Homeowners have enjoyed a tax deduction and incentives to buy properties for years now. But as even as more young Americans become homeowners, income inequality and a growing wage and skills gap means people from this generation are facing dramatically different realities.
The Center for American Progress has a radical proposal: create an “opportunity agenda” for renters. Published Dec. 16, the 42-page report summarizes the rising rental crisis in the United States:
- Half of all renters spend more than 30% of their income on housing, and 26% spend more than half of their income on housing.
- Extremely low-income renters face a housing shortage: there are only 28 “affordable and available” rental homes for every 100 households.
- In spite of the building boom, “barely one-third of new rental units are affordable to the median renter.”
- After paying rent, the average low-income household only has $15 a day to cover food, transportation, and other living expenses.
In a perfect world, the free market would self-adjust, meaning that renters and landlords would figure out what the market could bear and then match with each other. But even with overwhelming demand for affordable housing, the supply of luxury housing dramatically outstrips lower priced rentals, even as some cities are being accused of "overbuild." This creates affluent areas of high opportunity, only available to people with high incomes and flawless credit. Most affordable housing is pushed off to areas that are less desirable, with cheaper land and fewer amenities.
The Center for American Progress, which is a progressive think-tank and advocacy group, makes a point to explain that “communities of concentrated poverty often lack amenities such as high quality schools, day care options, parks, and access to job markets.”
All of this impacts day-to-day life in a major way. Without good schools, parents are hard-pressed to get their child a decent education, often having to stretch their budgets even further to afford private or parochial school. A bad daycare situation can derail earning power until a child can enter kindergarten. And most of the places that feature affordable housing require a commute to job-rich areas—meaning reliable transportation is a must. For someone trying to escape poverty, this matrix of obstacles can be daunting.
So, how do we fix the problem?
The Center for American Progress study advocates for a two-pronged policy approach that includes investments in economically depressed areas, as well as promoting the movement of poor people into areas of “high opportunity.” Unlike poverty-stricken areas, those neighborhoods high-wage jobs, short commute times, access to traditional banking institutions, low high-school dropout rates, and low unemployment rates. The government could promote neighborhood mobility by changing zoning laws and putting more funds into the federal housing voucher program, according to the study’s authors.
As far as investments to revitalize neighborhoods go, the Center for American Progress argues for an expansion of an existing tax credit that helps low-income renters, and the creation of another.
Today, the main way the government incentivizes the private market to provide low-income housing is through a program called the Low Income Housing Tax Credit. The program provides landlords with tax credits, as long as they maintain affordable units for 30 years.
It may seem like a sweet deal, but affordable housing supply has not kept up with demand, leaving renters to plow substantial portions of their income into housing costs. Those who eventually want to buy a home find it difficult to save for a down payment, and all the time they’re paying rent, they’re losing out on the tax breaks offered to homeowners.
Here's where the idea of a new renter tax credit comes in. This credit would also go to landlords, those who rent units to low-income or very low-income renters and ensure that they are not paying more than 30% of their income in rent.
The Center for American Progress borrows this idea from the Center on Budget and Policy Priorities, which published a study in 2013 looking at the current federal tax code. It found more than half of federal spending on housing helps households with incomes over $100,000. The CBPP writes:
a renters’ credit capped at $5 billion—costing less than 3 percent of total federal homeownership tax expenditures—could assist about 1.2 million of the lowest-income renter households. It could reduce each household’s monthly rent by an average of $400; its value alone would lift 270,000 families out of poverty and lift four of five of the poorest families it assists out of deep poverty.
Considering how much our tax code benefits landlords, isn't it time to give the renters a break as well?
Editor's note: This article has been updated to clarify the supply-demand mismatch in the affordable housing market.