Interview
How to house all Americans

At a march in San Francisco, May 1, 2022.  (Shutterstock / Sheila Fitzgerald) 

Home prices in the United States have risen dramatically since the start of this century, far outstripping people’s incomes. Those prices, combined with a lack of supply, have now created a nation-wide housing crisis. Fixing it will require all levels of government to get involved and to work closely with the private sector. To better understand how we got here and the best way out, The Catalyst’s Jonathan Tepperman spoke to Henry Cisneros, former U.S. Secretary for Housing and Urban Development, and Cullum Clark, Director of the Bush Institute-SMU Economic Growth Initiative. Their conversation has been edited for length and clarity. For more detail, you can find Clark’s policy brief here.

By all measures, the United States is in the midst of a major housing crisis. Describe the problem and how we got here. 

Cisneros: The issue manifests as an affordability problem, but the lack of affordability is just the result of a lack of supply, a lack of production. We have a supply-demand imbalance that dates back as far as the Great Recession, when a lot of housing companies went out of business. We never regained the capacity to build at the level we had before. And the Great Recession also created financial problems in society at large; it took a lot of people out of the income trajectory they were on. Since then, homes have been built, prices have spiraled upward, and people who are making less are being frozen out – especially first-time buyers and young renters. I saw some data the other day that showed there isn’t one major metro in America where a person earning the minimum wage can afford the rent on a two-bedroom apartment.  

Cullum, you’ve written that inflation doesn’t explain the crisis, because housing prices have been rising for a lot longer than inflation has been high. So what does explain the problem? 

Clark: I’d add two or three things. The first is that American cities have always had a problem adequately housing their lowest income, most vulnerable citizens. But until early in this century, the United States wasn’t facing the kind of national housing crisis it is today. Then the financial crisis of 2008 caused an enormous crash, not only in home prices but in new home development, and we have only partly recovered. The result is we have dramatically underbuilt relative to what we need. The Bush Institute has a report coming out soon that will show that we have underbuilt housing units by something on the order of 5 million to 7 million in total since the year 2000. Almost all of the gap opened up in the last 14 years or so, and we are making the hole deeper, because we are not building fast enough to keep up with even the relatively modest growth in the number of households that need a home.  

One other point: If the typical American city built about 10% more units per year over time, then the average house price would be something on the order of 8% to 10% lower. The United States, especially its most in-demand locations, needs to build something on the order of 20% to 25% more units per year to keep up with the growth rate and to fill the hole. 

To what extent is this a government problem and to what extent is it a market problem? How much responsibility does the government bear for the creation of the housing problem in the first place, and why isn’t the market providing what Americans need? 

Cisneros: Well, the government has a responsibility to try to get people decently housed. It needs to act whether it created the problem or not.  

Now, as for the cause, the recessionary climate helped create the problem. We know that some of the efforts to try to create more housing and more homeownership in the late 1990s and early 2000s resulted in predatory and abusive practices, which created a bubble. Whether you want to lay that directly at the feet of the government or whether you want to say it was caused by a market run amok, there were fundamental flaws in the market system that gave off signals and created opportunities for irresponsible people to create a bubble. I don’t want to assign responsibility for the cause, because I think there’s enough to go around.  

The more important thing to focus on is who should act to fix things. I believe it’s important for government at all levels to put in motion strategies for building additional housing. At the national level, that means incentives for builders, it means interest-rate policies, it means strategies to assist the mortgage sector, etc. And state and local governments should also weigh in. 

You served as the mayor of San Antonio. What can local governments do to help solve the problem? 

Cisneros: State governments are not traditionally very involved in housing, but increasingly, certain states such as Utah are coming up with very creative solutions to address the housing-supply problem, because they have growing populations and they recognize the imbalance between the level of housing production and the number of people coming in. 

There are also a whole range of things that can be done at the local level to induce housing production. That includes things like changing your zoning laws to allow smaller units to be built more densely on particular lots. And lowering the parking requirements for apartments that interface with mass transit, thereby lowering the costs of their production. Cities can also help the building sector by making more public land available for building – for example, vacant lots that the city uses to store garbage trucks or police cars.  

On my watch as mayor, I didn’t do enough on housing. It’s almost ironic that President Clinton asked me to be Secretary of Housing, because my reputation as mayor was based on what I’d done to spur economic development, not housing production. We had a poor city, and I thought the answer was not income maintenance, welfare, or other government programs, but creating new industry and growing the small business base and growing the economy generally. 

I did do a couple of things in the housing area, however. For example, I had San Antonio sell its stake in the cable system, and I created a housing trust fund with the money we made. We also worked closely with nonprofits, although not on the scale that is required now. I’m very pleased to say that the current mayor of San Antonio arguably has the most aggressive housing strategy of any mayor ever. That includes things like changing the city charter so that city bonds can be used to subsidize builders, and issuing a $150 million bond to act on that.  

New construction. (Shutterstock / Ivan Dann)

Cullum, you’ve just written a policy brief filled with recommendations for how to address the housing problem. What other steps do you suggest? 

Clark: Our policy brief is targeted at the federal level, but there’s nothing that Secretary Cisneros just said about the role of cities that I disagree with. A lot of the responsibility for addressing this challenge will inevitably fall to local governments. They have a very high degree of control over land-use policies. And studies have shown that in many cases, those land-use policies are overly restrictive and make it too difficult to build new housing. Fixing those policies is one of the most important things that could be done to address the housing problem in America.  

As for federal policy, there are two areas where it can really make a real difference. One involves all the ways the federal government regulates and shapes the incentives facing cities and real estate developers. There are a lot of things here that the federal government can do. Some of them just require good enforcement of existing laws, such as the Fair Housing Act of 1968. But in our brief, we argue for something a little bit more complex. To understand it, consider the following problem:  

Often a particular locality will have overly tough rules making it very hard to build new housing. Now, why does it have those rules? Probably because its constituents don’t want to see rapid, disorienting changes in their neighborhood, such as the construction of new apartment buildings nearby. But if you block that construction, where will that city’s teachers and cops and so forth live? All cities want teachers and cops. But maybe the city in question thinks that they can live in the next city over. If the second city thinks the same way, however, then you have a situation where no city will build enough housing that teachers and cops can afford. 

And that’s where the federal government can step in – by coordinating a solution to that problem. It can create a variety of incentives that will cause the cities in question to come together and say, OK, we have to make some adjustments here; we can’t put all the burden on the next town over. What incentives? Well, the federal government has many levers, and the most important of these for most localities is transportation funding. Washington can also provide technical assistance to help localities that wish to reform their housing and zoning rules. 

The second general area of federal activity involves funding streams. One important stream involves what’s called the low income housing tax credit. The LIHTC is the single most important engine for building income-restricted new homes for low- to moderate-income people. The program has accomplished a lot since it was created in 1986, but our brief suggests some ways to get more out of the program.  

A second important funding stream is Section 8 housing choice vouchers, which give people the equivalent of money that they can use for rent. We suggest some changes to that program as well. Without getting into the weeds, the federal government doesn’t always make it as attractive as it might be to accept vouchers, so reforms on that front that would probably have an impact.  

And then we suggest a couple other things that are less obvious. For example, the federal government provides a lot of money to support career and technical education. And one bottleneck on our ability to build enough housing in this country is the number of people currently working in the construction trades. So we suggest that Congress step up the amount of money and the incentives involved to bring more people into jobs like carpenters and electricians. 

We hear so much today about how automation and technology is either negatively disrupting or making more efficient all kinds of industries. Are we seeing something similar in the creation of new homes, or is that part of the problem – that this is one area that’s actually not very amenable to improvements through new technology and automation? 

Cisneros: I think we’re seeing a lot of innovation in techniques used to build homes that save labor, such as the development of new materials or electronic devices to speed the process. There’s a lot of innovation in manufacturing off-site and then moving it to the site. But there are also lots of aspects of housing that require human beings to be on the job, and there are limits to how that work can be improved. Some people believe you could use technology to build housing with virtually no people involved, but that’s a real stretch and some distance off. 

So we do need people, and I think Cullum’s right: One answer is to train more of them. I’m seeing some very positive trends when it comes to emphasizing technical education in schools. More and more people are recognizing there are very good incomes to be made and a real need in our society for people who work with their hands to do things like building and construction. And a lot of schools are putting new programs in place to train those peole. Our society made a mistake by not giving more respect for those jobs, more appreciation for those jobs, more compensation for those jobs. We once had entire high schools dedicated to vocational arts, but they went away, and I think it’s proper that they come back. 

The other part of the solution is more controversial, because it involves immigration. In this country, we depend in great measure on a workforce that arrives here as immigrants because there are many jobs that Americans won’t do, like being on the top of a roof in Phoenix on a summer afternoon building a home. So we should try to establish rational immigration strategies to provide us a workforce of people who want to work, earn a living, and contribute to the population and prosperity of our country. 

Clark: Economic studies, including one released last year, have shown that contrary to almost every other industry in the United States, home construction has not really grown more productive since the 1960s. We’re not getting more housing units or more square footage per hour worked by a construction worker than we did 60 years ago. We’d certainly like to get bang for our bucks on that front, but how do you do that? This will become a much bigger challenge in the years ahead, as we face very low growth in the size of the U.S. workforce and perhaps even shrinkage.  

So how do we address that? There are two classic ways to increase productivity, and I hope the federal government will support both of them. One method is you create more training to increase the skills of the human beings who are working in a given field. In this case, it would make a lot of sense to invest in the human capital of the people who will be building our homes in the future.  

The second classic way of increasing productivity is to give people better tools, better equipment. And in this case, as Secretary Cisneros said, that means figuring out how to bring more modular construction into the equation. Somewhere down the road, it may mean 3D printing more of the components of a home on-site. That will require creating new technology and training workers to use that technology. None of that has been a national priority so far, but we could make it one.  

Cisneros: I am optimistic that we may see some movement under the new Trump Administration, for a variety of reasons. One, we’re in an acknowledged crisis. Two, the president comes from a housing background and has to recognize the situation. Three, the president’s choice for Secretary of Housing and Urban Development [HUD] is a very goal-oriented person, who has some background in the housing industry and has worked on things like opportunity zones [a government program that encourages people to invest in economically distressed areas].  

I think the biggest challenge is to find ways to get the private market, which is where you get the real scale, to build houses that can be sold or rented at prices entry-level homeowners or renters can afford. The private sector is where the volume is. There are a lot of pieces to this, but they all should be geared toward getting us to the point at which we actually have homes being built at affordable prices. 

At a housing protest in New York City, September 12, 2012. (Flickr / Michael Premo)

One thing that we haven’t talked about yet is mortgage rates. Because of the combination of high rates and 30-year fixed-rate mortgages, which aren’t as common in most other developed countries, the United States now faces a situation in which a lot of people who don’t need the help are sitting on very comfortable, long-term, low-interest home loans, while young people who really need access to the market are finding themselves locked out of it. What can be done there to address that side of the problem? 

Cisneros: Obviously, any administration would want to get interest rates as low as possible so long as they can also keep the economy growing and inflation in check. Getting interest rates down has been a goal of the Biden Administration and is a stated goal of President Trump. It may also be that the time has come for the new administration to figure out what do with Fannie Mae and Freddie Mac [government-controlled companies that help provide money for the U.S. housing market by buying residential mortgages and packaging pools of those loans for sale to investors. Both were seized by the government in September 2008 and are overseen by the Federal Housing Finance Agency]. Are they going to be private entities, government-supported entities, or what? Because they’ve been in conservancy now for a decade plus and have not been fulfilling their roles.  

Clark: We should remember a simple idea from economics, which is that if the government subsidizes the demand for a good, but it doesn’t subsidize the supply, the net result will be that the price for that good will go up.  

What do we currently do with our housing policies? The federal government subsidizes homeownership in multiple ways, but two of those ways have somewhat complicated results. It subsidizes Fannie Mae and Freddie Mac, which, as Secretary Cisneros alluded to, have been controlled by the federal government since 2008. They are essentially bringing the credit of the federal government into the mortgage market and delivering lower interest rates than people would otherwise have if it was a totally private market.  

Now you might say, well, lower interest rates sound good. But the current situation causes a couple of problems. One is that plenty of people can’t qualify for a mortgage that would be subsidized by Fannie Mae or Freddie Mac. We’re putting a subsidy in the hands of people who can qualify – basically upper-middle class people. And that’s driving demand. So the people who don’t qualify face even more expensive homes. 

The second way the federal government subsidizes homeownership is through what’s called the mortgage interest tax deduction, which allows people to deduct the interest on their mortgage from their federal income taxes. That too, in principle, ought to make housing more affordable. But again, the people who actually enjoy the tax deduction are people with a meaningful amount of federal income tax due, which again largely means the upper part of the income distribution. So what we’re effectively doing with these policies is making it easier for people who are higher up the income-distribution curve to afford a home, but at the expense of driving up prices without any commensurate help to people who are further down the income-distribution curve.  

In our policy brief, we point out that there are some forms of homeownership subsidies that are unnecessary and counterproductive. For example, Fannie Mae and Freddie Mac providing help for relatively high-income families to own a second or third home or providing help to someone who wants to accumulate several homes to rent out as a business proposition. These are cases where we should reduce the government’s role. We also suggest that there are ways to expand the roles of Fannie Mae and Freddie Mac, by getting them more involved in financing the supply side of the housing market, for example, by providing low-interest loans to various kinds of developers.  

Have we missed any other steps that should be taken to address the housing crisis? 

Cisneros: On top of everything else we’ve talked about, we have to really think hard about the places where the system doesn’t work. I’m particularly thinking about people who are unhoused. We have about 650,000 people in this country who are homeless on any given night, which is a population equal to a fair-sized American city. And the scale of the suffering worries me. In every city I visit, I see people bedding down for the night on sidewalks and corners and building entrances, all without any support system or the amenities that human beings need to survive. And we’ve tried a lot of things to help them, but never with the focus that we need. 

When I was nominated as HUD secretary, after my confirmation hearing, someone came up to me and said, “Remember that the first concern of the person who holds the position of secretary of Housing and Urban Development ought to be those Americans who are completely unhoused.” That stuck with me. What we are doing is not enough. Apart from all of the other things that we’ve talked about, we’ve got to do whatever is necessary to address the homeless problem.