Millions of American households have incomes too low to enable them to pay for occupying "decent" quality housing units without spending more than 30% of their incomes for housing. This is the root of the "housing affordability" problem. There are only two major ways to ameliorate this problem:

One is to increase the purchasing power of low-income households by raising their incomes or providing them with subsidies that enable them to pay more.

The second is to reduce the cost of occupying "decent" dwellings. This can be done by:

• Improving the terms under which housing can be financed for low-income households, such as lowering downpayments, allowing higher fractions of their incomes to be counted as available for loan repayments, lowering interest rates, etc.
  
  
• Reducing the size of or amenities built into the housing they occupy. This could include making use of manufactured housing units legal in far more jurisdictions than now accept them.
  
  
• Increasing housing densities, thereby reducing land costs per unit.
  
  
• Achieving economies in the construction process, such as using less costly materials, making construction methods more efficient, and reducing the costs of gaining community acceptance or government permits.
  
  
• Speeding up the housing production process, from gaining permission to build to closing final sales.

The standards used to define legally-acceptable quality for "decent" new units in most communities are higher than they need to be for the health and safety of the occupants. Instead they are based upon the desires of middle- and upper-income households for high living standards. In short, these standards are almost entirely culturally determined, not physiologically necessary.

This is shown by the facts that (1) millions of households in other countries live healthy and safe lives in much smaller, less luxurious units, and (2) about 15 percent of all the new housing built and occupied in the U.S. since 1960 has consisted of manufactured units, most of which have less than 500 square feet of floor area. Yet most communities do not permit such housing in their borders.

The "gap" between what households can afford without spending more than 30% of their incomes on housing and the cost of "decent" housing -- both new and existing -- has become so large in some high-housing-cost regions that housing affordability problems there are no longer confined to low-income households, but also plague moderate- and middle-income households. This situation is especially widespread in California, but is also prevalent in many other fast-growth regions or regions with historically high housing prices, such as New York and Boston.

The housing affordability problem also has important spatial distribution aspects, because of the relationship between household incomes and the way that households with varying economic capabilities are located across each metropolitan region.

Fundamental assumptions concerning the spatial distribution of households within each metropolitan region.

Most American households want to live in neighborhoods occupied primarily by other households whose incomes are the same as, or higher, than their own. They do not want to live in neighborhoods where a substantial fraction of the residents have incomes considerably below their own. This desire is rooted in two beliefs held by such households:

• Most homeowners believe that permitting new housing units near their homes that will be occupied by households with incomes notably lower than their own will cause the market values of their own homes to decline.
  
  
• Most households believe that permitting notable numbers of lower-income households to move into their neighborhoods will reduce the quality of their local schools and increase the likelihood of higher crime and delinquency rates.
  
  
• Most households who own single-family homes--detached or attached--believe that allowing multi-family rental units to be built nearby will reduce the market values of their homes.

Racial and ethnic preferences and discriminatory behavior play critical roles in the way housing markets distribute households in space across U.S. metropolitan areas.

Most non-Hispanic white households do not want to live in neighborhoods where more than 25 to 33 percent of the population consists of African-American households. Therefore, most white households will not move into neighborhoods containing more than 25 to 33 percent African-American residents.

Most African-American households want to live in neighborhoods that are racially integrated, but they define the most desirable levels of integration as consisting of about half whites and half African-Americans. Consequently, they are willing to move into racially-mixed neighborhoods with anywhere from 10 percent to over 50 percent African-American residents. This means they will continue to move into racially-mixed neighborhoods that have attained fractions of African-Americans that inhibit additional whites from moving in.

These attitudes lead to a dynamic process that causes the vast majority of suburban residential neighborhoods to eventually become either predominantly white or predominantly African-American, but not racially integrated. That occurs because African-Americans will keep on moving into neighborhoods after the percentage of African-Americans there inhibits more whites from moving in. This combination of behaviors causes such neighborhoods to attain higher and higher percentages of African-Americans as people move out for reasons of normal turnover and leave vacancies.

In addition, racial discrimination against African-American homebuyers and renters is still practiced by many white Realtors, lending agencies, and homeowners, even though doing so is illegal. This has been shown by repeated surveys of housing market behavior. Such discrimination generally takes the form of "steering" potential minority homebuyers and renters away from mainly-white neighborhoods, thereby perpetuating racial segregation in housing patterns.

The fact that whites will not consider buying homes in neighborhoods that are more than, say, 33 percent African-American in composition causes the overall market for housing in such areas to be much smaller and weaker than the analogous market for housing in predominantly-white neighborhoods, because both whites and African-Americans are willing to buy homes in the latter. As a result, homeownership by African-Americans in predominantly African-American neighborhoods does not normally result in as large increases in owners' equities over time as does homeownership by anyone in predominantly white neighborhoods.

Since ownership equity is the single most important way American households build up wealth, this situation prevents African-Americans from building up wealth as rapidly or as fully as whites can, through no fault of the former.

Thus, spatial settlement patterns in all U.S. metropolitan areas are enormously influenced by the income distribution among households and by consumer preferences, including those related to race. Individual households tend to choose places to live based on their own ability to pay, the income levels of potential neighbors, their ability to exclude households with lower incomes from their own neighborhoods, and the ethnic character of individual neighborhoods and communities.

Fundamental assumptions concerning how the political behavior of local governments affects housing affordability and the spatial distribution of settlements.

All local governments choose policies in order to benefit their own residents, without much regard for the impacts of those policies upon other persons within the region, or the interests of the region as a whole. Consequently, where local governments within a metropolitan area are fragmented into many relatively small jurisdictions, or even several large ones, no public officials within each region are motivated to act for the benefit of the region as a whole.

Most suburban governments are politically dominated by their homeowning residents, who form a majority of voters there and have strong vested interests in the quality of life in their communities. The central goal of such voters for their governments is to adopt policies that will at least keep their home values from falling, and -- preferably -- will cause those values to rise. That is true because the equity of such voters in their homes is their single largest source of long-term wealth. Therefore, the most important goal for almost all suburban governments is to protect the market values of their homeowning residents.

This goal normally motivates many suburban governments to adopt zoning rules and building and subdivision codes that (a) require certain minimum-cost levels for new housing within their boundaries and (b) set those minimums too high for units that low-income households can afford to occupy without paying more than 30% of their incomes for housing. This is "exclusionary zoning."

A second major trait of exclusionary zoning policies is severely limiting the number of multi-family housing units that can be built in a community -- especially new units at relatively high densities.

The tendency for suburban governments to adopt exclusionary policies is reinforced by so-called "fiscal zoning." That means encouraging location within the community of land uses that generate more local tax revenues than local spending, and discouraging those uses that generate lower local tax revenues than local spending -- including educational spending. "Fiscal zoning" usually discourages almost all types of new housing, except very expensive single-family detached homes, because other types of housing are "fiscal losers" from the viewpoint of each local government.

Exclusionary zoning policies, plus the high minimum quality standards required for all newly-built housing throughout the U.S., mean that most low-income households cannot afford to live in new-growth areas where most of the housing is relatively new, and thus quite expensive in relation to their incomes. Consequently, they are compelled to live in older neighborhoods where housing is less expensive because it is more functionally obsolete and often more deteriorated.

The necessity for living in older and less desirable areas is especially widespread among minority low-income households because they have much lower incomes than most white households.

This situation, plus racial discrimination in housing markets, leads to a spatial concentration of high percentages of minority low-income households in older deteriorated neighborhoods, usually within central cities or inner-ring suburbs. Such concentration generates adverse local conditions such as high rates of broken families, unemployment, drug addiction, crime, delinquency, school truancy, and single-parent households headed by poor women. These conditions act as repellents motivating many middle-income residents who initially lived in these areas to move elsewhere, and discouraging middle-income residents of all races from other areas from moving in.

Such concentrations of poverty, and the related out-movements of non-poor households from central cities, are a major contributing factor to so-called suburban sprawl -- though they are by no means the only cause of that condition.

Thus, the spatial distribution of households within each metropolitan area results not only from their income levels, their ethnic nature, and their freely-chosen market-oriented decisions, but also from the legal rules and regulations deliberately adopted by local governments to influence that spatial distribution. So the spatial distribution of households is not a purely free-market or "natural" outcome, but has been greatly affected by political decisions made by homeowner-dominated local governments.

Fundamental assumptions about suburban sprawl.

Suburban sprawl has been the dominant form of metropolitan-area growth for the past 50 years in almost all parts of the nation. It is characterized by (1) relatively unlimited outward expansion into formerly-vacant peripheral land, often involving (2) leap-frog creation of new subdivisions that contain (3) low-density residential settlements and attendant non-residential uses. Sprawl is also characterized by (4) overwhelmingly predominant use of private automotive vehicles as the means of movement, rather than public transit.

These four traits and other constituent elements of sprawl have not been caused by housing affordability problems, but rather are the result of the following factors:

• Rising real incomes that increased consumer desires for larger lots and homes.
  
  
• Significant population expansion within most metropolitan areas that required creation of substantial additional numbers of new housing units somewhere. This population growth consisted of several different "waves" of in-migrants from (a) the recruiting of formerly-rural workers for war production from 1941 through 1945, (b) rural areas generally after World War II affected by farm consolidation, (c) Southern cotton-farming areas in the 1950s and 1960s affected by mechanization that displaced thousands of farm workers, (d) the baby boom from 1950 through about 1965, and (e) immigrants from abroad, especially in the 1980s and 1990s.
  
  
• Huge increases in the ownership and use of private cars and trucks by consumer households, enabling them to live in low-density settlements.
  
  
• Construction of large additional networks of expressways, roads, highways, and streets, financed in part by the federal government.
  
  
• Tax benefits and mortgage insurance furnished by the federal government that encouraged construction of suburban housing more than in-city housing.
  
  
• The relatively easy availability of vacant developable land around the peripheries of most metropolitan areas in the U.S., in contrast to shortages of such land in many Western European nations.

Some form of peripheral expansion similar to suburban sprawl was probably inevitable in the U.S. because of the interactions of the above factors, especially metropolitan area population growth. The alternative of containing all that population growth within tight boundaries requiring big increases in the densities of nearly all existing neighborhoods was inconsistent with rising real incomes, better transportation, the easy availability of vacant peripheral land, and the desire of so many households to separate themselves spatially from those with lower incomes or different ethnic natures.

Suburban sprawl became so dominant because it provides sizable benefits to most of those living in it. These benefits include larger lots and homes, easier access to open space, lower-cost land that permits lower-cost housing units than in closer subdivisions, often shorter commuting distances (because suburb-to-suburb commutes are the shortest type, on the average), and lower neighborhood crime rates plus higher quality public schools than typical of most big cities. Millions of households believe these benefits justify longer commuting times and higher infrastructure costs than might occur in more compact developments.

Thus, a major cause of sprawl consists of strong preferences among many households for the type of life style that it offers.

Therefore, it is inconceivable that future metropolitan area growth will be completely transformed from low-density sprawl to much more compact forms of growth. Even if as much as one-fourth to one-half of future metropolitan growth becomes much more compact -- which would require a virtual revolution in growth management -- for the foreseeable future, there will still be a great deal of suburban sprawl going on in and around almost all metropolitan areas, regardless of how successful so-called "Smart Growth" policies become.

The low probability that sprawl will largely be halted in the U.S. is clearly shown by the fact that only a handful of U.S. metropolitan regions have adopted even moderately effective anti-sprawl growth management systems. Among the 333 U.S. metropolitan areas, more than 320 have not adopted any effective alternatives to continuing to grow through low-density peripheral expansion powered mainly by private automotive transport.

Conclusions concerning relationships between sprawl and housing affordability problems.

During the 1990s, hostility to continuing accommodation of metropolitan growth through further extending suburban sprawl increased in many parts of the nation. This occurred especially in many of the fastest-growing regions because traffic congestion and other adversities associated with rapid growth caused unhappiness among many suburban residents who believed that their quality of life was deteriorating.

This development changed what had been a largely receptive attitude towards further growth by most suburban communities to considerable resistance towards further growth in many such communities--particularly those with low unemployment and strong prosperity in addition to rapid growth.

This change in attitude occurred at the same time that local citizen participation in all types of land-use transactions dramatically increased, both because of more laws requiring it and because of greater hostility to many proposed new projects.

Another related development has been the appearance of hundreds of new local, regional, and national non-profit organizations dedicated to protecting the environment, slowing growth, conserving open space and historical structures, carrying out neighborhood community development, and otherwise taking direct interest in additional development proposed for their regions. These organizations provide well-organized vehicles for citizens to use in blocking developments they oppose--including many proposals to build affordable housing in their localities.

This hostility toward sprawl has generated the so-called "Smart Growth" movement. There are many different versions of this movement, with conflicting views towards almost every one of the 14 elements Smart Growth strategy. But most advocates of Smart Growth as an alternative to sprawl promote the following tactics as means of accommodating future growth:

• Preserving open space, especially at the edges of built-up portions of the metropolitan area. This is the major goal of most environmentalists.
  
  
• Encouraging more compact and mixed-use forms of development than have usually prevailed in the past. This requires diverting more growth to in-fill sites, creating higher average densities in existing neighborhoods, and requiring new-growth areas to use higher average residential and densities than in the past.
  
  
• Placing restraints on outward peripheral development by curtailing leap-frog subdivisions and other tendencies to absorb large amounts of open space, possibly through use of urban growth boundaries, service districts, and other tactics.
  
  
• Placing more emphasis on the use of public transit for movement, and reducing the dominance of private automotive transportation. How this can be done is not often specified in much detail, but it is a central element in Smart Growth strategies.
  
  
• Redeveloping inner-core areas through both new construction and rehabilitation, including the use of cleared "brownfields" as sites for new industrial and other developments.
  
  
• Encouraging new types of urban design -- especially the traditionalist and mixed-use designs incorporated in New Urbanism -- by changing zoning and other codes that now restrict design discretion among developers.
  
  
• Promoting more affordable housing in many ways and many locations. This goal is one of the least-fully-developed in most Smart Growth strategies.

A hidden axiom in all Smart Growth strategies is that local governments should not adopt any policies that might reduce the market values of owner-occupied homes, or even slow down the rate at which such homes appreciate in value. This axiom is based upon the political dominance of local governments by homeowner majorities, as noted earlier.

This axiom is directly opposed to most policies designed to improve housing affordability, which aim at reducing housing costs. Therefore, adoption of Smart Growth policies in a region is not likely to improve housing affordability there unless those policies include a specific effort to create more affordable housing, and provide effective means of doing so.

To curtail suburban sprawl, Smart Growth strategies must increase residential densities in existing areas and on in-fill sites, even though local residents almost universally object to higher densities near them. Most such residents believe higher densities will reduce the market values of their homes, thereby subverting what they believe is the most important single goal of local government action, as noted above.

This conflict poses one of the two most difficult challenges for Smart Growth advocates. It is often difficult for them to implement policies calling for higher densities because of this resistance, which is rooted in homeowner political dominance of most suburban local governments.

The other tough challenge posed by Smart Growth principles is reducing the importance of private vehicles in ground transportation. This is difficult because (1) the vast majority of Americans prefer traveling by private cars and trucks over using public transit if they can afford to do so, and (2) the low density settlements preferred by most suburban residents cannot economically support transit operations.

Although Smart Growth strategies have been discussed and proposed in dozens or even hundreds of metropolitan regions, the major elements of Smart Growth as described above have actually been applied in only a very small number of regions. The leading examples are Portland, Oregon, Seattle, Washington, the state of New Jersey, the state of Florida, the Twin Cities in Minnesota, and Lexington, Kentucky. Therefore, the nation has not had enough actual experience with how Smart Growth elements actually work in practice to determine their most likely future effects.

Sprawl has several major relationships to the affordable housing problem:

• Exclusionary zoning and high quality requirements for new construction inhibit the creation of affordable housing in outlying suburbs.
  
  
• This leads to concentrations of poverty within central cities in older areas that lower-income households can afford. So the most affordable housing is excessively concentrated in inner-core areas. This outcome is clearly confirmed by data on poverty within older areas.
  
  
• The withdrawal of many middle-class households--especially those with school-age children -- from the adverse neighborhoods generated by concentrated poverty pushes settlements out farther, thereby aggravating sprawl. However, it is not possible to demonstrate statistically that urban decline causes more sprawl. Hence this relationship is not very strong. Sprawl's major causes are other factors.
  
  
• When housing prices close to major employment centers rise to high levels, moderate- and middle-income workers who cannot afford to live near those centers seek shelter farther away at the edges of the region where lower land costs permit lower housing costs. However, the housing there is usually not low enough in price to be affordable to households with poverty-level incomes. This leads to more sprawl, longer average commuting times, and more air pollution. In this case, "semi-affordable" housing is created in the suburbs, but only very far out.

Policy conclusions concerning what the Millennial Commission might recommend about how to improve housing affordability.

A central conclusion is that shortages of affordable housing are (1) now widespread across the nation and likely to become even more so in the future, (2) affect not only low-income households but increasing numbers of moderate-and-middle-income households because housing costs have risen so sharply in many regions, (3) are related to continuing undesirable racial segregation and poverty concentrations in nearly all U.S. housing markets, and (4) therefore have become a problem of high national concern to which the federal government should devote more attention and resources and do so much more effectively than it has in the past.

A major approach to improving housing affordability is to increase the effectiveness of federal housing subsidies in serving households who have affordability problems. This approach aims at increasing the purchasing power of low-income and other households who cannot afford "decent" shelter without paying more than 30% of their incomes for housing. Tactics for implementing this approach are as follows:

• Increasing the amount of federal funding for subsidies for low-rent housing, including housing vouchers, but only if the increased funding is directed at creating more affordable units in those parts of each metropolitan area that most lack such housing; namely, newer suburbs and near-downtown portions of central cities.
  
  
• Changing the form of homeownership benefits from deductions from taxable income to tax credits so as to shift a greater share of such benefits from upper-income households to moderate-income ones.
  
  
• Better aiming the low-income housing tax credit at creating new rental units in those parts of each metropolitan area that most lack such housing; namely, newer suburbs and near-downtown portions of central cities.
  
  
• Creating a new subsidy program for encouraging the construction of more moderate-income rental units in communities with very low rental vacancy rates. Such subsidies can generate many more additional rental units per million dollars of federal funds spent, and help renters at all income levels by more rapidly expanding the total rental supply. than subsidies focused solely on very low-income households.
  
  
• Changing the structure of public housing authorities in large metropolitan areas from purely municipal agencies to region-wide agencies so as to encourage more regional approaches to dealing with shortages of affordable housing.

A fundamental reason why so little affordable housing exists in the suburbs is that most suburban residents do not want any to be built near them. Experience over several decades has shown that these residents will not change their views simply because the region as a whole needs more suburban affordable housing. Merely exhorting those residents to behave with greater regional responsibility is futile, as the public reactions to all previous housing commissions have decisively demonstrated. As long as the power to control whether such housing is built is left entirely in the hands of fragmented local governments with no incentives to build it, very little will be built.

Only changing the locus of decision power over where new housing can be built to a regional authority can overcome this inherent local government bias against additional affordable housing. Only a regional body with responsibility for meeting the housing needs of the entire metropolitan area has any incentive to create affordable housing in specific suburbs. But few such regional bodies now exist in American metropolitan areas. Only state legal action could create them, but most states have no inclination to do so.

Previous commissions have recognized this situation, but been unwilling to recommend this cure because they knew it would be politically unpopular. But their exhortations to local governments to act with greater regional responsibility have been totally ignored. If this commission, in order to avoid controversy, resorts to similar purely moral exhortations to local residents while not challenging the continued complete control over housing location decisions by local governments, its deliberations will have virtually no impact upon the nation's needs for more affordable housing. That toothless tactic has been tried by all previous housing commissions, without the slightest signs of success.

A regional authority would not have to have complete control over the location of new housing in order to be effective. It could be given the power to assign affordable housing "targets" to each specific community, as in New Jersey, plus financial incentives and penalties to make pursuing those targets worthwhile to those communities, rather than having complete authority over where new housing might be built within the region. The incentives might include ability to help finance infrastructures needed to cope with growth, as in the Maryland Smart Growth program.

The federal government itself could influence the adoption of more regional authority over housing location decisions only by providing strong financial incentives to states that adopt such authority, and refusing to provide similar aids to states that fail to do so. Those incentives would probably have to consists of major financial grants in aid for subsidies for affordable units to states in the former group.

One tactic would be to provide federal funding for state governments to develop both inventories of affordable housing and buildable land within their territories, and local jurisdictional "targets" for future development of affordable housing within each locality, such as those in New Jersey. States which failed to create such targets would not be eligible for any federal housing assistance of any type.

A second incentive would be providing federal funding for central cities and other relatively densely-settled communities to reorganize their housing construction permitting processes by creating "one-stop shopping" centers to reduce the present regulatory barriers to redevelopment within such communities.

Another possibility is to require each metropolitan region to create a Metropolitan Housing Planning Agency similar to that required for ground transportation under recent highway and transit funding legislation. That agency would be required to create affordable housing "targets" for each community in its region as a condition of the region's receiving any federal housing assistance.

This approach was used by Congress in relation to ground transportation because it became obvious (after several decades) that a region's ground transportation system functions as a single region-wide entity. A similar recognition needs to be made concerning each region's overall housing markets, particularly concerning the availability of affordable housing.

Yet another possibility is to create a National Housing Trust Fund similar to that being promoted by the National Low Income Housing Coalition. This Fund would use surplus funds from FHA and GNMA operations (which now go into the general federal treasury) to support construction of new rental housing for low-income households or additional rental vouchers for such households.

State governments have the most direct constitutional power to influence the behavior of local governments, which now totally dominate where housing will be built in each region, without regard for the interests of the region as a whole. Therefore, state governments should consider the following tactics to improve the availability of affordable housing within their territories:

• Adopting laws requiring some form of inclusionary zoning for all new housing construction of more than just a few units in any one location.
  
  
• Designating some statewide or regional body to develop "targets" for affordable housing for each locality within the state, presumably after conducting some type of inventory of the existing supply of such housing and the amount of buildable land within each locality. The state government could tie availability of state funds for infrastructure improvements to both the creation and the effective pursuit of such "targets" by individual communities.
  
  
• Permitting owners of any single-family home containing some minimum number of square feet to develop an accessory rental apartment within that home for use by households with incomes below some designated fraction of the area-wide median, regardless of whether local laws now permit such apartments. These apartments would be subject to certain minimum amenity requirements and to periodic inspection by local authorities.
  
  
• Requiring local governments to permit more widespread use of manufactured housing units within their boundaries, and prohibiting the banning of such units from a community altogether.
  
  
• Requiring any locality that adopted a local urban growth boundary to initially include within that boundary at 20-year supply of vacant land developable to meet future housing needs, according to reasonable projections of future demands.
  
  
• Prohibiting local governments from using "fiscal zoning" considerations to reject proposed new housing developments that contained affordable housing units.
  
  
• Increasing state bond funding for loans to finance new housing projects containing significant fractions of affordable housing units, but only if these projects are to be located in areas where serious shortages of such housing now exist.
  
  
• Conducting a "zoning inventory" of all local government zoning regulations and building code regulations throughout the state and analyzing the findings concerning (a) local receptivity to the building of affordable housing and (b) the relationship between such regulations and the actual amount of affordable housing in those localities.

Final conclusion

Because Congress is dominated by the same suburban homeowning voter majority as most suburban governments, the federal government is not likely to support a change in the locus of authority over housing production to the regional level. But without that change, most local governments will continue to block creation of affordable housing within their boundaries and the nation's need for much such housing will go unserved. In other words, the opposition to building affordable housing within their own localities that dominates America's suburban homeowners is likely to continue to prevent creation of such housing in the locations most beneficial to society in the long run -- or in any locations whatever.

In this situation, the Millennial Commission must choose between (1) squarely facing the facts about housing affordability problems and what might be done effectively to resolve them, and thereby risking rejection of its findings by Congress for political reasons, and (2) making politically more acceptable recommendations that have no chance of improving the nation's housing affordability problems. The latter alternative includes placing primary emphasis upon persuading local governments to adopt more region-serving policies without providing strong incentives for them to do so -- a strategy that has failed miserably for over 30 years.

Most previous housing study groups appointed by the federal government have accurately analyzed the nature of housing problems, but have avoided confronting the implications about what actions might be effective in resolving those problems. Therefore, their reports have had no almost impact on the nation's housing situation.

In my judgment as a member of two such previous commissions, it is time for such a body both to state the facts about the problem and to directly confront the structural implications of those facts concerning what remedies might work--even if doing so risks rejection of its findings by Congress and the Administration for political reasons. At least then the nation will have been told what needs to be done to accomplish effective results.