With all the hand wringing about what’s been dubbed the “subprime lending crisis,” Congress has spent many days debating ways to help overextended borrowers and impose new regulations on home loan providers. Neither step will help solve the real problem with the nation’s housing markets.

The core problem is obvious to most Americans, if not their elected officials. Americans’ household incomes are not growing as fast as the cost of housing. The current decline in home prices is an aberration and is not likely to change the longterm trend.

Today’s increase in the foreclosure rate is a completely predictable consequence of this mismatch. More and more buyers had to stretch their finances to become owners. The financial markets were only too happy to offer risky loans to help them do that. Federal policymakers knew these loans were dangerous, but they were happy to ignore warnings about the risks. After all, the rising homeownership rate was a sign of prosperity—a political winner for everyone from President Bush on down.

Now Congress and President Bush want to blame the mortgage lending industry and take credit for solving the problem. The truth is, they are only treating the symptoms. They are still turning a blind eye to the root cause of the problem.

There is almost nothing left of what once passed for a national housing policy in this country. In the 1940s, ’50s, and ’60s, federal leaders worked hard to make sure Americans at various levels of income had suitable, affordable places to live. For the last decade or so, Congress and the White House have taken a completely passive approach, watching prices escalate and doing nothing until political pressures forced them to undertake today’s efforts to bail out buyers.

They have done nothing to help make homeownership more affordable. What’s worse, they have shown no recognition that affordable rental housing is critical to meeting America’s housing needs, and that it is disappearing faster than it is being replaced, even as the need increases.

Owning a home is not the solution for a large number of low- and moderateincome households. It’s time to recognize that, as the Congressionally appointed Millennial Housing Commission found, the nation’s top housing priority should be providing more affordable rental housing.

While it’s true that many American homebuyers now face the loss of their homes, millions of renter households continue to face severe housing affordability problems with no federal bailout in sight.

Even after the minimum wage increase is fully implemented, households with a single minimum-wage worker will still be unable to afford even a modest two-bedroom rental apartment at today’s rents anywhere in the country, according to The State of the Nation’s Housing 2007, a report from Harvard University’s Joint Center for Housing Studies. In many large cities, 10 percent to 20 percent of moderate- income households pay at least half of their income for rent, leaving little for food, education, transportation, and other needs.

From 2001 to 2004, the number of households with moderate cost burdens (paying more than 30 percent of income for housing) rose from 31.3 million to 35 million, according to the report. Because wages are not increasing anywhere near as fast as housing costs, the housing problems of low-wage workers are a source of special concern. “Clearly, having a job no longer guarantees the ability to pay for housing and other necessities, to save for the future, and to provide for children’s needs,” the report stated.

The number of households with “worst-case” housing needs rose by 16 percent to almost 6 million in 2005, up from 5.8 million in 2003, according to Affordable Housing Needs 2005: A Report to Congress, which was submitted by the Department of Housing and Urban Development (HUD) in 2007.

Households with worst-case needs are defined as those with very low incomes who are either paying more than half their income for housing or living in severely substandard housing.

“It is now impossible to build housing at prices anywhere near what low-income households can afford without subsidies,” according to the Joint Center’s account.

The growing shortage of affordable units forces millions of families to make difficult choices to pay for housing—sacrificing other basic needs, making long commutes, and/or living in crowded or inadequate conditions.

Congress and the next president must enact a balanced housing policy that helps low-income tenants as well as would-be homebuyers trying to realize the American dream.

The good news is, we have a great program for rental housing preservation and development on which to build.

The low-income housing tax credit program was enacted in 1986. It is being used in all 50 states, the District of Columbia, and U.S. territories to provide high-quality homes for persons earning less than 60 percent of the area median income. It relies on state and city housing agencies to decide how to allocate the credit authority. By relying on private-sector investors and developers to build and manage the housing, it has a great record of delivering quality housing without a great deal of government oversight and with minimal bureaucracy.

The program has financed about 2 million housing units since it was enacted, but is now in need of improvements and updating.

A key step is to provide state agencies that run the program with added flexibility in how they can use it. Congress should also provide funding for direct subsidies to bring rents at tax credit projects down to levels affordable to very low income households. Deep income targeting cannot be achieved using the tax credit on its own.

Congress should also provide tax relief to encourage the preservation of privately owned apartments that are in danger of being lost from the stock of affordable housing.

Targeted incentives to help reduce the cost of buying a home for moderateincome families could be a good part of a balanced housing policy. President Bush proposed a tax credit program that would have provided such incentives, but it was never enacted.

Another critical step is to overhaul the badly dysfunctional HUD. The nation’s housing agency has been handicapped by heavily regulated, categorical programs that are out of sync with the market-oriented, public-private housing partnerships favored by state and city governments. HUD needs new, more flexible programs.

It also badly needs a secretary and top leaders who are competent in housing and finance, as well as ethical, honest, and committed to the agency’s mission. During the Bush administration, the agency has become a “black hole” in the words of one former member of Congress, riddled with corruption and hobbled by the steady loss of qualified, trained, and motivated employees.

Benefits of Low-Income Housing Tax Credits

Multifamily projects built using low-income housing tax credits generate jobs, wage income, and taxes, as well as provide decent housing that benefits the tenants and helps them live healthier and more productive lives.

According to the National Association of Home Builders, a typical 100-unit tax credit project produces the following direct and indirect benefits in the first year:

• $7.3 million in local income;
• $783,000 in taxes and other revenue for local governments; and
• 151 local jobs.

The additional annually recurring impacts of building the typical 100-unit tax credit project include:

• $2.2 million in local income;
• $372,000 in taxes and other revenue for local governments; and
• 38 local jobs.

NOTES: The model captures the effect of the construction activity itself (Phase I), as well as the “ripple” impact that occurs when income earned from construction activity is spent (Phase II), and the ongoing impact that results from the new apartments becoming occupied by residents who pay taxes and otherwise participate in the local economy year after year (Phase III). Based on analysis of 21 specific tax credit projects serving families.