Let’s use tax incentives to solve homelessness problems
How do we address homelessness issues in the US? Who are those affected and what is being done to help them?
The US Department of Housing and Urban Development estimates there are 580,000 homeless people in the country. They’re not just addicts, veterans, and the insane; They reflect a diverse subset of US citizens in all states and territories. White males represent the largest group numerically, but additional risk factors for homelessness are influenced by gender, race, and ethnicity.
Some people without a home are just unlucky. Not counting those who occasionally surf on the couch or double up with family or friends. About 25% of people who are not looking for a place to live work, and between 40% and 60% alternate between work and work. Current high inflation is one factor that is forcing seniors out of their homes at an alarming rate as the cost of living exceeds their fixed incomes.
An excellent foundation the state of homelessness in 2021 can be found on the National Alliance to End Homelessness website.
The Covid-19 pandemic may have increased housing instability – both foreclosures and evictions – due to rising unemployment and closures. The moratorium on evictions provided a safety net for tenants, but has expired under pressure from landlords, particularly aunt owners. That’s according to the US Census Bureau’s Household Pulse Surveys more than 50% of renters lost income between March 2020 and March 2021.
The shortage of construction workers, building materials and houses for sale put upward pressure on house prices. So many changes are being attributed to the pandemic, but whether they are temporary or permanent has not yet been determined.
The solution framework
The solutions outlined in this article are diverse, with governments at all levels on the one hand and the collaboration of individuals, investors, builders, developers and non-profit organizations on the other.
Government programs address the problem with service models based on permanent or temporary support for protected and vulnerable populations. Voucher programs and social housing have dominated since 1980. These programs are limited by funding Households on waiting lists for years before receiving grants.
HUD makes grants to communities that manage housing and services, such as Grant for emergency solutions program and the continuum of care Program. According to HUD, a CoC is “a community plan to organize and provide housing and services to meet the specific needs of people who are homeless as they move into stable housing and maximize self-sufficiency”.
Effective March 11, 2021, the American Bailout Act provided $5 billion in new funding to help reduce homelessness, $21.5 billion to the Rental Housing Emergency Relief Fund, and an additional $5 billion in emergency shelter vouchers. Additional funding has been allocated for housing advice, emergency rural housing assistance and a whopping $350 billion for state and local government priorities.
Trends in homelessness
Thanks to increased attention and targeted resources from government programs and nonprofit organizations, homelessness among veterans and families with children, who make up 6% and 30% of the population respectively, has decreased by 39% and 27%, respectively, since 2007.
Others – mainly single adults – are left behind. The overall success rate in finding shelter for the homeless population is only 61%. Since 2016, the subgroup of Chronic homelessness is up 43% and the unprotected by 30%.
The Missing Piece
The states and CoCs with the highest rates of homelessness focus on two main causes: poverty and low incomes for those struggling economically, and high housing costs relative to earnings. Like most intervention programs, most tax policies focus on the low-income aspect, comparing household income to the poverty line.
What is missing is the challenge of expanding the supply of affordable housing for both high earners and low earners. San Francisco, for example, has the highest housing wages in the country but the fourth highest homelessness rate. Low-income people in this area have an even harder time finding housing they can afford. Both suffer from cost pressures, meaning they spend more than 30% of their income on housing. Heavy cost burden is over 50%.
Rural areas and tribal communities also struggle with affordability. The lack of construction workers, greater distances to obtain building materials and lack of financing for construction projects increase construction costs.
Another factor that worsened housing affordability was the mismatch between the type of housing being built and the type that was needed. December 2020 data shows a 27.8% year-on-year increase in single-family homes, but a 40% decline in multi-family homes.
There are several existing tax strategies to help low-income taxpayers:
- That Earned Income Tax Credit helps low-income workers by reducing the taxes they owe and often increasing their reimbursements.
- That job opportunity credit is aimed at employers who specifically hire employees who are confronted with employment barriers.
- That Mortgage Interest Credit helps low-income individuals afford a home by providing a loan for a portion of their interest expenses.
- That Home loan for low earners used by owners of qualified rental apartments in low-income housing projects. That new markets credit is intended for equity investments in qualified municipal development companies. The mission of a CDE is to serve or provide investment capital to low-income communities or individuals.
- That opportunity zone Incentive is an economic development tool that supports job creation for low-income communities, spurs economic growth and generates investment in distressed areas. This tax incentive differs from the general business credit in that qualifying investors in Opportunity Zones defer tax on eligible gains instead of receiving tax credits.
However, these tax incentives do not reduce housing costs in favor of high-income earners, who are as burdened by the costs as low-income earners.
Municipal bond issuance is one of the most popular existing tax strategies for financing affordable housing in high-cost states and municipalities. These bonds exempt the interest from federal tax. If issued by the taxpayer’s state, the interest may also be exempt from state tax.
Other solutions that increase housing supply and affordability are:
- Creation of a new tax credit that could be modeled on existing general business credits like the one Credit for research activities and the qualified small business owner wage deduction to increase research activityaimed at inspiring the use of new methods, cost-effective materials and streamlined regulations to reduce housing costs.
- conversion cargo containers into homes as low as $1,500, with an average of $10,000 to $35,000. They offer great flexibility in terms of location and cost, especially when located on low-cost farmland or inner-city vacant lots. North America’s tallest project has just opened in Phoenix, connecting 64 repurposed shipping containers. The project offers its residents the additional benefits from lower electricity bills, water retention system, electric charging stations and convenient access to public transport.
- Creation of new tax credits to reduce housing costs by increasing housing density and land use efficiency. Small accommodations or group homes would not have a negative impact on the neighborhood. Large unused existing apartments can be divided into several residential units. A loan could apply to homeowners creating additional housing units, additional housing units within an existing primary residence. Another merit could be for developers building duplexes, triplexes, fourplexes, courtyard apartments, courtyard bungalows and townhouses. Converting commercial properties to residential or mixed use is another way to increase the supply of housing –Podshare is an example of warehouse to pod conversions in one of Los Angeles’ most expensive neighborhoods.
- Amending existing credits to apply the cost burden approach instead of the stricter definition of low income to increase eligibility for more taxpayers.
- renewal of First loan for homebuyers to buy a home.
- Increase in applicable percentages of Residential energy tax creditsand increasing the amounts of loan for energy efficient house.
- Allowance for deductions for employer housing benefits, similar to parenting assistance, adoption assistance, group life insurance, disability, and medical benefits.
- Creating a tax benefit for employers who build houses and apartments for their employees, with an option to purchase them at a reduced price, like employee stock options.
As all levels of government, the business community and investors join forces to increase housing supply, more attention needs to be paid to tax policy. States can increase grants to cities that approve non-traditional housing; Cities can increase tax breaks for low-cost projects. The business community and investors can follow suit by providing private funds to support the mission. In terms of implementation, CoCs are best suited to track and manage the homeless community in their areas.
It is difficult to separate public policy from fiscal policy. The underlying premise is that all people have the right to decent housing. Congress needs to reach consensus on this bipartisan issue of creating a broader and stronger housing safety net through tax incentives.
This article does not necessarily represent the opinion of the Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Information about the author
Roberta S Davis graduates this month from the University of Illinois at Urbana-Champaign with an iMSA degree. She received an MBA and a bachelor’s degree in psychology from Arizona State University. Davis plans to work in public accounting after passing the CPA exam.