The COVID-19 pandemic has intensified housing challenges across the country, especially for low- and middle-income households. House prices and rents have increased by more than 17% and 10%, respectively, over the past year, reflecting both historically strong demand and restrictions on new supply. Even if the overall economy is recovering, the upward pressure on housing costs is putting particular pressure on renter households, which tend to be younger and have lower incomes than homeowners, with higher proportions raised in black, Latino or Hispanic families. Even before the pandemic, more than 10 million renter households spent more than half of their income on housing.
In March 2021, Congress passed the American Rescue Plan Act (ARP) to help the US economy recover from the pandemic. A key component, the State and Local Fiscal Recovery Fund (SLFRF), contains $350 billion that state and local governments can use to address current challenges, including housing. FSLFR dollars offer more flexibility than most federal programs and can be used for a variety of investments and activities in multiple policy areas. This flexibility has advantages and disadvantages: local governments may be better able to match funds to need than under narrowly prescribed programs, but it forces recipients to develop and implement well-targeted plans in a limited time. Specifically, Treasury Department guidelines require that SLFRF dollars be committed by December 31, 2024, with the remainder spent by December 31, 2026.
To make the most of this once-in-a-generation opportunity, local governments must assess their current needs and capacities, and then determine the most cost-effective and feasible investments to meet those needs. This article outlines some tips to help local governments start their planning process for using these funds to address the housing crisis in their own backyards.
Assess local housing needs and set clear priorities
Even with ARP’s unprecedented scale, local governments won’t have enough money to pay for every item on their wish list. Policy makers need to be intentional in choosing investments, basing their decisions on data whenever possible.
Each locality has different housing needs depending on the composition of the population and the current housing stock. Brookings Metro and the Aspen Institute have developed a tool, the Housing Policy Matchmaker, to diagnose local housing needs across several key dimensions: Is there enough housing to meet the demand created by population and employment growth? How much does housing in the community cost relative to income? Do existing homes have deferred maintenance needs or do they require energy-efficient upgrades? The answers to these questions can direct local leaders to the most critical housing needs in their jurisdictions.
Since renter household incomes are typically about half that of landlords, most communities will find the need for rental assistance most urgent. Yet some communities, especially in former industrial towns and rural areas, have significant numbers of low-income homeowners. Whether owner-occupied or rented, these homes are prone to various health risks and are not environmentally friendly.
To address affordability, assess how the private market meets housing needs. Around the world, low-income households are grappling with housing costs, but even middle-income households can face affordability issues in places where costs are high and rates are on offer. market is too low. Fast-growing communities need to increase their housing stock, while places with shrinking populations may place a higher priority on upgrading existing homes or addressing high vacancy rates.
Assessing which parts of the community are particularly vulnerable to climate change will provide a guide to the most suitable locations for housing investment. Funding should not be wasted building (or rebuilding) in places at high risk of recurrent floods, fires or other climate-related hazards. Diagnosing these local needs allows communities to effectively fund projects that address their unique housing challenges.
Take inventory of existing housing programs and local partners
Before creating a new program from scratch, local governments should take stock of existing programs and potential partners. It is much faster and easier to increase the budget of an existing program than to start something new from scratch. Local housing programs that address high-priority needs and have proven successful offer the best opportunity for expansion or replication with FRSDL dollars (see Figure 1). For example, the Rapid Relocation Program in Albuquerque, New Mexico helps families who have experienced dislocation return to stable housing.
It is also important to understand the gaps in existing local government programs or agencies. Local governments that lack capacity or expertise in a particular type of work, such as property management or development, can seek out local partners with complementary expertise. In Tulsa, Oklahoma, the nonprofit Revitalize T-Town offers home repair and weatherization services to low-income homeowners. These local partners can be useful resources for creating plans.
Creating new programs from scratch is expensive, often requiring the hiring or training of staff and the establishment of administrative and management support systems. Early in the pandemic, many local governments struggled to quickly and effectively implement CARES Act-funded emergency rental assistance programs. Coordination with existing programs and partner organizations can reduce upfront work and enable more effective knowledge sharing.
Evaluate the costs of the different activities
The housing policy interventions allowed under the ARP vary according to the cost of assisting each additional household. Understanding the relative cost per household of each activity will help local governments make strategic choices about how much funding to set aside for each activity. In general, new developments have higher unit costs than the acquisition and rehabilitation of existing buildings, and grants to owners of existing buildings for minor upkeep and upkeep are the least expensive. Costs for these activities can vary from location to location depending on factors such as local land values and construction wages.
Table 1 summarizes the types of activities permitted under the PRA. Some activities, such as emergency rent assistance or down payment assistance for first-time buyers, are structured as one-off assistance. Others (eg operating supportive housing, locally funded vouchers) require long-term commitments.
Local governments should keep an eye on their long-term budgets when planning new investments. ARP funds must be spent by the end of 2026 – longer than a single budget cycle, but short compared to the lifetime of a subsidized building. Programs that can be financially self-sustaining or can align with longer-term sources of funding offer certain advantages.
Leverage other funding sources
ARP funds can go even further when combined with other sources of revenue: existing housing programs such as the Community Development Block Grant or the Low-Income Housing Tax Credit; projects coordinated with other localities or state governments; or used to raise private and philanthropic funds. Coordination of ARP funds limits the share of each grantee’s allocation that must be allocated to projects and provides an opportunity to increase the scale of their initiatives. Staying informed about state-level housing initiatives also allows local leaders to use their funds in complementary ways.
Along with the SLFRF, localities have access to other federal funds through the ARP, such as those administered by the Economic Development Administration, the Department of Housing and Urban Development, the Department of Transportation, and the Small Business Administration. The new law on investment in infrastructure and employment also adds to the list of funds that can be mobilized to advance local plans. While these sources are not necessarily targeted to housing, some programs support complementary goals, such as improving transportation access for low-income communities and expanding broadband.
Ambitious but achievable plans can help reduce housing stress
Rapidly rising housing costs are a major source of financial stress for millions of Americans, especially low- and middle-income renters. Communities that lack moderately priced housing to own or rent are also at risk of losing jobs to more affordable communities, especially with the expansion of remote working.
ARP offers local leaders a unique opportunity to invest in expanding the stock of affordable, decent quality housing. But to get the most out of it, policymakers will need to develop a clear set of priorities and determine the most feasible and cost-effective investments in their toolkit.