Treasury offers $100M to help with affordable housing crunch

The U.S. Treasury is throwing $100 million at America's housing crunch, but there’s a long way to go to solve the nation's affordability crisis.

On Monday, Treasury Secretary Janet Yellen announced the launch of a new federal fund that promises to boost affordable housing financing over the next three years.

The move comes as home prices and rents continue to outpace wage growth, leaving millions of Americans struggling to find affordable housing.

"We face a very significant housing supply shortfall that has been building for a long time," Yellen said. "This supply crunch has led to an affordability crunch."

The affordability crisis is a nationwide epidemic. According to a recent study, there's not a single state or county where a full-time minimum-wage worker can afford a two-bedroom apartment.

Bankrolled through the Emergency Capital Investment Program (ECIP), the new $100 million fund will boost the Federal Financing Bank's capacity to finance affordable housing projects.

7 million affordable homes short

The Treasury expects that extra cash will result in 38,000 affordable rental homes in the next 10 years. However, that only scratches the surface of the larger problem.

The National Low Income Housing Coalition (NLHC) reports a staggering shortage of more than 7 million affordable homes for the 10.8 million extremely low-income families in the U.S.

"There is much more work still to be done," said Diane Yentel, president and CEO of the NLHC. "Only through a combination of administrative action and robust federal funding can the country truly resolve its affordable housing crisis."

According to the Case-Shiller 20-City Composite Home Price Index, home prices spiked 46% between March 2020 and March 2024. But Covid wasn't an isolated event.

A Treasury analysis has found that housing costs have been outpacing income growth for the past two decades, making homeownership out of reach for many Americans.

So how much of a difference will $100 million make? Not much without a change in interest rates, says one economist.

Sal Guatieri, a senior economist at BMO, believes that with the Federal Reserve's key interest rate at 5.3%, efforts to improve housing affordability will be an uphill battle.

Yellen calls on Congress to approve budget

Yellen wants Federal Home Loan Banks to pitch in as well.

While these banks are currently giving 15% of their net income to affordable housing programs, Yellen is pushing for them to give at least 20%, double the minimum requirement.

"If this level of commitment had been in place over the past five years, the FHLBs would have contributed nearly $2 billion more to housing programs than was required by law," the Treasury Department said.

Yellen also called on lawmakers to pass the administration's proposed budget, which includes a tax credit for first-time homebuyers, a plan to build over 2 million homes, and an expansion of the Low-Income Housing Tax Credit.