------
     \24\ Nancy Pindus et al., ``Housing Needs of American Indians and 
Alaska Natives in Tribal Areas'', U.S. Department of Housing and Urban 
Development, February 21, 2017, https://www.huduser.gov/portal/pdredge/
pdr-edge-research-022117.html.
     \25\ CBPP, ``Funding for Tribal Housing Program Has Less Buying 
Power Now Than When Created'', December 9, 2021, https://www.cbpp.org/
funding-for-tribal-housing-program-has-less-buying-power-now-than-when-
created.
---------------------------------------------------------------------------
Pair Supply Measures With Rental Assistance To Help the Lowest-Income 
        Households
    While investments in housing construction and renovation are 
important, unless a household also receives a voucher or other similar 
ongoing rental assistance, construction subsidies rarely produce 
housing with rents that are affordable for households with incomes 
around or below the poverty line. Since most households that pay over 
half their income for rent or that experience homelessness have 
extremely low incomes, it is critical that supply investments are 
married with rental assistance investments. The supply investments can 
help create more affordable housing and the rental assistance can then 
fill the gap between what families with very low incomes can afford and 
the cost of units defined as ``affordable.''
    One reason supply investments alone are rarely enough to enable the 
lowest-income households to afford housing is that these households 
typically can't afford rent set at a high enough level for an owner to 
cover the ongoing cost of operating and managing housing. The average 
extremely low-income renter household had an income of $11,318 in 2019, 
the latest year for which data are available. \26\ As explained above, 
Government programs and private-sector owners and lenders often 
consider housing affordable if it costs no more than 30 percent of 
household income, which for this household works out to $283 a month 
for rent and utilities. Many households, including those most at risk 
of homelessness, have much lower incomes and can afford even less in 
rent. But in 2019 the average market rental unit's operating cost was 
$520 a month (over $580 when the owner paid for utilities), according 
to National Apartment Association data. \27\ By 2020, these figures had 
increased to $534 without utilities and $614 with utilities, and these 
figures have surely risen substantially since then. \28\ Consequently, 
even if development subsidies pay for the full cost of building 
housing, rents in the new units will generally be too high for lower-
income families to afford without the added, ongoing help a voucher can 
provide.
---------------------------------------------------------------------------
     \26\ CBPP analysis of 2019 1-year American Community Survey data.
     \27\ Paula Munger and Leah Cuffy, ``Strong Performance To Close 
Record Economic Expansion: 2020 NAA Survey of Operating Income and 
Expenses in Rental Apartment Communities'', National Apartment 
Association, October 2020, https://www.naahq.org/sites/default/files/
2020-ies-exec-summary-final.pdf.
     \28\ National Apartment Association, ``National Apartment 
Association 2021 Survey of Operating Income and Expenses in Rental 
Apartment Communities'', October 20, 2021, https://www.naahq.org/
national-apartment-association-2021-survey-operating-income-expenses-
rental-apartment-communities.
---------------------------------------------------------------------------
    The largest Federal affordable housing development program, the 
Low-Income Housing Tax Credit, illustrates this. LIHTC allows rents to 
be set up to levels affordable to families with incomes at 60 percent 
of the local median, more than 200 percent of the poverty line in many 
areas. Fortunately, LIHTC developments house many families with incomes 
around or below the poverty line, but nearly all of those families 
either pay high shares of their income for rent or receive a voucher or 
similar rental assistance that enables them to afford the unit. \29\ If 
policymakers expand LIHTC or other development subsidies but do not 
adequately expand rental assistance, there will be a serious risk that 
many of the families who struggle most to keep a roof over their heads 
will not be able to afford the new homes.
---------------------------------------------------------------------------
     \29\ Megan Bolton, Elina Bravve, and Sheila Crowley, ``Aligning 
Federal Low-Income Housing Programs With Housing Need'', National Low 
Income Housing Coalition, December 2014, https://nlihc.org/sites/
default/files/Alignment-Report-1214.pdf; Katherine M. O'Regan and Keren 
M. Horn, ``What Can We Learn About the Low-Income Housing Tax Credit 
Program by Looking at the Tenants?'' Housing Policy Debate, Vol. 23, 
No. 3, May 16, 2013, https://www.tandfonline.com/doi/abs/10.1080/
10511482.2013.772909.
---------------------------------------------------------------------------
    Vouchers can help reduce rents to affordable levels for families 
with low incomes in two ways. First, most vouchers are tenant-based, 
meaning they can be used in a modest unit of the family's choice. 
Federal law prohibits owners of most buildings that receive Federal 
development subsidies from discriminating against voucher holders, so a 
family with a tenant-based voucher could opt to use it in such a 
development or elsewhere.
    Second, housing agencies can also enter into long-term project-
basing agreements that require some vouchers to be used in a particular 
development. A family living in a project-based voucher unit is 
permitted to move with the next available tenant-based voucher after 
one year, and a new family from the voucher waiting list then moves 
into the project-based voucher unit. Project-based vouchers can play a 
useful role, for example by enabling housing agencies to enter into 
long-term agreements ensuring that some units are available to voucher 
holders in neighborhoods where vouchers are otherwise difficult to use, 
or for supportive housing that provides rental assistance together with 
services for people with disabilities or with a history of 
homelessness. In addition, a long-term project-based voucher contract 
can help finance affordable housing development, since a portion of the 
voucher subsidies can be used to pay back debts incurred during 
construction.
    Agencies can project-base up to 30 percent of their vouchers with 
exceptions allowing agencies to go higher under certain circumstances. 
Only a few dozen of the Nation's 2,100 voucher agencies are approaching 
the 30 percent limit once those exceptions are considered, so nearly 
all agencies could project-base many additional vouchers to make units 
in new developments affordable to people with the lowest incomes, 
without additional funding or any change to current law. (Other 
project-based subsidies such as public housing and PBRA can play a 
similar role, but don't allow families to move, as project-based 
vouchers do. Policymakers should consider extending this option and 
some other characteristics of project-based vouchers to public housing 
and PBRA, particularly if they opt to expand either of those programs.)
    It is important, however, that most vouchers remain tenant-based 
and that any housing investment package sharply expand the voucher 
program as a whole so that housing agencies can increase the 
availability of both tenant-based and project-based vouchers. Tenant-
based vouchers are essential to ensuring that Federal housing 
investments allow low-income people to choose where they live. A 
housing investment package focused solely on development or on project-
based rental assistance would limit the housing choices available to 
low-income renters (who are disproportionately people of color). Those 
families would receive help to rent a particular unit but would usually 
have to give up their subsidy if they need to move elsewhere (for 
example, to be close to a job opportunity, to a relative who can act as 
a caregiver, or to a school they would like their child to attend). 
Tying most rental subsidies to particular units would repeat a mistake 
housing policymakers made in the past, particularly during the 
establishment and expansion of the current public housing and PBRA 
programs.
    This risk from limiting choice is compounded by a long history of 
discriminatory housing policies that have contributed to the 
segregation of low-income people, especially Black families, into 
poorer communities with under-resourced schools and other 
disadvantages. That history has been reinforced by ongoing resistance 
to affordable housing development in many predominantly White 
neighborhoods. \30\ It is critical that new housing supply and rental 
assistance investments not reinforce these patterns. Policymakers could 
avoid this by seeking to locate new affordable housing developments in 
neighborhoods that offer residents good opportunities and quality 
public services and encouraging developments that serve households with 
a mix of income levels. But coupling investments in affordable housing 
development with a major voucher expansion can help too, by making it 
easier for people with low incomes to move to a different neighborhood 
if they wish.
---------------------------------------------------------------------------
     \30\ Katherine Levine Einstein, Maxwell Palmer, and David Glick, 
``Racial Disparities in Housing Politics: Evidence From Administrative 
Data'', Boston University, August 29, 2018, https://maxwellpalmer.com/
research/racial-disparities-in-housing-politics.pdf; Jonathan Rothwell, 
``Land Use Politics, Housing Costs, and Segregation in California 
Cities'', Terner Center for Housing Innovation, September 2019, http://
californialanduse.org/download/Land%20Use%20Politics%20Rothwell.pdf.
---------------------------------------------------------------------------
Without Aggressive Action, We'll Miss an Opportunity That May Not Come 
        Again
    Immediate action is critical. The Joint Center for Housing Studies 
at Harvard University and other industry leaders recognize that, while 
many parts of the country continue to experience housing shortages, 
through early 2022 we have been in a housing development boom as 
markets respond to those shortages. New housing starts are reaching 
levels we haven't seen since the 1990s. \31\ However, these new rental 
housing developments are largely targeted at the upper end of the 
housing market. The average asking rent for new units in 2021 was 
$1,740 per month, but the median renter could only afford $1,080 per 
month. These new developments are targeted to this segment of the 
rental market partly because of these renters' inability to move to 
home ownership, and, absent Government action, will not be affordable 
for even families with moderate incomes. Yes, it may take several years 
for these new projects to begin to be occupied but now is the time to 
add rental subsidies, incentives, or contract requirements that ensure 
a significant amount of these units will be affordable.
---------------------------------------------------------------------------
     \31\ Joint Center for Housing Studies of Harvard University, ``The 
State of the Nation's Housing 2022'', 2022, https://
www.jchs.harvard.edu/state-nations-housing-2022. 

               RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR MENENDEZ FROM LAWRENCE YUN

Q.1. The market right now is more daunting than ever for a 
first time homebuyer. That is why it is so important for 
Congress to fund programs with proven records of helping 
improve access to housing like HUD's Housing Counseling 
Assistance Program.
    How do housing counseling services help improve housing 
outcomes for families?

A.1. Home ownership education and counseling provides potential 
buyers with tools and information to help them make housing 
choices that are affordable and sustainable. For those already 
purchased but encountering economic hardship, foreclosure 
counseling and reverse mortgage education should be widely 
available. Studies suggest that buyers who participate in 
education and counseling programs are less likely to experience 
mortgage delinquencies and foreclosures, according to 
NeighborWorks study. There are many offers for help that charge 
fees for service and advice. Potential buyers may be more 
likely to opt-into counseling programs if they are provided for 
free, but enrollment would be even higher if offered a 
financial incentive to do so.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA  
                       FROM LAWRENCE YUN 
                                          
Q.1. I know there have been substantial supply chain 
disruptions of critical housing inputs, like steel and lumber, 
that have caused delays and driven up prices. I've heard these 
disruptions are starting to resolve themselves, though it is 
still challenging to find qualified, skilled workers to 
construct homes. Relative to where we were last year, what is 
your assessment of the current supply chain situation for 
housing?

A.1. There has been easing of supply chain disruption. Input 
prices of lumber and steel and other materials that go into 
construction have come down from peak prices. At the same time, 
the price gypsum, a material in drywall, is increasing in price 
so now drywall is becoming more expensive. The main items that 
builders are experience issues obtaining are: garage doors, 
windows, doors, heating and air conditioning equipment, 
appliances, and cabinets. Ocean freight rates are continuing to 
decline from their record high, making it cheaper to ship 
materials internationally.
    However, the shortage of construction workers to build 
homes is an ongoing challenge facing the industry. More new 
supply of homes is critically needed over the long term. There 
has been increased cancellations from signed contracts to buy a 
new home arising due to recent jumps in mortgage rate. Unlike 
existing homes, new home construction takes time. From the 
initiation to build to the completion it may take more than 7 
months for majority of new homes coming onto the market. Over 
the course of this time, the mortgage may have move up by 300 
basis points, and essentially pricing out the homebuyer. 
Therefore, the supply of homes still under construction has 
risen. There were 308,000 homes under construction for sale in 
June 2022 compared to 266,000 before the increase in mortgage 
rates in December 2021 and 194,000 in February 2020 right 
before the onset of the pandemic. But the data also shows that 
the supply of fully completed homes still remain tight. There 
were only 39,000 newly finished homes on the market in June 
compared to 80,000 in February 2020. Moreover, the median 
number of months to make the sale since completion remains at 
near historic lows at 2.5 months at the end of June this year. 
It was 3.6 months in February 2020 and averaged 3.9 months over 
the past 20 years.
    The job openings in the construction industry are at 
historic highs. In March of this year, there were 481,000 job 
openings in construction--an all-time high. Figures are a bit 
lower in recent months but still much above prepandemic job 
opening levels.
    Finally, according to the Global Supply Chain Pressure 
Index provided by the New York Fed, the supply chain issues 
have been decreasing since May. The decline in June was largely 
due to large decrease in Chinese supply delivery time. While 
supply chain issues have been decreasing since the all-time 
high experienced in December 2021, they are still at 
historically high levels.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                    FROM DOUGLAS HOLTZ-EAKIN

Q.1. The Federal Reserve's efforts to combat inflation through 
raising interest rates will necessarily raise mortgage interest 
rates for prospective homeowners. I wanted to ask you about a 
second element of the Fed's plan to combat inflation--which is 
to cease the $30 billion in monthly purchases of mortgage-
backed securities (MBS) and to draw down MBS holdings by $35 
billion each month. My understanding is that these actions will 
require the market to offer higher interest rates in order to 
attract private capital to offset the $65 billion that the Fed 
is pulling out of the market. Do you agree with this 
assessment, and if so, do you have a sense of how much rates 
will need to increase in order to attract this private capital?

A.1. I agree entirely with this assessment and made the same 
point in both my written and oral testimony. While I would 
hesitate to put a precise number as to the amount housing rates 
will increase to absorb excess MBS in the market the impact 
will of course be significant. However, while the Fed's exit 
from the MBS market will necessarily raise mortgage rates for 
prospective homeowners, this is the Fed's designed intent. 
Decreasing demand in the housing market is the most pressing 
goal for the Fed in attempting to bring down inflation overall.

Q.2. Recognizing the current inflationary environment, do you 
believe that addressing overly restrictive zoning laws may be a 
productive way to increase housing supply without exacerbating 
inflation? Could doing so even be counter-inflationary?

A.2. One of the very few tools that Congress has available to 
address the chronic housing supply shortage in the short term 
is to focus on the panoply of bureaucracy facing the 
construction industry, including but not limited to restrictive 
zoning, the cost of permits, and challenges unique to the 
multifamily market. A significant short-term expansion in the 
Nation's total housing inventory would do much to bring housing 
supply in line with housing demand, which could lower the 
shelter component of the Consumer Price Index. It is, however, 
unlikely that this hypothetical supply boom would appreciably 
influence the macroeconomic environment in the short term in 
such a way as to be described as counter-inflationary.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                       FROM PEGGY BAILEY

Q.1. Housing and Inflation--Ms. Bailey, in your testimony you 
call for additional investments in rental assistance. Do you 
believe you believe that these investments will contribute to 
inflation?

A.1. No, I do not think that the investments in rental 
assistance that I call for in my testimony will contribute to 
inflation. Actually, it will help people with low and extremely 
low incomes be able to afford rising rents and manage increased 
costs for other household needs. There are millions of families 
who pay more than 30 percent of their income on rent who do not 
receive Federal assistance.
    An additional 200,000 vouchers, as proposed by President 
Biden in his FY 2023 budget proposal, is not enough to 
influence rent prices. And in any case, research on previous 
voucher expansions has found that vouchers have little or no 
impact on overall market rents. That's partly because most 
vouchers help families who already rent housing (but typically 
pay very high rent burdens), so they don't fill up more units 
in the market. In addition, the voucher program has safeguards 
that limit the amount of rent landlords can charge.

Q.2. Homelessness: Causes and Solutions--Ms. Bailey, what do 
you regard as the primary causes of homelessness? What do we 
know about the best ways to end homelessness? Recently we have 
heard proposals to criminalize homelessness, including imposing 
fines or criminal penalties for people experiencing unsheltered 
homelessness. What effect do you believe proposals to 
criminalize or otherwise penalize people experiencing 
homelessness are likely to have?

A.2. The primary driver of homelessness is the gap between 
incomes for people with low incomes and their rent costs, which 
is rooted in a history of discriminatory housing policies and 
systemic inequities in employment and education. People 
struggle to afford rent and Federal rental assistance reaches 
only 1 in 4 likely eligible households. In addition, people 
need services and supports to help them remain stably housed. 
We need to make sure people are connected to quality schools, 
jobs, health care, mental health, substance use treatment and 
other services that help them thrive, all of which are more 
effective when people are housed.
    The best ways to end homelessness are models that couple 
low-barrier affordable housing (typically including a housing 
voucher) with access to flexible support services that can 
adjust to the tenant's needs. These models, such as permanent 
supportive housing, have been shown to end homelessness for 
people who have spent months, years, and sometimes decades 
without a home.
    Communities implementing policies that criminalize 
homelessness only make the problem worse and more expensive. 
These counterproductive policies subject people to fines or 
jail time for being unable to afford a place to live and leave 
them with criminal records. It is harder for people with a 
criminal record to access housing due to landlord screening 
practices, that are often discriminatory, and outdated Federal 
rules and restrictions. So, criminalization is likely to 
prolong homelessness which then makes people more at risk of 
arrest and jail stays and this leads to communities spending 
more on homelessness through the criminal legal system, rather 
than less, while producing worse outcomes. People live without 
a home because the inability to afford housing (described 
above), which is exacerbated by failures in other systems, such 
as the primary and behavioral health care systems. It is not 
people's fault that they are unhoused and policies or practices 
that operate as if people have a ``choice'' not to live on the 
street are misguided.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF  
               SENATOR MENENDEZ FROM PEGGY BAILEY

Q.1. The market right now is more daunting than ever for a 
first-time homebuyer. That is why it is so important for 
Congress to fund programs with proven records of helping 
improve access to housing like HUD's Housing Counseling 
Assistance Program.
    How do housing counseling services help improve housing 
outcomes for families?
A.1. Housing counseling services help families with low incomes 
navigate entry into home ownerships. They identify downpayment 
assistance programs, help families build or improve credit 
histories, and help families understand their financial 
responsibilities as homeowners so they save and budget 
appropriately. They can also help families find good realtors 
and other resources that ease the home buying process.
    Housing counselors are increasingly helping renters. They 
were excellent partners in local eviction prevention efforts. 
Sometimes housing counselors were located in eviction court 
proceedings to immediately connect renters with assistance, 
often ending the threat of eviction, ensuring landlords were 
paid, and stabilizing families for the future.

Q.2. Right now, there aren't enough homes where families want 
to live and work at price points they can afford. That is why I 
introduced the Livable Communities Act, which creates a Federal 
grant program to incentivize the development of new affordable 
housing near existing mass transit.
    How critical is it to build more affordable housing near 
public transit?
A.2. It is extremely critical to build more affordable housing 
near public transit and other important community services such 
as schools and health care providers. Living near public 
transit can eliminate the need for a car or, at least, reduce 
the need for gas or frequency of car maintenance. It can also 
give people more time with their families which can improve 
childhood outcomes and other family outcomes.

Q.3. According to the Urban Institute, of the 16.1 million new 
household formations over the next 20 years, more than 80 
percent of them will be senior households. Due to lack of 
affordable housing options and lasting damage from the 
Financial and COVID crises--many of these senior households 
will be renters.
    Ms. Bailey, what does this projected increase in senior 
households mean for our senior public and assisted housing 
capacity and the housing needs that Congress must prepare for?
A.3. This projected increase is definitely a concern. In 2018, 
five million low-income senior renters paid more than half 
their income on rent, three million of whom paid more than half 
their income on rent. We are already seeing slight but steady 
increases in homelessness among older adults and seniors, which 
some researchers expect to grow over the next decade.
    Without resources, it could also unnecessarily force people 
into nursing homes and other health care institutions because 
people won't have access to affordable housing and services in 
their communities, further straining long-term care 
institutions. This is despite the fact that seniors 
overwhelmingly want to live in their own homes instead of 
congregate care settings. Therefore, Congress needs to think 
now about providing housing and rental assistance that is 
accessible to health and other elderly support services--
including supportive housing--to meet people's needs so they 
can avoid homelessness and unnecessary institutionalization.
    Vouchers--which serve more older adults than any other 
federal rental assistance program--are critical for meeting 
this need. Vouchers can help older adults age in place by 
helping them afford their current home or move into more 
accessible homes that will meet their needs as they age, such 
as a ground-floor or wheelchair-accessible unit. Vouchers are 
also well-suited for increasing access to supportive housing 
for seniors who need supportive services. Vouchers can be 
tenant-based, letting people choose a unit on the private 
market, or project-based, meaning the rental assistance is tied 
to specific units. Having vouchers readily available would help 
communities create a variety of integrated housing options--
including supportive housing--so that seniors could choose one 
that meets their needs without being isolated from the 
community.

Q.4. Would increase funding for programs that directly address 
senior housing, such as HUD's Section 202 Housing for the 
elderly program, help mitigate this crisis?
A.4. Yes, increased funding for HUD's Section 202 Housing for 
the Elderly Program would help mitigate this crisis. However, 
building more housing isn't the only solution and can take 
time. To help people now and allow people to stay in their 
current home longer, Congress should also increase funding for 
the Housing Choice Voucher (HCV) program, which assists more 
seniors than any other rental assistance program and more than 
five times as many as Section 202. Many public housing agencies 
prioritize vouchers for seniors, but they do not have enough 
resources to give a voucher to everyone, even just to every 
senior, who needs help paying their rent. Increases in the HCV 
program would help housing agencies give assistance to seniors 
in their current residence. Congress should also strengthen the 
health care system so that it pays appropriately for both the 
primary and behavioral health care needs for seniors. Including 
tenancy support services that keep people housed and home 
modifications for seniors with mobility challenges.