[Senate Hearing 118-423]
[From the U.S. Government Publishing Office]
S. Hrg. 118-423
THE COSTS OF INACTION: ECONOMIC
RISKS FROM HOUSING UNAFFORDABILITY
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
----------
September 25, 2024
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Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
S. Hrg. 118-423
THE COSTS OF INACTION: ECONOMIC
RISKS FROM HOUSING UNAFFORDABILITY
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
September 25, 2024
__________
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
_______
U.S. GOVERNMENT PUBLISHING OFFICE
56-946 WASHINGTON : 2025
COMMITTEE ON THE BUDGET
SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia MITT ROMNEY, Utah
JEFF MERKLEY, Oregon ROGER MARSHALL, Kansas
TIM KAINE, Virginia MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico RICK SCOTT, Florida
ALEX PADILLA, California MIKE LEE, Utah
Dan Dudis, Majority Staff Director
Kolan Davis, Republican Staff Director and Chief Counsel
Mallory B. Nersesian, Chief Clerk
Alexander C. Scioscia, Hearing Clerk
C O N T E N T S
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WEDNESDAY, SEPTEMBER 25, 2024
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Senator Sheldon Whitehouse, Chairman............................. 1
Prepared Statement........................................... 39
Senator Charles E. Grassley...................................... 3
Prepared Statement........................................... 41
Senator Jack Reed................................................ 5
STATEMENTS BY COMMITTEE MEMBERS
Senator Patty Murray............................................. 17
Senator Ron Johnson.............................................. 19
Senator Tim Kaine................................................ 24
Senator Mike Braun............................................... 26
Senator Mark Warner.............................................. 29
Senator John Kennedy............................................. 31
Senator Alex Padilla............................................. 33
Senator Chris Van Hollen......................................... 35
WITNESSES
The Honorable Joseph Shekarchi, Speaker, Rhode Island House of
Representatives................................................ 7
Prepared Statement........................................... 44
Mr. Paul E. Williams, Founder and Executive Director, Center for
Public Enterprise.............................................. 9
Prepared Statement........................................... 48
Ms. Greta Harris, President and CEO, Better Housing Coalition.... 12
Prepared Statement........................................... 67
Mr. Ed Pinto, Senior Fellow and Co-Director, AEI Housing Center.. 13
Prepared Statement........................................... 69
Mr. Jack Salmon, Director of Policy Research, Philanthropy
Roundtable..................................................... 15
Prepared Statement........................................... 71
APPENDIX
Responses to post-hearing questions for the Record
Hon. Shekarchi............................................... 76
Mr. Williams................................................. 77
Ms. Harris................................................... 78
Mr. Pinto.................................................... 80
Mr. Salmon................................................... 90
Statement submitted for the Record by the Bipartisan Policy
Center's JRT Center for Housing Policy......................... 95
THE COSTS OF INACTION: ECONOMIC
RISKS FROM HOUSING UNAFFORDABILITY
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WEDNESDAY, SEPTEMBER 25, 2024
Committee on the Budget,
U.S. Senate,
Washington, DC.
The hearing was convened, pursuant to notice, at 9:58 a.m.,
in the Dirksen Senate Office Building, Room SD-608, Hon.
Sheldon Whitehouse, Chairman of the Committee, presiding.
Present: Senators Whitehouse, Murray, Warner, Kaine, Van
Hollen, Padilla, Reed, Grassley, Johnson, Braun and Kennedy.
Also present: Democratic Staff: Melissa Kaplan-Pistiner,
General Counsel; Connor Jennings, Budget Analyst.
Republican Staff: Chris Conlin, Deputy Staff Director;
Krisann Pearce, General Counsel; Ken Acuna, Professional Staff
Member; Ryan Flynn, Budget Analyst.
Witnesses:
The Honorable Joseph Shekarchi, Speaker, Rhode Island House
of Representatives
Mr. Paul E. Williams, Founder And Executive Director,
Center for Public Enterprise
Ms. Greta Harris, President And CEO, Better Housing
Coalition
Mr. Ed Pinto, Senior Fellow And Co-Director, AEI Housing
Center
Mr. Jack Salmon, Director Of Policy Research, Philanthropy
Roundtable
OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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\1\ Prepared statement of Chairman Whitehouse appears in the
appendix on page 39.
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Chairman Whitehouse. Good morning, everyone. The hearing of
the Senate Budget Committee will come to order. We will be
discussing this morning an issue of concern to all Americans,
namely housing.
Secure and affordable housing is a building block of
financial well-being, being able to afford a home provides not
just shelter, but community and stability. When families cannot
afford housing, they face increased barriers to education and
employment, they have worse physical and mental health
outcomes, and they likely face generational poverty.
Unfortunately, families across America for paying the price
for a housing market failure that was years in the making.
Nationwide, the U.S. faces a shortage of four to seven million
housing units available for sale or rent, which of course
drives up cost.
Barriers to getting a mortgage are making it harder for
first-time buyers to purchase a home. With fewer people able to
purchase homes, demand in rental markets has soared, creating a
shortage of available rental units, driving up costs. Helping
families afford a safe, stable place to call home should be
neither controversial nor partisan, and I will take a moment to
recognize Ranking Member Grassley for his work in past years to
do bipartisan housing work. And I thank him and congratulate
him for that from the Finance Committee Chair.
Key to addressing the shortage of units and bringing down
costs for families is, as my friend Speaker Shekarchi from
Rhode Island would say, production, production, production.
When Speaker Shekarchi took the gavel in 2021, he promised to
become the housing speaker, a promise he has more than kept.
In just three years, he has shepherded over 30 bills into
law to tackle Rhode Island's housing shortage. Coupled with
historic budget investments, his legislation has addressed
long-lagging housing production, expanded the state's housing
supply and blunted upward pressure on rents and home purchase
prices.
Nationally, there is evidence we are turning the corner in
communities across the country. New construction is way up.
Home prices are coming down, and the Fed is finally cutting
interest rates, as many of us have repeatedly urged them to do,
and that makes mortgages more affordable.
Construction of multi-family housing developments increased
22 percent in 2023, the highest annual increase in more than
three decades. The pace of single family homebuilding climbed
steadily throughout 2023, and has stayed elevated. Vacancy
rates in professionally managed apartments rose to nearly six
percent this year, more than twice the record low of 2.5
percent set in early 2022, which in turn stabilizes the rental
market.
This is thanks in large part to important steps Congress
and the Biden-Harris administration have taken to increase the
housings supply, to protect renters and to ease cost burdens.
More than $18 billion of the American Rescue Plan's state and
local fiscal recovery funds have gone towards expanding housing
supply, investing in homeless services and providing nearly
four million additional households with rent, mortgage and
utility relief.
Senate appropriators, Chairman Murray present, continue to
support housing programs like the home investment partnerships,
community development block grants and housing choice vouchers.
Last week, the Congressional Budget Office released a report on
long-term projections for new housing starts, finding that the
housing shortage will persist unless policymakers take decisive
action.
Yesterday, I introduced new legislation to significantly
expand our nation's supply of affordable housing by bolstering
the low income housing tax credit. The Affordable Housing
Construction Act would more than triple states' funding for
affordable housing under the program, loosen financing
requirements and extend the period during which housing must
stay affordable.
With Congressman Panetta and Blumenauer, I have also
introduced a $15,000 first time homebuyer's tax credit for
lower income Americans, refundable, advanceable and available
for homebuyers at the time of purchase, to help make home
ownership a reality for more families. I thank Vice President
Harris for her pledge of a $25,000 similar credit.
Other proposals to make housing more affordable include
Senator Wyden's Decent, Affordable, Safe Housing for all (DASH)
Act, Senator Van Hollen's bipartisan Family Stability and
Opportunity Vouchers Act, the Fair Housing Improvement Act led
by Senators Kaine and Sanders, the Delivering Essential
Protection, Opportunity, and Security for Tenants (DEPOSIT) Act
led by Senators Luhan and Padilla, and Senator Padilla's
Housing For All Act. We have a busy Budget Committee on the
subject.
Vice President Harris also called for the construction of
three million new housing units through historic expansion of
the low income housing tax credit. Today's witnesses will
hopefully point the way towards creative solutions to our
nation's housing shortage. One thing we know for certain is
that inaction is not an option.
As I turn to our Ranking Member, Senator Grassley, let me
welcome Senator Reed, who has joined us. When it comes time for
witness introductions, he will be helping with the introduction
of our very dear friend, Speaker Shekarchi, and I want to thank
the Committee for allowing Jack to participate in that. He will
be staying through the Speaker's testimony, I understand.
Chuck, over to you.
OPENING STATEMENT OF SENATOR GRASSLEY \2\
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\2\ Prepared statement of Senator Grassley appears in the appendix
on page 41.
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Senator Grassley. I appreciate your calling of today's
hearing on housing affordability. It is an issue that is
central for Iowans and all Americans, something they care about
deeply. It is very central to what both Republicans and
Democrats call the American Dream. Over the past four years,
Americans saw home prices and particularly rents skyrocket, as
inflation ran rampant, thanks to the policies of this
administration.
Thanks to Bidenflation, prices throughout the economy are
up 20 percent since the start of administration. Even worse,
housing prices have skyrocketed nearly 40 percent, and are
currently at an all-time high according to Case-Shiller Home
Price Index. Inflation has thankfully eased over the past year,
largely due to action taken by the Fed.
But that should not be used as an excuse to once again open
up the spending spigot, risking further inflation.
Unfortunately, that is exactly what some of the proposals
out there do, and I refer particularly to Vice President
Harris, touting the advocacy of hundreds of billions of dollars
in demand-inducing housing subsidies.
Economists from across the political spectrum have noted
how such policies would backfire by pushing up housing prices
even further. Ed Pinto, who I have invited to testify, is going
to quantify exactly how Vice President Harris' policies will
make housing less affordable. In addition to calling for more
subsidies, the Vice President has also touted plans to
implement a version of rent control.
Rent control policies have been disastrous at the state and
local levels, and it would be a huge mistake to adopt them at
the federal level. And that is not just this Senator's point of
view. We have Jason Furman, who served as President Obama's
chief economist, panned Harris' proposal saying ``rent control
has been about as disgraced as any economic policy in the
toolkit. The idea that we would be reviving and expanding it
will ultimately make our housing supply problems worse, not
better.''
Before we add new housing programs or expand existing ones,
we should have a good look at the ones we already have
currently. There are more than 100 federal housing programs.
The Congressional Budget Office estimates that the federal
government will spend over $750 billion over the next ten years
in housing assistance alone, and that does not include billions
in additional housing programs and federal loan subsidies for
mortgages provided by government agencies, which would include
at least the Department of Agriculture, Defense and Veterans
Affairs.
On top of that, the Tax Code includes incentives for home
ownership, and the construction of low income housing, and the
Chairman has referred to my efforts in that category. Instead
of adding to the list of federal housing programs, Congress
should focus on increasing the effectiveness of existing
policies by eliminating duplication and complexity.
That is why at this Committee's previous housing hearing, I
invited Bill Slover to testify. Mr. Slover provided a firsthand
account of waste and inefficiency presently in our housing
programs. Moreover, he highlighted the lack of accountability
in the state housing agencies. Mr. Slover's testimony was
consistent with what I have discovered as part of my oversight
work.
For decades, I have conducted oversight of the Department
of Housing and Urban Development and local housing agencies,
and during that investigation we were able to expose rampant
waste, fraud and abuse. Too often government overpays for
poorly executed policies, and the maze of housing programs
create inefficiencies.
And what I just said about my investigations applied to
both Republican and Democrat administrations, not properly
supervising from the federal level the oversight that they
should have on these, because I found that the Department of
Housing and Urban Development (HUD) does very little, if any
oversight of housing authorities.
So they get away with lavish office spending on salaries,
vehicles, parties and travel. Meanwhile, those less fortunate
wait in line sometimes for years for actual housing assistance.
So we should be focusing on forcing HUD to do its job, but
the majority is not doing that while HUD fritters away tons of
taxpayer money. I also welcome Jack Salmon, who will refocus
the debate on this Committee's fiscal policies with deficit,
debt and interest expenses. I am sure the administration is
counting on the Fed's recent interest rate cut to lower housing
costs.
However, interest rates are but one of a host of factors
driving housing costs. Moreover, lower interest rates may be
fleeting if we do not do our job to rein in unprecedented debt
and deficits. Thank you.
Chairman Whitehouse. Thanks very much. Speaker Shekarchi
and I came into politics together as young staffers for
Governor Bruce Sundlun, a crucible experience that forged
lasting friendships. So I am personally thrilled to have him
here today. Senator Reed, the senior senator in our delegation,
will introduce him.
But as he does, let me point out that Jack has a position
on the Appropriations Subcommittee on Transportation, Housing
and Urban Development, and he is also the senior Democrat on
the Banking Committee, which has authority over housing, and
his work on housing has earned him, I think every housing award
that housing organizations give around here, some of them
twice. So he knows whereof he speaks, and over to you, Senator
Reed.
STATEMENT OF SENATOR REED
Senator Reed. Well, thank you very much, Chairman
Whitehouse and thank you for your kind words. I am proud to
join you today to welcome and introduce the Committee's first
witness, Rhode Island Speaker of the House Joe Shekarchi.
When I first met Joe over 30-years ago, he was a fresh-
faced lawyer at the very beginning of his career. But his
intelligence and extreme competence were evident even then.
Across the past three decades, Joe has become a respected
member of the Rhode Island Bar, and a dedicated servant to
hometown of Warwick, Rhode Island.
In 2012, Joe was elected to the Rhode Island State House of
Representatives, and in 2021, his colleagues selected him to be
their Speaker. Joe's accomplishments as Speaker are numerous,
passing tax cuts for small businesses and families, enacting an
historic pay equity law, and bringing thousands of new jobs to
Rhode Island.
But nowhere has his work been more impactful or important
than his efforts on housing. Indeed, when Joe became Speaker,
he quickly focused on the significant housing shortage that was
making housing unaffordable in Rhode Island. He understood that
for over a decade, we had been underbuilding in Rhode Island.
In fact, we were last in the country.
With far too few homes available, the costs were far in
excess of what the family or any family could afford. Joe
tackled Rhode Island's crisis head on. In less than four years
as Speaker, working collaboratively with state leaders and
various stakeholders, he has guided nearly 50-50 housing bills
into law.
These include our state's first ever dedicated annual
funding stream for affordable housing, creating a new cabinet
level position for a Secretary of Housing, and new investments
totaling hundreds of millions of dollars in housing supply and
assistance. Each of these successes, on their own, would have
been one of the state's most important housing accomplishments
in recent memory.
Collectively, they are a giant leap toward ensuring every
Rhode Island family can afford a safe, comfortable home. I'm
glad we have Joe leading the charge for greater housing
affordability in Rhode Island, and I'm very glad that Chairman
Whitehouse has invited him to be here today, to share his deep
insights and experience on housing policy with us and our
colleagues.
Once again thank you, Senator Whitehouse, not only for your
kind invitation but for your great leadership.
Thank you.
Chairman Whitehouse. Thanks very much Senator Reed. Our
second witness is Mr. Paul Williams, the founder and Executive
Director of the Center for Public Enterprise, an organization
focused on broadening public sector economic development
capacity, particularly in housing. His organization provides
technical assistance and guidance to state housing finance
agencies across the country. Welcome, Mr. Williams.
And our next witness will be introduced by our esteemed
colleague from Virginia, Senator Tim Kaine, whose timing is
near perfect. Senator Kaine.
Senator Kaine. Thank you, Mr. Chair, Ranking Member
Grassley and thanks to all the witnesses for being here. I am
very honored to introduce a long-time friend and neighbor, an
admirable Richmonder and Virginian, Greta Harris. Greta is the
president and Chief Executive Officer (CEO) of the Better
Housing Coalition (BHC), and she's the pride of Danville,
Virginia.
And then after getting a degree in Architecture at Virginia
Tech and then graduate studies in Architecture and Urban
Planning at Columbia, has become a passionate and successful
advocate for affordable housing for a very long time. She
served as vice president of an organization called the Local
Initiative Support Corporation, which is a national non-profit
that works in community and economic development. She led
many--well, she led local offices in both southern and
midwestern regions, and then she began her tenure as the CEO
and president of the Better Housing Coalition in 2013.
Greta's impact on the BHC and affordable housing in the
Richmond region has been absolutely remarkable, and her
leadership has positioned the BHC to realize the same success
in five years as it had over the previous 30-years combined.
BHC is the largest non-profit provider--non-profit development
corporation in Richmond, and they create high quality homes for
low and moderate income residents, empowering them to reach
their fullest potential.
Many of these homes are created in neighborhoods that I
used to represent back in my time as a City Councilperson, and
I have seen firsthand the tangible impact that Greta has had.
The organization's portfolio includes an array of multi-family
rental communities, rental units, single family homes.
Its services support 1,100 residents a year, and I am proud
to have secured funding for two of HBC's upcoming affordable
multi-family projects through the Congressionally directed
spending process. I acknowledge the head of the Appropriations
Committee as I comment upon that. That has been really great
work.
For over two decades, Greta has been a true champion of
affordable and accessible housing. She has won every award that
anybody in Richmond gives. She is on numerous boards and has
been a true success. So I am super-happy that Greta is able to
be here today. And with that Mr. Chair, I will yield back.
Chairman Whitehouse. Thank you very much, Senator Kaine. I
will now turn to my distinguished Ranking Member to introduce
his witnesses.
Senator Grassley. Mr. Ed Pinto, a Senior Fellow and Co-
Director of the Housing Center at the American Enterprise
Institute (AEI). A focus of his work continues to be the role
of federal housing policy and how it continues to create
unwelcome distortions on the housing market.
More recently, his research has focused on using light
touch density to increase the supply of naturally affordable
and inclusionary housing. Before joining AEI, Mr. Pinto was the
Executive Vice President and Chief Credit Officer for Fannie
Mae until the late 1980's.
Our final witness, Mr. Jack Salmon, Director of Public
Policy of the Philanthropy Roundtable. His work focuses on
research, commentary and analysis of issues facing charitable
sector and philanthropic freedom. Prior to joining the
Roundtable, Mr. Salmon served as program manager and researcher
at the Mercatus Center at George Mason University, where he
oversaw policy relating to budgets, taxation, institution and
economic policy. We welcome both of you.
Chairman Whitehouse. And with that Mr. Speaker, you are
recognized for five minutes, and your full statement will be
made a part of the Committee record.
STATEMENT OF HON. JOSEPH SHEKARCHI, SPEAKER, RHODE ISLAND HOUSE
OF REPRESENTATIVES \3\
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\3\ Prepared statement of Hon. Shekarchi appears in the appendix on
page 44.
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Speaker Shekarchi. Good morning. Thank you, Senate Budget
Committee Chair Senate Whitehouse, for inviting me to speak
before you today, and thank you Senator Reed for the kind
introduction. Thank you also to Ranking Member Senator
Grassley, as well as all the distinguished Senate Budget
Committee members.
I appreciate all of you taking the time to consider this
critical issue, housing. My name is Joseph Shekarchi, and I am
the Speaker of the Rhode Island House of Representatives, and I
am passionate about housing. Serving the legislature of a small
state is very hands-on. You become deeply aware of the wide
variety of complex problems that your constituents face.
You eventually realize that many of the solutions to these
problems are tightly interwoven and interconnected. During my
time in the legislature, I have recognized a fundamental truth.
Housing is the core issue. In fact, the housing crisis
complicates almost all other challenges facing our communities.
If we do not solve the housing crisis, how can we improve
our educational outcomes or shore up the job market? How can we
ensure a proper health care workforce, grow our economy or lift
our families out of poverty? Very simply we can do all the
policy programming we want, but if a child does not have a safe
place to sleep at night, what does it all mean?
When I became Speaker in 2021, I pledged to make housing my
top priority. Let me quickly paint Rhode Island housing picture
for you. Rhode Island is the smallest state in the nation, but
we are very densely populated, with just over one million
residents living in about 1,500 square miles of land.
We have some of the oldest housing stock in the country,
and for too many years, Rhode Island has ranked dead last in
the nation for new housing starts. The price of a single family
home in Rhode Island has nearly doubled in five years. In 2019,
the median home price in Rhode Island was about $250,000. This
year, the median price is $494,000.
These factors have created a perfect storm, bringing us to
where we are now, in the midst of a severe housing shortage. It
took many years to get where we are, and I am acutely aware of
the scale and duration of effort required to get to a remedy.
Rhode Island is not standing still. I am passionate about
housing, and I have made it my top legislative priority.
Over the last four years, working with my colleagues in
state government, we have passed almost 50 new housing laws. As
a foundation to our legislative work, we have created two year-
round study commissions comprised of legislators, housing
advocates, planners, builders and other stakeholders. The work
of these commissions have shaped much of our legislation.
We are listening to the experts, following the data and
making real sustained progress. I am incredibly proud that each
of the four comprehensive packages of housing legislation that
we have passed in Rhode Island have enjoyed strong bipartisan
support. In terms of our legislative housing policy, my mantra
has been production, production and more production.
The legislation we have passed has focused on reducing
barriers to development, eliminating red tape and redundancy.
With the goal of increasing housing production, we have created
the first ever permanent revenue stream for housing,
development of affordable housing.
We have created and committed funding to a new cabinet
level position of Secretary of Housing, as well as a new
Department of Housing to coordinate our focus and our efforts.
We created a dedicated court calendar for housing appeals.
Developers complained that many communities were using the
appeals process as a stalling mechanism. For developers, time
is money. Cases were being delayed indefinitely, sometimes for
years.
Reducing the backlog of pending appeals has already had a
significant impact. We are not changing the rules for
development. We are making the process clearer, more consistent
and more streamlined. We are also looking to new and innovative
solutions. We passed legislation making it easier for
homeowners to develop Accessory Dwelling Units or ADUs, also
known as in-law apartments.
ADUs are a great option for seniors wishing to age in
place, for recent graduates looking for cost-effective housing,
and for the disabled to live independently but in proximity to
family members. ADUs offer gentle density by adding housing
units to existing blueprints without changing the character of
a neighborhood.
Rhode Island's legislation allows ADUs by right when
meeting certain requirements, eliminating zoning approval and
saving additional costs. I am incredibly proud of this
legislation, which was a top priority of AARP nationally. Like
ADUs, manufactured housing is also another option with lesser
lead time and lower cost.
Rhode Island passed legislation to expand land available
for siting of manufactured homes. I am also intrigued and
curious about the Montgomery County, Maryland model for public
housing. We have invited Maryland officials to present before
our commissions, and we are working to determine how that model
could work here. Additionally, we have proposed $10 million for
a pilot program. Rhode Island has enacted a first time
homebuyer program, which has funded using state fiscal recovery
funds and including assistance for down payment.
It has been a huge success, resulting in participation of
1,672 homebuyers in Rhode Island, 46 percent of whom are
minorities and 47 percent are female-headed households. Housing
issues are not unique to Rhode Island. At a recent National
Governors meeting, every single state listed housing as a top
issue, and HUD estimates that the national shortage of housing
units is more than six million homes.
There are many misunderstandings about what affordable
housing is and what it looks like. Housing is considered
affordable when it comes--costs no more than 30 percent of an
individual's family gross income. When housing prices soar,
people at the lower end of the economic spectrum are
disproportionately impacted.
The reality today is that working families are priced out
of the housing market, not just for home ownership but also for
renting. In Rhode Island, a household earning our state's
median income of $74,000 would not be able to buy an affordable
house in any of our cities and towns.
These families include our teachers, nurses, firefighters,
health care aides. These workers are the backbone of our
community, and they should be able to afford to live in the
communities they serve. I respectfully request that Congress
provide states with greater funding mechanisms and grant
opportunities to develop more housing to foster public-private
partnerships.
I would like to see further expansion of financial
assistance for renters like rental vouchers, as well as a down
payment support for first time homebuyers. Senator Whitehouse's
proposed legislation, the Affordable Housing Construction Act
of 2024, would leverage federal tax credits to encourage
investment in housing.
Rhode Island's small size makes us the ideal partner for
the federal government on housing issues. We are a nimble
state. We have shown that we can quickly move on housing
legislation. I come before you because we are ready in Rhode
Island to act on this offer. We could become an incubator to
pilot innovative, creative housing programs with the federal
government.
As long as I am in the Office of Speaker of the House, I
pledge that affordable housing will continue to be a core
mission for me. I will bring my unshakable passion for the
development of a modern policy that ensures every Rhode
Islander has reliable access and a safe place to live.
I sincerely thank you for your time and consideration, and
I would be happy to take any questions. Thank you.
Chairman Whitehouse. Thank you Mr. Speaker for your many
successes, and for being here today. Mr. Williams.
STATEMENT OF PAUL E. WILLIAMS, FOUNDER AND EXECUTIVE DIRECTOR,
CENTER FOR PUBLIC ENTERPRISE \4\
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\4\ Prepared statement of Mr. Williams appears in the appendix on
page 48.
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Mr. Williams. Thank you Chairman Whitehouse, Ranking Member
Grassley and Members of the Committee. As you know, housing
affordability is critical for American families. Housing
expenses are far and away the largest single item in most
American households' budgets, taking up 20 percent, 30 percent
or as high as 50 percent or more in severe cases of a family's
household income.
Ensuring that housing costs remain stable and affordable
helps those families by giving them more flexibility to invest
in other necessities, and also to save for the future.
But housing affordability does not just help families. It
also helps businesses thrive in the economy. When families have
more income to spare, they can support more small businesses in
their communities, and when more families can afford to live in
a neighborhood, businesses have an easier time growing.
To promote housing affordability across the country,
consensus among policymakers, economists, developers and
advocates is clear. We need more housing supply. Bringing new
housing supply online requires addressing zoning and land use
issues, streamlining permitting and easing financing
constraints.
My message to the Committee is that the federal government
should help bring more stability to the housing investment
cycle. Today, a lack of liquidity in the construction financing
market has led to hundreds of thousands of would-be homes
sitting on the shelf unbuilt.
Let me begin by sharing with you a key statistic from the
Census Construction Survey. From 2000 to 2020, there is an
annual average of about 50,000 multi-family homes that were
authorized or permitted but never started construction, as you
can see to the chart to my right. Over the past several years,
that figure has dramatically increased, reaching a peak of
165,000 in early 2023, about three times more than the prior
two decade average.
Today, that figure still sits at about 131,000, more than
double the prior average. In other words, there are hundreds of
thousands of homes that have received their permits to build,
but they have not started building. What is going on here?
Construction financing. My organization, Center for Public
Enterprise, works closely with public agencies across the
country, including many of our state housing finance agencies.
This summer, we described this issue in a report which I
have included as an addendum with my testimony, and provided
several strategies for addressing it, including by enabling
federal instrumentalities to provide countercyclical support to
construction financing. That is, a tool that can be active in
difficult financing environments, and scale back when financing
becomes more forthcoming in the market.
A key issue in the way of more housing supply, in addition
to zoning and permitting issues, is a lack of liquidity in
housing construction finance. To give a pointed local example,
in Massachusetts today there are more than 40,000 multi-family
homes that have been permitted or authorized, but are stalled
due to financing constraints.
The permits are in place, the housing demand is there,
rental vacancy rates are below four percent, but the financing
challenge remains. At some points in the business cycle, when
loan to cost ratios are higher and products like mezzanine
financing are more readily available, this issue is not so
predominant.
But at other points in the business cycle, countercyclical
tools are crucial to ensuring that these viable projects can
move through the pipeline, create good jobs and create high
quality homes for American families. One of the difficulties
that a cyclical investment cycle creates for housing
affordability is a difficult trap that hampers our ability to
provide supply that matches demand over the long run.
For many commodities like eggs or N-95 masks, a spike in
consumer demand leads to producers making quick investments in
new supply that can become available in a matter of weeks or
months. Multi-family housing, on the other hand, takes not
months but years to come online. From the time a housing demand
spike begins to the time keys are in families' hands, often two
or three years may have passed.
In economic parlance, the supply response of housing,
particularly multi-family housing, has significantly lagged
relative to the demand events. This dynamic magnifies the
already-existing boom and bust shape of a business cycle.
If we are going to create the level of housing supply
needed in the market to meet housing demand, we will need
support of tools that can provide some smoothing to investment
cycle, by providing construction financing liquidity throughout
that cycle.
There are many ways to structure this support. In fact,
many of our nation's housing finance agencies have begun to
implement small but scalable local solutions to this problem.
Montgomery County, Maryland's Housing Opportunities Commission
has a tool called the Housing Production Fund. Massachusetts
recently created a tool called the Momentum Fund, and
municipalities in Georgia and Tennessee, in partnership with
our organization, have recently created local investment
vehicles to provide similar support for multi-family
development.
To build on this local innovation across the country,
policymakers could look to federal agencies that could support
smoothing the housing investment cycle. The GSEs have a history
of exploring construction financing tools, and could be
authorized to create a new product that supports this type of
financing in times of low liquidity, but pulls back in times
when financing is more readily available.
Congress could explore options for supporting construction
financing, such as through those GSEs, and with support such as
through a letter to the Federal Housing Finance Agency on this
topic. The success of these innovative local models is clear.
Imagine the boom in construction that could occur if such a
tool were available nationwide.
Such a tool could create stability not just for housing
investment, but also for many things that depend on housing
investment: good construction jobs, healthy housing supply,
housing affordability for American families, and a stronger
economy for everyone. Thank you for your time and your
consideration. I am more than happy to follow up in greater
detail with you and your staff should you be interested in
exploring these topics further, and I am happy to answer any
questions.
Chairman Whitehouse. Thank you very much. Ms. Harris,
welcome. The floor is yours.
STATEMENT OF GRETA HARRIS, PRESIDENT AND CEO, BETTER HOUSING
COALITION \5\
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\5\ Prepared statement of Ms. Harris appears in the appendix on
page 67.
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Ms. Harris. Mr. Chairman, Ranking Member Grassley, Members
of the Committee and other distinguished guests, thank you for
the opportunity to address an issue that touches the core of
our economy and the well-being of millions of Americans,
affordable housing.
My name is Greta J. Harris, and I lead the Better Housing
Coalition, a NeighborWorks chartered organization and Central
Virginia's largest affordable housing developer. We are honored
to provide service-enriched quality rental housing for nearly
3,000 lower income individuals and seniors, while offering
opportunities for home ownership.
Over the last 3\1/2\ decades, we have invested $300 million
into our community, with another $300 million in our pipeline,
ensuring that more of our neighbors have a good place to call
home. America stands at a critical juncture. The lack of
affordable housing is not just a challenge for lower income
families; it is a systemic issue affecting nearly every facet
of our society and economy, and the consequences of inaction
ripple far beyond the housing market.
As housing costs outpace wages, today more than ten million
Americans spend over half of their income on housing, leaving
little for essentials like food, health care and education.
This suppresses consumer demand and hampers economic growth.
Businesses in both urban and rural areas struggle to attract
and retain talent, because workers cannot afford to live
nearby, thereby stifling business expansion, innovation and
productivity.
The societal costs of unstable housing are also severe.
Studies show that housing instability is linked to worse health
outcomes, increased mental health issues and lower learning
achievement for children. Families forced to move frequently
disrupt their children's education, which has long-term
consequences for their development and future economic mobility
success.
Moreover, the brunt of the crisis falls hardest on
vulnerable populations, communities of color, single parents,
veterans and the elderly. For communities of color, this crisis
deepens the racial wealth gap, perpetuating cycles of poverty.
And homelessness, a growing manifestation of the housing
crisis, comes at a steep social and economic cost.
A study from 2019 found that homelessness costs taxpayers
upwards of $35,000 per person per year, while providing
permanent, supportive, affordable housing costs significantly
less as a more humane solution. Affordable housing is also tied
to environmental challenges. Housing shortages often push
modest income families to the outskirts of cities, leading to
urban sprawl, increased traffic and higher greenhouse gas
emissions. Addressing this crisis it not an economic
imperative, but also an environmental one.
The core truth is that affordable housing is a public good.
It strengthens communities, supports families, empowers our
economy by contributing 16 percent to the U.S. Gross Domestic
Product (GDP). When we invest in affordable housing, we create
jobs, spur local economies and provide families with the
stability they need to thrive.
At the Better Housing Coalition, we have seen lives
transformed when families gain access to stable, quality,
affordable homes. Households can begin to breathe, and then
believe that their future can be better than their present.
Individuals further their education, secure better jobs and
even sometimes transition to home ownership, creating a cycle
of positive economic and social outcomes.
The longer we wait to address this housing crisis, the more
costly it will become. The question is not whether we can
afford to act, but whether we can afford not to. We need a
scalable, multi-pronged approach to this crisis, including
investing in low income house tax credits, home ownership tax
credits, community development financial institutions,
expanding federal housing vouchers, funding housing trust
funds, and strengthening intermediaries like NeighborWorks
America, Housing Partnership Network and Local Initiatives
Support Corporation (LISC), that build non-profit capacity to
serve lower income households across the country.
We must also support local zoning reforms to remove
barriers to building affordable homes and reduce NIMBY, Not In
My Backyard opposition. We have many of the tools to address
this housing crisis, but we need the political will to use
them.
As you deliberate on future federal budgets, I really urge
you to prioritize affordable housing. Not just because it is
the right thing to do, but because our economy and our society
depend on it. Thank you very much.
Chairman Whitehouse. Thank you very much. My eyes are
failing me. Mr. Pinto?
Mr. Pinto. Yes.
Chairman Whitehouse. Over to you. Thanks.
Mr. Pinto. Thank you.
STATEMENT OF ED PINTO, SENIOR FELLOW AND CO-DIRECTOR, AMERICAN
ENTERPRISE INSTITUTE HOUSING CENTER \6\
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\6\ Prepared statement of Mr. Pinto appears in the appendix on page
69.
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Mr. Pinto. Chairman Whitehouse, Ranking Member Grassley,
Committee Members, thank you for the opportunity to testify on
this most important topic. First of all, allow me to thank
Senator Kaine, along with Senator Warner and Senator Van Hollen
for your support of the Low Income First Time Homebuyers Act,
LIFT Home. The LIFT Home is a concept I developed in 2015, and
it uses 20-year loans to build wealth, rather than relying on
30-year loans, which would only increase demand.
So history offers a cautionary tale against inappropriate
federal action in the housing market. From the 1930's to 2008,
Congress passed and Presidents signed into law at least 43
urban renewal, housing and community development programs.
Despite each program's lofty promises, these initiatives
consistently failed in making housing more affordable, and a
number were downright disasters.
The root cause for housing affordability is a shortage of
three to eight million housing units, which is fueling both
unaffordability and a homeless crisis in many areas. Nationally
we have had a seller's housing market since 2012, and we remain
in a strong seller's market today, especially at the low price
end.
Sellers markets provide upward price pressure, which
worsens if demand is further stimulated. So I will start with
what not to do. Vice President Harris' plan to provide $25,000
in down payment assistance to four million first time buyers
over four years is almost certain to lead to higher home
prices, thereby more than eliminating the intended benefits.
Millions of program recipients would become price-setters
in their neighborhood for all the buyers in those
neighborhoods, other first-time buyers and repeat buyers. Our
research shows that home prices in those neighborhoods that are
affected would rise by 3.6 percentage points, that 77 percent
of all home purchases made in the United States would be
subject to this homebuyer tax, and this tax would total $175
billion over four years, more than the $100 billion cost of the
program.
This would be a wealth transfer to existing homeowners, and
really rewarding NIMBY opposition to added supply. Vice
President Harris' proposal calls for the construction of three
million new housing units over four years. History shows that
this approach can lead to significant market distortions.
The Housing and Urban Development Act of 1968 provided easy
credit terms and substantial subsidies, resulting in a 2\1/2\
million unit surge in housing starts by 1973. Only this boom
dissipated by 1975, and left lasting scars on cities like
Detroit, Chicago and Cleveland, they are still trying to
recover from.
Similarly, the 1992 Congressional Government-Sponsored
Enterprises (GSE) affordable housing goals, combined with
President Clinton's National Home Ownership Strategy, led to an
easing of credit and a run up to the great financial crisis.
Housing starts increased by 3.7 million from 1992 to 2006, but
then collapsed by 2009, leaving behind millions of
foreclosures. We still have a persistent housing supply
shortage dating to that crisis.
Without massive credit easing, the Harris proposal would
incent--would only incent new construction that would have been
built mostly in any event, and any incremental construction
would be unevenly distributed, causing even more supply-demand
imbalances. Most housing today gets built in the southern
region of the United States, which includes the south and
southwest, and it accounts for about 60 percent of all new
construction.
That is where a lot of this new construction would go,
because it is roughly shovel-ready. Harris' $40 billion fund
for local governments to explore innovative housing solutions
will also funnel money into projects burdened by self-defeating
government mandated affordability requirements, which HUD loves
but markets abhor. The fundamental problem holding back housing
construction, as has been mentioned here, is not insufficient
subsidies but structural issues, restrictive zoning, land use
rules and building codes.
This makes buildable land scarce and expensive, and
increases construction costs. We need to increase that market
rate housing supply. The federal government has several levers
it could use. First, a ten year plan to auction surplus federal
lands for new market rate home construction could add 200,000
homes per year.
However, for this to be effective, the rules need to follow
the ``keep it short and simple'' or KISS rule. And it also
could generate about $10 billion in revenue annually to the
federal coffers. Eliminating the mortgage interest deduction
for second homes would add to supply by turning second homes
into primary residences, and reduce demand, freeing up these
700,000 homes over ten years.
Reducing regulatory costs that hold back builders is also
crucial. Adopting a critical plan to reduce deficit spending
could lower the ten year Treasury and mortgage rates by 75 to
100 basis points. Lastly, establishing accountability in
expenditures for federal housing subsidy dollars, as Ranking
Member Grassley said, is critically important.
In 1953, the National Association of Home Builders (NAHB)
said public housing is not low cost housing. It is high cost
housing offered for low rent. We currently have a revolving
door of projects that go through subsidy, rehabbing, tearing
down and rebuilding. These measures in combination with state
and local efforts to deregulate land use and zoning could more
effectively address housing affordability, all at no taxpayer
cost, and without unintended consequences.
Thank you, and I look forward to the discussion of the
hearing.
Chairman Whitehouse. Thank you very much, Mr. Pinto.
Mr. Salmon.
STATEMENT OF JACK SALMON, DIRECTOR OF POLICY RESEARCH,
PHILANTHROPY ROUNDTABLE \7\
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\7\ Prepared statement of Mr. Salmon appears in the appendix on
page 71.
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Mr. Salmon. Chairman Whitehouse, Ranking Member Grassley
and distinguished Members of the Committee, thank you for the
opportunity to testify before you today. My name is Jack
Salmon, and I am the Director of Policy Research at the
Philanthropy Roundtable.
Philanthropy Roundtable is a mission-driven organization
which believes that a strong private sector supported by a free
enterprise system is the bedrock for the creation of private
wealth that makes philanthropy possible.
In my remarks today, I will talk about the bigger picture,
considering our nation's fiscal condition, and why worsening
this condition through yet more spending would be harmful to
the long-term well-being of all Americans. I would also
highlight the fact that the often overlooked charitable sector
is rising to the challenge of addressing homelessness and
housing affordability.
Proposals from the Harris campaign include plans such as a
$25,000 down payment for first-time homebuyers, which would add
$224 billion in new deficit spending. Attempts to address
housing affordability by further subsidizing demand will be
counterproductive and make housing affordability worse.
But more than this, such policies ignore the broader
economic challenges we face, particularly the nation's
deteriorating fiscal situation. The nation's fiscal situation
has never been worse. Debt held by the public is now more than
$28 trillion, while total public debt outstanding is over $35
trillion.
If economic growth is slower or interest rates are higher
than baseline models currently forecast, then public debt could
reach 217 percent of GDP in the coming 30 years. As our debt
burden has continued to grow unabated, rising interest rates
have spiked the cost of servicing this debt.
This means that policymakers have less fiscal space to
commit spending towards their policy priorities. More than
public spending crowdout, the higher public debt burden
diminishes the economic growth potential of our broader
economy. This should be especially concerning for those who
care most about Americans at the lower end of the income
distribution.
Lower rates of economic growth mean less revenue potential
for governments to support those who need it most. But it also
means less job creation, low wage growth and diminished living
standards. Another way in which our spiral debt burden
diminishes living standards is through inducing spikes in
inflation. In recent years, we have experienced the largest
spike in inflation in four decades. Prices today are 20 percent
higher than they were at the start of 2021, while the cost of
shelter is 23 percent higher.
An academic article published last year found that the
American Rescue Plan fiscal stimulus was primarily responsible
for the spike in inflation we have witnessed in recent years.
The authors noted that due to unfunded spending, it may take
until 2025 for inflation to retrench back to two percent
target.
As economists at the Federal Reserve Bank of Dallas have
pointed out in research published last year, high inflation
disproportionately hurts low income households the most.
Proposals by policymakers to further induce demand will only
worsen the cost of living crisis that American families are
already dealing with.
But it is not all doom and gloom. While most people know
someone who has been impacted by either the homeless crisis or
who struggle to find affordable housing, charities around the
country have been doing inspiring work, alleviating
homelessness by addressing the underlying causes, such as
mental health, unemployment and addiction recovery.
Take for example Texas-based organization Mobile Loaves and
Fishes, which helps the homeless by providing meals, housing
and income opportunities to help those in crisis get back on
their feet. Residents in the Community First Village have an
opportunity to earn income by different onsite programs,
instead of getting stuck in the never-ending cycle of poverty
and homelessness.
Another example is Step Denver, a Colorado-based
organization that works men through a Steps for Success
program, which helps them end the cycle of addiction and become
productive members of society. The program appears to be
working. 82 percent of alumni are currently employed, and 89
percent live in stable housing.
The program has done so well that they have plans to expand
to Colorado Springs, Phoenix, Albuquerque and other cities in
the future. Finding a solution is not simply about providing
affordable housing. It is about adequately addressing what
created the problem in the first place.
Private philanthropy is already rising to the challenge of
alleviating homelessness and affordable housing crises. But
their work is undermined when government pursues anti-growth
policies. Rather than subsidizing demand through increased
government spending and redistribution, policymakers should
focus on policies that induce economic growth, not more
government debt.
Thank you, and I look forward to answering any questions
you may have.
Chairman Whitehouse. Very well. As I have said before, I
think there is a strategy for dealing with spiraling government
debt. Number one is avoiding shocks to the economy, a third of
the debt is from shocks to the economy. So avoiding the carbon
bubble, avoiding property values crash from climate risk
cascading into insurance markets, into mortgage markets would
be job one.
Reforming health care, so that we are no longer the most
expensive health care system per capita, while providing
mediocre life expectancy results would be another. Tax Code
reform, so we are not sluicing so much money out the back door
of the Tax Code to the already rich and powerful, and Budget
Committee reform so we are focusing on that.
So let me just make that clear. I am also going to give up
my time to Chairman Murray of the Appropriations Committee, who
has important business elsewhere, and I will swap with her. So
the order will be Murray, Grassley, Whitehouse and then on.
Senator Grassley. I am going to swap with Johnson. He has
got to go.
Chairman Whitehouse. All right. Murray, Johnson,
Whitehouse, Grassley. We got it. Chairman Murray.
STATEMENT OF SENATOR MURRAY
Senator Murray. Thank you, thank you. Thank you so much for
your accommodation. The housing crisis is hitting everyone. I
am from Washington state. I hear about it all the time. We have
got a long way to go, a lot of people to house.
But to me, the bottom line is more affordable housing. In
Washington state, we face a shortage of almost 172,000
affordable homes, meaning that for every ten extremely low
income Washington state families, there is only three
affordable homes.
So I really believe this is an all hands on deck crisis
that requires every level of government to step up and do their
part. On the Senate Appropriations Committee, I was really
proud to help create the Pathways to Removing Obstacles to
Housing Program or the Yes in My Backyard Program, as we
originally referred to it, to help identify and remove barriers
to producing and preserving affordable housing.
We were able to provide $100 million for that program in
fiscal year '24, even under the very difficult Fiscal
Responsibility Act caps. That is in addition to other important
investments the federal government is making to boost supply.
The Home Program, low income housing tax credit.
But clearly the current levels of investment are not
sufficient, and not moving quickly enough to meet really the
urgency of this crisis. So Mr. Williams, let me start with you.
What have been some of the most effective federal interventions
to address our housing shortage?
Mr. Williams. Thank you, Senator. I think our--the best way
to measure our most effective programs is by looking at the
number of units of supply that they have brought online. And so
I think in recent decades, the low income housing tax credit
program is responsible for the most production of new supply of
affordable housing.
But in the every recent past, I am also very optimistic
about the Pathways to Removing Obstacles Program, as it is kind
of addressing the issue from a different angle, which is
encouraging municipalities to remove some of the zoning and
permitting obstacles that prevent new housing supply,
affordable and market rate housing from being able to come
online.
I understand that I believe Seattle in your state was--
received a Pathways to Removing Obstacles award, and so I am
optimistic that that will result in some changes in your state
as well.
Senator Murray. Very good. Thank you very much, and Ms.
Harris, I am curious what have you seen in building additional
housing over the last decade? You have seen a lot. How could
the federal government better support the kind of work that the
Better Housing Coalition is doing?
Ms. Harris. Well Mr. Williams--thank you Senator. And Mr.
Williams is correct, the low income housing tax credit program
has been extremely effective in allowing us to produce more
housing units and also preserve existing affordable housing
units.
You know, the cost of a unit of housing, whether it is
market rate or affordable is almost identical, and the only way
that we are able to offer rents at 50, 60, 70 percent off of
market rate rents is the capital stack that we use by holding
our debt down to about 30 percent of the overall development
cost versus a market rate development that is somewhere between
70 and 90 percent.
The low income housing tax credit equity allows us to do
that, and then there is usually 15 to 20 percent left of gap
financing that is needed. And we have used creative things like
Capital Magnet Funds from the Community Development Financial
Institutions (CDFI) Fund, American Rescue Plan Act (ARPA)
dollars, in some cases Community Development Block Grants
(CDBG) and philanthropy to be able to fill those holes and
deliver quality housing options for families.
The one thing I would say, while we are cobbling together
sometimes 12, 13, 14 sources of financing, that adds another 12
to 24 months to the delivery time, and the demand is so high,
every time we open up a new community, we have four or five
times the amount of applications that we have units to help
families find quality housing.
Senator Murray. Thank you very much. Mr. Speaker, is it is
an honor to have you here. Thank you so much for joining us.
I am curious to ask you, because we have heard Donald
Trump's Project 2025 agenda proposes leaving HUD's
responsibilities to states and localities, without any federal
funding or oversight, and proposes selling off the nation's
public housing stock, which is a critical piece of our
country's affordable housing priorities.
Here in Congress, we also saw the House Republicans put
forward a 2025 budget that would slash HUD funding. So as you
are watching all this from your seat, can you talk a little bit
about how those kinds of proposals would affect your state's
housing efforts?
Speaker Shekarchi. Thank you, Senator. It would have a
disastrous effect, not only on Rhode Island but the rest of the
country. Look, there is clearly some things that we can all
agree on, which was we need some local zoning reform. But to
privatize the public housing sector would exasperate an
already-existing crisis we have and a shortage.
Where are the people who are living in these homes going to
go? How are they going to afford to rent them or buy them? It
is a very short-sighted solution to a very complex problem. We
need both. We need federal subsidies and we need land use
reform on a local level, and we need the federal government to
step in because the states and the local communities cannot do
it alone, Senator.
So it is a combination of an effort that would work, and
you will see sustainable progress in affordable housing.
Clearly, the biggest solution, how we get there we can differ,
but is to create more housing. We need more housing at every
single level. The market level of housing, the workforce
housing, the low income housing and even homelessness needs
more shelters.
So you can take your pick as to which one you want to fund
or to what degree, but all of them need attention from the
federal government, and they need to use local reforms to make
it easier. The private sector will step up and the private
sector is ready, willing and able to build in Rhode Island and
probably throughout all 50 states.
This is not a red state issue or a blue state issue. This
is an every state issue, and we--the private sector will do its
part, but we need the federal government as well. We need both
to partner, if you will.
Senator Murray. Thank you very much. I have heard the same
from my governor and local officials, so I really appreciate
that. Thank you.
Senator Grassley. Could I have 30 seconds of personal
privilege? I want to correct that Project 2025 is not a Trump
program. It is a Heritage Foundation program, and they have
been doing it for every new President since 1980.
I yield.
Senator Johnson. Thank you, Mr. Chairman----
Chairman Whitehouse. And with that----
Senator Johnson [continuing]. And Mr. Ranking Member.
Chairman Whitehouse [continuing]. Senator Johnson.
STATEMENT OF SENATOR JOHNSON
Senator Johnson. First of all Mr. Pinto, thank you for
pointing out the insanity for throwing more federal dollars
that we do not have, print dollars and how--at the housing
situation you only drive up prices, making housing even more
unaffordable. So thank you for that.
One of the things you pointed out and one of the reasons
housing is so unaffordable is just the lack of permitting and,
you know, that friction created. But also the fact that we are
running a $35 trillion deficit. A dollar we held at the start
of the Biden administration is now only worth 83 cents. That
also has driven up housing.
I do not know if you have ever done a calculation in terms
of how much is attributed to, you know, the actual inflation
over the last three and a half years, versus the inability to
permit these housing units.
Mr. Pinto. Thank you, Senator Johnson. So we did look at
that and we looked at the total increase in housing. I do not
have the numbers in front of me, but it was substantial, 30
plus percent over a number of years and it started right during
the latter part of 2020 and extended. It continues, actually.
House prices are continuing to go up about five and a half
percent every year on cost and quality. They are not going
down; they are actually going up, continue to go up.
And most of that increase we can attribute to actions from
the deficit spending that occurred later in response to COVID-
19, and secondly to the actions of the Fed, keeping interest
rates below three percent for so long. That really lit a fire
under the housing market.
Senator Johnson. So certainly a solution is not more
deficit spending. That would exacerbate the problem. Mr.
Salmon, I really appreciate the fact that you pointed a
different way, you know, different programs that actually help
people buy a house or afford a house.
We have got a great program in Milwaukee called the Acts
Program. This is run by a Catholic priest. They are able to buy
homes in foreclosure, very low value for 15 to 30 thousand
dollar loans, you know. The individual owner fixed up that home
and they have cut their rental payments from maybe $800 payment
to a mortgage payment of three to four hundred dollars a month.
It works.
Another program I have got to tout is something I have been
involved with four eight years called the Joseph Project. Four
days of three hours a day training for people who were formerly
incarcerated, alcohol and drug abusers that want to turn their
lives around. We just instill them with the necessity of
committing themselves to success and having the attitude, teach
them how to interview, and we get them career type of jobs in
manufacturing.
We have serviced well over three--you know, we have
transformed the lives of well over 3,000 people, and I use that
figure. I don't have the exact figure, but it is well over
3,000 people compared to what Ms. Harris talks about in her
testimony. She said they have served 3,000 low income
individuals and seniors at a cost of $300 million.
I do not know the exact amount, but the Joseph Project is
all, you know, privately funded. I will say over eight years,
probably less than $2 million. But we will just put it at $3
million. That is a thousand dollars per individual saved, and
again I think it is way under that, because we have transformed
more than 3,000 lives, and I think we have spent way less three
million, compared to $100,000 in a government program.
Again, government programs, again a lot of the solution
here is, you know, more federal--more federal funding. Well, we
do not have the money. It is just more deficit spending. That
is going to just drive inflation. It is just going to continue
to decrease the value of the dollar. Do you want to kind of
speak to the difference of approach, and how much more
effective helping people get a job is, so they can provide for
themselves, reduce the permitting friction and stop spending
money we do not have?
Mr. Salmon. Sure. Thank you for the question, and I--and I
would like to hear more about those examples you mentioned,
because I am interested in uplifting these sorts of stories. We
do not hear enough about these sorts of stories around the
country.
But you are absolutely correct. The approach is very
different from government. Government often takes a top-down
approach to these sorts of issues. And so it does not really--
it is not as effective at tackling the underlying issues. When
it comes to issues like homelessness as you mentioned, these
things are often driven by different types of issues.
Whether it is detachment from the labor market, you know,
that they cannot find a stable job, or they have addiction
problems or mental health issues. And so philanthropy is better
at specifically targeting these issues and helping these people
get back on their feet, get stable jobs, to live independently,
to have that self-responsibility and that pride and that
dignity.
And I think philanthropy is doing a much better job of this
in examples all over the country. I mentioned a couple in my
opening, but we have so many at the Roundtable.
Senator Johnson. So again I have--you know, contact us. I
would love to tell you about both those programs. I do want to
point out that the low income housing subsidy has actually
impaired the Acts Program because those individuals, those tax
credits are buying up those foreclosed homes. They are putting
hundreds of thousands of dollars into them, and so it is no
longer available for low income individuals.
They are taking those homes out of that program and, you
know again, providing housing to people who can afford the
housing and taking away from people who cannot. It is again,
unintended consequence, but it is the real consequence of
again, another federal government program that we cannot
afford. Thank you, Mr. Chairman. Thank you, Senator Grassley.
Chairman Whitehouse. Thanks very much, Senator Johnson.
Speaker Shekarchi, no one has done more to focus on the Rhode
Island housing crisis than you have. Among all the different
measures that you have pushed forward, what do you see as your
favorite success story that we should know about in this
Committee?
Speaker Shekarchi. I think the--we have done a tremendous
amount of area that we are seeing in increasing building permit
with land use reforms, making it easier for developers,
streamlining the process. We have not substituted state-
control, you know, for local control. All the decisions on any
land use projects are still being made locally.
But we have made the process easier. We cut down the
hearing and the permitting. Instead of three hearings, there is
two. Instead of two hearing, there is one. We have created a
land use calendar in the Superior Court in Rhode Island, which
if there is a dispute between neighbors or a community or a
competitor, it gets an expedited review through the court
system. So those have been very successful.
In addition to that, we have made substantial reforms, the
ADU legislation. A lot of the bills that we passed we have
delayed implementation so they started for the most part, the
bulk of them, January 1st of 2024. So it is hard to quantify
the exact successes, but overall you are seeing an increase of
building permits. You are seeing an opportunity where we have a
revenue stream, and we have a Department of Housing focusing on
it.
We have the single largest bond in the history of Rhode
Island before the voters in November, which I will predict--I
do not like to predict elections, but will pass overwhelmingly.
$120 million, of which $10 million there is a home ownership
component in there, which we--I talked about in my testimony
earlier, Senator, which has been a huge success in Rhode
Island.
It allows the middle class, the lower middle class, the
workers that we talked about to attain ownership and start to
create generational wealth. In addition to that, we are
studying and looking at the Montgomery County, Maryland, and
there is an allocation in our bond to start a public housing
developer.
As I said earlier to Senator Murray, there is enough of a
problem here that we could attack it many different ways, from
land use reform, from regulatory approvals, creating more
planners in the system. The housing situation, the crisis that
we have developed in Rhode Island is 30-years in the making,
and we can look at this from a lot of different ways and attack
it.
But certainly, the efforts that you have proposed in your
Act, the low income tax credits, the tax credits for home
ownership are all a vital and important tool, and they will be
successful. It has been proven time and again, it is the way to
go.
Chairman Whitehouse. You mentioned home ownership as the
gateway to future wealth, intergenerational wealth, and I would
like to ask you and Mr. Williams and Ms. Harris, just to
quickly, in two minutes, expand on how first time home
ownership changes a family's economic trajectory?
Speaker Shekarchi. I will start briefly and turn it over to
them. But it is--it gives people a sense of community. It gives
them a sense of pride. They are building equity in their home.
They are putting roots down. They are more committed to their
community, and they can start planning to raise a family. They
are selecting homes in areas that have good school systems. We
are creating an opportunity for the American Dream, for the
people of Rhode Island or people across this country to have
the opportunity to have a sense of community.
They become more productive. They live and they work in
their communities, and it creates an opportunity for them to
start affording, with the tax write-offs for interest income,
the opportunities to build wealth so they can support college
educations and a good lifestyle for their family.
Chairman Whitehouse. Mr. Williams, you agree on that
trajectory shift?
Mr. Williams. I do. I also think Ms. Harris is more poised
to speak to this----
Chairman Whitehouse. Let us turn to you, Ms. Harris,
because you live this every day in Virginia.
Ms. Harris. I do. Thank you, Senator. And you know, in
America, most wealth creation is through equity appreciation
and through home ownership. And we have seen that, you know,
our goal is not to get people into home ownership, but to keep
them there. Because the benefit ultimately comes through
longevity of that--owning that asset.
And when we do, just as the Speaker of the House to my
right said, you know, people can use that equity for
retirement, to help their kids go to college, to start a
business and to be able to breathe a little bit more easily.
I would also say that with the costs, rising costs of home
ownership, having critical down payment and closing cost
assistance is critical, and to be able to ensure that people
are not house poor once they get into the house, that they are
able to live their best lives and still be able to see an asset
grow to their benefit.
Chairman Whitehouse. Well, thank you very much. Let me turn
to Senator Grassley, and I think it will be Senator Kaine after
that.
Senator Grassley. Mr. Pinto, when President Biden was still
running for President, his campaign released a plan in July
that promised to build two million homes in five years. Two
months later, the Harris campaign proposed roughly the same
plan, but now promised to build three million homes, and now do
that in four years instead of five years.
Mr. Pinto, the homebuilding industry already builds over a
million homes each year. Is the industry able to roughly double
its production and meet these expectations? In addition to
whether or not the housing supply increase is attainable, what
is the impact of the housing market on the economy of the
Harris plan, to offer subsidies of $25,000 down payment
windfall?
Mr. Pinto. Thank you, Senator Grassley. So in 2023, there
were about 1.4 million building permits or excuse me, housing
starts for both single family and multi-family, and if you
think about the three million over four years, you would be
starting out at a smaller number. You would probably end in the
fourth year without about a million.
So you would be taking the $1.4 million up to about $2.4
million at the end of four years. That is commensurate with the
increase, as I said in my testimony, that occurred from 1969
after the 1968 Housing Act was passed, to 1972.
And the results of running things up so quickly with all
the subsidies that accompanied it and the loose lending, was
disastrous. So I think that is one scenario. The temptation
will be to then loosen lending at the same time, which will
lead to disastrous results.
In terms of the homebuilders being able to handle that, I
think it would be very difficult. But again what happens when
you throw all that money at it, you end up with a lot of
corruption. There is a book that was written that I keep on my
bookshelf in about 1972 or 1973 by a reporter from Detroit
called ``Cities Destroyed for Cash.''
The scandal at Federal Housing Administration (FHA) and it
was just documenting the corruption that occurred at FHA during
these programs. The 235 program is the specific program that
was largely involved. In terms of the down payment assistance,
as I mentioned, there would first of all be an increase of 3.6
percent in all of the areas that these first time buyers
receiving this assistance would be price-setters.
How do we know that? Well, we studied other times that the
federal government has made changes that allows us to measure
this impact. In particular in 2015, when FHA lowered its
mortgage insurance premium from 135 basis points to 85 basis
points, we had a similar experiment.
Certain people, FHA borrowers, were getting extra buying
power. The other people in the market did not, because they
were not affected by the decline in the premium. We then could
study the impact on home prices, and we found that that impact
was substantial and it was widespread, that again this price-
setter impact occurred.
We also know then we can calculate what the total cost that
would be spent on the--due to the increase in home prices, and
that is the $175 billion that I mentioned. That is more than
the cost of the program. That money is going directly to
existing homebuyers. That would perpetuate a practice that
Congress has had of providing demand supply--demand side
subsidies, which then go directly to benefit the existing
homebuyers, not the first time buyers they are intended to
help.
Senator Grassley. Mr. Salmon, you testified that this
nation's fiscal situation is very bad. We will pay more
interest payments on our national debt than the cost of all
housing assistance over the next ten years. Vice President
Harris proposed to increase federal spending, which means the
national debt will continue to grow. So for you, would piling
on even more federal spending drive up interest rates and make
the goal of home ownership even less attainable?
Mr. Salmon. Thank you, Senator Grassley. So more government
spending deficits and debt will make this situation worse. We
know from the economic literature on debt and economic growth
that more debt impacts living standards in several ways, one of
which is crowding out private investment, which means low wage
growth, it means less job creation.
One of which you mentioned is higher interest rates. About
one percent increase in the debt ratio is correlated with about
a three or four basis point increase in interest rates. And of
course these interest rates have a causal effect on mortgage
rates, so that drives up the cost of home ownership in that
respect.
Another way is through higher future distortionary taxes,
which are not good for economic growth and development, and
then finally the one that we have become familiar with in
recent years is inflation. We essentially inflate away the
debt. At the same time, we inflate away the purchasing power of
American families to save.
Senator Grassley. Thank you. I yield back.
Chairman Whitehouse. Thanks very much, Senator Grassley. We
now turn to Senator Kaine, followed by Senator Braun.
STATEMENT OF SENATOR KAINE
Senator Kaine. Thank you for 17 years before I was in
elected office, I was a fair housing attorney in Richmond, and
this is a topic that means a lot to me. There are differences
of opinion around this table and at the witness table. But
there are some common themes that I hear emerging, and it is
good to just put a pin in the things are common.
I am intrigued with the Rhode Island ADU legislation, and I
think others on the panel, including Mr. Pinto, may have
written about similar strategies, and you see this happening in
other states and in other localities. I think that is something
that has merit.
I think the idea of the use of surplus public land, whether
it is federal or state or local, to bring down costs by, you
know, reducing the land portion for construction I think has a
lot of merit, and I see many states and localities exploring
that strategy.
I think the LIFT bill, Mr. Pinto, that you mentioned that I
have filed together with Senators Van Hollen, Warner and
Warnock to develop a 20-year mortgage product to allow people
to develop equity faster. I think that is a positive and can be
bipartisan.
And another one I will mention, the Bipartisan
Infrastructure bill had a lot of funding for wastewater and
utility extensions, and a lot of my rural communities in
Virginia, they are using those dollars to extend utility
service to land where they can then build workforce housing.
But because the Infrastructure bill is paying for the utility
extension, that also has a way of bringing down costs for the
workforce housing that is built.
So there are a number of strategies that I think can be
bipartisan. Here is one that should be bipartisan; it is the
low income housing tax credit. I was disappointed when we had a
vote here in the Senate not long ago on an overwhelmingly
bipartisan House proposal, that would have increased the low
income housing tax credit, that would have strengthened the
child tax credit, and that would have restored the corporate
R&D tax credit that in my view was sort of mangled by the Trump
tax reform of 2017.
That passed the House in an overwhelmingly bipartisan vote,
but when we pulled it up for a vote here in the Senate, it
failed, largely on partisan grounds with Democrats supporting
it and Republicans opposing it.
Ms. Harris, when you were asked a question like what can
the federal government do, the first thing you said was the low
income housing tax credit. I think you said that you have about
3,100 units that you were involved in in the Richmond Metro
Area. How many of those projects relied significantly on the
low income housing tax credit to, you know, get built?
Ms. Harris. 100 percent.
Senator Kaine. 100 percent.
Ms. Harris. Of all of our communities, and in Virginia, we
are over-subscribed every year 4 to 1 on four applications for
tax credit developments, with only enough tax credits at the
state level to be allocate for one project.
So if the federal government were to increase the amount of
allocation that went out to the states, we would be able to
produce or preserve more quality, affordable housing.
Senator Kaine. I think I met you once at one of those
projects that was about to open, right near Greater Mount Zion
Church in Richmond.
Ms. Harris. Yes, uh-huh.
Senator Kaine. And you were saying the same thing. It is
about to open, but already you are significantly over-
subscribed in terms of the number of people that wanted to move
in?
Ms. Harris. That was a 75 unit relatively small development
for us, and we had 400 applications in about three weeks for
those 75 affordable units.
Senator Kaine. And just, you know, for the folks who might
be here or watching this who aren't like super-familiar with
the Low-Income Housing Tax Credit (LIHTC), Congress sets this
allocation. It gets allocated to states. The Virginia agency
that are sort of the allocators for Virginia housing, the terms
of the financing are so favorable that developers who want to
build low and moderate income housing really want to LIHTC for
the reason that you described.
They compete very hard for that. You know, sometimes we
need to think of a new program, but if you have one that works,
you know, why you know, turn yourself into a pretzel to come up
with something new. Why not just take the one that works and do
more in Virginia? Just, you know, kind of order of magnitude.
Since 1990, LIHTC has financed construction or rehab of
115,000 units, and it is so powerful the opportunity to expand
the LIHTC in the way that we have before us, because of this
bipartisan House action, I think is very palpable.
Last thing, I do not have time really to get an answer, but
I just want to--maybe I will ask this for the record. In
cities, there is a tremendous move now toward people working
remotely, which is leaving a lot of office space, commercial
real estate vacant. Richmond experienced beginning in the
1990's a lot of frankly white flight to the suburbs of
companies and offices, that left a lot of vacancies in Richmond
in office space.
And we began to convert office to residential about 1995.
30-years later, the downtown, which probably had hundreds of
residents when I moved to Richmond, has tens of thousands of
residents living in converted commercial and office space. So I
am going to ask a question for the record of all of you.
As other cities grapple with the new telework phenomenon
and the commercial and office space has higher vacancy rates,
what are things that could be done at the state, local or
federal level that could enhance conversions and create new
housing in these spaces? And I will put that in for the record.
I thank you, Mr. Chair and yield back.
Chairman Whitehouse. Terrific, Senator Kaine. Thank you.
That is a really interesting question, and we are seeing that
same issue in Rhode Island, including with our perhaps most
iconic downtown Providence building, which we call the Superman
building, because it resembles the building in the Superman
comic strips. Senator Braun.
STATEMENT OF SENATOR BRAUN
Senator Braun. Thank you, Mr. Chairman. I have been coming
to the Budget Committee sessions since I have been here, and I
wish we had spent more time on the budgeting mechanics. I want
to throw a few tidbits out there so the American public
understands what we are doing here.
I do not think we have done a budget that we have adhered
to in over 25 years. I think that would have been in the late
90's, and every time we have had a little bit of gumption to
discipline ourselves, it seems like we are most enterprising at
how to undo it. We have never generated more than 18 percent of
our GDP in federal revenues.
High taxes, you generate a little more out of the gate; you
lessen economic growth as it goes on. Lower taxes, you starve a
little bit of revenue into the Treasury, but you generally gain
ground over time because the underlying economy is healthier.
We have now evolved into a place that borrows 30 cents on
every dollar we spend. That means that when I got here almost
six years ago, that was offset with a trillion dollars
borrowing annually. But since we have grown the federal
government to nearly 25 percent of our GDP, it is now a
trillion dollars every six months.
And here we are talking about affordable housing in the
context of what the federal government might do. I can
guarantee you, we will be borrowing every penny of it, because
we do not offset it. We do not ever raise revenues because that
is painful politically, and when this is your business plan for
the country, I would be scared to death for our kids and
grandkids in terms of how they are going to sort it out.
What are the consequences? Well, if you pay attention to
the news, which many people will not hear because it would be a
narrative against the practice over the last 25 years, our
largest creditor in the world, Japan, an ally, just unloaded
one-third of its portfolio. Well, you could say well, maybe
they needed the money. They didn't have it to lend. I have got
a feeling it has more to do with even a place like China, maybe
our second largest creditor, have been reducing their exposure.
That is kind of listen to the market. See what others are
doing that have to enable you to run these chronic structural
deficits. There is no good ending to that. When you have got
Jamie Dimon, the biggest private banker in the world saying
that his main concern is deficits and cumulative debt, you have
got Jerome Powell, that is finally now on record as saying it.
I would say we ought to start listening to it here, and
before we are offering up more from the federal government that
has knocked nothing out of the park when it comes to spending
money and effecting results, I think there probably ought to be
a different approach.
This may be my last time to harp about it. I am not going
to let the subject just go away. We owe it to our kids and
grandkids that we do not keep doing more of the same, digging
the hole even deeper. I would like each panelist to tell me
what you think on this particular subject. We will start over
on the end.
Should we be enterprising through the federal government
when everything we do will be more borrowed money behind it,
digging the hole even deeper, or should we rely on maybe state
governments and entrepreneurs to maybe have a little better
chance at trying to do what is probably not going to involve
borrowing more money through the federal government? We will
start over there.
Speaker Shekarchi. Thank you, Senator. Respectfully, I
think you need to do both. I really do. I think you----
Senator Braun. So you are willing to borrow more money?
Speaker Shekarchi. Yes, I am sir.
Senator Braun [continuing]. In a place that is not really
given us results in the past?
Speaker Shekarchi. That is correct.
Senator Braun. Okay.
Speaker Shekarchi. And let me explain to you why. Because
that is a choice, a policy decision that this honorable body,
the Senate as a whole and the Congress as a whole has to make.
The argument about spending and the deficits is very real one
and a very valid one.
But that argument should not be limited to just housing.
You can make that argument for tax cuts for the wealthy. You
can make that argument for a lot of spending that the federal
government does.
So I appreciate that, and I am fiscally concerned with
these runaway deficits. But the pain of fixing that----
Senator Braun. So you are for doing both, and I understand,
and I want to get to the other panelists, so they have a chance
to weigh in.
Speaker Shekarchi. Okay, certainly.
Senator Braun. Mr. Williams.
Mr. Williams. Thank you, Senator. Yeah. I believe that the
federal government, state government and private enterprise all
have an interest in well-designed programs that create economic
growth across the country and across states.
Senator Braun. And you are still confident that we can keep
borrowing more money, because whatever we do here to help, it
would be 100 percent fiscal financed by debt, not by raising
revenues to pay for it. You are okay with that too?
Mr. Williams. I am okay with well-designed programs that
promote economic growth.
Senator Braun. Okay, thank you. Ms. Harris.
Ms. Harris. Thank you, Senator. I think it is a
combination. As the previous two witnesses have said, if left
to its own devices, the market is not equitable, and it serves
certain portions of our society and not all.
And so there is a role for government to play, even if
there is--it impacts the deficit. It could be offset by other
cuts, to be able to ensure that all Americans have an
opportunity to thrive.
Senator Braun. And you would err on the side of the federal
government doing it, as opposed to the state governments?
Ms. Harris. Federal, state and local.
Senator Braun. Okay.
Ms. Harris. The size of the crisis is such that all levels
of government need to participate.
Senator Braun. Thank you. Mr. Pinto.
Mr. Pinto. The federal government should not spend any more
money. I have suggested they sell off some land and actually
bring some money in. So that would be my suggestion, and rely
on state, local and private sector. We have put out numerous
proposals on how to meet the housing supply shortage over a ten
year period through zoning and land use changes, changes that
would cost no money at the state, local or federal level. And
would bring in a grassroots explosion of participants from the
bottom up rather than top down.
Senator Braun. Mr. Salmon.
Mr. Salmon. Yes. So state governments, local, private
enterprise, but I am going to have to add philanthropy as well
to that list, should keep doing more on this front. No, the
federal government should not engage in more spending deficits
and debt. You mentioned some good points about the foreign
buyers of our debt, and they are losing the appetite.
The fact that investors are losing an appetite for our debt
now and that is already spiking interest rates, when they are
going to have to buy another $114 trillion in Treasuries in
next 30-years, we should be very worried.
Senator Braun. Thank you, Mr. Chairman.
Chairman Whitehouse. Thank you very much, Senator Braun.
Senator Warner.
STATEMENT OF SENATOR WARNER
Senator Warner. Thank you, Mr. Chairman. Thank you for
holding this hearing, and I will get right at it. I have got a
couple of different questions. You know, one of the things I
wanted to talk about is home ownership. We all know, you know,
racial wealth gap in this country in many ways is due to the
failure to have true equality in terms of home ownership.
And so I have been thinking on some issues and I am going
to bring this to Mr. Pinto, because I understand he, you raised
this in your testimony and you--and you may have been one of
the original thinkers on this. So I want to give you full
credit, because so far I have only got Democrats signed on the
bill.
So I am going to ask you to help me recruit somebody like
Senator Kennedy or someone else. This notion that--the notion
of the LIFT Act, which we had put out, was to say, you know, if
you are a first generation, first time homebuyer within certain
income strata and you qualify for a 30-year mortgage and we can
meet--you can meet those terms, what we would provide is a 20-
year mortgage that would in effect allow doubling of the amount
of equity in the first ten years on a mortgage.
You know, I am supportive of things like down payment
assistance and others. But this notion of how you incent home
ownership and to try to have a governmental program that
supports that. Mr. Pinto, I know you raised some of this in
your comments. If you could take it away and talk about this,
and I am anxious after the hearing to see if we can put our
heads together and see if we can make this a much more
bipartisan approach.
Mr. Pinto. Well, thank you. Thank you, Senator Warner, for
those words. Yes, I came up with this concept around 2015. We
have tried numerous ways to try to get it implemented,
including going to Federal Housing Finance Agency (FHFA),
including FHA and we have not had any success.
The one way to do it is to have FHFA, which has instructed
Fannie Mae and Freddie Mac to establish about eight or ten
billion dollars in cross-subsidies that they use. And those
subsidies go to make loans more risky rather than less. And so
you could put people into these 20-year mortgages through LIFT
Home, put them into a safer mortgage and then build wealth over
time, and use money that is already being used for other
purposes within the GSE system.
FHA, on the other hand, could--they do not have a 20-year
interest rate. They have a 30-year interest rate.
I do not even know that they have 15-year interest rate. If
they do, it is very minimal, excuse me not interest rate, a
loan term. And so FHA could establish a 20-year rate. There are
ways and tools. We have suggested many to FHA of how they could
do that.
That again would allow homebuyers to get a 20-year loan at
basically the same----
Senator Warner. And again I think--and I appreciate it and
I look forward to talking on it. I will not--the economist that
first cited this idea to me only about three years ago, I am
going to make sure he recognizes that you did the original work
on this and we will figure out a way to pursue that.
Mr. Pinto. Thank you.
Senator Warner. John Kennedy, I have got my eyes on you,
and others on the other side, because I do think this is a tool
that we have not used in the toolbox. I want to move along
quickly.
Ms. Harris, I appreciate all that you do in our
Commonwealth. I have been a huge advocate of CDFIs as part of
the financial network, and again bipartisan. We actually got
$12 billion under President Trump and Senator Crapo is a great
partner. We have got a broad Community Development Financial
Institutions Fund (CDFI) Caucus now in the Senate.
One of the things we have--since we have been able to put a
number of--actually through government assistance deposits into
the--I am sorry, Tier 1 capital into CDFIs, we need long-term
patient capital as deposits. We have got a couple of tax
provisions that we are going to take up in the Finance
Committee.
But if you can spend a moment talking about--talking about
the value of CDFIs, particularly as we think about, you know,
low and moderate income housing, how we can better utilize that
tool?
Ms. Harris. So we have been working with CDFIs, Senator
Warner, for close to 30-years now, and the below-market
flexible capital that they are able to offer our organization
allows us to be creative in how we acquire properties, land for
future development.
We have utilized a variety of the tools that come through
the CDFI program, including new markets tax credits to promote
home ownership. It is a little squirrely the way we have to
make it work, but we are able to have an additional subsidy to
work with families just over the income limits at 80 percent
Area Median Income (AMI) that CDBG and Home Resources sort of
cap out at that level.
And we have used the Capital Magnet Fund to be able to be
creative in structuring new rental communities throughout the
Richmond region.
Senator Warner. I appreciate that, and one of the other
things that we are also trying to work on is the secondary
market, because the almost bespoke nature of some of these
loans, it is really important. Mr. Chairman, if I can get one
quick question in to Mr. Williams?
Chairman Whitehouse. It had better be very quick, because
you are already well over your time, and we have two Senators
waiting that you are holding up.
Senator Warner. I would love to hear you talk briefly about
LIHTC. We have got to make sure the GSEs, because of some of
their tax provisions, are now able to access. They have been
very active in LIHTC because of that tax provision. We have to
get that fixed very quickly, Mr. Williams. The Chairman's been
very lenient.
Mr. Williams. Yes, yes. I am familiar with this issue with
the multi-investor pools that the GSEs participate in to
support low income housing tax credit properties, especially in
rural communities, where you need those multi-investor pools
for the tax credits to function.
And I know you have some legislation that you have
introduced to address this issue, and I know that the National
Council of State Housing Agencies, who we work with, is very
supportive of that work and thankful that this is on the way to
being addressed.
Senator Warner. Thank you, Mr. Chairman.
Chairman Whitehouse. Thanks very much. Senator Kennedy,
over to you.
STATEMENT OF SENATOR KENNEDY
Senator Kennedy. Thank you, Mr. Speaker, and Senator
Warner, I appreciate your comments. Very perceptive. Thank you.
Let me say first Mr. Speaker, I have served with a lot of
Speakers of the House back in Louisiana. God bless you, you
know. You have got an automatic place in heaven.
Speaker Shekarchi. Thank you.
Senator Kennedy. I would not have your job for all the
money in the world.
Speaker Shekarchi. I could say the same about yours,
Senator.
Senator Kennedy. Well, no. You have got to herd all these
free-range chickens that wonder off and go catch them, and
sometimes you can catch some and sometimes you cannot.
Speaker Shekarchi. It is very true, thank you.
Senator Kennedy. Thank you for your service. Mr. Williams,
if the price of electricity goes up, does that make a house
more expensive?
Mr. Williams. Not in a direct sense, but I mean electricity
is an input to a lot of things, both on the construction side
and the----
Senator Kennedy. Well, it makes home ownership more
expensive?
Mr. Williams. Sure, yes.
Senator Kennedy. All right. If property taxes go up, does
that make home ownership more expensive?
Mr. Williams. It sure does.
Senator Kennedy. If homeowners insurance goes up, does that
make home ownership more expensive?
Mr. Williams. Indeed.
Senator Kennedy. If interest rates, particularly mortgage
rates go up, does that--does that increase the cost of home
ownership?
Mr. Williams. It does.
Senator Kennedy. A lot, right?
Mr. Williams. Depends on a lot of factors, but sure, it
could.
Senator Kennedy. If the--I mean when you own a home, you
are going to have repairs. If the--if the cost of home
maintenance and repairs goes up, does that make home ownership
more expensive?
Mr. Williams. Indeed.
Senator Kennedy. Okay. If you--whether you agree with it or
not, if you admit 10 to 12 foreign nationals, illegal into your
country, all of whom need housing, does that make the cost of
home ownership go up?
Mr. Williams. You know, I think that all of these questions
and all of these inputs to housing costs----
Senator Kennedy. Yeah, but what about first, about illegal
immigration? Does that make--does that increase demand for
housing and make the cost of home ownership go up?
Mr. Williams. I think that is a distributional question. I
think the question we are here to talk about today is
bringing----
Senator Kennedy. Yeah. But does it make the cost of home
ownership go up?
Mr. Williams. We are here to talk about housing supply
today and creating jobs.
Senator Kennedy. No. We are here to talk about home
ownership and cost of owning a home. You are a bright man. Does
that make the cost of home ownership go up when you increase
demand that much?
Mr. Williams. I think that is a distributional question.
Senator Kennedy. You do not want to admit it, do you?
Mr. Williams. I think that is a distributional question and
the problem that we are facing is housing supply.
Senator Kennedy. With all due respect, I think you are
being disingenuous. Let me ask you Mr. Pinto, if you admit--if
you increase immigration by 11 million people, does that
increase the cost of home ownership?
Mr. Pinto. Senator, yes. We have tried to figure out what
that impact is.
Senator Kennedy. I mean duh.
Mr. Pinto. Yeah. But the federal government does not
publish where they are distributing these individuals around
the country, so we cannot do the kinds of experiments that we
normally do.
Senator Kennedy. Well, it causes home ownership to go up in
some places.
Mr. Pinto. Certainly, certainly. But we cannot figure out
exactly what it is. We would love to----
Senator Kennedy. I am not here to play games. I am here to
try to get some answers.
Mr. Pinto. But if you could get more data, that would be
great.
Senator Kennedy. I am sorry?
Mr. Pinto. If you could get the data released by the
federal government as to where----
Senator Kennedy. I will give you some data. Mortgage rates
are up 123 percent. Premiums for homeowners are up 16 percent.
The average electricity bill in America is up 28 percent. That
affects the cost of home ownership. No wonder people cannot buy
a home.
This dollar, thanks to President Biden and Vice President
Harris' inflation, they have been inflation machines. This
dollar was worth a dollar when President Biden and Vice
President Harris took office. It is worth 75 cents today. That
is the fundamental problem with home ownership.
The other problem is government regulation. HUD and the
United States Department of Agriculture (USDA) recently adopted
the International Energy Conservation Code. Do any of you know
that that is? Okay. Well, I am not going to ask you because it
is going to take time.
They have recently adopted the International Energy
Conservation Code put out by the International Code Council,
and the Biden-Harris administration just said, they just told
HUD and the USDA to adopt it. So if you want a HUD or USDA loan
or access to the housing assistance, you have got to build a
home that complies with the--with the International Energy
Conservation Code.
You know how much it is going to add to the price of a new
home? $31,835. Are you kidding me? You know how much energy you
are going to save?
Chairman Whitehouse. Senator Kennedy, you are well into
Senator Padilla's time now.
Senator Kennedy. $657. We need to start with the basics,
folks. It is inflation that is killing our people, and it this
crazy whack job regulation.
Chairman Whitehouse. Senator Kennedy, you are well into
Senator Padilla's time now.
Senator Kennedy. I am sorry, Senator.
Chairman Whitehouse. That is all right. Senator Padilla.
STATEMENT OF SENATOR PADILLA
Senator Padilla. Thank you Mr. Chair, and Senator Kennedy,
I would happily give you 75 cents for that dollar bill in your
hands. This is the Budget Committee, so let us make some smart
investments here. Look I--I do have a couple of questions I
want to get to, but I do want to follow up on some of the
questions, some of the issues that my colleague raised, beyond
just the supply side of the housing conversation, which is the
emphasis of the hearing today.
If we are going to go down the road of the impact of
significant numbers of migrants that have come to the United
States over the years, not just the impact on supply and demand
and the cost of housing, the request for more data. But I think
if we want to do so intellectually honestly, we also need to
consider and incorporate how existing homeowners equity in
their homes has gone up, because of the impact of supply and
demand.
When home prices are higher, existing homeowners have that
wealth in their nest egg known as home ownership. I think that
should be recognized and considered as well. If we are going to
consider the impact of immigrants in the housing market, let us
consider the impact of migrants in the workforce, because a lot
of contractors I have talked to have been working hard, working
feverishly, working desperately in recent years to find more
and more workers to keep up with the number of construction
jobs that are available.
So migrants fill those very important workforce spots
without which the cost of construction would be much higher if
it was more of a shortage of folks working in construction. And
I can go on and on and on. So again, happy to entertain the
conversation, happy to work with my colleagues to obtain more
insightful data. But let us be intellectual honest and
comprehensive in our thinking and analysis.
That being said, the shortage of affordable housing is not
a new issue, as you all I imagine would agree. But the
magnitude of the crisis that we are facing today certainly
impacts nearly every American, in urban area, in rural areas
and everywhere in between. In red states and blue states and
everywhere in between, while disproportionately impacting low
income families and communities of color. The data is the data.
That is why I was proud to introduce last Congress and in
this Congress my Housing For All Act, which is a bill that
calls for a strategic surge in federal funding, investments in
existing programs to reduce housing insecurity and increase
funding for innovative, locally developed solutions that cities
across California and other states have successfully utilized.
So proven to work programs developed bottom up.
We know that our local and state partners are doing
innovative things on the ground to try to solve housing
insecurity every single day, but they need the federal
government to step up, to do its part, to treat the crisis with
the funding and seriousness that it deserves.
Speaker Shekarchi, how does the lack of federal investment
limit the supply of housing and the ability of state and local
governments to deal with this crisis?
Speaker Shekarchi. Thank you, Senator. It is a significant
issue. The lack of or the limited amount of federal assistance
means that it is just fewer homes, and it exasperates the
problem. We need the federal government to be involved in this
space, and I understand the budgetary pressures on the federal
budget. I understand that.
But you can make that argument about budgetary pressures on
every single issue, from defense spending to corporate tax cuts
to every issue that you face, which is a myriad of issues and I
respect and understand that. But housing is an immediate
problem. It is families.
As I said earlier in my testimony, it affects everybody. We
can make all the policy programs we want to affect outcomes,
health care, all kinds of things, etcetera. But if you do not
have a home to go home to, a sustainable home, your education
outcomes are poorer, your health outcomes are poorer.
The federal government has a critical and important role to
play, and it must play that role. This is not--I try to
emphasize this--this is not a blue state or a red state issue.
This is an every state issue. Governors at the National
Governors Association met earlier this year. It was a top issue
for all 50 governors. We need the federal government to
partner. We need the states to play a role in this, we need our
local communities, either the county government or our cities
and towns, whether it is land use reform----
Senator Padilla. Thank you, thank you. I hate to cut you
off, but I have got to get one more topic in here, and I will
thank you for being so articulate, and I will work with you to
communicate your position to your United States Senators.
Speaker Shekarchi. Thank you.
Senator Padilla. The topic of GSEs came up a little while
ago. Government-sponsored enterprises play a central role in
the modern mortgage market, by purchasing loans from financial
institutions, GSEs such as Fannie Mae and Freddie Mac enable
lenders to offer lower interest rates, thereby expanding home
ownership opportunities while leveling the playing field for
lenders of all sizes.
The system was created to stimulate lending in response to
the Great Depression. But today we face a different crisis,
lack of housing supply. As you know, construction is highly
sensitive to economic conditions, with lasting effects. We saw
this in California during the 2008 financial crisis and more
recently during the pandemic, when rates of new housing
construction dropped significantly.
I know Senator Warner brought up the topic of GSEs in the
context of the investor pools. My question is different. When
we acknowledge that construction loans are consistently given
at higher rates, much higher rates than traditional mortgages,
sometimes as high as 14 percent, that is what led me to secure
language in the recent spending bill to study the idea of
establishing a secondary market for construction loans, to help
drive down the cost of construction of new housing to help
address the affordability concern.
Mr. Williams, I see your head nodding. How would a
secondary market help incentivize new construction, while also
being a stabilizer during economic downturns?
Mr. Williams. Thank you, Senator. Yes, my organization
Center for Public Enterprise has also done work on this same
topic, and it is not just that construction interest rates have
gone up. Also construction loan, loan to costs have gone down.
So you are no longer able to get a mortgage for 65 percent of
your construction project. It may now come down to 50 percent.
What remains needs to be filled with equity investment,
which is also particularly expensive. So one thing that we have
explored is whether the GSEs can support construction financing
by providing a secondary market for mezzanine investments that
can come in at a, you know, a portion of the total project cost
and bring down the total cost of capital in a lot of these
projects. We believe that there is hundreds of thousands of
stalled multi-family units across the country that are stalled
due to these financing constraints, and this is a way that the
GSEs could explore addressing that issue and working----
Senator Padilla. I look forward to working on this with
you. Thank you very much. Thank you Mr. Chairman.
Chairman Whitehouse. Senator Van Hollen.
STATEMENT OF SENATOR VAN HOLLEN
Senator Van Hollen. Thank you, Mr. Chairman. I thank all of
you for your testimony. I have been trying to follow the
discussion from C-SPAN, and thank all of you for the points
that you have made, you know. Clearly, we have an affordable
housing crisis. We have a shortage of housing supply, and we
are all here to try to learn more about what we can do to
address those issues.
So Mr. Williams, I was pleased to see that you participated
in the ground-breaking of the Hillendale Gateway, you know,
Project in Montgomery County, Maryland, a project that is a
463-unit affordable housing complex, that uses the HOCs, the
Housing Opportunity Commission's Housing Production Fund in
some innovative ways.
So I know it has been mentioned, but if you could go a
little bit in-depth as to what that model means, whether you
see it as something that we can emulate in other places around
the country?
Mr. Williams. Thank you Senator, yes, and it was pleasure
to be at the ground-breaking event in Montgomery County last
week.
It is a fantastic project, and the Housing Opportunity
Commission's Housing Production Fund is a very unique and
innovative model that is allowing a local housing agency to
bring additional supply online that otherwise would not be
possible with the allocation of subsidies that they have.
So this is totally outside of the allocations they get from
the federal government. It is something that they are able to
do on their own, and that is what is so exciting about it. So
what it does is it provides a short-term construction loan at
low cost from their revolving loan fund, into a project, and it
replaces what would be loan capacity and tax credit equity in a
conventional affordable housing development.
Now they are obviously not able to get the same level of
affordability that a conventional low income housing tax credit
property can get. But they get that housing built on a mixed
income basis. And so they are really interested in building
these kind of mixed income communities, using their own
revolving funds, and we have actually seen uptake of this model
across the country.
Georgia, Tennessee, Chicago and many other states and
localities are exploring creating--those states have created
programs and many others are exploring creating programs
modeled after Montgomery County's innovation here. I think what
I was talking about with Senator Padilla just a moment ago, the
GSEs providing this kind of mezzanine construction financing is
something that can support it outside of the housing agency
realm.
But for housing agencies, I think there is opportunities to
support local governments to--in the capitalization of these
revolving loan funds that are really directed at expanding
housing supply.
Senator Van Hollen. Right. So you anticipated my next
question, is what can we do here at the federal level to
incentivize what seems to be a good model, and so what are some
of the vehicles you think that we could look at?
Mr. Williams. Yeah. I think there are opportunities to
support innovation at HUD, to provide those kinds of support to
local jurisdictions that want to create these revolving loan
funds.
At this point, they are really becoming a tested and proven
model for allowing local agencies to expand their housing
supply significantly, and I think also pushing for agencies
like FHFA to become more comfortable with kind of construction
financing and, you know, even secondary markets for those
construction loans or mezzanine loans, is something that would
be really helpful.
You know, I think something like a letter to FHFA that
there is bipartisan interest in exploring these ideas would
prove beneficial.
Senator Van Hollen. I appreciate that, and I think it is
important that people hear the revolving loan fund, because
these are investments made by these, in this case, Montgomery
County, in partnership with the private sector, and then the
County gets its return back and it stays in what is I think is
a $100 million fund, is that right?
Mr. Williams. That is right. It is a $100 million fund and
it revolves quite quickly, and the fund plus interest is
returned to the County.
Senator Van Hollen. If I could ask you about another
approach that Montgomery County, Maryland has taken for some
time now toward more affordable housing, which is an
inclusionary zoning process, and we have a process whereby if
someone wants to develop, you know, a whole bunch of new
houses, perhaps that should include some moderately priced
dwelling units.
Do you see that also as an important model, and to what
extent is that something we should try to further incentivize?
Mr. Williams. Yeah. I believe the Moderately Priced
Dwelling Unit (MPDU) program, moderately priced dwelling units
was created back in the 1970's, and Montgomery County again was
a kind of innovator and early leader. Those kinds of
inclusionary programs have now been adopted by many
jurisdictions around the country, and in fact to go back to the
Housing Opportunities Commission, they include MPDU units in
these mixed income projects that they are building with their
production fund.
Senator Van Hollen. Good. I do not know, Mr. Speaker, if
you want to--I know you have worked on these areas a long time.
What do you think of two, two approaches, especially the more
recent approach that we see through the Housing Production
Fund?
Speaker Shekarchi. Thank you, Senator. I congratulate Mr.
Williams and State of Maryland as well, because they are on the
forefront. And we in Rhode Island are looking at it very
seriously. We have made a commitment to study the public
housing option. We have created a fund with--and a bond to do
that, up to $10 million.
We have done a due diligence study, a feasibility study if
you will. So we are looking at all creative ways. There is no
monopoly on good ideas, and we need to look outside the box.
This is an all hands on problem. I know that term gets used a
lot, but this is a significant problem that affects every facet
of life, of every facet of government assistance that we give
as a government to our citizens.
So we need to look creatively and outside the box. I do not
necessarily disagree with a lot that was said, but I just think
the emphasis should be on working together. You do not have to
pit one segment or one program against another, and we do not--
we should not look at past failures as a way to absolve our
responsibility of getting the job done.
If there has been a program that has failed, we need to ask
why has it failed, what could we do to make an improvement, is
it worth it, or let us look at a new program and see. The
problem is not going away.
Chairman Whitehouse. Those are good words to end on. The
bat signal has gone up on the floor for me to get over to the
floor on an budget matter.
Speaker Shekarchi. Thank you. Thank you, Senator.
Chairman Whitehouse. I thank the witnesses for being here.
Please, we have one question for the record from Senator Kaine.
Others are due by noon tomorrow. When they come in, if the
witnesses would be kind enough to respond within seven days,
that would be helpful.
With no further business before the Committee, the hearing
is adjourned.
[Whereupon, at 11:55 a.m., Wednesday, September 25, 2024
the hearing was adjourned.]
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