What is a Housing Bank and Why do We Need One?
How Would a Housing Bank Be Funded?
How Would A Housing Bank Be
Funded?
The
majority of the funding for projects undertaken by the Housing Bank will
come from private sources and some will come from a new tax—a Real
Estate Excise Tax. The Washington State legislature has already authorized
San Juan County to establish a one-half of one percent tax on the purchase
of real property to fund affordable housing, but the voters in the County
must specifically approve it. This initiative seeks the voter’s
approval for this transfer tax in May 2006. The private funds will come
from traditional lending institutions as well as from private investors
who wish to put their money to use in the local economy. The public tax
funds will be used to close the affordability gap by providing “capstone
funding” (funding that is used to inspire other lenders or grantors
to provide necessary funds at favorable terms for a project.)
Why don’t we just increase salaries so that people can afford housing?
It is possible to contemplate an increase in worker salaries as a potential
solution. However, this makes the affordable housing situation worse for
all. For example, while some salary increase may appear to be advantageous
for an individual, no reasonable increase in income will allow working
families to overcome the extraordinary increase in property values that
is occurring here. Moreover, the increased cost for each business would
soon be reflected in higher costs for goods and services, resulting in
higher costs of living for all; all workers would have less ability to
save, invest, or make higher monthly mortgage payments. It would most
severely penalize many retired citizens living on fixed income.
Why
should we give homes to people? Why can’t they work for them like
I did?
In almost any discussion with long-time island residents, one is likely
to hear a certain amount of nostalgia and pride of accomplishment in being
able to overcome all difficulties to finally own one’s own home.
Those who have done this deserve a lot of credit and those who are attempting
to do it deserve our encouragement. Unfortunately, the increasing gap
between salaries and real estate prices has made this nearly impossible.
Some may still be able to succeed, but it is vastly more difficult now
than it was just a few years ago.
Are there any other major alternatives
to this tax?
In theory, it may appear that the affordable housing crisis could be reversed
by some combination of price controls, tax incentives or other legislative
approach in an attempt to increase the supply of homes. In the U.S., it
is generally accepted that it is in the long run best interest of all
to allow the balance of supply and demand to set prices. Administrative
mechanisms may work as part of agreements among individual parties, as
is the case for permanently affordable housing contracts, but such mechanisms
are probably unacceptable and unlikely to be supported by the voters for
application to the economy as a whole. The wide public support for the
market mechanism and for inhibiting uncontrolled sprawl are strongly positive
forces, but unfortunately, they also collectively contribute to the problem
of affordable housing. Hence, some separate additional measures are needed
now to address the affordable housing issue. The Housing Bank
and the Real Estate Excise Tax make these measures possible.