Through the efforts of innovative states and localities, we’ve learned quite a lot about what can be done and what works when it comes to increasing the supply of affordable homes for working families.
There are six broad roles that state and local governments can play to make housing more affordable. Since housing problems are complex, most communities with housing challenges will want to consider a comprehensive approach that includes policies within all or nearly all of these categories.
1. Expand Development Opportunities
This includes making publicly owned land and tax delinquent properties available for development of affordable homes and changing the zoning rules to allow more affordable homes to be built. Communities facing disinvestment due to a rise in mortgage foreclosures can benefit from these policies to ensure that foreclosed homes are reestablished as affordable, productive properties to help stabilize neighborhoods.
2. Reduce Red Tape
Expediting the approval process and re- thinking overly restrictive fees and regulations can create more affordable homes.
3. Capitalize on Market Activity
By tapping the increased tax revenue associated with rising property values or providing incentives or requirements to include a modest number of affordable homes within new developments, communities can ride the tide of a strong market to expand the supply of affordable homes.
4. Generate Capital
Promising approaches include: leveraging federal funds through the 4% and 9% Low- Income Housing Tax Credit programs, issuing general obligation bonds for housing, and leveraging the support of area employers. The tools to generate capital may not be utilized regularly during an economic downturn but will likely remain valuable to incentivize or provide financing to help spur affordable housing production when the economy improves.
5. Preserve and Recycle Resources
By recycling down payment assistance through repayable loans (rather than providing grants), and using shared equity homeownership strategies, communities can help preserve affordable owner occupied housing- a key policy that helps ensure homeownership remains affordable to working families.
6. Help Residents Succeed
Investing in homeowner education and counseling can help families manage their credit, navigate the private mortgage market, and hold on to their homes when economic circumstances change. Tenant protection laws can be established to protect renters in the case of foreclosure and help them stay in their homes. An expanding set of tax incentives and building standards are being adopted at the state and local level to promote energy savings at home through building techniques and land- use changes. These encourage energy and locational efficiency, thus reducing household utility and energy costs.
How does the government support homeownership?
A number of different government subsidies are designed to reduce the costs of owning a home. The largest is the federal income tax deduction for mortgage interest. To obtain the benefits of the mortgage interest deduction, families have to make enough money to justify itemizing their deductions on their tax returns (as opposed to taking the standard deduction). For this reason, many working homeowners do not receive the benefit of the deduction.
However, these families may be eligible for other forms of government support for homeownership. State or local policies to reduce the cost of homeownership include: below- market interest rates on mortgages from a state or local housing finance agency; down payment assistance to help families afford the costs of private- market homes or programs to fund the construction of homes that sell for a reduced cost. Working families can also benefit from homeownership education and counseling that can be helpful in navigating the home buying process. By using shared equity strategies, communities can ensure that a single investment in affordable homeownership can help one generation of homeowners after another.