California senator and 2020 presidential candidate Kamala Harris says she has a plan to help Americans struggling to keep up with skyrocketing rents. But in California, where housing scarcity is driving an affordability crisis, experts warn that Harris’ proposal could have the unintended consequence of increasing rents for everyone.
Harris’ Rent Relief Act, which she re-introduced in the Senate in April, would create a monthly refundable tax credit for households whose housing costs exceed 30 percent of their income, including rent and utilities. The goal is to help low-income people across the country afford their rent. Supporters of Harris’ bill include the National Low Income Housing Coalition, National Alliance to End Homelessness, Fair Housing of California, and the National Housing Law Project.
“Nationally, 21 million Americans pay 30 percent or more of their income on rent and utilities, and in Iowa there are 90,000 extremely low income renter households facing this reality,” Harris wrote in an op-ed in the Des Moines Register on April 29. “That’s an unacceptable number of families left with no options for how to put a roof over their heads.”
“A new tax credit for renters ... could transform lives, providing millions of the lowest income people with the breadth of opportunities that start with an affordable home,” National Low Income Housing Coalition President and CEO Diane Yentel said in a statement when the bill was introduced.
Harris’ proposed tax credit is “a sensible policy” in Iowa, a critical 2020 primary state, and other parts of the country where housing supply is keeping up with demand, said Caroline Danielson, policy director and senior fellow at the Public Policy Institute of California.
But “in a place like California, where we have a housing supply crunch, it seems to me like we would get ourselves into a vicious cycle and not solve our problems,” Danielson said.
Jenny Schuetz, a housing policy expert in the Metropolitan Policy Program at the Brookings Institution in Washington, D.C., agreed. With housing so scarce in the state, “Landlords collectively are likely to increase their asking rents for all apartments if they expect that some group of people in the city will have more money to spend on rent,” Schuetz told McClatchy. “This just gives more money to landlords without fixing the underlying problem.”
Harris’ Senate office argues that landlords could not factor in the tax credit when determining rents because it will be calculated based upon each individual taxpayer’s income and the money they spend each month on rent and utilities, as opposed to a flat rent subsidy.
But Schuetz said that “misses the economic intuition behind market rents. Landlords don’t set rent for every apartment based on their expectation of an individual tenant’s income.”
“The more people who will receive the subsidy,” Schuetz continued, “the more incentive landlords have to raise rents.”
Harris’ legislation would apply to anyone making $100,000 or less. David Garcia, policy director at the Terner Center for Housing Innovation at University of California, Berkeley, said that based off that criteria, “you have millions of California families who would be eligible” for the tax credit.
So while Harris’ bill could help a lot of poor Californians in the short term, Danielson said, “it would need to be accompanied by other efforts” to avoid driving up rents over time.
All three experts agreed that the most important thing California can do to drive down rent and housing prices — some of the highest in the country — is to build more, a point echoed in a statewide housing assessment released by former Gov. Jerry Brown in 2018.
“Most of California’s most populous cities and most affluent suburbs are just not building up housing,” said Schuetz. “They’ve been under-building housing for about 30 years now.”
The most sweeping state-level proposal to address that issue, a bill to overrule local zoning restrictions on apartment and multi-family housing construction, died in the California Legislature last month. The bill had support from Gov. Gavin Newsom, who has called California’s slow construction “deplorable.”
But it also faced stiff opposition from many local officials, who decried it as a power grab. Many homeowners, especially in affluent areas, also opposed it, arguing it would disrupt the existing character of their communities. Others worried about gentrification and displacement.
Harris’ office declined to weigh in on the state zoning bill or other controversial California efforts to encourage building, saying she is focused on what she can do in the Senate.
“I support several ways to increase the supply of affordable housing,” Harris said in a statement provided to McClatchy. “With federal investments in programs like the National Housing Trust Fund, Capital Magnet Fund, and Project-Based Rental Assistance, we can begin to tackle this problem.”
In California, however, “the supply problem is not a lack of funds,” said Schuetz. “It’s a lack of land and it’s the procedural hurdle to being able to build stuff on the land. So more money is not actually going to help with that.”
While that’s primarily a challenge for state and local governments, Garcia of U.C. Berkeley noted “there are some tools that the federal government has at its disposal to help alleviate those issues.”
Massachusetts Sen. Elizabeth Warren, for example, unveiled a proposal to tie federal funding for cities to zoning reforms, part of a suite of policies her 2020 presidential campaign has rolled out. “I think Sen. Warren’s plan is a very good, thoughtful step in the right direction,” said Garcia, although he said it might not create enough of an incentive for “the most exclusive cities.”
Garcia also said that taking a stand on the campaign trail could advance efforts to solve the housing supply crisis facing California and other metropolitan areas. “There’s a tremendous value in having presidential candidates acknowledge these land use challenges that people are facing throughout the country, even if they may not have specific proposals,” he said.