Dr. Ben Carson
Secretary of Housing and Urban Development
National Association of Home Builders – International Builders’ Show Remarks
Las Vegas, Nevada, Westgate Hotel, February 21, 2018
As prepared for delivery. The speaker may add or subtract comments during his presentation.
Thank you, Randy, for that introduction. I’d also like to thank the many members of the Executive Board here today, and all those who make this event possible.
It’s a great honor to speak with you at the 75th anniversary of this remarkable showcase. There are no shortcuts to traditions that hold for 75 years. Traditions have an enduring spirit – one that, much like homeownership, can be passed on to loved ones and last for generations.
I also applaud your ongoing success as an effective voice for the hundreds of thousands of men and women who build our nation’s homes. Your association’s research provides an indispensable source of insight into many trends and issues affecting the housing industry.
Our policies at HUD are often informed by these insights, and your studies quantifying the high costs of state and local regulations in affordable housing development are especially pertinent today.
At HUD, our mission is to ensure every American has access to safe, fair, and affordable housing. We also believe that our greatest capital is human capital.
Both HUD and N-A-H-B share a common mantra: homes are not just roofs over peoples’ heads – they are at the heart of building communities.
It’s said that “home is where the heart is,” but the reverse is true as well: “the heart is where the home is.” Each year, N-A-H-B members build nearly 80% of America’s homes – that’s remarkable. In many ways, your work steadies the pulse of American prosperity, and keeps it beating strong.
Under President Trump’s leadership, America continues to enjoy historic highs in the areas of employment, job creation, and economic growth; however, challenges remain in making sure that every American share in the gains of the past several years.
This is especially true in the area of affordable housing.
Few conditions afflict the hearts of Americans as much as a shortage of affordable homes. Today, I’d like to share the ways HUD intends to diagnose the affordable housing challenge, and the solutions we aim to prescribe in the months ahead.
Homeownership is the most powerful mechanism for wealth creation in our country. According to the National Association of Realtors, the average net worth of a renter is $5,000 dollars. The average net worth of a homeowner is $200,000 dollars. That’s a 40 fold difference.
Too many Americans feel like they are “walled off” from homeownership. They see no door to this American Dream. However, as it turns out: a door is just a wall with a key slot. At HUD, we believe that we’ve found that key – incentives.
Incentives work the same way keys do: an obstruction is unlocked by creating alignment. By aligning the conditions for increased affordable housing supply with the best interests of home buyers, builders, innovators and regulators, we can unlock the production of more affordable homes for countless American families in the years to come.
The key to alignment – so to speak – is a simple equation: add positive incentives, and subtract perverse incentives.
For example, we’re adding positive incentives for the construction and sale of affordable homes by expanding HUD’s Low-Income Housing Tax Credit Pilot for multifamily home development, and at the same time proactively supporting new technologies in housing innovation. And we’re working to subtract perverse incentives that lead to the maintenance of unnecessary and overly burdensome state and local regulatory barriers to construction and development.
That way, there’s a full-court press on housing affordability from all sides.
Let’s start with what we’re adding.
As you know, HUD administers several programs that support the production of new housing and the preservation of existing low-income housing. Of these programs, the New Construction and Substantial Rehabilitation loan products under Sections 221(d)(4) and 220 are extremely important. These loan products intersect with one of the most important resources for creating affordable housing in the United States today, and that is the Low Income Housing Tax Credit, also known as LIHTC (“lie-tech”).
Created by the Tax Reform Act of 1986, the LIHTC program gives state and local governments the equivalent of nearly $8 billion dollars in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. N-A-H-B President Jerry Howard helped advocate for the establishment of the LIHTC many years ago, and countless Americans across the country can now afford their homes because of it.
Today, I am proud to announce that, as part of our efforts to increase the supply of affordable housing, HUD’s Office of Multifamily Housing Programs is expanding the use of the LIHTC Pilot into our New Construction and Substantial Rehabilitation loan products with the publication of a new Notice.
This will streamline the processing of FHA insurance applications for projects with equity from the LIHTC program and is part of our commitment to further align our policies and underwriting towards supporting affordable housing production and preservation.
As New Construction and Substantial Rehabilitation currently make up more than 40% of our total volume, we expect the expansion of our LIHTC Pilot to further increase HUD’s affordable housing volume.
This alignment of preservation and affordable housing development also supports our Opportunity Zones initiative – a topic I’ll return to later – as well as urban revitalization across the country.
HUD is also working to incentivize affordable home construction by promoting the development of new technologies in housing innovation. The unprecedented and historic nature of natural disasters affecting our country highlights the need for improved construction methods and materials to make sure all homes, new and existing, can withstand the next disaster.
We are very excited by recent innovations that have the potential to bring more affordable, attractive homes to market, particularly in low-income communities. Such innovations include homes that use automated or factory assembly techniques – such as 3D-printing and other methods – which may facilitate construction in a faster, less wasteful, and more environmentally sound way.
Innovations in construction materials could create components that are higher performing, less prone to mold, wind or water damage, and more resistant to deterioration.
Sometimes, an emerging technology is delayed because of information imbalances between the buyer, the home builders, and regulatory officials. This is where HUD can play a role – we can serve as a catalyst for information about innovation in the homebuilding industry, with the goal of speeding adoption and use of new technologies. We also must understand the potential risks to both the builders and lenders with these new technologies.
HUD is implementing proactive strategies to make sure such barriers are minimized. The HUD Office of Innovation will be working with partners and housing industry stakeholders to promote the development, inclusion, and adoption of new technologies throughout the housing sector.
On the subtraction side of the incentive equation, we are looking into ways that would incentivize local officials to cut back on archaic state and local regulatory barriers, such as outmoded zoning and land use restrictions.
As many of you know, perhaps all too well: the free market may be guided by an “invisible hand,” but unnecessary government and regulatory barriers act like “invisible handcuffs.”
It’s time to untie the hands of our nation’s home builders by putting the “free” back into the free market.
A source I often cite when highlighting the importance of reducing regulatory costs comes straight from the N-A-H-B. Your research showed that more than 25% of the cost of a home is the direct result of federal, state, and local regulations – and that number is even higher for multifamily properties.
Multifamily property development has multiplier effects for affordable housing. Many major cities restrict a large majority of land parcels to detached single-family homes. By reforming these restrictive land use regulations, neighborhoods could create more affordable homes by increasing density – without changing the core characteristics of their community.
HUD is also working to address the affordable housing shortage through a variety of other of initiatives, but the last one I’ll address today is a powerful new tool created by the 2017 Tax Cuts and Jobs Act: Opportunity Zones.
Opportunity Zones were created to stimulate economic development and job creation by incentivizing long-term investments in low-income communities. They follow a simple credo: “Everyone does best when you invest in the distressed.” Opportunity Zones give investors various tax incentives where they can defer and even reduce their federal tax liability on the sale of appreciated assets if they place their gains into a new vehicle called a Qualified Opportunity Fund. These funds then channel pooled capital into equity investments in small businesses and real estate in distressed communities.
More than 8,700 areas across the country have been designated as Opportunity Zones. In those designated areas, nearly one in three people live in poverty and unemployment is nearly twice the national average.
These communities are where affordable housing is needed most.
The primary source for Opportunity Zone investment comes from the estimated $2.2 trillion dollars of unrealized capital gains in stocks and mutual funds held by corporations and individuals. That’s one reason the Department of Treasury estimates that Opportunity Zone enterprises may attract more than $100 billion dollars in private investment.
To unlock these tax advantages, investors must keep their capital invested in distressed communities for periods of 5, 7, or 10 years, depending on the investment. This long-term lock-in means no rewards go to fly-by-night speculators who are “here today, gone tomorrow” – but only to those who are “here today, here to stay.”
Opportunity Zones also allow a wide range of eligible investments, which can benefit multiple sectors of a vulnerable community’s development ecosystem. For example, developers, service providers, and other small businesses critical to the production of affordable housing could receive new equity investments. Alternatively, Opportunity Funds motivated by social impact could help provide capital where there are shortages in scaling mixed-income and workforce housing.
In this way, it’s “good business” for larger businesses to invest in smaller businesses and vulnerable communities. As you can tell – we love businesses. That’s the power of getting positive incentives – rather than perverse motivations – to align.
Last December, President Trump established the White House Opportunity and Revitalization Council through an Executive Order. The Revitalization Council consists of members across 13 agencies and will work to prioritize Opportunity Zones in a variety of federal efforts, including grant funding, loan guarantees, infrastructure spending and crime prevention.
We are considering a list of more than 150 actions to better target, streamline, and coordinate federal programs and Opportunity Zones. I am privileged to chair the Revitalization Council and look forward to the great honor and challenge of bringing opportunity to the doorsteps of all Americans – especially those for whom opportunity is ordinarily scarce.
I hope you will join me in further collaborating, sharing ideas, and developing best practices on how to apply these solutions.
It has been said “there is no medicine like hope, no incentive so great, and no tonic so powerful as the expectation of something tomorrow.”
If we continue to align our efforts that ensure safe, fair, and affordable housing is within reach for all Americans, we can build a better tomorrow.
Thank you for having me, and I look forward to your questions.