Biden Nominates Jared Bernstein As A Member of the Council of Economic Advisers

Talking Heads: Jared Bernstein Senior Fellow, Center on Budget and Policy Priorities

Making OZones Work for Affordable Housing 

Few economists are as widely-known in Washington, DC circles as Jared Bernstein.

From 2009 to 2011, Bernstein was the chief economist and economic adviser to Vice President Joe Biden, executive director of the White House Task Force on the Middle Class and a member of President Obama’s economic team.

Since 2011, Bernstein has been a senior fellow at the Center on Budget and Policy Priorities, a nonpartisan research and policy institute, where he focuses on federal and state economic and fiscal policies, income inequality and mobility, trends in employment and earnings, international comparisons and analyzing financial and housing markets.

Bernstein is the author and coauthor of numerous books for both popular and academic audiences, including Getting Back to Full Employment: A Better Bargain for Working People; Crunch: Why Do I Feel So Squeezed?; nine editions of The State of Working America; and his latest book, The Reconnection Agenda: Reuniting Growth and Prosperity.

On January 2, he co-authored an op-ed in The Washington Post—titled “The Conundrum Affordable Housing Poses For the Nation”—with Jim Parrott, a nonresident fellow at the Urban Institute and owner of Falling Creek Advisors and Mark Zandi, chief economist at Moodys Analytics, that examined the root causes of the current affordable housing crisis and offered solutions for fixing the problem.

Tax Credit Advisor sat down with Bernstein to get his thoughts on the role Opportunity Zones can play to help address the crisis, as well as other policy initiatives that Congress might focus on in 2020 to help generate more affordable housing.

Tax Credit Advisor: The Trump Administration has placed a lot of faith in OZones to help spur economic growth. Do you see them being a game changer in dealing with the affordable housing crisis?

Jared Bernstein: Definitely not a game changer, but with proper oversight, a big if, OZones could provide very significant capital support to the supply-side shortfall. It’s critical that OZones support housing where it’s really needed, not in places where unsubsidized capital is already forthcoming. The Economic Innovation Group put together three development profiles that highlight affordable housing developments in Cleveland, OH; Orlando, FL; and Frederick, MD that used OZone financing. These profiles underscore the important role OZone funds played in each of the projects’ capital stacks.

TCA: Steve Glickman, one of the chief architects behind the OZone program, told me in December 2018 that there’s “$6 trillion in unrealized capital gains sitting on the sidelines that could be invested.” What’s your assessment of the amount of investment capital that could be generated through the OZone program?

JB: Steve knows of what he speaks! According to regular surveys conducted by Novogradac & Company, as of this month, the funds they surveyed reported raising an estimated $6.7 billion, an increase of more than 50 percent since the funds were last surveyed in early December 2019. The number of Opportunity Funds on the company’s listing increased from 366 to 502 in the last month, as well. Novogradac said it is reasonable to estimate that the total size of the market is double or triple the $6.7 billion number reported. But let’s be very careful not to conflate large aggregate sums like this with a fulsome assessment of how OZones are working. What we know now is that investors are robustly responding to the tax incentive. It will take considerably more time and careful assessment to determine if the program is truly helping to support and revitalize poor areas that have long suffered from underinvestment.

TCA: The Treasury Department issued final regulations in mid-December. What was your initial reaction? Are there any outstanding issues that went unaddressed that could reduce participation in the OZone program?

JB: Overall, the regulations provide much-needed clarity to both investors and communities eager to invest in Opportunity Funds. My expectation and hope are that the regs will facilitate stronger levels of investment across a range of local needs in designated communities. That is, not just real estate, where there’s a lot of “muscle memory” operating in the early spate of projects, but in other areas as well, including local businesses (the new regs address key issues pertaining to facilitating investments in operating businesses). On the other hand, I’m very disappointed that the regulations do not provide additional guidance on reporting requirements for Opportunity Funds and investors. If we don’t monitor these outcomes, the likelihood that OZones become a wasteful tax shelter goes up. The solution is to quickly pass any of several bipartisan legislative proposals, including from Sen. Tim Scott (R-SC), which seek to establish robust reporting requirements and impact reporting on the effectiveness of the incentive for designated communities. I recommend you read the Economic Innovation Group’s analysis of the IMPACT Act, introduced in December 2019 by Sen. Scott and Finance Committee Chairman Chuck Grassley (R-IA), along with a bipartisan group of senators.

TCA: Besides the OZone program, what other steps must be taken at the federal and local levels to fix the affordable housing crisis? Will we see any progress in 2020?

JB: Mark Zandi, Jim Parrot and I are working on systematically answering this question. We’re getting great input from lots of experts. For now, I’d say it’s key to recognize that there’s wide agreement that the problem is largely on the supply side, and it’s most severe, unsurprisingly, where people want to live, but can’t afford housing. I’ve emphasized the deep and troublesome gap between changes in middle- and low-incomes and housing costs for renting and owning. Broadly speaking, answers to the supply side will have to come from the ideas we featured in our op-ed, ranging from zoning to subsidies to more labor flows into construction. As far as 2020 is concerned, politics is highly gridlocked already, and that’s before impeachment and election. I will note that Rep. Denny Heck (D-WA) just introduced a smart bill to significantly boost the Housing Trust Fund, an underfunded program to help expand rental housing with a good track record.

TCA: What role will the Center on Budget and Policy Priorities be playing in the debate over expanding access to affordable housing for low- and middle-income families?

JB: I asked that question to Peggy Bailey who directs our housing work. She told me expansion of the voucher program and preserving public housing units are part of whatever proposals move forward to expand access to public housing. A big part of our mission in this space is to make sure that the affordable housing debate doesn’t leave out people with the lowest incomes who likely aren’t in a position to purchase a home and shouldn’t have to wait years for the next affordable housing project to be built. Peggy also emphasized a point that I can’t underscore enough: we don’t want to create affordable housing solely or even mostly in neighborhoods of concentrated poverty, which are too often also racially segregated. Even the voucher program, which is designed so that people can use assistance wherever they choose, too frequently houses families of color with assistance in high poverty neighborhoods that have been shown to negatively impact people’s health and well-being, especially that of young kids.

TCA: Which presidential candidate has the best plan for dealing with the affordable housing shortage and what are the details of the plan?

JB: Full disclosure, I haven’t kept track of everyone’s plans in this space, so I apologize in advance to anyone I’m leaving out! Sen. Warren’s been explicit about the supply-side shortfall, as has Tom Steyer. I thought Sen. Booker, who left the race, sounded like he really understood the issue as well. But I’m sure others have good ideas too!

This article was previously published in the March 2020 issue of Tax Credit Advisor.