Part 1 in our series of how can more housing solve the affordable housing crisis?

Basic economics indicates that as more houses are built, housing should become more affordable. With more housing options available to consumers across the income spectrum, the supply and demand for houses can now approach an equilibrium characterized by lower prices. By this logic, increasing construction seems like a promising way in which communities across the U.S. can address the affordable housing crisis. 

The rates of change in housing starts represents the overall construction of new homes and homes financed by low-income housing tax credit (read our post on the LIHTC program here). Comparing these rates provides a measurable number of affordable homes that proves increasing construction alone won’t solve our nation’s affordable housing crisis. In this blog series, we use data provided by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, to disprove the idea that more houses equate to lower prices.

Before we begin our analysis, we first must explore how homes are financed through LIHTC and what housing starts can tell us about new construction in the United States. 

LIHTC in the United States

The number of units that are financed and put into service by LIHTC each year is one way to measure the construction of affordable housing across the U.S. LIHTC are granted to state housing agencies by the federal government and later awarded to private developers through a competitive process.  For a rental property to qualify for LIHTC, it must meet at least one of the following conditions: 

1. At least 20% of the property’s units must be occupied by tenants making <50% of the area median income (AMI)
2. At least 40% of the property’s units must be occupied by tenants makes <60% of the AMI
3. At least 40% of the property’s units must be home to tenants making between 60-80% of the AMI 
   

The allocation process for LIHTC is quite complex and lengthy andare awarded to states based on population. Once the credits are allocated, the administration of LIHTC is managed by Housing Finance Agencies in the individual states. 

Of course, LIHTC-financed housing is not the only way to measure the amount of affordable housing within a jurisdiction. Other metrics, such as looking at the percent of residents spending more than 30% of their monthly income on rent, can help provide a more robust understanding of how unaffordable many jurisdictions in the U.S. have become. 

Housing Starts

To measure the number of new homes placed in service each year, we can look at. Housing starts can be measured via the number of permits granted, the number of units completed, and the number of units started. 

While each metric offers interesting insights into the number of new properties placed into service each year, our analysis focuses on the number of permits authorized per year per state. 

In our next blog post, we look at how the number of new units authorized and the number of units financed via LIHTC have fluctuated nationally over the last two decades. 

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Sources‍

Tax Policy Center (Urban Institute & Brookings Institute)
Federation of American Scientists