The Housing Policy in the United States - Book Report/Review Example

Housing Systems (Urban Planning) (16.01.12) This memo is about Chapter 2-5 from the book Housing Policy In The United s, ed by AlexF. Schwartz. The book is amongst the most widely used and referenced relative to the housing policy in the US. The book includes specific and detailed information about the housing policy and its implications on people, especially following the turmoil that resulted from the housing market collapse in 2007 and the ensuing financial crisis. The book thoroughly examines and analyzes the effects of the crisis and the policy changes that were introduced, including latest statistics on housing patterns and budgets. This memo will highlight issues in the American housing systems relative to chapters 2-5 of the book that pertain to Trends Patterns, Problems; Housing Finance; Taxes and Housing and The Low Income Housing Tax Credit. There are very few things that impact lives of people as much as housing does, because other than shelter, it holds strong symbolic value and is treasured for it location, style and accessibility to amenities of life. Additionally, it represents a form of wealth for home owners. Conversely, insufficient housing enhances the susceptibility to several problems such as health issues. A major problem for low income groups is the high costs associated with housing. Although the creation of housing during the lat 35 years has been quite cyclical, the establishment of housing projects during this period had been increasing every year till 2008. The sub prime crisis triggered a pattern in 2008 whereby the housing market collapsed and clearly indicated that the popular views about improvement in housing finance were completely wrong. During the last 25 years, residential housing ha been mainly characterized with single family units because the federal income tax codes and mortgage finance systems did not provide incentives to people on rental housing, which was the main reason for them to buy homes instead. Housing in the US has now become more luxurious while multi-family units have also become larger. In similar vein, the country’s housing quality has improved considerably but discrepancy continues in terms of the disparities amongst affluent and low income groups. The common issue of affordability amongst poor renters is because of a number of reasons relative to the functionality of the home markets and other larger economic developments such as inequality in incomes. A major housing issue is of homelessness because people without homes are at the mercy of social welfare organizations, friends and relatives. People without homes face extreme difficulties in finding and retaining jobs, while children are unable to attend school regularly. Homeless people are at greater risks of being exposed to illness, crimes, substance abuse and psychological problems (Immergluck, 2008). Over the years, there have been considerable changes in federal housing assistance and in the country’s housing finance and tax systems. The government has been using the tax code to provide subsidies to home owners. However, tax subsidies for owning homes have been found to benefit rich home owners much more than low income groups. The subsidies for low income groups include schemes such as the Low-Income Housing Tax Credit that is the largest continuing subsidy scheme for renters. Efforts have also been made to improve and re-establish public housing by introducing HOPE VI schemes for revitalizing housing projects that could not develop. Housing for low income groups has been subsidized, primarily through vouchers that focus on providing housing to the general population, including low income groups. The mortgage crisis led to the conclusion that innovations in housing finance had not resolved the long standing issues. Tax-Exempt Bond Financing was the first attempt by states to assist home buyers. The bonds were exempted from income tax and the proceeds were used by the government to finance mortgages with low interest. In addition, state governments also issued home related bonds and established state housing trust funds. The Low-Income Housing Tax Credit was introduced to assist poorer sections of society. However, the financial crisis of 2008 created pressure of tax exempted bonds and housing finance institutions suffered a great deal. Although the Economic Stimulus Bill of 2008 provided states with authority to raise $11 billion through housing bonds, not much success was achieved in mobilizing funding. Because of this development, housing finance agencies had to drastically cut down on home finance. Multifamily Housing Bonds were exempted from tax in attempts to generate additional finance from the public. Housing trust funds were established in focusing on low and middle income families. These funds are under the control of local and state governments and thus had lesser number of restrictions as compared to federal housing (Schwartz, 2010). In the US, tax benefits for housing are considered to provide greater benefits to the affluent class than to low and middle income groups. Affluent people are known to take more property and mortgage tax exemptions on income tax than the lower classes. Consequently, a much larger proportion of home owners took advantage of tax free incomes on rental incomes on their homes. Other than deduction on mortgage interest, there are other tax expenses for home owners such as deduction on property tax, reduction in tax on selling homes, absence of imputed incomes on housing and lower interest mortgage for people buying homes for the first time, provided they are funded through tax exempted bonds. The main incentive for investments in rental housing comprises of low interest mortgage funded by tax exempted bonds and tax credits for low income housing. Nevertheless, even if the financial assistance provided by government sponsored institutions are not considered, housing assistance in the US is clearly indicative of mainly benefiting homeowners, most of them belonging to wealthy households (McClure, 2006). The Low Income Housing Tax Credit (LIHTC) enables financial incentives for investing in low income rental homes. It now accounts for more households comparative to public housing. The LIHTC permits tax payers to reduce their income tax liabilities by $1 for each dollar of received tax credit and the facility is available for ten years, whereby the property has to be under occupation by low income households for a minimum of fifteen years. Many of the problems associated with past tax credit schemes have been overcome with the LIHTC because of its flexibility that allows states to tailor the schemes on the basis of their needs. But the financial crisis has created new issues relative to its sustainability and the sensibility of depending upon tax credits on private investments for creating low income housing (Buckley and Schwartz, 2011). It cannot be denied that the composition of the US housing policy has changed significantly in the last three decades and more profoundly during the last few years because of the financial crisis. Nevertheless, one strategy does not fit everywhere in housing policy because it has a very distinctive nature. Most of the regional expenditures in housing have been passed on by the federal government to the lower tiers such as local and state governments. It is true that considerable amount of innovation has been done in attempting to address the housing problems of low income groups. At the same time, the over all policy environments are clearly indicative of the fact that a great deal needs to be done. Most importantly, irrespective of whether the housing assistance given at local or state levels comprises of tax credits, federal block funding, or state funded programs, it is very rare for the subsidies to provide sufficient relief to the poorest sections of society, which is the population that is in the maximum need for affordable housing. A lot more can be done at local levels to reduce costs and enhance the availability of housing for poorer sections. Work Cited Buckley, Robert and Alex F. Schwartz, Housing Policy in the U.S.: The Evolving Sub-national Role, International Affairs Working Paper 2011-06, May 2011 Immergluck, Dan. From the Subprime to the Exotic, Excessive Mortgage Market Risk and Foreclosures, Journal of the American Planning Association, Vol. 74, No. 1, Winter 2008. McClure, Kirk. The Low-Income Housing Tax Credit Program Goes Mainstream and Moves to the Suburbs, HOUSING POLICY DEBATE VOLUME 17 ISSUE, 2006, http://saud.ku.edu/sites/default/files/hpd_1703_mcclure.pdf, Accessed on 16 January, 2011. Schwartz, A. Housing Policy in the United States: 2nd Edition. New York: Routledge, 2010. Varady. “Comment on Low Income Housing Tax Credit Program Shifts to the Suburb and Goes Maintream”, Housing Policy Debate, 17, 3. Pp.461-471, 2006, http://www.fanniemaefoundation.org/programs/hpd/pdf/hpd_1703_varady.pdf Read More