December 22, 2016

Bang for the Buck: Investment in Housing Infrastructure Is Smart

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As we head into the new year, conversations continue in Washington around a potential $1 trillion infrastructure bill early in the next administration. While it’s not clear the exact form the infrastructure investments might take nor the actual size of the bill, efforts to spur job creation and rebuild infrastructure may be a rare area of bipartisan agreement, depending on how it’s structured.

Infrastructure is the physical structures and networks that are necessary for the economy to function. Too often federal infrastructure investments are limited to roads, bridges, trains, airports and waterways. Yet in order for America’s workers to stay productive, they need not just reliable ways to get to their jobs but also a stable place to call home. It is within that context that incorporating investment in much-needed housing infrastructure is warranted. Just as cities and towns thrive when commerce flows, so too do they thrive when their residents are well-housed with access to jobs, schools, and healthcare. An effective infrastructure bill will support investment in the bricks, sticks, concrete and steel of affordable housing alongside roads, bridges and transit.

When considering an infrastructure package, two critical measures of success are the speed of the investment and the magnitude of the impact. By both metrics, public investment in housing infrastructure matches or outpaces that of public investment in transportation infrastructure.

Investment in transportation infrastructure is often touted as having a strong impact on the economy because funds are able to rapidly move out the door. Our analysis of capital investments in housing infrastructure under the American Recovery and Reinvestment Act (ARRA) finds that funds spent through HUD’s Native American Block Grant Program, the Public Housing Capital Fund and the Home Investment Partnership (HOME) Program moved into the economy faster than highway infrastructure investment.[1] ARRA was passed in February 2009 and money began to flow through programs that spring. By the end of February 2011, two years after enactment, 69 percent of obligated highway funds had been spent. By comparison, 71 percent of the Public Housing Capital Fund and 77 percent of the Native American Block Grants had been spent. The HOME program, which has historically leveraged $4 in public and private resources for every $1 of program funds, paid out a remarkable 84 percent of obligated funds by the two-year mark. By the end of 2011, the investments in housing infrastructure had paid out in excess of 94 percent of their funds, compared to 87 percent for highway spending.

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Turning from spending speed to the magnitude of impact, the Federal Highway Administration, working off estimates generated by the Council of Economic Advisers, calculates that 13,000 jobs are created in one year for every $1 billion in Federal highway and transit investment. The Low-Income Housing Tax Credit (Housing Credit), which has financed the production and preservation of nearly all the affordable housing in the country since the 1980s, is even more impactful; nearly 16,000 jobs are created in one year for every $1 billion in Housing Credits allocated.[2] The National Association of Home Builders estimates that the Housing Credit supports 95,700 jobs in a typical year. That level of federal investment also supports an estimated $3.5 billion in federal, state and local taxes paid and $9.1 billion in wages and business income annually. Given the significant economic impact of the Housing Credit, therefore, it makes sense to incorporate an expansion of the program, as proposed by Senators Cantwell and Hatch, into an infrastructure package.

Just as we are at risk of losing critical transportation infrastructure—the American Society of Civil Engineers gives the nation’s infrastructure a D+ in its latest report card—our nation’s past investment in housing infrastructure is also at significant risk. We lose an estimated 10,000 to 15,000 units of public housing each year, and our public housing portfolio has a capital backlog of $26 billion. In addition to providing direct funding for much-needed capital improvements, the infrastructure bill should expand innovative models like HUD’s Rental Assistance Demonstration, which a recent 20-month study showed is “effective at bringing in private dollars to make repairs without requiring additional public dollars,” with a leverage ratio of 9:1.

Therefore, as the 45th president and 115th Congress consider the scope of an infrastructure bill, the wise course of action is to take advantage of the opportunity to invest in our nation’s affordable housing. Beyond being fast and impactful, the long-term benefits of building safe, decent and affordable housing connected to opportunity will pay dividends to the American people for decades to come.

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[1] For HUD program spending, see http://portal.hud.gov/hudportal/HUD?src=/recovery/transparency. DOT spending is available at https://www.transportation.gov/policy-initiatives/recovery/recovery-weekly-financial-updates. The last available weekly report in each month was used to track spending activity. Total obligations were taken from the final report of 2011 for HUD and DOT.

[2] The NAHB estimate is based on average LIHTC allocation totals from 2008 to 2012. Over that same period, tax expenditures averaged slightly more than $6 billion per year, based on the Joint Committee on Taxation’s annual Estimates of Federal Tax Expenditures for the years 2008, 2009, 2010, 2011, and 2012.

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