NCSL: National Housing Shortage Requires Tailored Solutions

LOUISVILLE, KENTUCKY, AUG. 12, 2024……No state is immune from the nationwide shortage of 1.5 million housing units, but each must find its own approach to target its unique challenges, state lawmakers said at a national meeting last week.

Cameron Rifkin, a policy associate with the National Conference of State Legislatures, said during an NCSL summit panel discussion that the shortage has been increasing over the years as construction has failed to keep up with demand, among other factors.

In the past three years, however, state legislatures have been attempting to address root causes.

Common themes include incentivizing construction, preventing displacement, strengthening eviction protections, preserving naturally existing affordable housing, revising zoning regulations, permitting more density, expanding transit-oriented development and regulating investor purchases and short-term rentals.

Kansas, for example, enacted the Affordable Housing Tax Credit Act and the Housing Investor Tax Credit Act (HB 2237 of 2022) for affordable housing projects.

This year, Maryland prohibited local governments from restricting placements of manufactured homes in a zoning district that allows single-family residential use.

Illinois has proposed imposing a tax on certain real estate investment trusts and limited liability companies that purchase single-family residences.

Kentucky, this year’s NCSL summit host, has launched an affordable housing caucus and has a Housing Task Force that is exploring comprehensive approaches, similar to Ohio’s Select Committee on Housing.

“We started seeing bills roll into local governments with good intentions, but you’ve got to look at unintended consequences,” Kentucky Rep. Randy Bridges, R-Paducah, said. “We decided to put a task force together to bring anyone and everyone to the table. Hopefully next session we’ll have a lot of good legislation to push forward.”

While Kentucky’s housing shortage has doubled in the past three years, housing-related tax credits are “not an option,” Bridges said.

“We’re consecutively lowering our income tax from 6 percent to now 4 percent, and it’s scheduled for 3.5 percent in 2025,” he said. “We can’t give up revenue to gain revenue.”

Perhaps the largest recent investment came from Minnesota, where Gov. Tim Walz, now the Democratic nominee for vice president, last year signed a $1 billion housing omnibus.

The massive bill was possible due to a multibillion-dollar surplus that built up as lawmakers repeatedly failed to agree on uses, Minnesota Rep. Steve Elkins, DFL-Bloomington, said.

It included $200 million for down payment assistance programs, $200 million in housing infrastructure investments, among other earmarks, and created a permanent funding stream for housing needs across the state.

This year, the Minnesota Legislature is focused on enacting reforms.

“We all agreed it doesn’t matter how much we appropriate” if there are still barriers to build, Elkins said.

He helped introduce another omnibus, tackling “every zoning reform issue under the sun,” but has decided to break it into component parts and chip away at issues one at a time, he said.

“I’m hopeful that will give us the leverage we need to get stuff done,” Elkins said.

A “build-more” experiment in Minneapolis has already seen success, he said, compared with a St. Paul initiative for rent stabilization.

“You have to keep building,” Elkins said. “Housing is a commodity, and the overall market is driven by supply and demand. If you want to keep it at a reasonable level, build more housing.”

Washington state Rep. April Berg, D-Mill Creek, said she has been trying to increase property taxes for homes over $3 million by 1 percent, which would be used as a dedicated funding source for a housing trust fund.

Further complicating Washington’s fiscal response to the housing crisis is the state’s constitutional uniformity clause that prevents a progressive property tax, as well as the 1 percent levy cap.

In a creative move, the state has enacted an annexation sales tax credit to encourage cities to take on parts of unincorporated counties. That translates to better service for residents and increased tax bases for municipalities, Berg said.

“We put a sunset on it because we want it to happen quickly,” she said.

The state passed the Covenant Homeownership Act, which provides down payment assistance for people negatively affected by redlining.

Berg said it is the first legislation of its kind in the nation.

[Krista Kano is a staff writer for Gongwer Ohio/State Affairs. Reach her at kkano@stateaffairs.com or on X @krista_kano.]