Editor: David Reiss
Brooklyn Law School

September 23, 2015

Wednesday’s Academic Roundup

By Shea Cunningham

September 23, 2015 | Permalink | No Comments

September 22, 2015

Severely Cost-Burdened Renters

By David Reiss

Geoff Stearns

Enterprise Community Partners and the Joint Center for Housing Studies of Harvard University have issued a report, Projecting Trends in Severely Cost-Burdened Renters: 2015-2025. The report opens,

At last measure in 2013, over one in four renters, or 11.2 million renter households, were severely burdened by rents that took up over half their incomes. This total represented a slight reduction from the record level of 11.3 million set in 2011, but remains dramatically higher than the start of the last decade, having risen by more than 3 million since 2000. With substantial growth in renter households expected over the next decade and little sign of a turnaround in the income and rent trends that produced these record levels of cost burdens, there is little prospect for substantial improvement in these conditions over the coming decade. (4)

And it concludes,

Overall, our analysis projects a fairly bleak picture of severe renter burdens across the U.S. for the coming decade. Under nearly all of the scenarios performed, we found that the renter affordability crisis will continue to worsen without intervention. According to our projections, annual income growth would need to exceed annual rent growth by 1 percent in order to reduce the number of severely burdened renters in 10 years. Importantly, that decline would have a net impact on fewer than 200,000 households, only because continued increases in burdens among minorities would be offset by declines among whites. Under the more likely scenario that rents will continue to outpace incomes, the number of severely rent-burdened households would increase by a range of 1.7 – 3 million, depending on the magnitude.

Given these findings, it is critical for policymakers at all levels of government to prioritize the preservation and development of affordable rental housing. Even if the economy continues its slow recovery and income growth improves, there are simply not enough quality, affordable rental units to house the millions of households paying over half their income in rental costs. (16)

It is unsurprising that the policy takeaway of these two housing organizations is to prioritize the preservation and development of affordable housing. But given the pervasive nature of the problem, I wonder if it is better to just say that this is an income inequality problem and address the root cause — low-income families just don’t have enough money to make ends meet.

September 22, 2015 | Permalink | No Comments

Tuesday’s Regulatory & Legislative Round-Up

By Serenna McCloud

  • The Consumer Financial Protection Bureau (CFPB) has finalized changes to Mortgage Rules as applied to small lenders that operate primarily in underserved and rural areas.  This change eliminates some of the prohibitions under the Ability- to-Repay Rule thereby allowing income to debt ratios as high and 43% and balloon payments, as long as the creditor holds the loan in their own portfolio. The Rule also allows more creditors to be considered small lenders because it increases the number of mortgages a small lender can hold from 500 to 2000.  It would also expand the number of geographic locations which can be considered rural.

September 22, 2015 | Permalink | No Comments

September 21, 2015

Affordable Enough for NYC?

By David Reiss


Real Affordability for All has released a report, Real Affordable Communities: Mayor Bill De Blasio and the Future of New York City. The report opens,

Across the five boroughs, the affordability crisis is growing every day. Today, low- and moderate-income New Yorkers continue to be priced out of their neighborhoods. The incomes of countless New Yorkers are not increasing while rents keep rising. The growing gap between lower incomes and higher rents is making New York City increasingly unaffordable.

Indeed, a recent study released by StreetEasy, The High Burden of Low Wages: How Renting Affordably in NYC is Impossible on Minimum Wage, found that a New Yorker earning $15 an hour could afford just one neighborhood: Throgs Neck in the Bronx.

“The extent to which rent growth has outpaced income growth in New York City means low-wage workers face three options: find several roommates to lower their personal rent burden, take on more than one job, or move out of New York City,” the study finds.

According to a close analysis of the most recent Census data, Bloomberg’s housing efforts generated a shortage of more than 400,000 affordable units for low-income New Yorkers. Low-income here is defined as a household earning less than 50% of Area Median Income (AMI). For a household of four, that means an approximate annual income of less than $42,000. (In 2012 New York City area median income was $83,600 for a family of four; the 2015 New York City area median income for a family of four is $86,300).

Overall, utilizing the 2012 census data, more than 700,000 low-income New Yorkers were left behind by Bloomberg’s housing plan. To tackle the affordability crisis, Mayor de Blasio has proposed preserving or creating 200,000 units of affordable housing. He wants to achieve that goal through mandatory inclusionary zoning and dense new residential development in various neighborhoods.

To succeed, de Blasio will need to avoid repeating the mistakes of Bloomberg’s housing agenda, and ensure that real affordable housing is created for the huge number of low-income New Yorkers who were not served by the previous administration and still struggle to survive. (1-2)

The Real Affordability for All advocates that “Low-income neighborhoods like East New York and the South Bronx will be empowered to offer a ‘density bonus’ to developers in exchange for real affordable housing below 50 % of AMI and for career-oriented union construction jobs for local residents at new development sites.” (7)

The report provides an example pro forma for one building to demonstrate that this plan is do-able. The report does not, however, indicate where the De Blasio Administration would find the $15 million in additional subsidies it would take for this one building to be built according to the Real Affordability for All guidelines.

At this point, the plan is more of a wish list than a serious proposal, but it does make clear that there is a deep need for deep housing subsidies among low- and moderate-income households.

September 21, 2015 | Permalink | No Comments

Monday’s Adjudication Roundup

By Shea Cunningham

September 21, 2015 | Permalink | No Comments

September 18, 2015

Why Credit Rating Agencies Exist

By David Reiss


Robert Rhee has posted Why Credit Rating Agencies Exist to SSRN. The abstract reads,

Although credit rating agencies exist and are important to the capital markets, there remains a question of why they should exist. Two standard theories are that rating agencies correct a problem of information asymmetry and that they de facto regulate investments. These theories do not fully answer the question. This paper suggests an alternative explanation. While rating agencies produce little new information, they sort information available in the credit market. This sorting function is needed due to the large volume of information in the credit market. Sorting facilitates better credit analysis and investment selection, but bond investors or a cooperative of them cannot easily replicate this function. Outside of their information intermediary and regulatory roles, rating agencies serve a useful market purpose even if credit ratings inherently provide little new information. This alternative explanation has policy implications for the regulation of the industry.

I do not think that there is much new in this short paper, but it does summarize recent research on the function of rating agencies. Rhee’s takeaway is that, “given their dominant public function, rating agencies should be subject to greater regulatory scrutiny and supervision qualitatively on levels similar to the regulation of auditors and securities exchanges.” (15) Amen to that.

September 18, 2015 | Permalink | No Comments

Friday’s Government Reports

By Serenna McCloud

  • The Government Accountability Office (GAO) has released a report, Affordable Rental Housing, which points out that there are initiatives on the state, local and federal level which address this issue, however they are not always well coordinated, often overlap, and there is “incomplete information to assess performance.” Without sufficient information, the GAO argues it is impossible for Congress or other agencies to set appropriate spending priorities and assess performance.  GOA’s recommendation is for the U.S. Department of Housing and Urban Development to work with state and local entities to develop a coordinated assessment and reporting structure.
  • Also from the GAO, Pay for Success: Collaboration Among Federal Agencies Would be Helpful as Governments Explore New Financing Mechanisms is a report which describes Social Impact Bonds (SIBs).  SIBs are a mechanism by which investors pay for social outcomes and receive an agreed upon return based on the success of the program or as GAO put it, “contracting for social outcomes.”  According to the GAO SIBs can be useful in reducing the cost of providing social services while improving success.  While the use of SIBs has been limited so far the Office of Management and Budget has been encouraging Federal Agencies to test their potential effectiveness.  This GAO report analyzes SIBs that have already been piloted, for example the Department of Labor awarded $24 Million in grants in 2013 to reduce recidivism in New York and Massachusetts.  One fear is that SIBs could create perverse incentives. SIBs could eventually be used to finance affordable housing development.

September 18, 2015 | Permalink | No Comments