Interview | Policy

The Housing Crisis and the Landscape of Affordable Housing

As home prices continue to fall, the notion that the real estate market will allow for lower-income families to secure affordable housing increases. But it's not so cut and dried. How much a home costs is only one of many factors when determining affordability. In March 2012, Shelterforce hosted a roundtable discussion featuring leading research and policy experts to explore those various components of affordability looking at just how the housing crisis changed the affordable housing landscape in the United States.

Flickr user hmclair, CC BY-NC-SA

Alan Mallach: I think another issue is the need to have tools for affordable housing that do a better job of integrating it into mixed-income development. I mean, one of the things that was happening quite a bit during the boom period is the growth of inclusionary housing, which was certainly an effective strategy in places where you had really strong market demand and builders could accommodate the affordable housing into their developments. That obviously has become more problematic for now and for at least for the next short- to medium-term because, in a lot of markets, you’re having trouble getting prices in the market back up to the point where developers can build those kind of intensive, infill, transit-oriented developments and make it work economically.

There’s a wonderful new development being put together in Newark called Teacher’s Village, which is a mix of housing and retail and new schools and charter schools and a whole bunch of things. And a lot of it’s very oriented towards workforce housing. And the amount of subsidy and layers and soft financing that had to be put together to make that project happen was absolutely mind-boggling.

And so, I think inclusionary housing is going to be a limited tool except where it can be layered with subsidies, and I think another area is to try to figure out, if possible, how to restructure things like low-income [housing] tax credits so they can more easily be integrated into mixed-income and mixed-use development than is currently the case, so that where those particular opportunities exist, we can both take advantage of them to improve these cities and build stronger housing for new markets, and create affordable housing. But I think we may need some major policy changes to start making that happen.

Raphael Bostic: Alan, I agree with that completely in the sense that we don’t have a lot of good models right now for doing the types of transit-oriented and mixed-income developments that Jeff was talking about, particularly at scale. And I think that there’s a lot of energy that needs to be devoted toward having a modified or tax credit program to make it more flexible.

Jeff Lubell: Yes. I want to call your attention to one innovative policy that has just been announced in proposed form that I think will make a difference here. The Federal Transit Administration administers a program called the New Starts program that funds the expansion of existing transit lines and the creation of new transit lines.

And for the first time in a proposed rule, they’ve proposed to give applicants credit for having policies in place to preserve existing affordable housing near the proposed transit stations and to include affordable housing within new market-rate development that occurs around those stations. That’s very promising, that there might be finally a federal carrot for localities to adopt the kinds of policies they need to integrate affordable housing around transit.

I would add FHA and Fannie/Freddie multi-family insurance to the mix of things we need to look at in connection with facilitating mixed-use development.

Harold Simon: In changing our arc from 10 or 20 years to many more years, what’s the role of shared equity arrangements, land trust or limited-equity co-operatives, in this transit-oriented model?

Jeff Lubell: It’s really important to think about different types of situations differently. Right now, what we’re talking about are areas that are likely to be in great demand, where the demand pressures may very well push up the price of housing over the long-term in part because publicly funded amenities, like transit, are driving increases.

In those kinds of places, you really want to lock up affordability for the longest possible time period. On the rental side, we have various covenants that can be put in place and combined with financing mechanisms to ensure long-term affordability. But homeownership housing, it’s vitally important to adopt strategies that preserve the affordability of any publicly funded homeownership units over the long term, so they don’t just provide windfalls for the lucky individuals that can benefit from those programs, but actually provide a long-term resource.

And so there are things like community land trusts and limited equity cooperatives and deed restricted homeownership units, all of which are mechanisms for balancing individual opportunities for building assets with the public’s interest in maintaining long-term affordability. There’s a great study from the Urban Institute that really looked at these and confirmed that these mechanisms can do a good job of balancing both of those goals. [See Homeownership Today and Tomorrow.

And this is not a substitute for market-rate units. We’re talking about creating a stock of units that are affordable to moderate-income families over the long term while also providing asset-building opportunities. And right now, our HUD policies are not very well oriented towards encouraging that. They only require 15 years of affordability no matter how much goes into the unit.

We need to rethink those HUD policies, and also educate localities on the importance of this, and particularly to be thinking about adopting comprehensive redevelopment strategies, or preservation strategies, as the case may be, oriented around places of high demand, which may include but are not limited to newly developed transit stations.

Chris Herbert: I think the other aspect of [the shared-equity] approach to providing affordable homeownership housing in the wake of what just happened with house prices is that it can also provide a real insurance for the homeowner against a loss of equity. So if you’re buying a home that is well below market value, you’ve got a built-in cushion there that, if house prices go down over a short period of time when you’re in the home, you’re still going to have a big gap between even the lower market rate and your ability to resell the house. It really provides an additional benefit for homeowners in terms of essentially guaranteeing a reasonable rate of return over a period of time.

The low-income housing tax credit, which has been producing 100,000 or so units a year, over time has now created more than 2 million affordable rental housing units. Even if the shared-equity approach doesn’t produce a large number of units in any one year, with locking in affordability for the long-term, incremental additions to this stock tend to, over time, accumulate as a fairly sizable supply of affordable homeownership housing that provides a first step on a ladder for people, and maybe even a long-term step, too, as well, to get into homeownership.

Alan Mallach: Yes. But any time you’re going to create housing that is significantly below the market price, there’s going to have to be some subsidy involved.

Chris Herbert: Absolutely.

Alan Mallach: I think that’s the crux of the issue, is where that’s going to come from and how that’s going to be made available.

Chris Herbert: In your piece that was in Shelterforce, you point to the fact that people who get these benefits are, in some sense, winning the lottery. In a high cost market on the coast, you may get a $50,000 downpayment assistance to help you get into a home, which then is forgiven over time, and that benefit is captured by that homeowner. But with this approach, that substantial investment can then be reused by the next household that occupies that unit.

Jeff Lubell: We’re already spending money. The question is, Can we spend it in ways that are more efficient and help more people over the long-term?

Alan Mallach: That’s the crux of the issue. If I could bring back the question of the existing stock: Ultimately, most families are going to be living in housing that’s already been built. And especially in cities where demand is not particularly strong and there’s only modest upward pressure on rent levels, you have the phenomenon—particularly in central cities other than the high-demand coastal ones—of large amounts of existing rental housing, typically one to four units, that are relatively affordable, though again nothing is particularly affordable if your income is below 30 percent of AMI.

There the issue is at least partly the question of the condition of the housing. That quality could be brought up to a reasonably high standard for far less than the cost of building new units.

Raphael Bostic: Yes, I agree. I think Alan raises a really important point along two dimensions. The first is this question of places that have adequate supply versus places that don’t, and also the notion of hot markets versus colder markets. I know we’re trying to work at HUD to reorient and rebalance the conversation to include much more emphasis on what do we do with the existing stock, because, in a lot of these places, that’s what we’re going to be working with for a long time.

And then, the other piece that I think is really important is the idea that we do have a lot of subsidy that’s going out there now. I agree with Chris and Jeff that we need to try to make sure that it churns, if you will, so that more than just the initial beneficiary benefits. But I think we do want to find ways to broaden that beyond just the new products, and I worry a little bit if the emphasis is too much on ownership and wonder if that pushes us back to perhaps an over-reliance or an over-emphasis on ownership over rental solutions.

Jeff Lubell: Raphael, I think we would all agree that there is a room for a diverse housing market that provides housing of all tenure types, right? So we need an adequate supply of rental housing. We need an adequate supply of units for purchase.

The point here is that there might be some benefit in having a modest share of the stock be affordable homeownership opportunities that provide asset-building opportunities but not huge windfall opportunities, in the form of these shared-equity homes. And so it really would just diversify the marketplace and would not necessarily reflect any bias in favor of rental or ownership.

I’m also in agreement with Alan that we need to focus a lot more on the existing stock. And I think one of the big problems is that we know far too little about how most Americans access affordable housing. We know far too little about how the market provides affordable housing. We focus almost most of our research energy on the HUD-subsidized stock when most of the Americans who are low-income are living in private market stock. And so we know too little about the filtering mechanism that causes more expensive units to become less expensive. We know too little about the reverse mechanism that upgrades units.

We don’t know enough about how to help families achieve a level of satisfaction and stability in private market housing, and would love to see more emphasis placed on trying to intervene in cost-effective ways to help the bulk of the households who are not subsidized achieve greater stability in both rental and owner-occupied units and a better ability to determine their future.

Chris Herbert: Alan, I had a question for you along these lines. Thinking about these smaller multi-family properties that are mom and pop owners for the most part, as far as we know: that stock is, as you say, a big source of affordable rental housing. It’s also older than it’s ever been. The average age of rental housing is now approaching 40 years. We’ve built a lot of housing in the ’60s and ’70s, and since the ’80s, multi-family housing has really slowed down. Two- to-fours in particular are rarely built nowadays.

Alan Mallach: Yes, two-to-fours are a dying species.

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