Executive Summary

The promise of economic mobility – that a child growing up in poverty can work her way up the income ladder – has always been an essential part of the American Dream. For millions of people in this country, however, that promise has not been fulfilled.

We have long known that where a person lives – the city, the neighborhood, even the block – determines her access to schools, jobs, food, health services, public transportation and other resources that are necessary to build skills, stay healthy and get ahead.   It even impacts her life expectancy.   But thanks to groundbreaking new research from Harvard’s Raj Chetty, we now have a deeper understanding of the direct link between where a child grows up and the opportunities she gets in life. For example, Chetty’s latest study found that each year a child spends in a high-poverty neighborhood – as opposed to a lower-poverty neighborhood with more opportunities – decreases her chances of going to college, increases her chances of becoming a single parent and decreases her expected earnings as an adult. 

Chart 1

Moving a family from a high-poverty neighborhood to a low-poverty neighborhood can have a profound impact on a child’s life

Source: CBPP chart based on Chetty, Hendren and Katz, The Effects of Exposure to Better Neighborhoods on Kids, May 2015

Unfortunately, the number of Americans living in high-poverty neighborhoods – places that are often cut off from jobs, good schools and other opportunities – has increased significantly in recent years. According to the Century Foundation, today 13.8 million people in the United States live in high-poverty neighborhoods, meaning more than 40 percent of the neighborhood’s residents are poor, compared to just 7.2 million in 2000.   In fact, the number of neighborhoods identified as “high-poverty” increased by more than 75 percent over the same period.   These changes have hit communities of color particularly hard: more than one in four poor blacks and nearly one in six poor Latinos live in concentrated poverty, compared to just one in 13 poor whites. 

Chart 2

Concentrated poverty has increased since 2000, with a disproportionate impact on households of color.

Source: Jargowski, Architecture of Segregation, September 2015.

There are several factors that contributed to the increased concentration of poverty in recent years – some are economic, others are social. One crucial factor is the rising cost of living, which has left many lower-income households with no choice but to live in neighborhoods with poor-quality housing, rampant crime, bad schools and few jobs. Over the past decade, wages have stagnated for most low- and moderate-income workers while rents have steadily risen, especially in high-demand markets with the most job opportunities.   As a result, a growing number of low-income renters are competing for an increasingly scarce supply of affordable rental homes, creating an unprecedented affordability crisis.

Chart 3

After adjusting for inflation, median rents have risen significantly since 2001, while the typical renter’s income has dropped.

Source: Enterprise and the Joint Center for Housing Studies, Projecting Trends in Severely Cost Burdened Renters, September 2015

When last measured in 2014, more than one in four families who rented their homes – 11.4 million renter households in total – were “housing insecure,” meaning they paid more than half of their monthly income on housing.   Many housing insecure families have to make difficult tradeoffs simply to keep a roof over their heads, and many are just one unforeseen event – an illness, a job loss, even a drop in hours at work – from seeing an eviction notice on their front door. The number of housing insecure renters in the U.S. has increased by 30 percent over the past decade. Absent meaningful changes to public policy, we expect that number to steadily increase in the years to come. According to projections from Enterprise and the Joint Center for Housing Studies, even if rent growth matches income growth, the number of housing insecure renters is expected to increase by about 1.3 million households over the next decade – an increase of over 10 percent. 

Chart 4

Barring significant policy action, housing insecurity among renters is expected to continue to grow over the next decade.

Source: Enterprise Community Partners and the Joint Center for Housing Studies, Projecting Trends in Severely Cost Burdened Renters, September 2015

Misguided public policy is another key factor behind recent increases in concentrated poverty. The Century Foundation’s Paul Jargowsky recently published a report describing America’s “architecture of segregation,” a set of federal, state and local policies that have encouraged subsidized housing to be disproportionately located in poor inner-city neighborhoods, discouraged lower-income families from moving into more affluent suburbs and tacitly permitted landlords and mortgage lenders to discriminate against lower-income minority families. “Concentration of poverty,” Jargowsky wrote, “is the product of larger structural forces, political decisions and institutional arrangements that are too often taken for granted.” 

Here’s the good news: America has tackled massive, seemingly intractable housing problems in the past, and we can do it again. Through policies enacted at the federal, state and local levels, we have ensured that long-term, affordable mortgage credit is available for most Americans throughout the business cycle. We have created an effective system for financing, building and maintaining quality rental housing that’s affordable to low-income households, driven by programs like the Low-Income Housing Tax Credit. Through innovations like Section 8 vouchers and supportive housing, we have ensured that many of the most vulnerable people in our communities – including those struggling with homelessness – have access to quality, affordable housing and the services they need to thrive. And through a variety of effective partnerships between the federal government, state and local governments and the private sector, we have drastically improved the physical conditions in which most low-income people live – a far cry from the blighted slums of decades ago.

In order to make a meaningful dent in systemic problems like concentrated poverty and housing insecurity, we will need bold, systemic solutions from the private and public sectors – and that often starts with changes to public policy. But first we must reconsider our current priorities in housing policy at all levels of government.

Chart 5

Each year, nearly three-quarters of federal housing subsidies go to homeowners.

Source: Enterprise analysis of data from the Office of Management and Budget's FY 2016 Budget

The federal budget shows just how skewed our country’s housing priorities have become. The federal government spends about $200 billion each year to help Americans buy and rent their homes, delivered through a patchwork of direct spending programs, tax incentives, loan guarantees and other programs.   However, the bulk of those subsidies go to higher-income households who would likely be stably housed without the government’s support, in part because a disproportional percentage of federal housing resources support homeowners, whose incomes are typically twice those of renters.

When the Center on Budget and Policy Priorities analyzed the programs for which reliable income data are available, they found that 60 percent of federal housing subsidies benefit households with incomes above $100,000.   In fact, each year more federal housing subsidies go to the richest 7 million households – those making more than $200,000 per year – than go to the poorest 55 million households combined. 

Chart 6

More than half of federal housing subsidies go to higher-income households

Source: Center on Budget and Policy Priorities analysis of HUD rental assistance programs, the Mortgage Interest Deduction and the property tax deduction

One fact is clear: in order to establish America as a true land of opportunity, in which every person has a fair shot at success, we need a new approach to housing policy. In the following chapters, we lay out a bold new vision for federal, state and local housing policy, with a focus on creating strong, affordable and inclusive communities of opportunity across the country.

Our proposals follow four broad strategies for reform:

  1. Ensure broad access to high-opportunity neighborhoods. 
Certain housing programs, such as Section 8 Housing Choice Vouchers and the Low-Income Housing Tax Credit program, have long track records of success in creating stable and affordable housing options for low-income families. But more must be done to ensure that families who benefit from these programs have access to neighborhoods with good schools, job opportunities, public transit and other resources. At the same time, we need to ensure that local zoning rules, building regulations and transportation plans encourage – or at least do not discourage – lower-income families to live in high-opportunity communities. Specific policy recommendations include:
    • Improve the Section 8 program and expand regional mobility programs to help more families with rental assistance vouchers access high-opportunity neighborhoods.
    • Establish state and local laws banning “source of income” discrimination by landlords and property owners.
    • Balance the allocation of Low-Income Housing Tax Credits and other federal subsidies to both high-opportunity neighborhoods and distressed communities, while creating more opportunities for mixed-income developments.
    • Establish inclusionary zoning rules at the state and local levels.
    • Establish state and local regulations that encourage innovation and promote the cost-effective development of multifamily housing.
    • Incorporate affordable housing considerations into local and regional transportation planning through equitable transit-oriented development.
  2. Promote comprehensive public and private investments in low-income neighborhoods. Even as we promote better access to neighborhoods with good schools, access to jobs and other opportunities, public policies must also encourage the public and private investments that are necessary to transform lower-income neighborhoods, many of which have long suffered from disinvestment and neglect, into communities of opportunity. Affordable housing is often a crucial catalyst for these investments, but this strategy requires more than housing alone. It also requires significant, long-term investments into local businesses, schools, public safety, healthy food, health services and other essential resources. The end goal is to transform neighborhoods into ones that people live in by choice, not by necessity. Specific policy recommendations include:
    • Make the public and private investments necessary to preserve existing affordable housing while creating mixed-income communities.
    • Build capacity of public, private and philanthropic organizations at the local level to pursue cross-sector solutions to the problems facing distressed communities.
    • Create state and local land banks and other entities to return vacant and abandoned properties to productive use.
    • Make permanent and significantly expand the New Markets Tax Credit.
    • Create a new federal tax credit for private investments into Community Development Financial Institutions and other community development entities.
    • Establish federal regulations that encourage “impact investments” into low-income communities by individual and institutional investors.
  3. Recalibrate our priorities in housing policy to target scarce subsidy dollars where they’re needed most. 
 In order to meet the growing demand for affordable rental housing in all communities, we must target limited subsidy dollars to where they are most needed. After a series of federal budget cuts in recent years, today only 23 percent of households who are eligible for federal rental assistance actually receive it, leading to decade-long waiting lists and lotteries for rare openings.   At the same time, developers requested more than three times the amount of Low-Income Housing Tax Credits than were available in 2013, meaning hundreds of viable developments that would serve low-income families in need are turned down because of scarcity of tax credits.   Meanwhile, we’re spending tens of billions of dollars each year to subsidize the mortgages of high-income families who don’t need government support to remain stably housed.   Specific policy recommendations include:
    • Reform the Mortgage Interest Deduction and other federal homeownership subsidies to ensure that scarce resources are targeted to the families who are most in need of assistance.
    • Gradually double annual allocations of Low-Income Housing Tax Credits and provide additional gap financing to support the expansion.
    • Significantly expand funding to Section 8 vouchers to ensure that the most vulnerable households in the U.S. have access to some form of rental assistance.
    • Expand funding to the Housing Trust Fund and the Capital Magnet Fund as part of any effort to reform America’s mortgage finance system.
    • Break down funding silos to encourage public investments in healthy and affordable housing for recipients of Medicaid.
    • Create permanent funding sources at the state and local level to support affordable housing.
  4. Improve the overall financial stability of low-income households. 
In order for families to remain stably housed in a decent neighborhood, they need to earn an income that reflects the actual cost of living in that community. Unfortunately, after adjusting for inflation, the typical American renter’s income has fallen by more than 10 percent since 2001, while the median rent has increased by 5 percent.   As a result, families are spending an increasing share of their take-home pay on rent, forcing them to make deep cuts elsewhere in their household budget and making it virtually impossible for many low-income families to save for a rainy day or longer-term financial goals.   Specific policy recommendations include:
    • Establish minimum wages at the federal, state and local levels that reflect the reasonable cost of living for each community.
    • Expand the Earned Income Tax Credit, the Child Tax Credit and other essential income supports to America’s low-wage workers.
    • Create a new federal fund to help test and scale innovative financial products that encourage low-income households to save, with a primary focus on unrestricted emergency savings.
    • Help more low-income families build strong credit histories.
    • Establish strong protections against predatory financial products.

Many of the proposals in this platform already have broad bipartisan support – in fact, many were also offered by the Bipartisan Policy Center’s Housing Commission in 2013.   In addition, the majority of the policies can be implemented with little or no long-term cost to taxpayers. To be sure, some of the policies will carry significant costs, but the size and scale of the problem requires bold action. All told, once fully phased we estimate that the policies in this platform would require an additional $60 billion – $70 billion in annual investment from the federal government. While certainly a big price tag, Congress could cover most or all of the annual investment through smart reforms to the mortgage interest and property tax deductions – two remarkably inefficient subsidies that cost taxpayers roughly $100 billion each year – all while expanding support to the homeowners who need it most.   We discuss how this could work in a later chapter of the platform.

As we weigh the costs and benefits of each proposal, we must also consider the high cost of inaction – the price of allowing millions of Americans to remain stuck in communities without access to good schools, jobs and other opportunities. For example, according to a recent study of high-cost cities like New York, San Francisco and San Jose, the dearth of affordable housing options costs the U.S. economy an estimated $1.6 trillion each year in lost wages and productivity alone.   In other words, this is not just a matter of fulfilling the promise of equal opportunity for all Americans – it’s also a matter of keeping our economy competitive by unleashing the full potential of the American workforce.

Over the next several years – perhaps even decades – these are the types of investments that will be necessary to tackle America’s growing rental housing crisis and create communities of opportunity throughout the country. The problems we face are not intractable – indeed, we already have many of the tools needed to solve them. The key question is whether we have the political will to strengthen those tools and make the investments necessary to address the problem at the scale at which it exists.


Fair Housing and Community Development: A “Both/And” Approach

In many ways, 2015 was a pivotal year for fair housing. In June, the Supreme Court upheld “disparate impact” as a legal tool for fair housing complaints, reinforcing that housing discrimination does not have to be intentional to be illegal. A few weeks later, the Obama administration released its long-awaited final rule on Affirmatively Furthering Fair Housing, clarifying the obligations of state and municipal governments under the federal Fair Housing Act.

Enterprise believes that fair housing is essential to creating inclusive communities of opportunity. We strongly support distributing federal resources in a way that allows low-income people to make housing choices that are best for themselves and their families. This means preserving affordable housing where it exists today, revitalizing distressed communities, building affordable homes in neighborhoods of opportunity and creating and promoting options for mobility. And for communities that are in transition, including gentrifying neighborhoods where housing costs are rapidly rising, we must preserve affordable housing options so that current residents are not displaced. These strategies, of course, are not mutually exclusive; they must be pursued in tandem. As Supreme Court Justice Anthony Kennedy noted in the majority opinion in June:

“Much progress remains to be made in our Nation’s continuing struggle against racial isolation … The (Fair Housing Act) must play an important part in avoiding the … grim prophecy that ‘our Nation is moving toward two societies, one black, one white—separate and unequal.’ … The Court acknowledges the Fair Housing Act’s continuing role in moving the Nation toward a more integrated society.”