3 things to know about Elizabeth Warren’s new housing bill

Here's how the Massachusetts senator would address the country's shortage of affordable housing.

Sen. Elizabeth Warren, D-Mass., speaks to reporters as she arrives for a hearing on Capitol Hill in Washington, Tuesday, Sept. 25, 2018. (AP Photo/Andrew Harnik)
Sen. Elizabeth Warren speaks to reporters as she arrives for a hearing Tuesday on Capitol Hill in Washington, D.C. –Andrew Harnik / AP

Sen. Elizabeth Warren has another ambitious new bill.

On the heels of her recent capitalism and anti-corruption bills, the Massachusetts Democrat introduced legislation Wednesday aimed at the perhaps less flashy yet nonetheless pressing issue of housing in the United States. Some advocates have called America’s shortage of affordable housing the greatest, overlooked crisis in the country.

“Housing is the biggest expense for most working families — and costs for everyone, everywhere are skyrocketing,” Warren said in a statement.

She’s not wrong.

Additionally, at the same time as the price of buying or renting a home has surged due to the lack of supply, federal housing assistance programs have fallen behind.

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Warren’s bill, the American Housing and Economic Mobility Act, tries to reverse both those trends. And while it’s unlikely to pass Congress anytime soon, the legislation spells out her views on fixing the housing crisis ahead of a potential future White House run.

Here’s how the bill would work.

1. More federal money for housing construction and assistance

First, Warren’s bill proposes to invest more than $470 billion over 10 years in a number of federal programs, such as the Housing Trust Fund and Capital Magnet Fund, that build or support new housing for lower- and middle-income families, including in rural areas, where she says “housing is falling apart,” and in Native American communities. The new spending would nearly double the Department of Housing and Urban Development’s current $48 billion annual budget.

According to at least one independent analysis highlighted by the Bay State senator’s office, the combined effect of those new investments would result in the production of an additional 3 million housing units over the following 10 years.

“This will still leave a shortfall in affordable housing,” Mark Zandi, the chief economist for Moody’s Analytics, wrote. “But market forces should work to slowly and steadily increase supply. … By the end of the 10-year horizon, affordable housing supply should be approximately equal to demand.”

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Zandi also estimated that Warren’s bill would reduce the expected annual increase in affordable housing rents from 4 percent to 3 percent, resulting in an overall 10 percent decrease by 2028. At its peak in the mid-2020s, the bill is also estimated to result in 1.5 million new jobs.

The bill also includes two more targeted assistance programs.

One would look to try to recompense black communities that were historically discriminated against by federal housing policy in the 1960s by providing down-payment grants to first-time homebuyers living in formerly redlined or officially segregated areas.

The other aims to help those still reeling from the financial crisis that hit 10 years ago. According to Warren’s office, the bill would designate $2 billion to support borrowers — mostly in rural and suburban areas — who have negative equity on their mortgages.

2. Incentivize local governments to relax zoning rules

Warren isn’t the first Democratic senator (or potential 2020 presidential candidate) in recent months to call for new federal spending to address the country’s shortage of affordable housing.

In June, Vermont Sen. Bernie Sanders, who helped establish the aforementioned Housing Trust Fund, one of the programs that would be boosted by Warren’s bill, wrote that the country must “significantly” increase federal investment in affordable housing and rent assistance for lower-income citizens. And both California Sen. Kamala Harris and New Jersey Sen. Cory Booker introduced bills this summer that would offer refundable tax credits to individuals who spend more than 30 percent of their income on rent.

Unlike the proposals by Harris and Sanders, Warren tries to tackle the supply side of the issue by also taking on what she describes as “needless” local zoning laws.

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The bill includes a $10 billion grant program that communities can use to build “infrastructure, parks, roads, or schools,” under the condition that local governments reform land-use rules (Booker’s bill has a similar provision). The provision has earned praise from the so-called YIMBY (yes in my backyard) crowd, who contend that certain zoning restrictions on urban development hamper the construction of more affordable housing. It appears Warren sympathizes with that argument.

“This proposal will attack the rising cost of housing by helping to roll back needlessly restrictive local zoning rules and taking down other barriers that keep American families from living in neighborhoods with good jobs and good schools,” she said in a statement.

Zandi wrote that his finding that Warren’s bill would result in enough new affordable housing to meet demand would be “particularly true” if it is able to successfully ease those restrictions “as anticipated.” That said, Jenny Schuetz, a housing policy expert with the Brookings Institution, told The Atlantic that the currently proposed grant program may not be enough to incentivize the communities with the strictest zoning rules, which tend to be wealthy and don’t need federal assistance for local projects.

3. Pay for it all by raising the estate tax

How would these hundreds of billions in new investments toward affordable housing be paid for? Warren proposes offseting the costs by raising the federal estate tax, which applies to only the most expensive properties in the country and has been repeatedly cut in recent years.

The estate tax is a tax on the transfer of wealthy individuals’ property after their death. The tax only applies to the value of the property above a certain threshold. It is also the bane of many Republicans, who have repeatedly raised the individual threshold for the “death tax,” as they call it, from $675,000 in 2001 to $11.2 million with the passage of last year’s tax bill. The threshold is doubled for married couples.

Warren’s office says her bill would lower the exemption to what it was at the end of President George W. Bush’s administration in 2009 —  $3.5 million for individuals or $7 million for couples — and tax the value above that threshold beginning at a rate of 55 percent.

Warren’s bill also includes progressive, marginal estate tax rates with higher thresholds: 60 percent on anything over $10 million for an individual or $20 million for a couple and then 65 percent on anything over $50 million for an individual or $100 million for a couple. For estates worth more than $1 billion, all of those rates would be increased 10 percent across the board to 65 percent, 70 percent, and 75 percent, respectively.

In total, Warren’s office estimates all of the changes to the estate tax would affect about 10,000 people. Zandi says the changes will have “very little impact” on the economy or jobs and, along with tax revenue generated by additional homebuilding and economic activity from the bill, would make the legislation deficit neutral.

“The wealthy households that will pay more in estate taxes have substantial financial resources and will not significantly change their spending and saving behavior,” he wrote.

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