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Five Policies That Would Make Life Better for Renters

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By Jon Geeting, Editor of Keystone Politics
There are a number of excellent reasons why so many people prefer renting to homeownership these days. Renting's not just a resort for homeowners yet-to-be—even if you can afford a mortgage there's a lot to like about having more flexibility, less debt and less maintenance responsibility.

Unfortunately, government housing policy has been slow to catch up to changing preferences, and politicians are going to need some prodding before they let renters and multifamily developers in on all the goodies lavished on home buyers and single family home builders.

If we want to change the policies, we first have to know what to ask for. To that end, here are five ideas that would make life a little cheaper and easier for renters.

1. Renter's Tax Credit. More than half of all government housing spending benefits households making above $100,000. The biggest culprit is the mortgage interest deduction, which funnels most of the benefits to the very wealthiest households. Makes sense, right? The more expensive your house, the bigger the tax deduction.

Instead of subsidizing bigger and more expensive McMansions, a better solution would be to cap the deduction and turn it into a credit—a cash payment everybody gets each year for housing, that doesn't discriminate between mortgage payments and rent payments. That's probably too radical for 2012, but there are some related ideas being kicked around Washington like CBPP's Renter's Tax Credit proposal.

2. End Minimum Parking Requirements. Most local governments force developers to provide a minimum number of parking spaces for each housing unit. The problem is, it's not the developer who pays for those parking spaces—it's the tenant. In a walkable city like Philly with a pretty good public transportation system, lots of people don't own cars. But they still end up paying for other people's parking, because the parking costs are bundled into their rent. It's a shadow tax on people who don't drive, that subsidizes those who do.

The new zoning code sensibly got rid of the parking minimums in many of the most walkable neighborhoods, but now Darrell Clarke and City Council members want to bring them back for some of the most common building types. It's a terrible deal for renters. Ashley Hahn at PlanPhilly recently wrote a good primer on how parking minimums make housing more expensive and stymie walkable development.

3. Expand "By-Right" Zoning. One problem with parking minimums and other checks on density like height limits and minimum apartment sizes is that they make housing more expensive, but another problem is that they're variance generators. The zoning code lays out some rules for what you can build. If you want to do something different than what the rules say, you have to apply for a variance. And the process for obtaining a variance is very political. When you need to get special permission from the Zoning Board of Adjustment, that's where NIMBY busybodies or your District Councilman get an opening to shut down your project. The more projects that have to go through the political ringer, the slower the market responds to demand for housing.

The time cost of getting projects approved acts like a tax on rent. Last year's zoning reforms wisely sought to depoliticize the approval process, allowing more common types of buildings to get built "by-right"—but Darrell Clarke and City Council are unwisely trying to reinsert politics into the approval process. A city where more projects get built no-hassle is a city where more stuff gets built in general and rents stay affordable.

4. Rent Stabilization. One drawback of being a renter is that you're exposed to wild swings in rent. One year you've got a cheap apartment in a quiet neighborhood, and then two years later the real estate blogs are saying your neighborhood's the next Northern Liberties and your landlord's trying to raise your rent by 15%. It used to be that cities responded to this problem with hard rent control, actually preventing price increases, but now virtually all economists on both the left and the right think rent control is a horrible policy that leads to housing shortages. Rent control was great at halting price increases for the small number of people lucky enough to get rent controlled apartments, but for the majority of people it meant higher market rents in all the other buildings.

Philly's own Duncan Black of Eschaton blog fame thinks we should try a "soft" version of rent control, though, by which I think he means rent stabilization policies that shield long-term renters from big year-to-year rent hikes. Policies like a guaranteed right to renew leases, mandatory options for longer-term leases, and limits on the allowable percentage of annual rent increase would help make renting more attractive to young families and others who value some stability without the demands of homeownership.

5. Land Value Tax. The conventional real estate tax in most cities taxes land value and building improvements at the same rate, but this is perverse. A tax on building improvements discourages building new housing, while a tax on land value discourages land speculation—waiting to build in growing neighborhoods. Under Philly's current real estate tax, when neighborhoods start getting more popular, renters get bit by price increases. Vacant lot owners have an incentive to hoard land, and wait to build new housing until prices go up even more.

Under a land value tax, more demand for housing in growing neighborhoods would start to bite vacant land owners first, since rising land values would mean they owe more taxes. This would reduce the lag time between when neighborhoods start getting popular and when they start adding more housing, keeping prices stable. Best of all, not only would most Philadelphia residents' taxes go down under LVT, but the tax cannot be passed along to tenants unlike other taxes, which would help moderate wild spikes in rents. Philly has already made a soft commitment to implementing land value taxation in the Philadelphia 2035 plan, but it will be easier to administer after the Actual Value Initiative (AVI) assessment is complete.