This week’s Member Note is the testimony of Buzz Roberts at the U.S. Senate Committee on Finance hearing The Role of Tax Incentives in Affordable Housing.

Thank you, Chair Wyden, Ranking Member Crapo, and members of the committee.

The National Association of Affordable Housing Lenders is the alliance of major banks and mission-driven lenders and investors in affordable housing and inclusive community revitalization. NAAHL member banks provided more than $180 billion in financing for low- and moderate-income people and communities in 2020. NAAHL member banks make most Low-Income Housing Tax Credit investments.

I have good news and bad news.

First the bad news: Housing is less affordable now than it has been in 15 years. Home prices rose 18.8% and rent climbed 17.6% in 2021.2 Last October, about half of Americans (49%) called the availability of affordable housing in their local community a major problem. That is more than cited drug addiction (35%), COVID-19 economic and health impacts (34% and 26%), and crime (22%), according to Pew Research. Housing is the single largest cost the average household faces.

Housing costs are not just a casualty of inflation, but also a driver of inflation. Home prices rose 11% in 2020, when overall inflation was 1.4%.5 Housing represents more than 30% of the CPI. As economists Mark Zandi and Jim Parrot recently wrote: “If policymakers are serious about reining in inflation, then they have little choice but to take on the shortfall in housing supply…. While the other drivers of inflation are set to ease in the coming months, the shortfall in housing isn’t going anywhere unless policymakers do something.”

The affordability problem started in high-growth coastal markets but is now nationwide. From 2012 to 2019, supply worsened in 47 states and the District of Columbia. Among 310 metropolitan areas nationwide, supply was shrinking or shortages were growing worse in three-quarters of them heading into the pandemic. Boise, for example, was short 13,000 housing units in 2019, equivalent to about 5% of the region’s housing stock.

This problem has been building for years because we have not been building enough housing for years, especially lower cost homes and apartments. “Total housing stock grew at an average annual rate of 1.7% from 1968 through 2000,” but only 0.7% over the last decade. The shortfall over the past 20 years is as much as 6.8 million units. And, although multifamily construction is now rising, it is mostly aimed at the luxury market, while the worst supply shortages are for lower cost housing.

Moreover, in the past, supply increases at the top end of the market would “filter down” to ease affordability at all price points, but now we are seeing some markets where supply shortages are so great that prices for older properties are “filtering up.”

In other words, we are literally paying the price for failing to produce and preserve enough housing, especially for low- and moderate-income people and communities, where the needs are greatest. Because the obstacles to housing production will take years to address, we must get started right away.

The good news is that we do know how to expand housing supply for the people and communities that need it most. The Low-Income Housing Tax Credit (Housing Credit) has produced more than 3.6 million affordable rental apartments, virtually all the affordable production over the past 35 years. This total is equivalent to more than one-third of the entire multifamily stock with similar rents. The Housing Credit is widely considered the U.S. government’s best affordable housing production program ever. The proposed Neighborhood Homes Investment Act would apply the Housing Credit’s successful approach to a different challenge: to revitalize struggling communities and expand homeownership opportunities by building and rehabilitating starter homes.

NAAHL urges Congress to pass the bipartisan Neighborhood Homes Investment Act (S. 98) and the Affordable Housing Credit Improvement Act of 2021 (S. 1136). Together, these bills would produce more...