Photographer: Daniel Acker/Bloomberg
Real Estate

The Fed Is Worried About the Rent

The Philadelphia reserve bank’s president on the challenge of housing America and how fighting poverty can spur the economy.

When you think of the Fed, you think of Janet Yellen, or monetary policy, or the interest rate on your mortgage.

Can we interest you in a little affordable housing?

Patrick Harker interested us. The president of the Federal Reserve Bank of Philadelphia announced last week the launch of a new research initiative on how poverty affects the economy. The subject, Harker said, is important from a moral perspective, but also because investments to alleviate poverty can generate returns elsewhere in the economy.

Afterward, Harker and Theresa Singleton, community affairs officer at the Philadelphia Fed, sat down in a chilly hotel conference hall overlooking the Delaware River to discuss what they hope to learn about building more good housing near good schools and good jobs. Here's some of that conversation, edited for length and clarity.

As the Philadelphia Fed launches into this new effort to study poverty, how does housing factor into it?

Patrick Harker: If you don’t have the housing, and the jobs, and the education, communities can’t thrive. You need all three. We’ve done a lot of work on housing. Now we need to start to bring all three together and see how that mix happens. We tend to think very linearly, as if it’s one thing that will solve the problem. It doesn’t really work that way.

Theresa Singleton: Historically, the Federal Reserve system focused on home ownership, specifically for moderate- and low-income people. Increasingly, our focus is around rental affordability. It’s a place where we’re going to be focusing a lot of attention to help us determine what the solutions are out there to help us develop and preserve affordable rental housing that ensures people access to quality schools and jobs.

The National Low Income Housing Coalition reported recently there’s a gap of about 7 million units that are affordable to the poorest Americans—people making less than 30 percent of the area median income. How do we begin to address that?

Singleton: We have to be honest with ourselves, at the income level we’re talking, this is going to be housing that will require very deep subsidy, and leverage funds from diverse sources in a way that nationally we haven’t been doing for a very long time. It’s a production problem, but it’s also a policy and financing problem.

Given how hard it is to build, should we spend more time thinking about affordable housing in the context of income? What happens to housing affordability if you raise the minimum wage?

Harker: We don’t know. We know what marginal changes have done. We don’t know what a large increase would do. There’s lots of hypothesis and hopes about that, but we’re just starting to get the data in for cities that have done it. And it’s going to be mixed—for some people it will be more income, for others it will mean being replaced [by] automation.  In some restaurants, you go in, order on an iPad, pay on an iPad—fewer people working in restaurants.

Patrick T. Harker, president of the Federal Reserve Bank of Philadelphia, listens while Dennis Lockhart, president of the Federal Reserve of Atlanta, not pictured, speaks during a panel discussion in Philadelphia, Pennsylvania, U.S., on Friday, Sept. 23, 2016. The Federal Reserve presidents from Philadelphia, Cleveland, and Atlanta, came together to discuss the economy and the labor market. Photographer: Charles Mostoller/Bloomberg

Patrick T. Harker, president of the Federal Reserve Bank of Philadelphia.

Photographer: Charles Mostoller/Bloomberg

We hear a lot about how we need more housing near good jobs. Should we also be talking about putting good jobs where there’s cheap housing?

Harker: The answer is yes.


Harker: It’s not just housing. In this community, we’ve had a long discussion about extending mass transit out to King of Prussia, which is becoming a major satellite city of the Philadelphia region. There are a lot of jobs out there, and it's very difficult for someone living in Philadelphia to get out there.

Do you do mass transit? The region as a whole will benefit economically because housing prices go up when you put that transit in. But the person whose backyard is now the transit line doesn’t like it. We don’t have good mechanisms for balancing that out, compensating that person for that loss. But it’s solvable. There’s research that can be done to solve that problem. 

Theresa mentioned that the bank is paying more attention to rental markets. The home ownership rate is at its lowest point in 50 years. Is that a temporary effect of the housing crisis or a more permanent condition?

Harker: That’s a big question. We know that banks, since the crisis, are becoming more risk averse, you can understand that. There’s also demographic trends—we know where that’s going in a demographic way; that’s easy to predict.

We talk about the millennial generation. I have three of them. One lives in the city, pregnant with twins, all of a sudden saying, hmmm, we have to find schools, do we stay in the city or not? I have a niece in New York, loves New York, had a kid, boom, Scarsdale, or Northern New Jersey, or you name it.

Is that pattern going to hold? If so, then it frees up some housing in the city. But if not?