When I visited Lucy Craft Laney School in Minneapolis a few weeks ago, Principal Mauri Melander told me one of the biggest challenges her students face is homelessness. Up to 20 percent are homeless. In fact, nearly 4,000 students enrolled in Minneapolis public schools last year were homeless. On any given night in Minnesota, 14,000 people are homeless: kids make up nearly one-half of that number. Without a safe and affordable home, it's difficult for kids to pay attention in class and complete their work outside of school.
If the factors that make a student successful are ingredients for a cake, then a house is the bowl. Just as mixing cake ingredients without a bowl is difficult, a student is less likely to be successful in school without a roof over her head. Providing kids and families stable and affordable homes would make Melander's job and those of her teachers a lot easier.
We know what to do to decrease homelessness and the pain that comes with it — increase the supply of affordable housing, provide supportive services for those who need it and enable homeless families to increase their incomes to support themselves.
But the way government invests in housing is upside-down: The federal government puts more than $270 billion annually into tax benefits for homeowners through capital gains exemptions, deductions for mortgage interest, and property tax and other benefits. We invest only one-fourth of that amount for rental housing.
There is a way to retain a benefit for homeownership and help relieve the affordable rental housing crisis. My bill, the Common Sense Housing Investment Act of 2013 (HR 1213) replaces the current mortgage interest deduction with a 15 percent tax credit on interest paid on up to $500,000 of mortgage debt.
The change would raise about $200 billion over 10 years, which would support the National Affordable Housing Trust Fund, increase the Low Income Housing Tax Credit, increase access to Section 8 rental assistance and contribute to the Public Housing Capital Fund — all programs that would give a critical boost to the 50 million Americans living below the poverty line.
We need more than 8 million more homes nationwide that are affordable to extremely low-income families — those who earn less than 30 percent of the local median income. In Minnesota, we have a shortage of 103,521 homes affordable to families with an income below $30,000 or so a year.
Yet, as incomes shrink, rents are rising. Apartment rents have risen nationally for 23 straight quarters. Rent is now 15 percent higher than in 2009, and Minneapolis is one of the hardest places to find affordable rental housing.
Today, one in two renter households pays more than 30 percent of its income on rent; one in four households pays more than 50 percent. For those in the bottom 30 percent of income, 81 percent pay more than one-third of their income for rent. In Minnesota, three in five senior renters pay more than 30 percent of their income for housing. Housing subsidies do exist, but they only reach one in four eligible families nationwide because of funding shortages.
At more than $70 billion a year, the mortgage interest deduction is the most costly of our upside-down housing investments. It provides tax benefits for some people who pay interest on their mortgages. The mortgage interest deduction gives people an incentive to take on more debt to purchase more expensive homes, second homes and boats.
About half of homeowners with a mortgage do not benefit from the mortgage interest deduction at all because they take the standard deduction when they file their taxes. Those who do claim the deduction are primarily upper-income households. About 80 percent of the tax benefit is enjoyed by households in the top 20 percent of national income, those earning more than $100,000 a year or so. These households are most likely to buy a home and succeed at homeownership without government assistance.
Not only is a flat-rate tax credit fairer, it would provide a housing benefit to 16 million more — more — current homeowners, putting more kids in safe and stable homes. Future home buyers would have a much better sense of the tax benefits of homeownership. Economists say a tax credit would raise the homeownership rate by between 1 and 3 percentage points.
When we put resources toward it, we can make progress against homelessness. In the past five years, the number of homeless veterans in Hennepin and Ramsey counties dropped by half. Nationwide, the number has dropped by one-third, with more than 340,000 veterans receiving assistance. Minnesota lowered the number of homeless veterans to 350. Nationwide, there are still nearly 50,000 veterans who are homeless on any given night.
But one of the best ways to defeat homelessness is to change how we invest in housing for Americans. By passing the Common Sense Housing Investment Act of 2013, we can retain a benefit for homeownership, expand investments for working families who struggle to afford rent and make Melander's work at Lucy Craft Laney School more successful.
Keith Ellison, a Democrat, represents Minnesota's Fifth District in the U.S. House.