Senator John Kerry (D-MA) has introduced S. 2997, the National Affordable Housing Trust Fund Act of 2000. The bill would create a fund with a dedicated source of revenue to produce rental housing that is affordable to extremely low-income families (less than 30 percent of area median income). Three quarters of the funds will be distributed to the states, with three quarters of those distributions reserved for producing rental housing for extremely low-income people. The remaining 25 percent will be distributed through a national competition, with similar targeting requirements.
Senator Kerry is right to focus his bill on extremely low-income Americans. As advocates know, they have the most serious housing affordability problems and yet the fewest resources are available to support new housing for them.
The experience at the state and local level tells us that housing trust funds are sensible housing policy. Largely thanks to Mary Brooks and the Housing Trust Fund Project (See Shelterforce Working Paper #21), many state and local housing trust funds have been established in the last 15 years, and 111 are currently active. They commit $400 million to housing projects each year.
Funding the Funds
The most successful local trust funds are those funded by a regular revenue source directly linked to housing, such as development fees or property taxes. Although legislators can always decide to divert the revenue, the notion that one housing program subsidizes another can help to diminish the urge to raid the fund for an unrelated purpose.
Indeed, Senator Kerry has been outspoken in his criticism of Congress for dipping into housing programs when extra money is needed. He calls it the “great HUDway robbery.” So when the probability of excess earnings from the Mutual Mortgage Insurance Fund of the Federal Housing Administration emerged this year, he quickly identified it as money that should be directed into housing production and not put to non-housing uses. S. 2997 calls for all surpluses in the FHA program above the level needed to assure financial health to be set aside for the housing trust fund. Revenue from Ginnie Mae would also be directed into the housing trust fund.
The idea of a federal housing trust fund is not new. The National Low Income Housing Coalition made a similar proposal in the mid-1990s, as did Rep. Major Owens (D-NY) in the 103rd and 104th Congresses. The major difference between those proposals and this current one is the source of revenue. The earlier proposals would have been funded by redirecting some of the federal income tax benefits accrued to upper income people through deductions for mortgage interest and property taxes. Although intuitively just, tampering with the tax deductions of the most well off people was (and still is) considered too redistributive to be politically successful.
The Kerry proposal does not reduce benefits to anyone. The excess revenue from the FHA program comes from improved management of the program and the booming economy. Nonetheless, some argue that it is unjust to “divert” funds from low- and moderate-income FHA insured households in order to fund housing for even lower income people when the surplus could be returned to those homeowners as a rebate or a reduction in their premiums. Rep. Rick Lazio (R-NY) and Senator Wayne Allard (R-CO), the chairs of the House and Senate Housing Subcommittees respectively, have introduced companion bills (H.R. 4795 and S. 2914) to do just that. The counter argument is that those with FHA insurance are paying fair premiums and receiving a public benefit. If the reserves are sufficient to cover any losses, there is no reason not to use the surplus for other housing programs.
The National Affordable Housing Trust Fund would not solve the low-income housing crisis. But it would add a targeted resource to the mix of housing production funds, which is sorely lacking now. It is also a step forward in federal housing policy, after too long a period of federal retreat from investment in production of housing that very low-income people can afford.
The National Affordable Housing Trust Fund Act of 2000 is co-sponsored by Senators Jeffords (R-VT), Sarbanes (D-MD), Leahy (D-VT), Bryan (D-NV), Reed (D-RI), Chafee (R-RI), and Wellstone (D-MN). Senator Kerry is expected to reintroduce the bill early in the 107th Congress if it is not passed this year.