Three Principles for Federal Housing Policy

Volume 26 No. 2


David J. Reiss is a professor of law at the Brooklyn Law School in Brooklyn, New York.

Trying to derive a principled understanding of federal housing policy is no easy task, but to ensure that government funding is being used efficiently, it is necessary to identify legitimate first principles of housing policy, then to evaluate housing programs to see whether they are designed to achieve goals consistent with some or all of those principles.

The federal government has a bewildering array of housing programs, administered by several different agencies, funded with tens of billions of dollars every year. In the broadest strokes, these include

  • the Federal Housing Administration (FHA), which provides mortgage insurance on loans made by FHA-approved lenders,
  • the Government National Mortgage Association, which insures mortgage-backed securities (MBS) backed by federally insured or guaranteed loans,
  • the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the Federal Home Loan Bank System, which issue MBS and invest in mortgages and mortgage-related products,
  • Project-Based Rental Assistance, which provides supply-side funding to increase the stock of affordable housing,
  • Section 8 housing vouchers, which deliver demand-side subsidies to individuals and families seeking housing in the private market,
  • housing for the disabled, and
  • HOPE (Housing Opportunities for People Everywhere) VI Grants, which replace dysfunctional public housing projects with mixed-income housing and vouchers.

In addition to this list, the Department of Housing and Urban Development (HUD) has added “a new Energy Innovation Fund to catalyze private sector investment in the energy efficiency of the Nation’s housing stock” and a “a new Choice Neighborhoods Initiative to make a range of transformative investments in high-poverty neighborhoods where public and assisted housing is concentrated.” See Office of Mgmt. and Budget, A New Era of Responsibility: Renewing America’s Promise, at 73 (2009), available at Indeed, each new administration, whether Democratic or Republican, makes its own additions to the federal housing edifice. HUD’s most recent strategic plan, for instance, incorporates an extraordinarily broad range of goals, including improving health, child development, and economic security for various populations. HUD, HUD Strategic Plan FY 2010–2015 5-7 (May 25, 2010),

On top of these direct housing expenditures, the federal government provides hundreds of billions of additional dollars in the form of tax expenditures. “Tax expenditures” refer to “those revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability.” Congressional Budget and Impoundment Control Act of 1974, Pub. L. No. 93-344, § 3(3), 88 Stat. 297, 299 (1974) (codified as amended at 2 U.S.C. § 622(3)). For instance, the mortgage interest deduction reduces income subject to taxation by an amount equal to a taxpayer’s mortgage interest payments to encourage investment in housing. The other significant housing-related tax expenditures are

  • the deductibility of state and local property taxes on owner-occupied homes,
  • the capital gains tax exclusion for home sales,
  • the exclusion of net imputed rental income,
  • the exception of certain rental losses from passive loss rules,
  • the credit for low-income housing investments, and
  • the accelerated depreciation on rental housing.

The Tax Policy Center estimates that tax benefits to homeowners in 2005 amounted to $147 billion and that direct aid to renters amounted to $41 billion in the same year. Adam Carasso et al., The Trend in Federal Housing Tax Expenditures, Tax Notes, Feb. 28, 2005, at 1081, available at The greatest benefits for homeowners accrue to the wealthy, in that 72% of these income tax benefits go to those making more than $75,000 per year, but only a negligible amount goes to those making less than $40,000 per year. Adam Carasso, Who Receives Homeownership Tax Deductions and How Much?, Tax Notes, Aug. 1, 2005 (using FY 2004 data), available at

Given the size of federal housing expenditures (not to mention state, county, and municipal programs), it is unsurprising that housing’s regulatory web is immense and intricate, including administering agencies such as

  •  the newly created Federal Housing Finance Agency,
  • the newly created Consumer Financial Protection Bureau,
  • the Department of Housing and Urban Development,
  • the Federal Reserve Board,
  • the Federal Trade Commission,
  • the Office of the Comptroller of the Currency, and
  • the National Credit Union Administration.

In an era of budgetary belt-tightening, it is appropriate to ask whether our tax dollars are being efficiently spent on these initiatives. But trying to derive a principled understanding of federal housing policy in the face of such enormous expenditures and extraordinary complexity is no easy task. It is even difficult to provide a generally accepted definition of “housing policy.” At its broadest, this term can refer to government efforts to shape “the dynamic relationships between housing markets and economic, demographic, and social trends.” The Joint Center for Housing Studies of Harvard University, U.S. Housing Markets Remain Mired as Many Buyers Remain on the Sidelines (June 6, 2011),
us-housing-markets-remain-mired-many-buyers-remain-sidelines. More typically, however, housing policy refers to government efforts to increase housing affordability.

First Principles of Housing Policy

Identifying the fundamental principles in a field as complex as housing policy is difficult. As used in this article, “principle” means a rationale that is widely accepted as justifying a particular policy, and “first principle” means the rationale that is fundamental to the policy. In other words, a “principle” may underlie a housing policy as a means to another policy end, whereas a “first principle” forms the basis for the housing policy itself.

From one useful perspective, housing policy can be described as reflecting five broad “housing ethics.” Tim Iglesias, Our Pluralist Housing Ethics and the Struggle for Affordability, 42 Wake Forest L. Rev. 511, 511 (2007). The use of the term “ethics” in that law review article is substantively similar to this author’s use of the term “principles.” But such “ethics” are intended to be more descriptive, while the “principles” discussed in this article are intended to be used as tools of evaluation.

With this caveat in mind, the iteration of the five ethics is useful because they do reflect many of our broadly held assumptions about housing policy. The five ethics identified by Professor Iglesias are

  1. Housing as an Economic Good,
  2. Housing as Home,
  3. Housing as a Human Right,
  4. Housing as Providing Social Order, and
  5. Housing as One Land Use in a Functional System.

The “Housing as an Economic Good” ethic treats housing as any other commodity and asks how government policies distort the functioning of the market for housing. The “Housing as Home” ethic explores the effect of policy on personal liberty, privacy, and security. The “Housing as a Human Right” ethic speaks to how a policy furthers the goal of making decent housing available to all. The “Housing as Providing Social Order” ethic examines the effects of a housing policy on the community as it currently exists. Finally, the “Housing as One Land Use in a Functional System” ethic speaks to how a policy affects the broader society, in particular the infrastructure, education, and workforce sectors.

These five housing ethics are a useful survey of housing policy generally, but the “Housing as an Economic Good” and the “Housing as a Human Right” ethics play a greater role in federal housing policy in particular. Given the historic role that the states play in land use, law enforcement, and landlord/tenant law, it is not surprising that the federal government is not nearly as involved in implementing the other three ethics.

The “Housing as an Economic Good” ethic is embedded throughout federal housing policy discussions. Many past programs have come to be criticized for their unintended distortions of the housing market, which can reduce the supply and affordability of housing in the long term even if they reduce the cost of housing in the short term. Rent control is the most commonly discussed example of a policy that causes a negative unintended distortion of the housing market, with economists nearly universal in their judgment that rent control ultimately reduces the supply of rental housing, particularly for low-income families, thereby increasing the aggregate cost of such housing. Although very popular with those in rent-regulated units, rent control policy has fallen out of favor because rent regulation does not keep down rents generally but lowers rents only for those in rent-regulated units.

The affordability aspect of the “Housing as a Human Right” ethic has also thoroughly saturated housing policy debates. This ethic is typically more of the guiding force behind federal rental housing policy than federal homeownership policy.

Somewhat surprisingly, largely missing from current discussions of housing policy is what appears to be a completely separate sixth housing ethic or principle: “Housing as a Bulwark of Democracy.” Reaching back at least as far as Jefferson’s time, the idea of the yeoman farmer who owns his homestead, is financially self-sufficient, and acts the part of a democratic citizen is central to America’s vision of itself. This principle is fundamental to an understanding of federal housing policy. Perhaps it is so deeply ingrained in the broader American ethic that it does not particularly surface in debates regarding housing policy.

To clearly identify the first principles of housing policy, we must first ask whether some goals of housing policy are goods in themselves, and we must distinguish them from those that are means to other ends. For example, a goal of ensuring that Americans live in safe, well-maintained, and affordable housing is a good in itself. On the other hand, if a goal of a particular housing policy is promoting economic efficiency, then such a housing policy goal is not a “first principle,” but is instead a means to a more general end.

As we seek to identify what is unique to housing policy, we can set aside goals that treat housing as a means to a more general end. This does not mean that we ignore them in our policy discussions, just that we ignore them as we attempt to systemize our thinking about housing policy as a distinct field. As such, the author rejects “Housing as an Economic Good” as a candidate for a first principle of federal housing policy, at least in its purest form. The author also rejects straightforward income redistribution as a first principle candidate because a housing policy intended to achieve that end would see housing as a mere means to that general redistributional end.

What then are the aims of housing policy? The answer to this question is not immediately clear. Many assert that a fundamental goal of housing policy is to assist Americans to live in safe, well-maintained, and affordable housing units. This view is consistent with a rights-based view of “Housing as a Human Right.” Another similar but more modest expectation is that housing policy should promote a specialized form of income redistribution that ensures that the transferred income is consumed in increased housing. This view may be derived from the “Housing as an Economic Good” ethic in its recognition that the political decision to redistribute funds should be made within a market framework. Finally, one might argue that homeownership and stable housing are fundamental to the American notion of citizenship. And, indeed, that is how many politicians have approached the question, applying the “Housing as a Bulwark of Democracy” ethic. Many other principles, of course, affect housing policy debates, but these three broad and widely held ones appear to be first principles of housing policy.

Safe, Well-Maintained, and Affordable Housing

Let us start with the principle that Americans should live in well-maintained, safe, and affordable housing. What does that mean? What is the actual function of housing? Many consider it to be as fundamental as food and clothing because it addresses basic survival needs. The right to adequate housing is enumerated in the United Nation’s “Universal Declaration of Human Rights.” Universal Declaration of Human Rights, G.A. Res. 217A (III), art. 25, § 1, U.N. GAOR, 3d Sess., 183d plen. mtg., U.N. Doc. A/810 (Dec. 10, 1948). Closer to home, the U.S. Congress has enshrined the “goal of a decent home and a suitable living environment for every American family” as part of its national housing policy. 42 U.S.C.
§ 1441 (2011) (setting forth 1949 congressional declaration of national housing policy).

Our discussion of what “safe, well-maintained and affordable housing” is cannot end there, however, as the concept of “well-maintained” and “safe” housing has changed over time. Reaching back at least as far as Jacob Riis’s How the Other Half Lives, society has taken an interest in implementing government programs that attempt to raise the minimum standard of decent housing for all. Francesco Cordasco, Introduction to Jacob A. Riis, How the Other Half Lives, at i, vi (Garrett Press 1970) (1890). The advocacy of Riis and others led to the Tenement Housing Law of 1901, which was “the first major advance in the fight against the tenement slum.” Id. at viii. Over time the quality of the housing stock has improved because of increases in the standard of living as well as the implementation of construction and housing codes aimed at preserving housing and protecting consumers.

As the housing stock has improved, the meaning of “safe” and “well-maintained” housing also has evolved. Whereas indoor plumbing could not be taken for granted 100 or even 50 years ago, it can now. While inadequacies remain for too many Americans in terms of dangerous wiring, poor heating, vermin infestation, and exposure to lead paint and mold, as a whole physical housing conditions have seen a transformation for the better.

The concept of “affordable” also has changed over time. As Edward L. Glaeser and Joseph Gyourko have noted, “a consensus seems to have arisen that housing becomes ‘unaffordable’ when costs rise above 30% of household income,” and this consensus serves as the basis for federal housing policy. Edward L. Glaeser & Joseph Gyourko, Rethinking Federal Housing Policy: How to Make Housing Plentiful and Affordable (2008), at 29–32. But until the early 1980s, these very same federal programs set a 25% ceiling for housing costs.

In evaluating whether housing is safe, well maintained, and affordable in the context of contemporary American society, we might view providing an environment in which a person can enjoy “Life, Liberty and the pursuit of Happiness” as a primary function of housing. Indeed, leading right-to-housing activists use language that has echoes of Jefferson’s, with one activist “characterizing housing as the foundation for life and a launching pad which is fundamental to human development.” Iglesias, supra, at 542 (summarizing views of Chester Hartman).

In sum, providing safe, well-maintained, and affordable housing has consistently remained a broadly held principle of housing policy even as the standards for such housing have changed over time.

Specialized Income Redistribution

Another widely held “first principle” of housing policy is that many low- and moderate-income households should receive a specialized form of income redistribution that ensures that the income transferred is consumed in increased housing. One of the main arguments in favor of such a specialized form of income redistribution is that low-income children benefit from policies that require their legal guardians to consume more housing (as opposed to other goods and services).

There are additional rationales for giving housing expenditures priority over other household expenditures. First of all, housing is the largest budget item for all households, those of both renters and homeowners. Indeed, in 2005, housing expenses accounted for nearly 32% of all consumer spending by homeowners and nearly 36% for renters. Congress may believe that, left to their own devices, people will under-consume housing as a proportion of their income in a manner that is bad for them or, perhaps, bad for their children and their communities. Thus, Congress may use subsidies and tax expenditures to encourage the greater consumption of housing.

Second, some argue that government policies must smooth out the effect of market forces. In particular, they argue that, given the strong commitment to a market economy in the United States as compared to other developed nations, tailored policies are a necessary palliative to housing expenses for households as they face the unexpected challenges posed by the economy.

Third, and particularly after the homelessness crisis that began in the 1980s, government has taken a new interest in preventing homelessness. Although this increased interest developed against a backdrop of a long-term decrease in federal funding for low- and moderate-income housing, recent initiatives have addressed more directly the housing situation of the neediest in society: the developmentally disabled, the mentally ill, very low-income families and individuals, and the elderly.

Edward Glaeser and Joseph Gyourko rightly point out that policies requiring low-income people to consume redistributed income on housing are paternalistic and unsupported by any studies that demonstrate that low-income households make particularly bad housing choices. Glaeser & Gyourko, supra, at 55. They also challenge the belief that many Americans under-consume housing. That being noted, there is no question that much of housing policy is premised on the notion that people—of all classes—should receive assistance in offsetting the large expense of housing.

This notion holds particularly true for renters, as they tend to be quite a bit poorer than homeowners: in 2005, the median income of renter households was less than half that of owner-occupant households. John Quigley writes:

“Affordability” is clearly the most compelling rationale for polices [sic] subsidizing rental housing. The high cost of rental housing, relative to the ability of low-income households to pay for housing, means that these households have few resources left over for expenditures on other goods—food, clothing, medicine—that are also necessities.

John M. Quigley, Just Suppose: Housing Subsidies for Low-Income Renters, in Revisiting Rental Housing: Policies, Programs, and Priorities 300, 308 (Nicolas P. Retsinas & Eric S. Belsky eds., 2008). Accordingly, affordability rationales frequently predominate in the rental housing policy arena.

A variety of programs implement this principle. In addition to programs like housing vouchers that reduce household rent payments for low-income families, the federal government also has implemented a variety of initiatives to make housing more affordable and sustainable for particular renters such as the special needs populations noted above. If members of these populations are not able to secure and maintain housing because of their inability to earn sufficient income, some argue that society is responsible for providing these needy members with affordable housing. This argument obviously reflects the “Housing as a Human Right” ethic.

Housing as a Bulwark of Democracy

Although predominantly relating to homeownership (as opposed to rental) policy, the importance of this principle in American housing policy cannot be overstated. The centrality of homeownership to America’s vision of itself as a society of equal citizens reaches at least as far back as Jefferson’s idealized “yeoman farmer” and continues through to Lincoln’s Homestead Act of 1862, which granted 160 acres to settlers. Jefferson’s yeoman farmer was his ideal citizen because he was self-sufficient, earned his own keep, considered himself the equal of anyone else, and jealously protected his liberty and unalienable rights.

America’s vision of itself as a nation of “yeoman farmers” transformed into that of a nation of “homeowners” in the 20th century, when cities replaced self-sufficient farms as population centers. Accordingly, presidents as varied as Herbert Hoover, Lyndon Johnson, Bill Clinton, and George W. Bush made home ownership a key element of their agendas. Indeed, the extraordinary lengths that the Bush and Obama Administrations have taken to stabilize the housing market during the Great Recession, taking over the privately held mortgage finance giants Fannie Mae and Freddie Mac and committing tens of billions of dollars to head off foreclosures, evidence the importance that both parties place on homeownership.

Although a first principle of housing policy is to make people into better citizens by making them homeowners, the possible non-economic benefits of homeownership are not necessarily limited to the political sphere. As a result, homeownership policy has also been designed at times to encourage these other potential benefits.

A number of scholars argue that there is a range of other non-economic benefits from homeownership. These benefits include better outcomes for residents in education, health, and employment. The benefits also include increased civic engagement, as demonstrated through higher levels of volunteerism and participation in community activities. Thus, homeownership policy is often justified by the claim that it helps to achieve these non-economic benefits. The connection between homeownership and these non-economic benefits, however, has not been clearly demonstrated.

Isolating first principles helps us identify what is intrinsic to housing policy so that we may clearly analyze potential policy choices for housing specifically, as opposed to how they may contribute to some larger goal; in other words, it helps to ensure that housing policies have measurable housing outcomes. Imposing some analytic structure here is of key importance because federal housing policy is a morass. This exercise should help to ensure that monies spent to increase the supply and quality of housing are used efficiently.

To work through the morass, it is necessary to identify legitimate first principles of housing policy, then to evaluate housing programs to see whether they are designed to achieve goals consistent with some or all of those principles. Finally, it is necessary to evaluate the effectiveness of housing programs individually and taken together to ensure that they do not work at cross purposes. Such an exercise should help to clarify debates surrounding American housing policy as each new presidential administration seeks to put its own stamp on this field.

As demonstrated above, the three first principles that inform federal housing policy are (1) allowing all Americans to live in safe, well-maintained, and affordable housing units; (2) providing a specialized form of income redistribution that ensures that the income transferred is consumed in increased housing; and (3) incentivizing Americans to take on the key attributes of Jefferson’s yeoman farmer—economic and social self-sufficiency as well as a jealous regard for one’s liberty.

A housing policy primarily guided by any one of these three first principles would look very different from one guided by the other two. A policy guided by the first would emphasize providing housing options for very low-income households that would not be able to pay market rates for safe, well-maintained, and affordable housing. One guided by the second would likely contemplate some kind of progressive housing subsidy for a range of low- and moderate-income households. And one guided by the third would seek to maximize the homeownership rate for the nation as a whole at the income levels that are the most efficient for achieving that goal.

Obviously, these principles can all be present—and in tension with one another—within a particular housing policy initiative and across initiatives. In the United States, the typical approach is often an inefficient muddle of programs focused on competing principles. The goal of this article, however, was not to argue that all housing programs should be rationalized into one coherent whole. This article has the much more limited goal of developing a more systematic approach to the evaluation of housing policy. We now have an answer to the question posed at the beginning of this article: what are the main goals of housing policy? With this rough outline in place, we can leave the development of a particular position on federal housing policy to a later day.


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