North Idaho Slow Growth
Apr 11, 2022
Government housing policy is far more complicated than it needs to be. Before corporations turned home building into a bloated, over-regulated, and specialized industry, it was a universal activity. Romans built houses. Medieval serfs built houses. Building homes is a noble craft, but not rocket science, and it does not need a cabinet level agency to direct it at the federal level.
We want to discuss certain "Affordable Housing" programs that have been suggested to address regional housing woes. But the harmful effects of government housing subsidies are impossible to understand without some perspective. Federal Housing Agencies have been regulating, complicating, and subsidizing America's housing market since the Roosevelt era. Now, after eighty years and trillions of dollars spent, home ownership is unattainable for millions of Americans and rents are out of control. How is this possible?
THE AMERICAN CRAFTSMAN ERA
In order to illustrate the harms done by federal housing agencies, we'll compare modern housing statistics with those from 1920. This was "the Craftsman Era", a golden age of housing that ended when Roosevelt and the FHA hijacked the home mortgage market for the benefit of big banks. It was a prosperous period, during which millions of houses were built by thousands of independent craftsmen, all without power tools, 30 year mortgages, or corporate oversite. Middle class neighborhoods were springing up all over the country; cities thrived; and it was the last time the American housing market was really healthy.
According to census data, in 1920 the home ownership rate was about 48 percent and growing (today, 65 percent and falling) and a typical home sold for about 2x the yearly wages of an average worker (today, 7x). Home loans were generally short term and families who failed to pay off the entire balance in five years could usually refinance. Because prices were reasonable, and most people worked to pay of debts quickly, over 60% of owner-occupied homes were held outright (today, 35%.)
Photo from a 1921 Sears catalog that offered complete house kits for $1,200 to $3,800 dollars.
BIG BANKS AND FEDERAL HOUSING AGENCIES
The thriving American housing market collapsed during the great depression (an economic crisis intentionally caused by the Federal Reserve). Roosevelt’s response was to create a Federal Housing Administration (FHA) in order to provide mortgage insurance to lenders. For protecting lenders against losses, the FHA claimed credit for lowering interest rates, and enabled home buyers to take out larger, longer-term loans. In other words, the FHA guaranteed profits for banks, inflated demand for home loans, and foisted thirty year mortgages on borrowers. Roosevelt then worked with his media lap-dogs to portray lifetime indebtedness as normal, and a necessary condition of home ownership.
This set the pattern for decades of federal regulation. Banks and corporations were always protected from losses, and “low income” subsidies were usually in the form of direct payments to developers or landlords. The extremely profitable GSE’s (Freddie Mac, Ginnie Mae, etc.), formed to securitize billions of dollars of household debt were also developed on this model: Privatize gains, protect wealthy investors, encourage excessive borrowing, and print money as needed to socialize losses. After eighty years of government interventions, the total amount of household debt now exceeds nine trillion dollars and the percentage of debt-free home-owners is less than it was in 1920.
It’s easy to see who the real beneficiaries of government housing policies are. It's not homeowners. Federal housing agencies have been doing the bidding of their corporate cronies for decades, while forcing excessive costs and oppressive mortgages on home-owners. The housing options of American families have been controlled for so long by big banks, government agencies, land barons, corporate developers, urban planners, and onerous regulations that most people are unable to imagine how an independent housing market would operate. The idea of working class families owning their own homes, and controlling their own finances is incomprehensible.
So as we look more deeply into the way this monstrous hydra of special interests operates in the field of “affordable housing” remember that the problems we discover are not isolated. They are part of an enormous network of systematic extortion that has gone on so long that insider dealing, racketeering, predatory lending, and tax-payer bailouts appear to be business as usual, while building a home without spending thousands of dollars on fees and permits is a crime.
LOW INCOME HOUSING TAX CREDITS
Low Income Housing Tax Credits are a way of incentivizing wealthy corporations with large tax liabilities to fund "affordable housing" development. This is done by awarding them "dollar for dollar" tax credits to cover the cost of building apartments, and renting them for below-market-rates. Their contracts last 15 to 30 years and once they expire, the owners can revert to full market rates or seek additional goverment subsidies.
A few glaring problems with this program are 1) it could only possibly benefit enormously wealthy firms with millions of dollars in tax liabilities, and 2) reimbursement is based on “building costs” and “market rents” so corporate receptients profit from inflated costs and high rents, and 3) in every city that LIHTC apartments have become dominant, rents have skyrocketed.
The wealthy investors who benefit most from this scam neither build nor manage apartment complexes. They merely provide money up front and are fully reimbursed. And how much are these tax credits worth? According to recent reports “the median cost per unit . . . ranges from $126,000 to $326,000.” You heard that right. The government pays hundreds of thousands of dollars per apartment. And that is not for free or permanent usage. Low income families still pay 30% of their income as rent and contracts expire after 15-30 years.
Last year the federal government granted over 9.5 Billion dollars in tax credits to maintain this corrupt scheme, with billions more in the pipeline. Over 2 million LIHTC apartments have been funded in the last 20 years, and over 200 thousand more are added yearly. According to Wikipedia, "LIHTC accounts for approximately 90% of all newly created affordable rental housing”. Of course it does!
Are we exaggerating? Unfortunately not. This analysis of the “cons” of the program is from the Tax Policy Center’s Guide to LIHTC.
“The subsidy per unit of new construction is higher than it needs to be because of the various intermediaries involved in its financing—organizers, syndicators, general partners, managers, and investors—each of whom are compensated for their efforts. As a result, a significant part of the federal tax subsidy does not go directly into the creation of new rental housing stock. . . the complexity of the statute and regulations is another potential shortcoming. . .[and] maintaining affordability is challenging once the required compliance periods are over.”
What is going on? LIHTC seems to be a deeply flawed method of funding low income housing, but the government is barrelling ahead in spite of obviously inflated costs, skyrocketing rental prices, and a disastrous end game. No one is this stupid. Why is our entire government, top to bottom, pretending LIHTC is a good idea? Maybe it's not about "affordable housing."
LIHTC AND MIXED USE
The reason large financial firms promote LIHTC development is obvious. But the program is also very popular with urban planners, liberal politicians, and community activists, whom should be expected to favor more efficient methods of aiding low income families. The explanation is simple. The abiding interest of many planners and community organizers is not affordable housing; it is building "smart, sustainable" cities of the future. Designing, "urban villages" and "walkable communities," with "multi-modal transportation options", is far more interesting than building basic, functional, low-cost apartments.
What does LIHTC have to do with this? The problem facing development officials is that the large, mixed use complexes in urban centers that they favor are extremely expensive. Modest apartments in less expensive neighborhoods would be more practical, but such developments are insufficiently integrated, and might “increase reliance on cars.” The "smart growth" vision of a car free, equitable community requires high density, mixed income, mixed use complexes on prime real estate, and must be organized, funded, and developed on a grand scale.
Not only are LIHTC statutes flexible enough to accommodate such ambitious projects, they were written with large scale, mixed-income developments in mind. Application for LIHTC funding is a complex process involving local governments, urban planners, non-profits, community development corporations, public housing agencies, developers, and urban renewal districts. And everyone involved gets a piece of the affordable housing pie; accept of course, low income families who are merely Pawns in the Game.
THE AFFORDABLE HOUSING FEEDING FRENZY
Are we done yet? Unfortunately not. The LIHTC program is just the tip of a massive affordable housing funding iceberg, much of which is diverted to regional agencies, community organizers, and non-profits. It is impossible to cover this topic adequately, but it is important to understand the scope of the problem. The following links provide details for anyone who wants to see how much federal money is sloshing around, available to community developers, housing agencies, local governments, non-profits and other beneficiaries of federal largess.
To start with, here is a summary of the 71 Billion dollar 2023 Budget Request for the notoriously corrupt, Department of Housing and Urban Development. Some highlights are:
- 32 Billion for Housing Choice Vouchers (HCV). Instead of providing direct cash assistance to low income families, this program pays landlords directly, an amount based on HUD's official Fair Market Rents (FMRs). Unfortunately the program incentivizes landlords to keep nominal rents high.
- 3.5 Miillion for Homeless Assistance Grants: Funds organizations that cynically use destitute, mentally ill drug addicts as pawns to keep homelessness a visibile crisis in order to keep the grant monies flowing. (i.e. Seattle Homeless Coalition.)
- 4 Billion for Community Development Financial Institutions (CDFI): Funds are earmarked for programs run by financial institutions that "take a market-based approach to supporting disadvantaged communities".
- 4 Billion for Community Development Block Grants (CDBG): Slush fund for Community Organizers, distributed regionally, based on grant requests.
- 2 Billion for HOME Investment Partnerships: More slush funds for housing non-profits and public partnerships. funneled through local governments.
- 35 Billion (over 10 years) for the Housing Supply Fund (HSF): New Program that "provides resources for regional housing finance agencies and their partners (in Idaho, IHFA). Also funds efforts to remove barriers to affordable housing.
This is not a complete list. We still haven't discussed the National Housing Trust Fund (NHTF), the National Low Income Housing Coalition (NLIHC), Idaho's own, very interesting, Housing and Finance Association (IHFA), or Urban Renewal Districts. All of these fascinating institutions are worthy of study, but out of consideration for already overwhelmed readers, we will mercifully end our discussion.
WHAT SHOULD BE DONE?
The problem with the government housing racket is not the people operating HUD supported agencies. Most of those involved in day-to-day operation of housing finance are just doing their jobs, obeying laws, and often times sincerely trying to help people. The problem is the people who wrote these self-serving laws, control these institutions at the highest level, and are gate-keepers of federal funds. These people have criminal conspiratorial intent and must be removed.
Vote them out. Fire them. Remove them ALL from office. Every member of the Washington DC and Boise political establishment needs to go, and the entire rotten edifice of federally controlled housing policy needs to be dismantled, root and branch. And in the meantime, every single federally funded, federally mandated, or federally imposed change to our community should be resisted.
Local solutions to local problems, designed to benefit disadvantaged locals are always welcome, but the FEDS must go.
- (no comments)