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Most means-tested federal housing funds flow by formula. There are practical and political reasons for relying on formula, but it’s time housing got a little more competitive. Imagine what change could occur if states or localities could receive more federal housing help if they made greater progress in reducing the cost of housing in their jurisdiction and by achieving other savings through affordable housing. Instead of only chasing rising housing costs with shrinking federal dollars, we could align efforts in the places struggling most. The federal government distributes housing funds by formula grants for solid reasons, both political and practical ones. A formula based on objective metrics like population, number of recipients or past usage is presumptively fair. People who need help get help, even if their voices aren’t loud. Formulas that ensure every part of the country receives help garner broad-based political support, too. Examples of formula-based programs of various stripes abound in housing: the Low Income Housing Tax Credit, HOME Investment Partnerships, the Housing Choice Voucher Program, the National Housing Trust Fund, public housing capital and operating funds and more.

A competitive program, in contrast, only provides assistance to those who apply and demonstrate success or capacity for success. It encourages innovation and drives applicants to excel. Competitive allocation can’t be the only way of distributing housing help, of course, because people need help everywhere, but adding competition to the mix could stimulate successes that could then become best practices in the field.

Here’s a quick sketch of a competitive program for distributing housing help that would reward places for reducing the cost of housing. States and localities would apply for funds annually to HUD, which would award funds based on several criteria:

  • Prevalence and severity of housing cost burden.
  • Actions by states or localities to reduce growth of housing costs. Examples include expedited zoning and permitting, inclusionary zoning with density bonuses, property tax abatements or exemptions for affordable rentals, homeownership or rental assistance using the applicant’s own resources rather than federal dollars and long-term land trusts for affordability.
  • Savings in other areas such as education, economic development or health generated by investments in affordable housing.
  • Demonstrated ability to spend housing resources effectively and efficiently. Applicants would document who they have helped and how, emphasizing results and cost-effectiveness.
  • Elimination of exclusionary policies, such as low-density zoning or occupancy limits.
  • Efficient and effective use of funds in previous rounds.

Awardees would have maximum flexibility to use the grant funds, in recognition of their proven performance in reducing housing costs. A state could use funds as gap financing awarded alongside Low Income Housing Tax Credits, as seed capital for community land trusts, as a revolving loan fund, as homeownership assistance or many other uses. Rather than relying on rules that put strict limits on uses, HUD would use the recurring competitive nature of the program to encourage applicants to spend efficiently and effectively. Put more simply, if a winning applicant wasted funds from one round, it probably wouldn’t win funds in the next year.

Adding a little competition could encourage places of high and rising housing cost to make scarce resources stretch farther. It would also encourage housers to deploy our best creative thinking while giving us the resources to put that creativity to work.

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