Elizabeth Warren’s Ambitious Fix for America’s Housing Crisis

Ten years ago, the subprime-mortgage crisis stripped millions of Americans of their homes. Many haven’t gotten those homes back and now face skyrocketing rents. Ask an economist, or any recent graduate trying to afford rent, and they’ll tell you: America is still in a housing crisis. On Tuesday, Senator Elizabeth Warren introduced a bill tackling the issue head on, trying to lower the cost of homes in neighborhoods with greater economic opportunity.

The legislation, titled the American Housing and Economic Mobility Act, is perhaps the most far-reaching assault on housing segregation since the 1968 Fair Housing Act. It’s ambitious, pouring half a trillion dollars over 10 years into affordable-housing programs, and funded by raising the estate tax to Bush-era levels. An outside study by Mark Zandi at Moody’s Analytics found that raising the estate tax would ensure the bill does not create a deficit.

As rumors swirl about a potential 2020 presidential bid by Warren, the bill—focused on race and class—is imbued with Warren’s trademark theory of capitalism: Market competition can work, but only after the government has made sure the market isn’t rigged for one side. Equally true to Warren’s ethos is the bill’s raising of the estate tax, which means it has no chance of passing a Republican-controlled Congress. However, if Democrats take the House and possibly the Senate in November, the bill could at least be seriously considered. “I think in the next Congress it’s very likely that some form of this bill moves ahead,” said Philip Tegeler, the executive director of the Poverty and Race Research Action Council. “I think housing is on the front burner for most Democrats and many Republicans, and it’s not going away.”

The sheer scale of the bill, along with its focus on structural racism and government responsibility, places Warren’s brand of populist progressivism on full display. An undertaking of this magnitude is sure to energize her base. But would its combination of tax increases, grants to homeowners, government incentives, and bank regulation make housing more affordable to working- and middle-class people?

First, a quick summary of the bill. It aims to lower the cost of developing housing so landlords don’t have to make rents so high, coming at the issue from two different angles. From one end, it tries to increase the supply of affordable housing by pouring billions of federal dollars into programs that subsidize developments in rural, low-income, and middle-income communities.

From the other end, the bill attempts to strip away the zoning laws that made developing housing so expensive in the first place. Many of these zoning laws limit low-income residents from moving to wealthier neighborhoods. In Tegeler’s opinion, the laws are one of the main drivers of housing unaffordability. Those laws typically exist at a local level, so in order to target them, Warren’s bill creates a competitive block-grant program. The grant money could be spent flexibly—on schools or parks, for example—and is intended to appeal to suburban communities with stricter zoning laws. Those communities can only access grants if they reexamine and redress their land restrictions.

The bill also focuses on the ways housing inequality falls along racial lines. Notably, it assists populations that federal housing policy has historically failed: formerly segregated African American populations and families whose housing wealth was destroyed in the financial crisis. Under the bill, black families long denied mortgages by the federal government qualify for down-payment assistance, helping many in formerly segregated communities become first-time home buyers. The bill also invests $2 billion to support borrowers still recovering from the financial crisis with negative equity on their mortgages.

Additionally, the bill restructures the Community Reinvestment Act (CRA), a 1977 law proposed to monitor banks with discriminatory loan policies against communities of color. Warren’s bill gives the CRA more enforcement mechanisms and expands its policing power to include credit unions and nonbank mortgage companies, which were not as ubiquitous when the bill was passed. Lastly, the bill strengthens antidiscrimination laws by expanding Fair Housing Act protections to include gender identity, sexual orientation, marital status, and source of income, attempting to limit housing segregation in the future.

“Contrary to popular perception, [segregation] has never been systematically remedied,” Mehrsa Baradaran told me. She is the author of The Color of Money: Black Banks and the Racial Wealth Gap and advised Warren on the bill. “We have stopped actively segregating, but these segregation patterns stayed that way,” she said, “and really have been self-perpetuating on their own.” She believes that Warren’s bill could go a long way to remedy the federal government’s pattern of underinvesting in minority populations. Baradaran particularly appreciates the bill’s focus on the subprime-mortgage crisis because, in her mind, it is intertwined with the legacy of segregation. Communities with a history of segregation were especially vulnerable to subprime mortgages, she said, and were targeted by lenders and banks. “These formerly redlined areas were the prime market for these loans,” she said. In the financial crisis, America’s black population lost more than 53 percent of its wealth because of housing foreclosures. “That is not wealth that has recovered,” she said.

Baradaran believes the bill—specifically its down-payment-assistance program—can help build back that lost wealth. The program gives formerly segregated communities a boost when getting mortgages, which homeowners then pay off themselves. In many white communities, a young couple’s first mortgage is obtained through intergenerational wealth, such as help from in-laws. In poorer communities of color, that intergenerational wealth often does not exist due to the history of segregation. Warren’s down-payment assistance would act in lieu of intergenerational wealth, helping buyers start to build wealth themselves through home ownership.

Jesse Van Tol, the CEO of the National Community Reinvestment Coalition, believes the bill’s reform of the CRA is essential. He told me banks need to be held accountable when they loan to low-income communities and communities of color. The legislation also focuses on the high cost of housing in rural America. “The bill is a historic investment that will improve the quality of rural housing and decrease housing costs for rural families,” the National Rural Housing Coalition said in a letter to Warren supporting the bill.  

Alexander Casey, a policy adviser on the economic-research team at Zillow, told me he thinks the bill smartly attempts a “holistic approach,” explaining that there have been other housing bills in the past, but none that tackled the issue from so many angles. In addition to boosting household income, Warren’s bill addresses funding shortfalls and local-land regulation. “There just needs to be kind of a lot of moving parts in sync in this housing ecosystem,” he said.

Casey also put in context just how big this bill is: The Low-Income Housing Tax Credit program, which currently assists with the development of low-income housing, helped build around 3 million low-income units from 1987 to 2016.Warren’s bill would result in the construction of 3.2 million homes over 10 years, according to the Moody’s report—an ambitious proposal. “But then again,” Casey said, “it is a large problem we’re talking about.”  

Casey noted that the bill’s competitive grant program directs its focus toward more suburban areas. Similar programs in the past tried to incentivize states to reduce zoning laws, he said, but those grant programs typically targeted more urban areas.

Still, Jenny Schuetz, a David M. Rubenstein fellow at the Brookings Institution, remains skeptical about whether the grant program would have much effect on zoning laws. Many neighborhoods with the strictest zoning laws are wealthy enough to not need federal funding, and, in her opinion, won’t be incentivized to make changes. “If you’re trying to incentivize some of these communities, you’re going to have to offer them a lot of money,” she said. “There is little incentive for them to participate.”

Joel Griffith, a research fellow in financial regulations at the Heritage Foundation, believes the grant program in general goes too far. Griffith agrees that zoning laws are a barrier for affordable housing, but feels Warren’s bill is overly intrusive, in this and other provisions. “We do not believe it is the federal government’s role to be jumping in there and trying to, in effect, almost bribe these local governments into changing the laws by pouring money into their infrastructure,” he said. Griffith instead believes that voters should bring up these issues with local officials. Griffith also strongly opposed raising the estate tax, explaining that it would have a negative impact on job growth and would be unfair to Americans who have paid taxes their entire life.

Edward Pinto, a co-director of the American Enterprise Institute’s Center on Housing Markets and Finance, expressed similar reservations about the bill, framing what will likely be the conservative argument against it on Capitol Hill. Pinto does not believe subsidizing housing developments actually lowers housing prices. The subsidies are so expensive, and have been tried for so many years, that he believes the results are in—subsidies don’t work. In an email to me he wrote, “Einstein said the definition of insanity is doing the same thing over and over and expecting a different result.” For Pinto, Warren’s bill does exactly that. In August, in an op-ed in The Wall Street Journal, Pinto laid out what he believes are better alternatives, such as rolling back zoning laws in order to make development cheaper.

Progressive housing groups, on the other hand, are already lining up behind the legislation. Diane Yentel, the president and CEO of the National Low Income Housing Coalition, said the bill “would help millions of the lowest-income seniors, people with disabilities, families with children, and individuals who struggle to pay rent and the half a million people without a home at all.” Matthew Desmond, the author of the Pulitzer Prize–winning book Evicted: Poverty and Profit in the American City, said it would “reduce rents for millions of Americans and open new doors to home ownership.” The National Alliance to End Homelessness, the National Housing Law Project, and the National Center for Transgender Equality all expressed support.

Notably, the Moody’s report determined that the bill would lower rents by 10 percent in 10 years. The study also concluded that the bill would “go a long way towards addressing this mounting housing crisis.”

Whether the bill can gain momentum in Congress remains to be seen, relying in large part on the outcome of the midterm elections in about six weeks. In Schuetz’s opinion, Department of Housing and Urban Development housing programs are already underfunded, indicating there is little political will to spend billions more. But a new Congress might change that. Regardless, the bill is a signal by Warren to her base that she isn’t sitting on the sidelines. As Zillow’s Casey said, “It isn’t trying to nibble around the edges.”