– Secretary of the Treasury Janet L. Yellen in Minneapolis, Minnesota
I’m glad to be in Minnesota with Senator Smith today to visit a project that serves as an example of federal, state, and local efforts working in concert to increase the supply of housing and lower its cost.
Thanks to President Biden’s economic plan, the American economy is strong and resilient, with robust economic growth in recent quarters. The labor market is remarkably healthy, with low unemployment rates, rising real wages, and a bigger share of working-age Americans in the workforce than before the pandemic.
Inflation is also down almost two-thirds from its peak. But president Biden and I know that prices for key household expenses like health care, energy, and housing are still too high, in large part due to challenges that have been mounting over decades. Making life more affordable is the president’s top economic priority, and we are pursuing a broad affordability agenda to address the price pressures that families have been feeling.
On health care, our actions include capping the cost of insulin for seniors; enabling Medicare to negotiate drug prices for key prescription drugs; requiring dozens of pharmaceutical companies to pay for raising prices faster than inflation; and cutting health insurance premiums for millions of Americans.
On energy, we used the Strategic Petroleum Reserve and put in place a price cap on Russian oil to help keep global energy markets well-supplied and costs lower than they could have been. The Inflation Reduction Act is helping American families make energy-efficient improvements to bring down energy bills right away.
On housing, I expect that shelter inflation will moderate, and we see certain positive signs, such as the fact that total units under construction remains at a 50-year high. But we face a very significant housing supply shortfall that has been building for a long time. This supply crunch has led to an affordability crunch.
Here today, I will focus on how the federal government, along with state and local leaders, acted quickly during the pandemic and is now doing everything we can to increase housing supply to lower costs for families across the United States. As we look ahead, we also need Congress to act and more state and local governments to follow Minnesota’s and Minneapolis’ lead.
By Janet L. Yellen
The longstanding housing challenge
That housing matters is intuitive to many of us. It’s the backdrop of our day-to-day lives and the foundation for a better economic future. Quality housing that is affordable supports good health, saving families from unsafe situations such as lead exposure. It supports education, preventing frequent moves that disrupt learning. And it supports job possibilities, enabling workers to live close to jobs where they’ll be most productive. For many Americans, housing is a linchpin of the American Dream and a gateway to the middle class.
But challenges have been increasing. From 2000 to 2019, even despite the Global Financial Crisis, housing prices doubled, rising faster than median incomes. The challenges are not confined to one part of the country. Recent Treasury analysis shows that, from 2000 to 2020, median rents increased by more than median incomes in counties covering 97 percent of the US population. The National Low Income Housing Coalition finds that today, not a single state has sufficient housing available for low-income renters.
The burden is especially great for these low-income families and for populations that have historically been locked out of economic opportunity. Here in Minnesota, Black households are six times more likely than white households to be precariously housed. But high housing costs are impacting a broad swath of working Americans across the country.
Biden administration actions
So since his first day in office, President Biden has been focused on advancing a housing agenda that addresses the needs of everyday Americans.
We began with ensuring housing stability during the depths of the pandemic. Roughly seven million renter households were behind on rent. There was a very real possibility of a wave of devastating evictions and foreclosures. At this crucial moment, Treasury’s programs provided immediate relief to keep people housed, reaching over 58,000 households here in Minnesota. And we created the first nationwide infrastructure for eviction prevention.
Since then, the Biden administration has been focused on taking action to build more housing and lower its cost, including through implementing our Housing Supply Action Plan, and Treasury has been leveraging every tool at our disposal.
We deployed dollars through state and local governments to finance housing construction and provided guidance so that remaining COVID funds could be more easily used for housing development. Recipients have allocated $19 billion in Treasury’s State and Local Fiscal Recovery Funds to housing-related uses across over 3,000 projects. Ramsey County and the City of St Paul collectively budgeted nearly $75 million in Recovery Funds to increase the supply of housing, and the City of Minneapolis budgeted $4 million for the project we’re visiting today, as just two examples.
Treasury also supports the construction of affordable rental housing, including this project, through the Low-Income Housing Tax Credit: the largest source of financing for affordable housing in this country. We put out a rule that will enable the creation of more housing in rural and more sparsely populated areas and are looking for ways to further strengthen the credit to make sure the homes it finances remain safe and affordable.
We have also helped finance housing construction through our partnerships with Community Development Financial Institutions, providing historic amounts of funding and other changes to encourage more housing production. The CDFI Fund helped finance more than 100,000 affordable housing units in 2023 and more than 10,000 affordable housing units in Minnesota since 2017.
But given the scale of the challenge, we must and will continue to do more, and I am excited today to outline several key housing initiatives Treasury is pursuing.
First, I am announcing a new Treasury program administered by the CDFI Fund that will provide an additional $100 million over the next three years to support the financing of affordable housing, using revenues that Treasury will be receiving in connection with our investments in community financial institutions through the Emergency Capital Investment Program. This new program will be primarily focused on increasing the supply of affordable housing. We look forward to designing it over the coming months to make sure that we are putting these new funds to their most effective use.
Second, earlier this year, we worked with the Department of Housing and Urban Development to permanently extend the Federal Financing Bank’s low-cost lending that helps finance affordable multifamily housing developments, which we estimated would help preserve or create 38,000 affordable units over the next decade. I am glad to now announce that we are exploring a major improvement to bolster this initiative by bringing greater interest rate predictability to participating state and local housing finance agencies. We estimate this will lead to thousands of additional housing units in the coming years.
Third, Treasury has been engaging with the Federal Home Loan Banks – government-sponsored enterprises that play an important role in the housing finance system to explore ways that they can further fulfill a key aspect of their public mission and increase their support for affordable housing.
The Federal Home Loan Banks are required by law to devote 10 percent of their net income to housing programs. They have already taken a positive first step to voluntarily increase their commitment to 15 percent. But in this time of crisis, we must all do more to support housing investment. In line with the Federal Housing Finance Agency’s report and the president’s proposal, today, I call on each of the Federal Home Loan Banks to work to voluntarily direct 20 percent or more of their net income to support housing programs and to prioritize new construction. If this level of commitment had been in place over the past five years, the FHLBs would have contributed nearly $2 billion more to housing programs than was required by law.
Finally, I am announcing today that the CDFI Fund is updating the rule for the Capital Magnet Fund, a critical Treasury housing program, to provide greater flexibility and reduce administrative burden on recipients. This update reflects input that we have received from many stakeholders who consider this program to be a crucial source of funding. It will allow recipients to focus their resources on impact instead of dealing with red tape.
Call to action
I look forward to continuing to push forward these actions in the coming months. But the federal government cannot address this challenge alone.
We need Congress to act. The president’s tax plan would cut taxes for middle- and low-income Americans to put more money in people’s pockets. On housing specifically, the president has called on Congress to provide a tax credit for first-time homebuyers, which would help more than 3.5 million families purchase their first home in the next two years.
President Biden has also focused on expanding housing supply, putting forward a plan to build over 2 million homes and supporting legislation like the bipartisan tax bill that would expand the Low-Income Housing Tax Credit. The Senate should pass this bill.
State and local leadership is also crucial. I applaud Minnesota on making the largest single investment in housing in state history a bit more than a year ago and congratulate the City of Minneapolis on enacting changes in laws that enable more housing construction, allowing residents to live near transit and job centers and making this project possible. Eliminating needless legal barriers to housing development doesn’t just affect individuals and communities. Economists estimate that restrictive residential land use regulations cost our country up to 2 percent of GDP each year. I strongly encourage more state and local governments to take additional action to address the housing shortage, and I look forward to continuing to make sure the federal government is a strong partner to them.
Let me end here for now. There are many efforts underway I haven’t focused on, and none of the solutions I have mentioned are silver bullets, given that working families have faced price pressures for decades.
But the efforts we’re making and will continue to make are critical and this project shows that different policies and programs can be strategically leveraged to fuel more housing that is affordable. I understand the project is even planning to use Inflation Reduction Act tax credits to help finance a solar system that’s projected to cover nearly 30 percent of residents’ electricity consumption. It’s a fitting place for us to recommit to advancing the President’s top economic priority and bring down costs for American families and to call on Congress and state and local governments to take urgent actions as well.
