How Biden hopes to fix the thorniest problem in housing

President Joe Biden is proposing a historic infusion of federal money into housing as part of his $2 trillion infrastructure package, but the plan is already running into doubts about whether it’s enough and resistance from the very people he needs to make it a reality.

A key element of Biden’s $213 billion proposal is offering cities federal dollars to encourage them to ease zoning rules that drive up housing costs, impede the construction of affordable homes and often prevent people of color from moving in. But housing advocates and economists say Biden’s decision to rely solely on financial incentives without including more punitive actions to force changes could dampen the plan’s effect on one of the major drivers of the affordable housing crisis in the U.S., particularly in the largest metro areas.

“All these places are reluctant to touch zoning, or it would have been done already,” said Jim Parrott, a former housing adviser to the Obama White House and the co-author of a paper on the U.S. housing shortage released recently. Success “depends totally on how big the carrot is and whether they deploy sticks.”

The zoning incentives are just one piece of a sweeping proposal deploying billions of dollars in federal spending and tax credits to spur the creation of new affordable homes.

Yet the plan is also triggering complaints from both the left and the right over $40 billion in proposed spending for public housing. Left-leaning lawmakers — including the 95-member Congressional Progressive Caucus — don’t think the blueprint includes enough money, arguing that New York City alone needs that much aid. Republicans think the proposal contains too much.

The skepticism among housing advocates and potential resistance from key lawmakers is threatening to create new obstacles for the Biden administration’s biggest hope to bring housing costs in line with people’s incomes.

The $213 billion top line of Biden’s proposal is eye-popping: The framework includes roughly five times the funding, in inflation-adjusted dollars, that Congress authorized in the seminal Housing and Urban Development Act of 1968 to develop new affordable housing following widespread riots in the wake of Martin Luther King Jr.’s assassination.

As pitched by the White House, Biden’s bid to tackle the lack of housing supply would lead to the construction, rehabilitation or preservation of some 2 million affordable housing units.

Strained inventory, currently at the tightest level in 30 years, has sent housing prices skyrocketing, while decades of restrictive zoning have prevented the construction of affordable units in job-rich cities where people want to live. Costs are outpacing wage growth and a rising share of Americans — about one in three before the pandemic — pay more than the economist-recommended 30 percent of their income on their rent or mortgage.

Much of the cost of building new housing is determined at the local level: Zoning rules, land-use restrictions and permitting and development fees make it prohibitively expensive — and in some cities outright impossible — to build affordable units. State and local regulations account for nearly 20 percent of the cost of building a single-family home.

Biden would try to tackle the problem with a new competitive grant program to induce state and local governments to scale back costly zoning and land-use policies. The administration is shying away from more aggressive measures that would pressure officials to change their rules. To do so would risk a fight with mayors who have drawn a red line against linking zoning changes to federal funding.

But affordable housing advocates say the plan would be more effective if the federal government applied more pressure to cut red tape.

Any serious effort to tackle exclusionary zoning would ideally tie federal transportation dollars — a much bigger pot of money than the housing funds the federal government sends to states — to the elimination of regulatory barriers, according to David Dworkin, president and CEO of the National Housing Conference, an affordable housing advocacy group.

Given how many large cities have resisted adding affordable housing, a voluntary grant won’t have a significant impact, he said.

“To say, ‘We’re not going to give you money for affordable housing if you don’t make it easier to build affordable housing, [which is hard] because you don’t want affordable housing,’ — it’s ridiculous,” Dworkin said. “You need carrot and stick, not carrot or stick, to make it work.”

Groups representing mayors are making clear they don’t want federal interference.

“We like this approach compared to proposals that would penalize cities [over zoning],” said Mike Wallace, legislative director for community and economic development at the National League of Cities.

Mike Kingsella, executive director of housing advocacy group Up For Growth Action, said the grant model would help cities that already want to ease zoning restrictions defray the costs of doing so. But he said “a stick approach will be warranted if we’re going to address exclusionary zoning and discriminatory barriers in the more affluent, high-opportunity, job-rich communities like Cupertino in Silicon Valley.”

Mayors believe they have HUD Secretary Marcia Fudge’s ear.

“The secretary of HUD is a former mayor, one of many in the cabinet, and I think that will pay dividends,” Wallace said. “That’s going to help -- I think the funds will be made available to cities with fewer strings, because I think they understand the complexities of how things work on the ground.”

Fudge said last week that she has told mayors “you’re going to get all this money, please start to think about how you want to use it.’”

Homebuilders — who would be key to helping fight the housing shortage — are also wary of how Biden’s plan would be executed.

“Building or retrofitting 2 million homes is a very, very tall order,” said Jerry Howard, CEO of the National Association of Home Builders. “Really there’s not a lot of meat on the bone yet” in Biden’s plan.

“What I’m concerned about is what will Congress do with these ideas,” he said.

One area of concern for builders is the White House proposal to use union workers to upgrade homes. Howard said it was an “interesting concept” that had “never been practical in the market.” Remodelers in particular tend to not be unionized, he said.

Another piece of the plan — Biden’s $40 billion allocation for public housing — is drawing complaints from Democrats and Republicans on Capitol Hill.

Biden is calling for the massive investment to shore up housing that has fallen into disrepair from years of neglect. New York City Housing Authority buildings, for instance, have been plagued by toxic mold infestations, poor water supply and lead paint.

Progressive Democrats say the $40 billion allotment won’t cut it, pointing to studies indicating the public housing capital backlog stands at about $70 billion. Repair costs for the New York Housing Authority alone have been projected to reach $40 billion.

The day before Biden unveiled his plan, a group of 61 Democrats from both chambers signed on to a letter warning him to include “a minimum” of $70 billion to shore up public housing. The Democrats signing the letter included Sen. Elizabeth Warren (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.). On Thursday, the Progressive Caucus repeated that request in a list of five priorities it sent to the White House.

“Years of disinvestment has left our nation’s public housing system in a state of disrepair,” Rep. Nydia Velázquez (D-N.Y.) tweeted the day after Biden unveiled the plan. “While I appreciate @POTUS’s inclusion of $40B to improve public housing infrastructure, it’s a minimal investment that doesn’t meet the capital needs of housing authorities nationwide.”

The proposed public housing investment is also one of the gripes Republicans are citing as they push back on Biden’s infrastructure plan. The partisan divide will likely force Senate Democrats to turn to the so-called budget reconciliation process to pass the legislation, allowing them to rely on their narrow majority and sidestep a GOP filibuster.

Sen. Pat Toomey (R-Pa.), the top Republican on the Banking and Housing committee, said pouring money into public housing marks a step backward.

Toomey said that for decades, American cities have “tried to eliminate concentrated crime, poverty, and societal ills by moving families out of government-owned housing projects.”

“More public housing will only commit more Americans to a substandard living arrangement and increase government dependency,” he said. “When it comes to housing in America, government is the problem, not the solution.”