By Raquel Harati, NLIHC Research Analyst
A report by the Urban Institute titled, “How Does the Federal Government Support Housing?”, demonstrates how federal government support to higher-income homeowners through tax breaks like the mortgage interest deduction (MID), the capital gains exclusion on home sales, the state and local tax deduction, and the exclusion of net imputed rental income exceeds $300 billion annually—which is more than triple the amount of housing assistance and subsidies provided for low-income renters. Just the exclusion of capital gains on home sales and MID together—two tax breaks that primarily benefit moderate and high-income homeowners—cost $88 billion annually in lost revenue to the federal government, which is more than HUD’s budget to serve extremely low- and very low-income renters and those experiencing homelessness.
The authors define federal housing support as budgeted programs, tax policies, and financing schemes used to support housing. The authors reviewed more than three dozen housing supports administered by HUD, the U.S. Treasury Department, the Department of Veterans Affairs, USDA, the Department of Transportation, and government-sponsored enterprises such as Fannie Mae and Freddie Mac. The supports varied by their targeted tenure (renters vs. homeowners), household incomes (low-income vs. other incomes), distribution mechanisms (grants, loans, or tax benefits), and housing types (single-family vs. multifamily).
Most affordable housing developments for low-income renters rely upon multiple sources of federal funding that are layered together to fill funding gaps. For example, a property owner might combine low-income housing tax credits with other rental subsidies to cover their costs. This means cuts to one federal support, like Housing Choice Vouchers or Project-based Vouchers, can impact the ability of another program, like LIHTC, to serve renters with extremely low incomes.
The report also highlights the large income differences of the beneficiaries of the different federal housing supports. The average income of households served by HUD for affordable rental housing programs is between $16,000 and $19,000, whereas tax breaks for homeowners like the MID mainly benefit higher-income homeowners. Households earning more than $200,000 account for about half of households claiming MID, yet they receive about 70% to 80% of the total tax benefit.
A clear imbalance exists in the way renters and homeowners access federal housing support. Housing assistance programs for renters often have strict eligibility requirements and are often unable to serve all who qualify due to insufficient funding. Meanwhile, benefits for homeowners are easier to access. They are available for all tax-filing homeowners who would benefit.
The authors also note that more than two-thirds of state and local expenditures on housing and community development are funded through the federal government. Although states and localities often provide their own funding to complement this federal funding, they do not have adequate resources to replace federal funds in their entirety.
The authors conclude that a sustained federal commitment to housing is essential to ensure that housing remains affordable to renters and homeowners alike. Yet, the current Administration has proposed a multitude of cuts to federal housing support for renter households with the lowest incomes. Cuts to HUD’s key rental assistance programs, such as Project-based Section 8 and Housing Choice Vouchers, would lead to unaffordable rents for many tenants, including those in LIHTC units. Decreases in funding for Public Housing could lead to losses of existing affordable housing due to unmet repair and rehabilitation needs. Instead of cuts, the federal government should build upon the existing foundation of federal housing supports to better meet the needs of all low- and moderate-income households who qualify for assistance.
The full article can be found here.