WASHINGTON (CN) – One third of Americans spend more than 30 percent of their income on housing. For renters, that number jumps to 48 percent. Meanwhile, one quarter of all American households are spending 50 percent of their income on rent.
Experts and senators alike highlighted these statistics from the Joint Center for Housing Studies at Harvard University Tuesday during a Senate Finance Committee hearing called to address the affordable housing crisis.
Sen. Ron Wyden, D-Ore., called the crisis a “five-alarm fire.”
“Our country’s housing policy needs an urgent remodel,” Wyden said during the hearing’s opening remarks. “Today millions of Americans struggle to pay the rent, and they can’t even dream of purchasing a home,” he added.
According to the Joint Center for Housing Studies, the number of high-rent units has spiked while low-rent units have dropped. Units renting for $2,000 per month or more jumped by 97 percent between 2005 and 2015. But that same time period saw a two percent decline in units renting for less than $800 per month, which resulted in 260,000 fewer low-income units.
In some cities like New York and Los Angeles, the deficit of affordable units available to low-income renters exceeds 500,000, according to the National Low Income Housing Coalition.
The group counts only 12 counties in the U.S. where a minimum wage worker can afford a one-bedroom rental home. Being able to afford a two-bedroom rental at the fair market price requires workers earning the federal minimum wage of $7.25 to work 117 hours per week, according to the group’s “Out of Reach 2017” project.
That translates to 16 hours of work per day, seven days per week.
The committee hopes the Affordable Housing Credit Improvement Act of 2017 could help address part of the crisis by increasing the low-income housing tax credit by 50 percent. The tax credit, established by President Ronald Reagan, is the largest source of federal financing for affordable housing in terms of new production and rehabilitation.
During testimony, Grant Whitaker, the president of National Council of State Housing Agencies, encouraged lawmakers to pass the bill, and pushed them to consider how they can strengthen housing infrastructure as they consider tax reform.
He said the proposed legislation would give a boost to state agencies that allocate the housing credit, noting that they receive requests for three times what they have to give out.
Whitaker added that some developers don’t even bother applying because of the fierce competition, and that state allocating agencies face tough choices.
They must choose sometimes choose between preservation projects and new construction, funding urban versus rural projects and whether to direct resources to neighborhood revitalization or projects in higher-opportunity areas.
“Agencies must balance whether to finance supportive housing for persons experiencing homelessness against assisted living for the elderly, housing for needy families, and projects for veterans – all of which serve populations with extraordinary housing and service needs,” he said.
The new bipartisan bill is expected to cost $4.1 billion over 10 years, and is estimated to create or preserve 400,000 more affordable housing units than what the current law provides for.
But other issues need to be addressed as well, according to Granger MacDonald with the National Association of Home Builders, who highlighted high development costs during his testimony.
“Fees, regulatory compliance, modern building and energy codes, building materials, land and labor costs determine whether a project is financially viable,” his written testimony to the committee states. “If we want to provide affordable rental housing for lower-income households, it is financially impossible to do so without a subsidy.”
According to MacDonald, regulatory costs constitute about 25 percent of a home’s price. Those costs have jumped by a third since 2011, he said.
“Costs incurred in the development stage alone account for over half of the cost of a finished site sold to a builder,” he added.
Building cost and labor shortages compound all of that. The cost of framing lumber jumped by 18 percent, MacDonald said, while the price of other lumber products has increased by more than 30 percent since the beginning of this year.
Added to that, as of 2016, 56 percent of builders reported labor cost or availability problems, up from 21 percent in 2012.
Builders increasingly cannot find people to fill construction job openings.
“This translates into higher prices and/or construction delays, both of which increase project costs,” MacDonald said.