Community Development Field

A Tale of Conflicting Circumstance

The next few years promise to feature both the best of times and worst of times for affordable housing finance and those who practice or are somehow affected by affordable housing and community development.

January 25, 2008

The Dickensian moment in which we operate today is transitory, to be sure. But the next few years promise to feature both the best of times and worst of times for affordable housing finance and for those who practice or are somehow affected by affordable housing and community development.

The Best of Times

It’s difficult recall a time when federal housing and other policy advocates have had it so good! President Obama and his appointments of smart, competent managers at HUD, DOE and other key cabinet posts have employed a comprehensive strategy leading to a renewed federal dedication to housing and community development involvement, a commitment the likes of which we haven’t witnessed in decades. Moreover, the stimulus resources made available by the American Recovery and Resource Act (ARRA) and the breaking down of silos at the federal level all offer community development practitioners a “bridge” over the next few years to the “new normal” of housing and community development. Consider that HUD’s annual budget was essentially doubled through ARRA and tens of billions in energy funding were deployed, much of which can be used to help make homes more affordable and energy efficient for low-income households.

The Worst of Times

At the same time, a cruel irony is at work where perfectly innocent bystanders, here in the form of renters, have been pummeled by the homeownership mortgage crisis and predatory lending. As a direct consequence of the economic downturn hereby dubbed the “Great Recession,” the nation’s affordable housing rental production programs have shrunk to a shadow of their former selves. The nation’s only national affordable housing program, the Low Income Housing Tax Credit (LIHTC) program has shrunk to its pre-2007 level. The investment and production enabled by the credit in 2007 (nearly $9.2 billion in investment producing or preserving over 125,000 affordable rental homes) was cut in half in 2008, and then compare that with generous market calculations of 30,000 in 2009. Remaining tax credit investment is geographically concentrated in the metropolitan areas on the east and west coasts. Particularly hard hit are rural states in the Midwest and Great Plains, the precise locations where the subprime debt crisis has hit the hardest.

This dramatic reduction in investment in rental housing couldn’t have come at a worse time. A recent HUD report analyzing changes in the U.S. rental market finds that 1.5 million rental units affordable to the lowest income households were lost to the U.S. housing inventory between 2005 and 2007. The report attributed 75 percent of the loss to units becoming less affordable over the two-year span. The remainder of the loss, representing approximately 500,000 units, was attributed to units being transitioned into owner-occupied, seasonal, or non-residential units, or being demolished.

Simultaneously, state governments are all feeling the pinch of the Great Recession. According to the Center on Budget and Policy Priorities, 47 of the 50 states will run deficits in 2009. As a result, the National Housing Trust is observing that significant numbers of state housing budgets are being reduced. We expect that state housing trust funds will begin to feel the pinch as their dedicated revenue sources (in many cases coming from real estate transactions) dwindle over the next year.

Meanwhile, according to a recent Deutsche Bank report, multifamily delinquencies are up 40 percent year to year. Thousands of rental properties with declining prices, housing hundreds of thousands of renters, involving tens of billions in mortgage debt face almost impossible refinancing hurdles between 2010 and 2012. While there may be opportunities to convert some of these properties to more affordable housing, it’s equally likely that the emerging near collapse of the commercial mortgage market spells new trouble for low- and moderate-income households.

Life in the New Normal: Seizing the Opportunities and Rebalancing Our Nation’s Housing Policy

How do we achieve a stable New Normal? We can start by speaking in terms that make it clear that 33 percent of us rent, almost all of us have been renters at one time or another, that renters are people too, and that we need a balanced national housing policy that recognizes the important role that rental housing plays in our neighborhoods. Indeed, 66 percent of those in poverty are renters. The fact of the matter is that we cannot turn our neighborhoods around without devoting significant resources to improving the lives and living conditions of renters.

Fortunately, this essential connection between community stabilization and affordable rental housing has not been lost on the administration. The new HUD and White House leadership are putting forth a renewed emphasis on affordable housing production and preservation, fair housing, energy conservation, supportive housing, and coordination with other key federal agencies. New opportunities will emerge in FHA financing that should help community development practitioners and CDFIs develop energy efficiency and acquisition loan programs. Many non-housing stakeholders are exploring the connections between housing, energy efficiency, transit, and land use.

In the Dickens novel, the worst of times do eventually end at some point. In the meantime, we cannot save every renter affected by the Great Recession. We can, however, learn from our mistakes and use this crisis as an opportunity to rebalance our nation’s housing policy and save our nation’s housing and community development infrastructure.

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