Rethinking Federal Housing Policy

Problem: Federal housing policy is made up of disparate programs that a) promote homeownership; b) assist low-income renters’ access to good-quality, affordable housing; and c) enforce the Fair Housing Act by combating residential discrimination. Some of these programs are ineffective, others have drifted from their initial purpose, and none are well coordinated with each other. Purpose: We examine the trends, summarize the research evaluating the performance of these programs, and suggest steps to make them more effective and connected to each other. Methods: We review the history of housing policy and programs and empirical studies of program effectiveness to identify a set of best principles and practices. Results and conclusions: In the area of homeownership, we recommend that the federal government help the nation's housing markets quickly find bottom, privatize aspects of the secondary mortgage market, and move to eliminate the mortgage interest deduction and replace it with a 10-year homeownership tax credit. In the area of subsidized rental housing, we recommend that the current system of vouchers be regionalized (or alternatively, converted into an entitlement program that works through the income tax system), sell public housing projects to nonprofit sponsors where appropriate, and eliminate some of the rigidities in the Low Income Housing Tax Credit program. In the area of fair housing, we recommend that communities receiving Community Development Block Grants be required to implement inclusionary zoning programs. Takeaway for practice: In general, we recommend that federal policy build on proven programs; focus on providing affordable housing for low- and moderate-income families and provide the funding to meet that goal; avoid grandiose and ideological ambitions and programs; use fewer and more coordinated programs; offer tax credits, not tax deductions; and promote residential filtering. Research support: Partial funding support was provided by the National Science Foundation.