Affordable Rental Housing — A Lesson in Supply and Demand

In order to create the most positive impact when it comes to affordable housing, it is important to understand the history, policies, and key elements of the topic. Once you understand the landscape, you can navigate this space with agility and confidence.

So let’s start from the beginning: The Housing and Urban Development Act of 1968.

In the late 60’s, there was growing concern about the lack of incentives for developing housing at below-market rates. Everyone knew there was a low-income markets, but without being able to justify the lack of returns, they became underserved. Understanding the implications of entire communities being priced out of decent housing, and seeing the unnerving reality of the situation through several major riots, then-President Johnson led the effort to reverse course by signing the HUD Act.

The legislation provided a significant expansion in funding for public programs, such as Public Housing. But it also marked a shift in federal programs, increasingly focusing on using private developers as a strategy to encourage housing production of affordable units.

The Act successfully expanded production of housing in the U.S. during the four years that followed. Between 1969 and 1972, for example, the U.S. government funded more than 340,000 units of public housing. These were produced “conventionally,” meaning public financing and public operations, but also through turnkey (a private builder taking on responsibility for financing and construction), acquisition (purchase by the public of an existing building), and leasing.

HUD Act of 1968 was followed up by the Community Reinvestment Act of 1977 (CRA). This legislation was implemented to prevent redlining (refusing to offer home loans in certain neighborhoods) and to encourage banks and savings associations to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods and individuals.

The CRA extended and clarified the long-standing expectation that banks will serve the convenience and needs of their local communities, and by doing so, drawing an important line in the sand demonstrating that America is focused on taking care of all of its communities, not just those with high-incomes. Fast forward 10 years, and congress made its next big affordable housing move in the Tax Reform Act of 1986 (TRA).

In this case, as with HUD and CRA, Congress was looking to incentivize and protect investors in affordable housing through the tax code. The primary directive of the TRA was the elimination of tax incentives for investment in other real estate sectors, while focusing squarely on creating a new tax credit for low-income housing. This new incentive was known as the Low-Income Housing Tax Credit, or LIHTC. This program is a dollar-for-dollar tax credit for affordable housing investments, providing financial incentives for the utilization of private equity in the development of housing aimed at low-income Americans. LIHTC has been a success, accounting for the majority (approximately 90%) of all affordable rental housing created in the United States today. At the Cooper Housing Foundation, we strive to provide decent housing to Americans, and when you combine the powers of these extremely valuable programs and bills, that potential has become a reality in many communities across the country. It is our philosophy that a rising tide lifts all boats, and we will continue to utilize and strengthen these critical drivers of economic justice, financial well-being, and the pursuit of happiness.