The Department of the Treasury Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation FDIC have proposed changes to their Community Reinvestment Act (CRA) credit for rental housing affordable to middle-income households in high-cost areas. The provision is intended to encourage development in areas where rising housing costs have increasingly outpaced incomes and many middle-income households are struggling to afford rent. Currently, a high-cost county is generally defined as an area where more than 40 percent of households spend more than 30 percent of income on housing. The agencies are considering whether that threshold should be raised, for instance to 50 percent of households.
Using American Community Survey data for 2020–24, we find that the current threshold of 40 percent of households applies to only about 30 of the nation’s 3,222 counties, and a 50 percent threshold would cover only one county. Our analysis suggests the high-cost threshold should be lowered to 35 percent, which would reach more places where housing costs have outpaced incomes.
Only 30 counties meet the current standard
Just 30 counties have more than 40 percent of households paying more than 30 percent of income for housing, representing 9.7 percent of all US households (including Puerto Rico). This number of counties falls steeply as the threshold rises: 4 counties exceed 45 percent, and only one, Bronx County in New York, exceeds 50 percent. Together, these counties are home to only 14 percent of the nation’s cost-burdened households.
Raising the threshold to 50 percent, as the agencies suggest, would effectively eliminate the provision. Instead, lowering the threshold to 35 percent would have a much greater effect, covering 148 counties and about 26 percent of all US households.
Where the highest-cost counties are concentrated
The 30 counties above the 40 percent threshold are concentrated in a handful of expensive coastal markets, including Los Angeles, Orange, and San Diego counties in California; Miami-Dade and Broward counties in Florida; and Brooklyn, Queens, Manhattan, and the Bronx in New York.
Lowering the threshold to 35 percent would extend coverage to more of California and Florida and to large metropolitan counties elsewhere, including Harris (Houston) and Dallas counties in Texas, Clark County (Las Vegas) in Nevada, and Philadelphia County in Pennsylvania. It would also cover expensive markets just below 40 percent thresholds, such as Alameda and San Mateo counties in the San Francisco Bay Area and Honolulu County in Hawaii.
The 35 percent counties are also expensive places to live
The 118 counties added under the 35 percent threshold are characteristically more like today’s high-cost counties than the rest of the country. The median household income is nearly identical in the 35 percent and 40 percent groups, while rents and home values remain far above the rest of the country.
What matters for middle- and low-income families is the gap between housing costs and incomes. In the counties where 35 percent or more of households are cost burdened, rents are about 40 percent higher and home values are nearly 80 percent higher than in the rest of the country, while incomes are only about 9 percent higher. As a result, households in these counties spend a much larger share of their income on rent.
These counties also have large rental populations, making the proposed CRA provisions relevant. In counties where 35 percent or more of households are cost burdened, renters account for 45 percent of households, compared with 31 percent in the rest of the country. The counties in both the 40 and 35% thresholds are also far more diverse than the rest of the country: 64 percent of residents in the counties where more than 35 percent of the population are people of color, compared with 35 percent of the residents elsewhere. Where the agencies set the threshold will shape which communities benefit from the provisions.
What the agencies should consider
Our findings show that raising the threshold of the share of county households that spend more than 30 percent of income on housing from 40 percent to 50 percent would limit the provision to a single county. Lowering it to 35 percent would expand the provision to 118 more counties where housing costs outpace incomes and extending coverage to about a quarter of US households. Yet, a lower threshold involves tradeoffs. As the agencies note, expanding eligibility could reduce the emphasis on low- and moderate-income households.
Given the national housing supply shortage, we need more housing of all kinds: more construction places downward pressure on all prices. As new units are built, renters move into them, freeing up older units and allowing lower-income families to move in through a process known as filtering. Taken together, we believe a 35 percent threshold would better accomplish the goals of the high-cost provision than the 40 percent cutoff used today.
