It is a privilege and a challenge to present the keynote address concerning how to create more affordable housing in the greater Washington region. I will start by analyzing certain basic and relevant aspects of the general housing affordability problem.

There are three causes of affordability problems: (1) Many households have incomes too low to pay for "decent" quality units. (2) Housing prices are too high for many reasons, and (3) The rental stock is very old and many units are being retired.

Raising household incomes is a key way to attack this problem. That might occur through another period of general prosperity like the late 1990s. But housing rents and prices then rose much faster than incomes, keeping housing unaffordable to many low-income households. Thus, markets alone will not solve the affordability problem. So the raising incomes approach requires directly aiding low-income households.

That can be done through aids like the earned income tax credit, or aid linked to housing through rental housing vouchers or other direct subsidies. Given the fiscal stress of state governments, such aid must be a federal government program.

The problem with this approach is that federal housing policy is heavily biased towards promoting homeownership, even though poor renters have the greatest housing affordability problems. The biggest housing aids to households are tax benefits that help high-income homeowners most. If the deductibility of mortgage interest and taxes was shifted to a tax credit and reduced in size, and the resulting gov't savings were shifted to bigger rent vouchers for the poor, that would improve general affordability and reduce the homeowners' bias. But such a policy is a political non-starter because 2/3 of households are owners and most would object.

While increasing federal aid to renters is the most direct means of improving housing affordability, this also implies that effective regional housing affordability policy should focus mainly on rental housing.

Working on the other side of the problem – high housing prices – can be done in several different ways because several different causes are involved. But first let us examine the fundamental difficulty in reducing housing prices generally.

In order to get a general increase in housing affordability, the overall level of housing prices would have to fall – at least in relation to incomes. That is only possible if the overall supply of housing expands faster than the number of households, and the resulting surplus of units is not offset by high levels of demolitions or other removals. That mean we must build many more new housing units than we create new households or remove older units.

But in the 45 years from 1955 to 2000, total new housing starts in the U.S. – including mobile homes – have outnumbered new households all but 4 times. The average is 1.36 new housing units for every 1 added household. Yet housing prices in nominal terms have risen steadily over that period.

There must be a lot of housing units removed each year, or much migration from some metropolitan regions to others, to explain why housing prices have continued to rise in spite of this apparent "surplus" of new units.

In addition, the homebuilding industry is increasingly dominated by large builders, who operate with very short production lead-times. Appearance of any market surplus immediately shuts down construction.

Moreover, enormous economic and political forces are arrayed against increasing the supply of new units enough to reduce housing prices generally. These include all the financial institutions that have lent trillions of dollars in mortgages, the secondary agencies like Fannie Mae and Freddy Mac, all the investors who own their bonds, the homebuilding industry, and the 67 percent of all U.S. households who are homeowners. These powers all have vested interests in keeping home prices rising – which means making them less affordable to potential buyers and existing renters, especially the poor.

In fact, almost all local suburban governments – including our big county governments – are politically dominated by homeowning voters whose biggest investments are in their homes. They want housing prices to rise, or at least to remain stable – certainly not to fall. Hence they support zoning and other local policies that they believe will support housing prices. That is why most of them do not want lower-cost housing near them, and block it with zoning and other regulatory laws that limit the supply. This is true all over the nation.

Thus, the probability that any growing region can build enough new housing to meet all its shelter needs – and thus push prices down – is close to zero because the vast majority of citizens and governments do not want housing in general more affordable. Hence shortages of affordable units are endemic.

Consequently, tactics for increasing affordability have to focus not on expanding the general supply of affordable units, but expanding supplies in specific situations in limited areas. This shifts emphasis from federal policies to state and local policies.

Another aspect of this problem is that one in ten apartments affordable to low-income households is federally subsidized. Thousands of those apartments will be removed from subsidy status within the next few years. Hence a key policy to provide affordable housing is somehow to preserve many of these units in subsidized status, mainly by shifting ownership to non-profits. This requires big federal capital contributions. Given current budgetary pressures connected with security, this seems unlikely.

Now let us examine specific tactics that might be used to promote more affordable housing.

One is creating mechanisms that permit housing developers to override local zoning regulations when they prevent construction of affordable units in order to maintain exclusivity. The anti-snob zoning law in Mass. takes this approach. This leaves the initiative for creating affordable units entirely in the hands of private developers. It also minimizes public sector costs, but cannot create units for really poor families. But this approach requires state legislation. I do not think it can be done regionally alone.

This approach requires setting some type of "target" for affordable housing for every locality, either by state law (10% in Massachusetts) or through the actions of a state-appointed agency (as in New Jersey).

A second approach is for the state or the county to require all private housing developers to include affordable units in any projects they build, or inclusionary zoning. It compels any locality that wants more housing to accept more affordable units. Moreover, this approach does not require public subsidies. It has already been adopted in Montgomery and Fairfax Counties. I believe inclusionary zoning should be adopted throughout the counties within WASHCOG.

However, the law now has loopholes: near me, a developer has created lots for 150 $2-5 million dollar homes without any obligation to create affordable units.

Also, developers cannot get the rent or sales prices of affordable units very low because those units must be subsidized by transfers from their market-rate units. So this tactic does not help the lowest income households.

Another limitation is that affordable units can pass out of that category if the occupants are allowed to sell them at market prices after holding them for a fixed period, say ten years. If the units are rental, they can be owned by a public housing authority or non-profit agency. That keeps them in the affordable category.

The third approach is to pass state or county regulations that prevent localities from adopting rules designed to prevent affordable housing. Examples are rules against manufactured housing, against the use of plastic pipe, or against multi-family housing. Another tactic would be a state law empowering any owner of a single-family unit of a certain size to create an accessory rental apartment, even if local laws do not permit it, as long as the apartment met certain criteria.

This basic approach is inexpensive in public funds and would aid many homeowners. In this region, counties should adopt such regulation changes directly.

The fourth approach is to create financial and other incentives for local governments to permit more affordable housing. This could involve requiring localities to remove regulatory obstacles before qualifying for state aids for roads, sewer and water systems, and other benefits. Maryland has something like this. This approach has the disadvantage of costing state governments a lot of money, which few have today.

The fifth approach is for the state legislature to adopt goals that all local governments are required to follow. These include having to prepare comprehensive plans with housing elements that estimate needs for affordable units, and development of specific programs for meeting those needs. Only New Jersey does this now, although California is moving closer. Oregon has statewide goals, but they don't require affordable housing.

For this approach to be meaningful, the state or county must set up some agency to review the housing plans of individual localities, with the power to impose sanctions on those that do not follow state rules. Hence this approach must usually be tied to state provision for some type of financial incentives.

A sixth approach would be for the state or county to create a region-wide agency directly involved in housing location decisions. Only New Jersey has done this, insofar as I know. But federal laws permitting city public housing authorities to use housing vouchers so city residents can move into suburbs also exemplify this approach.

WASHCOG has set forth a strategy for affordable housing in its document "FINDING A WAY HOME." This document calls for a great many diverse actions.

It seems clear to me that those actions cannot be carried out in any cohesive manner without having one regional organization coordinate and encourage them across the entire region. You already have set up the Washington Area Housing Partnership, but my conception does much farther

The region needs to have a single unified agency orchestrating the diverse and disparate activities related to creating more affordable housing. Leaving all the action to the many different and uncoordinated actors scattered in county governments, state governments, local governments, non-profits, and development firms will not produce any kind of intelligible or effective overall result. This is obvious concerning transportation and also applies to housing.

These different actors should still play important roles, but they need a coherent plan within which to act so as to meet the needs of the entire region. A body could be related to WASHCOG but perhaps ought to have its own board consisting of both public and private sector members, with its own staff and possibly with independent funding.

I am not a lawyer; so I cannot describe the proper legal structure for such an organization. However, I think WASHCOG could set something up without state designation and then try to get more powers attached to it over time from state and local governments.

The functions of this housing-oriented organization should go well beyond those already assigned to the Washington Area Housing Partnership, though the new organization might build on that one. The functions I envision include the following:

• Doing research about how much affordable housing the region now contains, where it is located, and whether that supply is expanding or contracting.
• Doing research about the need for more affordable housing, including where that need would best be served. This should eventually include creating affordable housing "targets" for each county and even each community.
• Doing research about what available sites might be developed with affordable housing in order to create a desirable geographic distribution of such housing.
• Analyzing local housing regulations in counties and localities to assess which should be modified to make affordable housing more feasible, and working with local governments to make appropriate modifications. The impacts of cost-raising rules are enormous.
• In Mexico and Brazil, U.S. builders are creating new 500-sq.-ft. homes for $25,000. Why can't we also build small, simple homes at very low prices? Families would be better off living in such homes than doubled and tripled up in old apartments, as they are now. It is not health and safety needs that prevent it – it is fear of nearby homeowners that prices would fall or "undesirable" neighbors would move in. So they adopt regulations that raise housing costs enormously and unnecessarily.
• Managing the allocations of low-income housing tax credits within the states of Virginia and Maryland that are directed toward the Washington region. This might require action from the two state legislatures and the District.
• Overseeing inclusionary zoning laws in both states as they apply in the Washington region, and encouraging adoption of such laws in the remainder of the region's counties.
• Helping establish a Housing Trust Fund in the private sector like the one in Silicon Valley, as called for by FINDING A WAY HOME.
• Working with public housing authorities within the region to encourage the use of federal housing vouchers for low-income households in suburban locations.
• Encouraging non-profit developers to create affordable housing units by assisting them in raising funds from the many sources they need to tap.
• Trying to preserve with continued subsidies those now-subsidized units scheduled to move out of the affordable category.
• Helping to enforce anti-discrimination laws in the region, and assisting minority households in obtaining financing to move into suburban areas.
• Eventually linking access to state transportation funding for local governments to their performance in creating affordable housing and removing obstacles to such housing.

I have to admit that, except for New Jersey, which acted under pressure from its state courts, no other region that I know of has set up a successful regional housing agency. The main reason is that local and county governments do not want to yield any of their authority over what housing will be built within their jurisdictions. Each locality wants use zoning rules to control what type of people, both economically and socially, move into its neighborhoods.

Regional transportation agencies are often accepted by local governments because transportation is obviously a regional function. Also, it is a technological function that does not threaten specific communities in social terms. In contrast, housing decisions involve economic, educational, and social implications.

Nevertheless, I believe our region – like many others – needs a single coordinating housing agency if we want to achieve those goals set out in the FINDING A WAY HOME. No large private firm would try to coordinate such a complex set of goals in so many diverse locations without creating an explicit department to do so.

The need for a regional approach to housing affordability – and to housing in general – is further intensified by the likely continued growth of our region. It is naive to believe we can contain all future growth within our existing settlements through in-fill development and high-density nodes along transportation corridors, as desirable as those tactics are. There is still going to be a lot of peripheral growth of both housing and jobs on greenfield sites – some beyond the counties now in WASHCOG. Unless we generate affordable housing in such new areas too, we will aggravate both our traffic and our substandard housing problems. Yet we now have no means of focusing much effort on creating affordable units out there.

The agency I conceive of would start as a subordinate part of WASHCOG. But I hope it would evolve over time into having more powers devolved from the two states and the District, and into creating cooperative agreements with the counties in the region. At first its functions would be strictly research and advisory. But eventually its role might become operational and even supervisory as its worth in achieving the goals all counties have already agreed to was proven by experience..

Without such an entity, WASHCOG will remain just a jawboning agency with no real impacts upon affordable housing. I have been on two federal housing commissions and advised several others. They have all lacked the courage to call for regional action with authority; instead, they just urged local governments to voluntarily behave with more sensitivity to regional needs – with no effects on reality whatsoever. Facing the need for true regional action takes guts.

Affordable housing is a national problem, primarily because of poverty in millions of American households. But it now affects many middle-income households too, particularly in high-housing-cost regions like ours where teachers, police, and the like are hurting.

Yet the federal government is not likely to increase housing subsidies to the poor or any other groups. And the desire of homeowners to maintain the values of their homes causes them to oppose creation of lower-cost units in their communities. As long as the purely parochial perspective of local governments totally controls where and what kind of new housing is built, we will not improve housing affordability at any income levels.

Therefore, creation of a regional perspective affecting housing decisions is crucial to making progress in meeting affordable housing needs. WASHCOG has a chance to be a leader in establishing such a perspective. I hope you have the courage to be truly innovative, since it is clear that continuing past uncoordinated activities is not likely to work in the future any more than it has in the past. Good luck!