Federal Housing Policy: Affordable Housing, Fair Housing, and Mortgage Markets

Federal housing policy operates through a combination of direct spending programs, tax incentives, mortgage market support, and regulatory protections. The Department of Housing and Urban Development (HUD) administers the primary rental assistance and community development programs, while the FHA, Ginnie Mae, Fannie Mae, and Freddie Mac support homeownership through mortgage insurance and the secondary mortgage market. Tax expenditures for housing, including the mortgage interest deduction and LIHTC, represent a substantial federal commitment that significantly exceeds direct spending on housing assistance.

The federal government's involvement in housing markets expanded dramatically during the Great Depression and has continued to evolve through successive policy eras. The Housing Act of 1937 created the public housing program, the National Housing Act of 1934 established the FHA, and the Housing and Community Development Act of 1974 created the Section 8 program and the Community Development Block Grant. The Fair Housing Act of 1968 prohibited discrimination in housing based on race, color, religion, sex, national origin, familial status, and disability.

The Section 8 Housing Choice Voucher program provides tenant-based rental assistance to approximately 2.3 million households, subsidizing the difference between 30% of household income and a locally determined payment standard. Public housing serves approximately 900,000 households in units owned and operated by local public housing authorities, though the inventory has declined due to demolitions and conversions under the Rental Assistance Demonstration (RAD) program. Project-based Section 8 contracts support approximately 1.2 million units of privately owned affordable housing.

The FHA insures single-family and multifamily mortgages, enabling borrowers to obtain financing with lower down payments and more flexible credit requirements than conventional mortgages. VA home loan guarantees serve eligible veterans and service members. Fannie Mae and Freddie Mac purchase and securitize conforming mortgages, providing liquidity to the mortgage market. The Federal Home Loan Banks provide advances to member institutions and support affordable housing through their Affordable Housing Program.

Congress may consider expanding federal rental assistance funding to serve a greater proportion of eligible households, reforming the LIHTC to increase production of deeply affordable units, expanding HUD's capacity to implement fair housing enforcement, and addressing zoning and land use barriers to housing development through incentive-based or regulatory approaches. The HOME Investment Partnerships Program and CDBG could be reformed to better target housing production and preservation.

Housing finance reform options include recapitalizing and releasing Fannie Mae and Freddie Mac from conservatorship with an explicit government guarantee, winding down the enterprises and replacing them with a new system, or maintaining the status quo. Other proposals include expanding FHA's role, creating shared equity homeownership programs, addressing appraisal bias, and reforming flood insurance requirements. The intersection of housing policy with climate resilience, including building codes, energy efficiency, and disaster mitigation, presents growing policy challenges.

Rising interest rates and home prices have significantly reduced housing affordability, with the national median existing home price exceeding $400,000 and mortgage rates above 6%. Congress has considered proposals to expand the LIHTC, create a new renter's tax credit, fund the construction of new affordable units, and address discriminatory appraisal practices. HUD has proposed updates to the Fair Housing Act's disparate impact standard and the Affirmatively Furthering Fair Housing rule. State and local governments have increasingly adopted zoning reforms to increase housing density, with some federal proposals seeking to incentivize these efforts.