Anti poverty programs have been taking center stage as the 2020 Democratic primary heats up. Proposals from Kamala Harris and Corey Booker target high housing costs for renters and make for an interesting set of ideas. These plans, however, have major shortcomings and fail to address the fundamental problem of supply constraints in high cost housing markets.
Harris and Booker on Housing
Both the Harris and Booker plans call for direct subsidies to renters via the tax code.
- Harris’ Rent Relief Act (RRA) is a refundable tax credit for renters making $100,000 or less and spending more than 30% of their income on rent.
- The credit would be worth a percentage of the delta between the recipient’s rent (capped at 150% of area fair market rent) and 30% of their income. Actual benefits would be bigger or smaller depending on the size of the gap.
- Booker’s Housing, Opportunity, Mobility, and Equity (HOME) Act is also designed as a refundable tax credit for renters paying more than 30% of their income in rent.
- Unlike Harris’ RRA, there’s no sliding scale for benefits. The credit covers the entire difference between 30% of the recipients income and their rent (also capped by area fair market rent).
Both programs are in the same vein as other democratic anti-poverty proposals which use the tax code to affect transfer payments. The others, though, are expansions of the federal Earned Income Tax Credit (EITC) whereas these two proposals more narrowly target housing.
Devils in the Details
Housing costs are a major impediment to financial stability for many, so it’s good to see reducing them called out as a poverty reduction strategy. And transfer payments (as opposed direct government provisioning or price fixing) make for better social safety nets. However, as Tyler Cowen points out, juicing the demand side of a supply constrained market is a recipe for higher prices. Sending more dollars to chase a static supply of housing won’t solve the underlying problem.
To its credit, Booker’s HOME Act attempts to address supply constraints by adding language to the Housing and Community Development Act of 1974. After a cursory reading of the bill, though, it’s not clear how strong the extra language actually is. Harris’ RRA, as of this writing, has no such provisions.
A Federal Housing Agenda That Isn’t Terrible
If we want to reduce poverty by reducing housing costs, we need to build more housing. To that end, municipal regulations that prevent housing production need to be pared back. State capitals, with their different incentive structures and ability to override local policy, are the best points of leverage for reform.
A pro-housing administration could use federal funds as a way to pressure states to liberalize land use. Funding for state administered versions of the Harris / Booker approach (and/or state level EITC programs) could be made contingent upon preemption of local zoning / permitting processes by state capitals. Direct subsidies would help uplift those at the bottom while land use deregulation would ensure a more supply responsive market overall.
There some’s question about how far a hypothetical YIMBY presidential administration could interfere in state level prerogatives. My current understanding, though, is that if state governments can get money to do something they want to do anyway, no one will bat an eye (ie no state’s attorney generals will file suite). If the politics could be made to work, federal pressure on states to do the right thing could make for directionally correct federal policy.
*One of the EITC expansion proposals was also authored by Kamala Harris