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Local Governments Lead the Way on Affordable Housing, Minimum Wage Reform

May 2, 2016
The adoption by California and New York of policies to gradually raise the state minimum wage to $15 per hour has grabbed headlines recently, and with good reason.  The federal minimum wage has not kept pace with inflation and remains well below the level that a worker (or even two workers) need(s) to support a family. 

Before these state-level actions, however, a number of localities acted in 2014 to adopt policies to gradually raise minimum wages to $15 per hour, including Seattle, Los Angeles and San Francisco.  In retrospect, it appears these localities not only acted to fill a local need but laid the groundwork for broader acceptance of what had previously seemed to be an out-of-reach goal.

The interplay between federal, state and local policy exhibited on the minimum wage is instructive for other challenging policy issues, including affordable housing, a key focus of my work.  As with the minimum wage, states and localities can’t afford to wait for the federal government to take the lead in solving the nation’s persistent affordable housing problems.  Fortunately, they are not, with local governments in particular beginning to adopt more aggressive housing strategies tailored to local needs.

The need for local government action regarding the minimum wage stems from two limitations of the federal minimum wage.  First, it hasn’t increased since 2009, at least in part because of the political gridlock that makes it difficult to pass any new federal legislation.  Second, a single minimum federal minimum wage level is not flexible enough to meet the diverse needs of different regions in the U.S., as wage levels and economic conditions vary substantially from region to region.

Similar problems are evident in affordable housing.  While the federal government plays a critical role in helping millions of low-income households to afford their housing costs, only about one in every three to four households in need of housing assistance receives it.  Given persistent concerns with the federal budget deficit, it seems highly unlikely the federal government will act to exponentially increase spending on affordable housing any time soon.

Moreover, just as local economies and wage levels vary from region to region, local housing markets also vary.  In addition to large differences in rent levels from region to region (which federal policy can account for), the nature of regional housing problems also varies, with the highest-cost regions in particular exhibiting an inability to increase the overall supply of housing to keep pace with growing demand.  This problem requires specific policy responses that may not be needed in other markets.  These policy responses – such as increases in permitted density, inclusionary zoning, expedited permitting, and reduced parking requirements – are tools that can only be adopted at the local level, heightening the need for localities to be proactive in adopting local housing strategies to meet their housing challenges.

This is not to say there is no constructive role for state and federal government in these areas.  A number of states – including California, Massachusetts, and New Jersey – have adopted state-level policies that either require or create incentives for local governments to adopt policies or practices that expand the availability of affordable housing.  And the federal government has proposed a grant program to support and create incentives for local governments to address their housing supply challenges.  But the locality is still where the rubber meets the road and where the needed policies ultimately must be implemented.

Fortunately, there are signs that local governments are moving more aggressively to meet their housing challenges.  New York City is in the process of seeking upzonings (increases in permitted density) in many neighborhoods, which will trigger the required set-aside of about 25 percent of newly created units for permanently affordable housing under a new mandatory inclusionary zoning policy adopted this year.  Seattle also recently announced a housing plan that includes a combination of increased affordability and greater density.  Other cities, including Boston and Denver, have also adopted new housing policies or plans in recent years to expand the availability of affordable housing.

It remains to be seen whether the increasingly aggressive policy actions by local governments to address their affordable housing challenges will shift the conversation about housing at the state and federal levels, as appears to be happening with respect to the minimum wage.  Perhaps, as with the minimum wage, we will first see action at the state level in states where the problem is particularly acute.  In any event, there will continue to be a need for local governments in high-cost markets to be proactive in adopting comprehensive strategies both to increase the overall supply of housing and to ensure the availability of housing affordable to people at all income levels.  
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