With rents at an all-time high and housing prices out of reach for many households, the squeeze is on for many to find affordable living arrangements, particularly for certain minorities. To understand what’s behind it all – and what might help the situation — Knowledge@Wharton spoke with Vincent Reina, author of a brief by the Wharton Public Policy Initiative, on the key issues surrounding affordable housing policy. He is a professor of city and regional planning at Penn, and the title of his paper is “The U.S. Needs a National Vision for Housing Policy.”

An edited transcript of the conversation follows.

Knowledge@Wharton: Your paper looks at improving housing affordability and fairness for renters and owners. It notes that there is “uncertainty about what home ownership rates will look like for future generations.” What’s more, rising rents have exasperated other problems, like tenant displacement and homelessness, but policymakers have done little in response, according to the study. Would you outline the key points surrounding U.S. affordable housing policy?

Vincent Reina: For quite some time we’ve been documenting housing costs, and particularly housing cost burdens and how that’s been increasing over time. There was a particular growth in this across the country in 2000-2010, and it has kind of stayed consistent since then.

The U.S. Department of Housing and Urban Development established a benchmark of determining people are housing-cost burdened if they are spending more than 30% of their household income towards their housing costs. That’s generally the benchmark that’s used to look at housing cost burdens. This is an important metric because people are trading off between housing costs and consumption among other things. The more people are spending on housing, the less money they have to spend on all the other things that we require to live and be successful in life.

A staggering statistic that falls within this is, as of 2017, 88% of households with a household income less than $20,000 are housing-cost burdened. That means our lowest-income households are disproportionately spending a large share of their income on just housing alone. In any given month, they’re left with very little money for everything else.

Knowledge@Wharton: Is there an average number there, like what percentage of their income they’re spending?

Reina: Yes. We use thresholds of 30%, and then 50% for being severely rent burdened. I don’t know the 50% number off the top of my head, but they are fairly substantial. And what that does is, in any given month, leaves the average household making less than $20,000 with well under $1,000 per month to cover all their costs of everything.

Knowledge@Wharton: Many of these stories don’t make it into the news often. One we do hear is that millennials are challenged on home ownership because home prices have gone up so much. Can you elaborate?

“In many ways on a federal level, we’ve lacked a broad vision for housing policy.”

Reina: Yes, exactly. There is increasingly a lot of documentation, and the National Low Income Housing Coalition does a really wonderful study every year where they show the average wage that would be needed to pay for the median rent in any given market and the disconnect between the wage people earn and the cost of the average available and affordable unit in their market.

So this the reality, that increasingly — particularly for the lowest-income households — there are just not enough affordable units. The trade-offs associated with that could be quite dire. You’re deciding between housing and consumption of something else. You could be deciding between housing and homelessness. This has direct implications for someone’s individual economic performance, for the outcomes of their kids, and increasingly, there’s a body of knowledge that is connecting those issues of housing affordability and these broad sets of outcomes we care about from a moral, but even from an economic perspective.

Knowledge@Wharton: When you dig into this, you start to see where the homeless problem is coming from in certain cities. What were some of the problems that minorities, particularly blacks, face in securing housing?

Reina: At this point there’s a large body of literature looking at issues of systemic discrimination in the housing market. The recent 50th anniversary of the Fair Housing Act and the fact that a lot of data has become accessible through a lot of new data techniques, namely the digitizing of previous maps around red-lining and mortgage credit lending, have really renewed a lot of conversation about the structural barriers that minority households have faced with respect to access to home ownership.

Knowledge@Wharton: So, new tools are giving us new insights here.

Reina: Exactly, and those are really unique opportunities to get away from these old myths about what was driving some of these systemic differences, which I think for quite some time the literature has shown those were myths, but increasingly the evidence base shows that there were structural barriers that minority households face across the board. This is access to credit. This is kind of steering to certain neighborhoods. This is even access to rental units in certain neighborhoods. This is use rates within a given program. In my own research, I show that black households have a more difficult time using a voucher than white households. This is something that’s been supported in other literature as well.

Knowledge@Wharton: Explain what a voucher is, please.

Reina: A voucher is a subsidy provided to low-income households that they can use to purchase housing on a market. They rent a unit on the private market, and the government agrees to pay a portion of that rent, and the tenant pays no more than 30% of their income in that rent.

Households apply for this through a local housing authority. They are vastly undersupplied. The number of people who income-qualify for a voucher far exceeds the number of people who are awarded the voucher. To give perspective on that, recently there was a housing voucher lottery in the county of Los Angeles — the first time in a long time for them because they were going through their old waitlist. They suspected that something along the lines of 600,000 households were eligible for the voucher. Roughly 170,000 households applied to be put on the waiting list for the subsidy. Of that, 20,000 were then randomly selected through a lottery to actually go on the waitlist. And now they’re kind of going through the waitlist for that subsidy.

A high-demand subsidy in theory could be very helpful to residents, but we see through the evidence that there are a lot of challenges with the program and how it’s used. Particularly, there are a lot of challenges along racial lines, and it highlights a lot of the existing discrimination that exists within rental markets.

Knowledge@Wharton: Is it fair to say that in some markets — like New York, San Francisco, L.A., Seattle — the appreciation in housing prices then creates a bigger and bigger burden on those who aren’t earning the kinds of incomes that allow them to get a foot in that market? In other words, it’s not just discrimination, but also the economics.

Reina: Yes, there are a couple of really important pieces connecting to what you’re saying. One is that there’s increasing evidence about the undersupply of housing in most of these markets and how it’s just difficult to develop.

Knowledge@Wharton: Your paper talks about zoning rules and so forth. Can you elaborate?

Reina: There is a wonderful index here — the Wharton Land Use Index that Joe Gyourko created. What it does is it documents all of the barriers around land use and zoning that could affect the development process and restrict development along the way. This gets formalized in processes that — some of them are rational. A lot of them are highly irrational.

Knowledge@Wharton: What are some of the specifics?

Reina: An example of that is saying only single-family residential homes can be developed in an area. By virtue of doing that, you’re restricting what can be developed in that area, and particularly in areas that are largely built out, you’re essentially saying nothing else could be developed there. So the existing built-out, single family homes that are there — there are no additions to that beyond what exists already.

“It’s the idea of there’s a lot of incremental things we can do, and there’s a lot of broader, structural things we can do.”

That creates an inability for that neighborhood to react to increased demand for those units in that neighborhood because you can’t build more units. And that drives up prices. And what it does is create more wealth for some of those existing homeowners, which creates an incentive for them in many ways to want those restrictive practices, because it benefits their property values.

Knowledge@Wharton: There are a lot of implications from this.

Reina: Exactly. It also highlights the inequity of compounding inequity of gaps in homeownership. If you have people who through structural reasons were more able or allowed to purchase homes four years ago than other groups, and their home is appreciating by virtue of increased demand, a lot of which is a product of restricted development practices — what they have is a large wealth-building tool that someone else did not have, that compounds over time.

This isn’t a product of them working harder or being smarter about where to buy things. It’s them literally just having access that someone else did not have, that then allows them to have wealth that someone does not have.

Knowledge@Wharton: What are some of the prescriptions in your briefing for how to help improve these issues?

Reina: There’s a lot that we could do right now. One thing that I highlight in the brief — and it’s not unique to me saying this — is that in many ways on a federal level, we’ve lacked a broad vision for housing policy. For a very long time, we’ve been creating programs and modifying programs with this kind of overarching vision of housing broadly across all sectors — not just single family, but single family and multifamily and how we think of things. It’s something that we haven’t had for quite some time. And that creates a kind of unevenness across programs and a lot of gaps.

Knowledge@Wharton: Was there a time when we did have it?

Reina: You could argue that in the 1960s, there were broad visions for housing. Maybe in the 1970s, there were some aspects of that.

Knowledge@Wharton: Now you’re arguing we need to get back to some of those things.

Reina: Yes, because these things are largely structural. One thing to keep in mind, though, is that there are a lot of existing programs and practices that are working or can work. So, it’s the idea of there’s a lot of incremental things we can do, and there’s a lot of broader, structural things we can do.

One idea that has been floated around for quite some time — and this isn’t new to me. Ed Olsen said it. Recently Matt Desmond in his book Evicted brought it up — this idea of creating a universal safety net voucher. We’ve talked about vouchers already, but saying that we know that it’s highly demanded, and by virtue of it being a scarce resource, it actually creates negative incentives around the voucher program itself and a lot of issues with the program.

So making it a universal safety net program, where people essentially have that as a backstop against homelessness, right? They have that resource at their disposal. They’re not subject to a lottery, and they’re also not subject to a use-or-lose scenario. Even within that program, there’s a recent adjustment that was made to the way the rents were calculated in the program to allow people to access higher-opportunity neighborhoods.

“[California Gov.] Gavin Newsom recently took what a lot of people consider a very bold statement … to tie housing development goals to other support from the state, i.e. transportation money.”

Knowledge@Wharton: But you’re going to need more housing supply to make all this work. Is that right?

Reina: Oh, totally. The voucher thing — in some ways you could argue that the universal piece is a larger-picture thing. The rent limit is an incremental thing. But within this, there is kind of a broad need for a push to promote the development of more housing units. Under the Obama administration, they created a toolkit to try to create incentives. A lot of people rightfully argue that incentives alone won’t actually do it because there are large incentives for people not to do it.

Someone like [California Gov.] Gavin Newsom recently took what a lot of people consider a very bold statement, which is to essentially tie housing development goals to other support from the state, i.e. transportation money and things like that, and say, “OK, if you’re not going to meet this goal, then you don’t get money from this other place either.” So there definitely is, in this broader vision, a view of what can a federal vision be around promoting development, and how can both incentives and potentially even mandates be created to ensure that localities are meeting the demand for housing.

Knowledge@Wharton: What are some of your other prescriptions?

Reina: Again, kind of a mix of incremental and larger. In a recent study that I conducted with a colleague, Constantine Kontokosta at NYU, we looked at energy cost burdens. And what we found, not surprisingly, is that low-income households are more likely to be energy cost burdens. What’s interesting about that paper is we did modeling to show what would be the impact on those rent burdens if you retrofitted those properties? And what would be the return for the owner of the property, but also for lenders to finance and go through the development process?

We show that there is an economic return there to making this kind of investment. And there’s a role for government to create programs that promote this kind of investment, to share some of the risk associated with lending to small, multifamily owners, and acknowledging that we have an aging housing stock. A lot of that aging stock that is in poor condition is our affordable units. That’s a distinct opportunity to promote investment, but also to address things like energy cost burdens and to reduce the greenhouse emissions associated with our housing stock.

Knowledge@Wharton: What are some of the misperceptions that the public has about housing in general?

Reina: First is the idea that housing cost burdens are a choice. There’s a clear, well-documented undersupply of affordable housing across the country. For households, again, making less than $20,000 a year, only 1% of them are spending less than 20% of their income on housing — only 1%.

This is not a product of choice. This is a product of undersupply. I think that’s one thing. I think another thing to remember is that these are important from a moral, but also from an economic perspective. The implications of people not being able to afford their housing present larger social costs because people are making dire trade-offs. It increases homelessness. It increases use of public resources. It increases deferred use of health systems that then leads to bigger medical problems. These things are a moral concern, but they also have real economic implications that affect us broadly.

And increasingly, there’s a lot of literature that connects us to the broader issues of regional development. There are a lot of conversations and articles that always come up about people fleeing the most expensive metros for more affordable places. Some of those are anecdotes. Some of that is reality. And there comes a point where the economic framework of cities, of metro areas, our main economic drivers as a country, start having issues when you have people facing these trade-offs, people dealing with the negative implications of housing affordability and then potentially leaving regions. Or staying and then, unfortunately, having to suffer through these kinds of high-cost burdens.

Knowledge@Wharton: I would imagine providing more low-cost housing is not a bad thing for an economy, from the perspective that it would create jobs. And it does improve the real estate values of a city and maybe the tax base. You could get better schools if you have more people able to get into a home and pay taxes on it.

Reina: And this isn’t just low-cost housing, though. That’s an important other point. Most low-income housing actually isn’t government-owned, government-operated, government-subsidized. The large share of that are mom-and-pop owners who own just more affordable units. Also remember that the markets are all connected. We need more affordable units, for sure. We also need units at all parts of the market. We’re talking about the middle-income housing. We’re talking about even the upper income, because they’re all reacting to each other. There are ideas of filtering and trickle-down, and those don’t solve all our problems, but it’s to say that everything is kind of interconnected.

“There’s a role for government to create programs that … share some of the risk associated with lending to small, multifamily owners, and acknowledging that we have an aging housing stock.”

In Philadelphia, I helped them last summer write their first citywide housing plan. It’s a 10-year housing plan, and one of the things that the commissioner here really wanted was to acknowledge that a housing market is a broad market. It involves homeownership. It involves rental. It involves high-income housing, middle-income housing and low-income housing. Those are all interconnected in important ways, so we shouldn’t view this as strictly a low-income problem. It’s an affordable problem that permeates across the income spectrum, but also is an affordability problem that is across the price spectrum.

Knowledge@Wharton: Are there opportunities for business to work hand-in-hand with government in some way? Are there some incentives for them to do that?

Reina: Oh, absolutely. In many ways, this is tied to building. This is tied to construction. This is tied to economic activity associated with real estate. If you create that retrofit program that creates the ability for people to finance the redevelopment of their home or to further invest in their homes, those are construction jobs. If you allow a developer to develop more units, that’s an actual kind of economic productivity. This is a real aspect of things where there is a lot for business to be involved in here. There are financing vehicles, where lenders can actually make a good return on investing in these forms of investments. So, there’s a lot of economic opportunity and business opportunities associated with this.

Knowledge@Wharton: What haven’t we covered here that would be important for our readers and listeners to know?

Reina: One of the big things that the Obama administration did at the end of his term was really make a push around fair housing and push to the forefront the need for cities to actively address the fair housing needs. That’s something that has been actively under attack by this administration — initially, you could argue passively, but now quite actively.

I think we should acknowledge also that there is a need to address current problems, but there’s also a really distinct, important need to acknowledge the history of what led to a lot of these problems and the realization that we need to be thinking broadly, critically and structurally about a lot of the things that have shaped the way cities look, the way people access housing, the way people access wealth. I’m really encouraged by a lot of the fair housing advocates and what they’re pushing for and protecting. And I’m hopeful that we’ll see a change of events going forward, because that is one of the biggest aspects of housing policy that is going to be important for everyone going forward.