Archive for November 2024
RAND Study on the Housing Crisis
The RAND Institute, headquartered in Santa Monica, is (in my humble opinion) one of the top-tier sources for research on public policy issues. Founded in 1948 as a partnership between Douglas Aircraft and the Air Force, its founding members included Curtis LeMay and Hap Arnold. The affiliated Pardee Rand graduate school offers a well-regarded Ph.D. in public policy.
Two of the faculty members, economist Jason Ward and Sarah Hunter, a behavioral scientist, recently shared some of their research on the subject. First, they note that interest rates alone have driven up the monthly payment on typical home by as much as 40% over the past 3 years. I would note that this doesn’t factor in the increased cost of the home itself, increasing property taxes and insurance, and increasing costs such as utilities. The Harris campaign has proposed a $25,000 tax credit for first time buyers to assist with down payments. However, a similar pilot-project in California did not fare well and has been linked to driving up the cost of housing in some areas.
Conversely, rent costs have actually moderated a bit very recently, but only because rent growth was so high during and immediately after the pandemic. That said, the RAND researchers noted that a record number of renters are experiencing housing cost burden, that is, a total housing cost above 30% of gross income. Government incentives for renters are a mixed bag. The Low-Income Housing Tax Credit program provides about $13.5 Billion per year for developers of income restricted, subsidized housing. This program produces about 100,000 housing units per year. However, land use and zoning regulations — a local function — have actually been counterproductive in recent years, with restrictions on multi-family locations, density, energy efficiency, and parking requirements all driving up the cost of solving the housing problem. In much of California, for example, local regulations have driven up the cost of producing an efficiency apartment to nearly $1 million.
The current administration has provided $3.16 Billion to address homelessness, providing funding for over 7,000 local projects to provide housing assistance or support services. Some local governments are also stepping up to the plate. For example, Los Angeles passed a one-quarter cent sales tax in 2017 to fund about $355 million per year for homeless prevention services. This year, they have another measure on the ballot which would provide a $1.2 Billion bond measure to build supportive housing. Houston, Texas, is held up as a model for addressing homelessness with a housing-first approach. As a result, the Houston region has reduced homelessness by 63% over the past 10 years, with an emphasis on coordination across agencies.
Their research continues, and I’m reaching out to Professors Ward and Hunter in the coming weeks as I prepare for a talk I’m giving on this subject in late December. I’ll continue reviewing some of the issues and current research on the complex housing crisis we face in America, with an eye toward finding some consensus on steps forward to solve these issues and share my findings with you as I go along. As always, if you have any comments or questions on this or any other real estate related topic, please don’t hesitate to reach out.
John A. Kilpatrick, Ph.D., MAI
From a small northwestern observatory... 