Project Description

Transportation credit mortgage (TCM) programs are intended to reduce auto use, decrease sprawl, and increase housing options for low- and moderate-income households. The "location efficient mortgage" was the first example, initiated in 1995 in a few US cities; since then the "smart commute mortgage" has been made available in 39 cities and more than 50 counties in the United States. Both programs have been underwritten by Fannie Mae and have been promoted by local transit agencies.

The centerpiece of such programs is a credit to income for expected savings on auto use for households who purchase a home with good transit access and/or high population density. It is hoped, first, that a higher share of those living near transit and in "walkable" neighborhoods will consist of households who ride transit and walk for work and other purposes; second, that there will be more housing provided in places that enable such travel patterns.

This paper argues that both outcomes depend on conditions that may not hold. In markets where policy interventions are most needed, and where TCMs have often been targeted, they are particularly unlikely to work as intended. Such markets are often characterized by high demand due to growth pressures and significant policy constraints on new development.

The paper shows that given those conditions it is possible that existing owners of land in TCM-targeted areas will receive a one-time windfall in the form of a higher sales price for their homes; low- and moderate-income households will pay more for housing with little or no benefit to show for it; and the share of travel via alternative modes will remain stable or decline. The TCM may not have these unintended negative effects in high-turnover, low-growth markets with a high elasticity of housing supply--but in such markets, paradoxically, the TCM is less likely to make a difference in housing bids because fewer households are likely to be constrained by standard lending criteria.