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

Chris Herbert: I think in the piece you had for Shelterforce, you talk about the idea of retooling the low-income tax credit maybe to be aimed at that group.

One thing I’ve been wondering about, is whether or not a broader brush tool, just tweaking the allowable depreciation schedules for investments in existing housing might be able to direct a lot more resources towards investing in housing, particularly since, a complicated system of allocating tax credits and the like might be daunting for mom and pop owners to get to.

Alan Mallach: Yes. I think you’re right. You clearly have to come up with a way to make it simple, because these aren’t people who are going to go file for tax credit allocations. So my idea was really around the idea that the tax credit amount, or the tax credit investments, would basically, instead of going into developments as such, specific projects, would go into pools of money that could then be made available to a CDC or a municipality or something to make soft loans or grants or whatever the particular formula turned out to be, to the individual property owners.

Chris Herbert: Some sort of intermediary.

Alan Mallach: Yes, create an intermediary that would be willing to do the paperwork, basically.

Raphael Bostic: Well, I think that that’d be useful. I do think that Jeff’s admonition is a good one to keep in mind, though. We don’t have a good sense of how many of these folks actually have upgraded their homes and in what way. So while we might want to incentivize that just to be sure, my guess is that there’s a diversity of management approaches that are taken, and that some of these older properties probably don’t show as old as they would in a record.
We’re really sensitive to the fact that we don’t have really good information about rental property ownership, so we’re actually in the field right now with a new rental finance housing survey. It’s on larger properties, not so much the ones to fours, but I think this notion of a lack of information about how these properties are managed runs throughout the marketplace once you get below the top level type of properties.

Chris Herbert: But we do know, Raphael, we are losing them. We can tell, from the AHS [American Housing Survey], that those low-value rental properties are disproportionately lost from the stock.

Alan Mallach: Yes. That’s basically true, though I think the erosion of the two to fours is particularly severe because they’re simply not being replenished. In the single family rentals, you have a kind of an ongoing churning going back and forth with respect to a lot of units, which may be in rental occupancy for a certain period, then ownership, then rental, and so forth, so I suspect that part of the stock probably replenishes itself somewhat better than the two to fours, which are—[along with] the small multi-families, five, six, eight, ten units—not being replaced. They’re very hard to make work financially in terms of new construction. Municipalities tend not to encourage them in terms of land use regulation zoning codes, and they’re incredibly hard to finance if you’re a builder or a developer.

Chris Herbert: Well, I think another factor in there is that if you do start doing work on them, you’ve got to bring them up to code in ways that are incredibly expensive in terms of widths of stairwells and widths of hallways and egress.

Alan Mallach: Though some states have adopted rehab codes that are designed, to varying degrees, to try to help address some of those problems.

But I’d like to go back, actually, to the point that I think it was—Jeff made about stability, because I think that’s an incredibly important part of the picture. It’s one thing for somebody to get into a unit. It’s another matter for them to stay in the unit.

And one of the things, for example on the homeownership side, I mean, most of the research I think makes it pretty clear that the benefits of homeownership and the benefits of long-term stable tenure are very much interwoven and inter-related. So if you buy a house, but you leave in three years, a lot of those benefits are not going accrue.

Low-income buyers, as well as minority buyers, have always had shorter spells of homeownership than more affluent buyers, and so addressing that issue I think is incredibly important.

And on the other [rental] side, it’s interesting. In some of the northern European countries rental is perceived of as a long-term tenure choice, quite generally. And yet, in the United States, rental is seen as a very short-term tenure choice, rental turnover is extremely rapid in most markets, and people, again, miss out on a lot of social benefits that could accrue if they had a more stable rental tenure as well. I think there’s a whole mix of things that might go into a strategy to increase greater stability of tenure.

Harold Simon: UNC [University of North Carolina] just published some of the data that [they got from] following Self Help[’s Community Advantage Program], and the community land trusts have had some studies done [that showed that] CLT homeowners, who are all low-income, have remained homeowners at 90 percent after five years versus the 50 percent that’s more common [among low-income homebuyers]. Homeownership rates over the long-term for the kind of high-touch loans that Self Help did are also higher than the typical rate. I think those are good lessons in terms of the support systems that go on before and after homeownership is attained, and that probably has some good implications for policy.

Janneke Ratcliffe: On the Self Help program, the default rate has remained below 5 percent, even through the crisis. And these were homeowners who, at the median, have 60 percent of area median income—that’s in the mid-30s. And about half of them had credit scores below 680, and more than half of them put down less than 5 percent on the purchase price. So those are some pretty stark figures to be maintaining this level of homeownership.
I would also add that the high-touch lending wasn’t being done by Self Help. It was being done by predominantly bank lenders through their CRA programs. That’s not to say it wasn’t high touch, but it was something that large-scale financial institutions were able to do.

Chris Herbert: And going back to the shared-equity model and those other models for homeownership, one of the other benefits of those is the fact that there’s another party to that transaction that can also play a role as a check on making sure that homeowners don’t get into bad decisions along the way. And so, if you have a community land trust that’s involved in keeping people from taking on excessive second mortgages or subprime loans and the like, there’s another check in the system to help make sure that not just the initial decision but subsequent decisions are also consistent with long-term sustainability.

Alan Mallach: Yes. I think there are three pieces, basically. One is a sustainable mortgage, a mortgage that the person can carry over time. Second is the existence of a support system that they can relate to. I think programs like the Pennsylvania HEMAP are important in that respect if there are financial shocks or emergencies.

And I think the third piece is just to make sure that the house that they’re buying is one that’s not likely in itself to trigger financial shocks, not likely to be one where you move in and, six months later, you realize you’re needing a new roof.

Raphael Bostic: Alan, can I add one more? I think stable income has got to be a critical piece to this, as well. The job market and keeping people in jobs and finding ways to do that has got to be a primary consideration when we think about the stability of one’s housing, particularly on the ownership side, but even on the rental. A lot of the mobility is because of detachment from the workforce, unemployment, which then leads people to have to make decisions to change their circumstances.

Jeff Lubell: Well, I think I agree with income stability for sure, but would also say that I think we know far too little about the causes of mobility in this country. I think the questions in the American Housing Survey on why people moved are inadequate. We tried to look at the whether moves were voluntary or not and most of the answers in the AHS were susceptible of either being voluntary or involuntary, depending on your interpretation of the question. We need much better data on why people move.

The MacArthur Research Network on housing and families with children is working to develop better questions. Let’s see how these questions pan out, and then we’ll be happy to share the results of that pilot test with AHS.

But more broadly, I think the issues of mobility for poor families in particular go way beyond income and have to do a lot with the relationships that people are in, issues of violence in the neighborhood, and issues of schooling with their children, and issues of health. Relationships get built and destroyed. I mean, there’s just so much that’s intertwined between one’s housing environment and one’s family and schooling and health environments that we really need to unpack if we want to get to the bottom line of housing stability.

But we actually do have programs that promote stability on the rental side, but we don’t really think of them as housing programs, right? The welfare agencies administer eviction prevention programs, for example. We have some rental counseling that’s kind of the lost stepchild of homeownership counseling within housing counseling agencies. I would urge us to think about this more comprehensively and say, if one of the goals is to promote stability—not in terms of people not moving; we don’t want them trapped—but in terms of people having greater say on when and under what circumstances they move, having greater control of their environment, then we, first of all, need to be able to distinguish between moves that satisfy that and moves that do not. So we can’t just look at the number of moves. We have to look at why people move.

And secondly, we really have to look at the effectiveness of different kinds of programs. There are a lot of people who get HUD rental assistance who leave within less than a year. Is that a good use of federal resources? I’m thinking about public housing and vouchers. What have we done for these families if they get assistance and then they leave within a year? I’m not saying it’s everybody, and it’s less now because of what’s going on in the economy. But when we looked at this 10 years ago, it was a very sizable share of the population.

I would urge us to think about stability as an end goal, and then work backwards to what policies we need to promote it.

Raphael Bostic: Jeff, a lot of the stuff that you’re saying assumes some things about these moves that we don’t know. And I hope that, as we go into this and pursue this further, we remain open to the possibility that sometimes short way-station relief is all that families need. Being able to distinguish between that and other things is going to be very important.
My only point in bringing up the income was to make the point, and Jeff, you’ve expanded on it significantly, that a lot of stability has little to do with the housing or the vehicle by which someone gets into it, and it is a much more complicated issue. So we need to remain somewhat restrained in terms of our expectations about what any of these policies can do on their own and need to understand that the complexity of these relationships clearly suggests that a lot has to happen right for certain outcomes to occur.

Alan Mallach: I’d qualify that by just suggesting that I think in all likelihood, for the foreseeable future, economic and income volatility is going to continue to exist for a very large part of the nation’s lower income households. And so I think, to the extent one can come up with housing strategies that reduce the impact of income volatility on the family’s housing outcomes, that’s beneficial, while recognizing that you can only do so much.

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