Expensive tax credits for renters are not the solution to America’s housing woes.
Rents in California have skyrocketed over the past decade, thanks to the innumerable restrictions, taxes, and fees that the state imposes on new housing development. Now Sen. Kamala Harris (D-Calif.) wants the rest of the country to pay to fix this problem.
On Thursday, Harris, along with Sens. Richard Blumenthal (D-Conn.), Maggie Hasan (D–N.H.), and Diane Feinstein (D-Calif.), introduced the Rent Relief Act, which would provide refundable tax credits for tenants who spend more than 30 percent of their income on rent.
While doing little to address the root of the housing crunch—namely restrictions on supply—Harris’ bill is undoubtably good politics in a state where 58 percent of renters pay more than a third of their income in rent. The bill has gotten glowing reviews from local politicians who are only too happy to deflect any blame they might share for the Golden State’s housing woes.
“With the billions in tax subsidies allotted to billionaires through last year’s tax changes, this legislation provides a refreshing contrast for working families who struggle daily,” says Mayor Sam Liccardo of San Jose, where it’s illegal to build multi-family housing in some 75 percent of the city.
“Senator Harris’ legislation would help protect millions of families from losing their homes, by expanding benefits and opportunities for people who pay rent every month,” declares Los Angeles Mayor Eric Garcetti, who wholeheartedly endorsed development fees in Los Angeles that add between $5,616 and $10,530 to the costs of building an average-sized one-bedroom apartment.
Yet both the fairness and the economics of the proposal leave a lot to be desired, says Lynn Fisher, a housing policy expert with the American Enterprise Institute.
“We would be asking the whole United States to subsidize the bad behavior of some locales that are artificially pushing up rents by not allowing more building to happen,” says Fisher.
In contrast to the rhetoric about helping hard-pressed renters, Fisher notes, Harris’ plan would shower benefits on a staggering number of tenants, including relatively high-income ones. The Rent Relief Act would give tax credits for people earning as much as $100,000 a year and renting out apartments that cost up to 150 percent of an area’s median fair market rent.
Americans’ earning $25,000 or less would give a tax credit worth 100 percent of the portion of their rent that exceeds 30 percent threshold of their income. Those staying in government-subsidized housing—where rents are capped at 30 percent of a tenant’s income—would get a tax credit worth a whole month’s rent.
The costs of utilities would be included in rent costs. Because the tax credit is refundable, even those with no tax liability would still get a check.
Absent any reforms that would make housing easier to build, Fisher suggests that all this would serve only to inflate costs. “If [Harris’ bill] increases market demand and the supply doesn’t expand with this, if supply can’t expand, then simply what’ve you’ve done is to raise rents in many of these areas,” Fisher tells Reason.
Low-income tenants could be made worse off still if these newly-inflated rents spawn higher security deposits and other move-in fees that would not be subsidized by Harris’ legislation.
Harris’ bill has little chance of passing a Republican-controlled Congress loathe to spend billions on the rents of liberal voters in big, blue cities. But her bill, like so many other proposed housing initiatives, illustrates how willing Democratic policy makers are to ignore the true drivers of housing costs while pushing expensive interventions that will only make the problem worse.