Sen. Joe Manchin (D-W.Va.) effectively killed the Build Back Better Act (BBB) and, fortunately for American taxpayers, its numerous misguided housing proposals likely are gone along with it.
The bill’s housing proposals — including a request to spend more than $160 billion to expand existing low-income housing programs and create new programs — have received little attention, even though they involve substantial taxpayer cost. Worse, some provisions accounted for government spending for only a few years in an attempt to keep their apparent cost low. If the proposed reforms became permanent, their cost over the next 10 years would be much greater — and each year thereafter, the additional cost would be substantial.
The provisions in BBB devote most of its spending on low-income housing assistance to highly cost-ineffective methods for delivering assistance. The proposed public housing reforms championed by the bill are deeply flawed and lawmakers should continue to push back on them, even though the bill as we know it has been ground to a stop.
The largest item in the housing part of the House’s BBB Act ($65 billion) is for building new public housing projects and renovating, or demolishing and rebuilding existing projects. Because the Department of Housing and Urban Development’s (HUD) public housing program has performed poorly, public housing authorities have been prohibited from spending public funds to build projects for many years. They were allowed to rebuild demolished projects if that was less expensive than providing tenants with government housing vouchers to help pay the rent for units in the private market. As a result, the number of public housing units has been declining for 30 years, from a peak of 1.4 million to fewer than a million today. Some new units have been built to replace demolished ones, but in most cases, tenants have received housing vouchers.
Lawmakers would be better served to pursue a housing voucher program than to double down on public housing projects. My survey of the evidence indicates that housing voucher programs are much more cost-effective in delivering housing assistance than public housing. The best evidence indicates that housing resulting from $65 billion spent on public housing renovation and construction could be provided for $37 billion with housing vouchers — therefore, a proposal such as the one in BBB would waste $28 billion of taxpayers’ money.
Congress also should avoid BBB’s plan to massively increase subsidies to develop privately owned housing projects for low-income households. Most newly built, privately owned, subsidized rental projects for such households receive subsidies from federal tax credits, and developers of almost all these projects receive subsidies from other government programs. These tax credits are also heavily used to renovate existing subsidized projects.
The House version of the BBB Act would have added more than $45 billion to rental project subsidies over 10 years and create a new tax credit (costing about $6 billion in the first four years) for builders of owner-occupied houses sold to households with incomes less than 140 percent of an area’s median income. Again, the bill only accounted for the cost of a few years of these reforms — making them permanent would add more than $56 billion to their cost over the next 10 years and more than $9 billion a year thereafter.
As with the case of public housing, the evidence indicates that housing voucher programs are much more cost-effective than privately owned subsidized projects for delivering housing assistance. The best evidence indicates that the housing that would result from the BBB Act’s proposed expenditure of about $45 billion on programs of this type could be provided for a cost of about $28 billion with housing vouchers. Adopting these proposals would waste $17 billion in taxpayer money.
We do not need to build subsidized housing projects to solve a housing affordability problem and we should let these plans die with the BBB. The least expensive way to reduce how much low-income families spend on housing is to pay a part of their rent. The housing voucher program does that. Building housing for these households and charging the same rent as they would pay under the voucher program is much more expensive.
Edgar O. Olsen is an adjunct fellow at the American Enterprise Institute, and a professor emeritus of economics at the University of Virginia.