02/04/2025
The seven pillars of the housing ecosystem likely to be disrupted.💥
"With some early cards shown, we believe that seven pillars of the U.S. housing ecosystem as we know it are — in a worst-case scenario — at existential risk. If even just a portion of this scenario comes to bear, we are facing down a radical change in the housing ecosystem as we know it.
🥇First, construction costs are set to spike due to broad-based tariffs and deportation of migrants. Tariffs are already anecdotally substantially increasing the costs of essential building materials, and deportation would diminish an already insufficient construction workforce.
2️⃣Second, the federal tax code could be altered in ways that undermine the production of new housing. Proposed corporate tax changes could have follow-on effects to key programs like the Low-Income Housing Tax Credit (LIHTC). Lower corporate tax rates could reduce demand for the tax credits underlying LIHTC, which has been the primary vehicle for producing affordable housing in the U.S. since 1986. We may also see changes to tax exempt bonds, the mortgage interest deduction and the SALT deduction.
3️⃣Third, key HUD programs are likely to be significantly underfunded or eliminated, as demonstrated during the freeze. Community Development Block Grants, housing vouchers, and certain programs may all be on the chopping block. Preservation of existing affordable housing could be significantly underfunded. Continuum of care and homeless service providers could see significant decreases in federal support.
4️⃣Fourth, scaling back other key federal investments will have indirect effects on housing. Housing solutions are deeply affected by investments in non-housing entitlements, appropriated programs and tax incentives. The retrenchment of federal investments that range from Medicaid to transportation loan programs to support for Community Development Financial Institutions to tax incentives for energy efficiency would have a deleterious effect on housing production and preservation.
5️⃣Fifth, privatizing government-sponsored entities (GSEs) like Fannie Mae and Freddie Mac is likely to increase mortgage costs for homebuyers and apartment owners alike, by increasing the cost of capital and reducing secondary market liquidity. A private Fannie and Freddie could also stray from their “Duty to Serve” — ensuring liquidity in the marketplace for cooperatives, manufactured housing communities, and other important sectors of the housing market.
6️⃣Sixth, Fair Housing and Community Reinvestment oversight is already under threat. The Fair Housing Act of the Civil Rights Act of 1968, the Home Mortgage Disclosure Act in 1975 and the Community Reinvestment Act in 1977 have been mainstays of the more than half century battle against housing discrimination and redlining, which persists in the country. Changes to the regulatory interpretations of these laws or lack of enforcement could make it more difficult for renters to find homes and for homebuyers to access mortgages.
7️⃣Seventh, and finally, massive reductions in the federal workforce, focused on housing and otherwise, will have significant effects throughout the system. We have never seen a reduction of the scale contemplated for HUD. The housing system as we know it relies on disparate, invisible roles played by the federal government. For instance, mass layoffs at the Consumer Financial Protection Bureau almost inadvertently eliminated the team that sets average prime offer rates, which could have frozen the mortgage markets. Many more invisible, connective strings in our complex system are liable to be snipped.
These pillars, in aggregate, could drive a de facto capital shift, requiring states and localities and private and civic institutions to backfill to compensate for lost federal investments."
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For all its flaws and its failure to prevent the current housing crisis, federal housing policy has been relatively consistent and stable over the past 40 years. The Low-Income Housing Tax Credit program, established in 1986, has financed over 3 million affordable housing units. At any given time, i...
