Cut HUD, Fix Housing

The Trump Administration FY 2019 budget was released yesterday. Among other reductions to spending, the Department of Housing and Urban Development (HUD) would be cut by more than 14 percent if Congress implements the administration’s recommendations.

That’s a very big “if” indeed. Congressional Republicans are not in the mood to make difficult budget cuts these days. Still, howls of anger have gone up across Washington, D.C. at the mere suggestion of a cut to HUD. Advocates maintain that HUD needs more money, certainly not less.

That’s because many housing activists misunderstand housing policy. In reality, “subsidize-your-way-to-affordability” has driven HUD’s approach to housing for decades and hasn’t meaningfully improved the housing affordability landscape. In fact, by HUD’s own measure the proportion of households spending more than 30 percent of household income (also called cost-burdened households) is rising over time.

Figure 1: U.S. share of cost-burdened households is not improving

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Worse yet, HUD’s subsidies have arguably actively undermined housing affordability and will continue to do so. That’s partly because subsidies don’t address root causes of the affordable housing shortage.

Zoning regulations contribute to housing shortages in major cities, and this drives up housing costs by an estimated 30-50 percent in some locales. But HUD rewards cities that have more restrictive zoning and land use regulations with greater housing subsidies. For example, HUD provides around 2x the housing subsidy dollars to the most restrictively zoned states as compared with the least restrictively zoned states.

Figure 2: Federal housing affordability spending is highest in the most-regulated states

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Source: “2017 Budget State-By-State Tables,” Office of Management and Budget, 2017. This pairs the author’s 2015 state rank with 2015 budget numbers. Dollar values include Section 8 housing vouchers, Public Housing Operating Fund, and Public Housing Capital Fund spending.

The Trump administration’s proposed cuts would reduce existing counterproductive incentives for states. As it stands, housing subsidies act as a convenient political distraction for local politicians. With reduced HUD subsidies, states and local municipalities will be forced to confront the natural consequences of restrictive local regulations.