Tag Archives: affordability

Planning for Affordability

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Prospect New Town in Longmont, Colorado

Rick Hills and David Schleicher have posted Planning an Affordable City to SSRN. The abstract reads,

In many of the biggest and richest cities in America, there is a housing affordability crisis. Housing prices in these cities have appreciated well beyond the cost of construction and even faster than rising incomes. These price increases are a direct result of zoning rules that limit the ability of new supply to meet rising demand. The high cost of housing imposes a heavy burden on poorer and younger residents and, by forcing residents away from these human capital rich areas, has even reduced regional and national economic growth. While scholars have done a great deal to identify the problem, solutions are hard to come by, particularly given the strong influence of neighborhood “NIMBY” groups in the land-use process that resist any relaxation of zoning limits on housing supply.

In this Article, we argue that binding and comprehensive urban planning, one of the most criticized ideas in land-use law, could be part of an antidote for regulatory barriers strangling our housing supply. In the middle of the last century, several prominent scholars argued that courts should find zoning amendments that were contrary to city plans ultra vires. This idea was, however, largely rejected by courts and scholars alike, with leading academic figures arguing that parcel-specific zoning amendments, or “deals,” provide space for the give-and-take of democracy and lead to an efficient amount of development by encouraging negotiations between developers and residents regarding externalities from new building projects.

We argue, by contrast, that the dismissal of plans contributed to the excessive strictness of zoning in our richest and most productive cities and regions. In contrast with both planning’s critics and supporters, we argue that plans and comprehensive remappings are best understood as citywide deals that promote housing. Plans and remappings facilitate trades between city councilmembers who understand the need for new development but refuse to have their neighborhoods be dumping grounds for all new construction. Further, by setting forth what can be constructed as of right, plans reduce the information costs borne by purchasers of land and developers, broadening the market for new construction. We argue that land-use law should embrace binding plans that package together policies and sets of zoning changes in a number of neighborhoods simultaneously, making such packages difficult to unwind. The ironic result of such greater centralization of land-use procedure will be more liberal land-use law and lower housing prices.

For me, the paper highlights one of the great paradoxes of housing policy — people say that they want restrictive land use policies which limit the construction of new housing at the same time that they say that housing is too darn expensive in their communities.

The paper’s proposal to adopt “binding and comprehensive urban planning” is an intriguing one that could solve that paradox, but I wonder if there is sufficient political will to implement it over the interests of the parties that benefit from our current ad hoc system of land use regulation.

State of Lending for Latinos

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Mark Moz/ Commons- Flickr

The Center for Responsible Lending has posted a fact sheet, The State of Lending for Latinos in the U.S. It reads, in part,

At 55 million, Latinos represent the nation’s largest ethnic group and the fastest growing population. However, Latinos continue to face predatory and discriminatory lending practices that strip hard-earned savings. These abusive practices limit the ability of Latino families to build wealth and contribute to the growing racial wealth gap between communities of color and whites. The Center for Responsible Lending (CRL), along with its numerous partners, has sought to eliminate predatory lending products from the marketplace. High-cost, debt trap lending products frequently target Latinos and other communities of color. (1)

No disagreement there. The fact sheet continues,

Barriers to Latino Homeownership

According to a 2015 national survey of Latino real estate agents, nearly 60 percent said that tighter mortgage credit was the No. 1 barrier to Latino homeownership; affordability ranked second.

In 2014, Latino homeownership dropped from 46.1 percent in 2013 to 45.4 percent. In 2013, Latinos were turned down for home loans at twice the rate of non-Latino White borrowers and were more than twice as likely to pay a higher price for their loans. (1)

I have a few problems with this. First, I am not sure that I would unthinkingly accept the views of real estate agents as to what ails the housing market. Real estate agents make their money by selling houses. They are less concerned with whether the sale makes sense for the buyer long-term. Second, it is unclear what the right homeownership rate is. Many people argue that higher is always better, but that kind of thinking got us into trouble in the early 2000s. Finally, stating that Latinos are rejected more frequently and pay more for their mortgages without explaining the extent to which non-discriminatory factors might be at play is just sloppy.

The fact sheet quotes CRL Executive Vice President Nikitra Bailey, “As the slow housing recovery demonstrates, there is a market imperative to ensure that Latino families have access to mortgages in both the public and private sectors of the market. The market cannot fully recover without them.” (1) But what Latino households and the housing market need is not just more credit. They need sustainable credit, mortgages that are affordable as homeowners face the expected challenges of life — unemployment, sickness, divorce. It is a shame that the CRL –usually such a thoughtful organization — did not address the bigger issues at stake.

Mortgage Credit Conditions Easing

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Home of Easy Credit

The Urban Institute’s Housing Finance Policy Center has released its July Housing Finance at a Glance. It opens,

Our latest update to HFPC’s Credit Availability Index (HCAI) shows early signs that the overly tight mortgage lending standards of the post-crisis period may finally be starting to ease. This HCAI update shows improvements for both GSE and FHA/VA channels. Between Q3 2013 and Q1 2015, the expected mortgage default rate increased from 1.8 to 2.1 percent (17 percent increase) for GSE originations, and from 9.6 to 10.8 percent (a 13 percent increase) for FHA/VA originations. The expected default rate for portfolio loans and PLS channels has remained largely flat at 2.6 percent over this period.

Long overdue, these improvements are largely a result of efforts to clarify put-back standards and conduct early due diligence. While the FHA has lagged the GSEs in these efforts, it has made some progress. Still, more needs to be done, especially to mitigate uncertain lender litigation risk arising out of FHA’s False Claims Act.

These improvements notwithstanding, there is still significant room to safely expand the credit box. Even if the mortgage market had taken twice the default risk it took in Q1 2015, that level would have still been below the level of default risk of the early 2000s. (3)

This excellent chartbook contains many very interesting graphs. I recommend that you look at the National Housing Affordability Over Time graph in particular. It shows that housing “prices are still very affordable by historical standards, despite increases over the last three years.” (16)

Renting in America’s Largest Cities

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Following up on an earlier graphic they produced, the NYU Furman Center and Capital One have issued a report, Renting in America’s Largest Cities. The Executive Summary reads,

This study includes the central cities of the 11 largest metropolitan areas in the U.S. (by population) from 2006 to 2013: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York City, Philadelphia, San Francisco, and Washington, DC.

The number and share of renters rose in all 11 cities.

The rental housing stock grew in all 11 cities from 2006 to 2013, while owner-occupied stock shrank in all but two cities.

In all 11 cities except Atlanta, the growth in supply of rental housing was not enough to keep up with rising renter population. Mismatches in supply and demand led to decreasing rental vacancy rates in all but two of the 11 cities in the study’s sample.

The median rent grew faster than inflation in almost all of the 11 cities in this study. In five cities, the median rent also grew substantially faster than the median renter income. In three cities, rents and incomes grew at about the same pace. In the remaining three cities, incomes grew substantially faster than rents.

In 2013, more than three out of every five low-income renters were severely rent burdened in all 11 cities. In most of the 11 cities, over a quarter of moderate-income renters were severely rent burdened in 2013 as well.

From 2006 to 2013, the percentage of low-income renters facing severe rent burdens increased in all 11 cities in this study’s sample, while the percentage of moderate-income renters facing severe rent burdens increased in six of those cities.

Even in the cities that had higher vacancy rates, low-income renters could afford only a tiny fraction of units available for rent within the last five years.

The typical renter could afford less than a third of recently available rental units in many of the central cities of the 11 largest U.S. metro areas.

Many lower- and middle-income renters living in this study’s sample of 11 cities could be stuck in their current units; in 2013, units occupied by long-term tenants were typically more affordable than units that had been on the rental market in the previous five years.

In six of the cities in this study, the median rent for recently available units in 2013 was over 20 percent higher than the median rent for other units in that year, indicating that many renters would likely face significant rent hikes if they had to move. (4)

While this report does an excellent job on its own terms, it does not address the issue of location affordability, which takes into account transportation costs when determining the affordability of a particular city. It would be very helpful if the authors supplemented this report with an evaluation of transportation costs in these 11 cities. This would give a more complete picture of how financially burdened residents of these cities are.

Rapidly Rising Rents

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The Community Service Society has released its Fast Analysis of the 2014 New York City Housing and Vacancy Survey which “analyzed just-released U.S. Census Bureau data from the 2014 version of its New York City Housing and Vacancy Survey, a survey of 18,000 New Yorkers conducted every three years under contract with the New York City Department of Housing Preservation and Development.” The analysis

reveals that rents have risen rapidly, especially in the city’s inner-ring neighborhoods. Rents rose by 32 percent citywide since 2002, even after removing the effect of inflation. The sharpest increases occurred in neighborhoods surrounding the traditionally high-rent area of Manhattan below Harlem. Central Harlem led the way with a shocking 90 percent increase, with Bedford-Stuyvesant second at 63 percent.

The loss of rent-regulated housing to vacancy deregulation is combining with the loss of subsidized housing and with rising rents overall to dramatically shrink the city’s supply of housing affordable to low-income households. Between 2002 and 2014, the city lost nearly 440,000 units of housing affordable to households with incomes below twice the federal poverty threshold.

The study “focused on the rents being paid by tenants who have recently moved. This eliminates the tendency of lower rents paid by long-time tenants to smooth out market changes and mask the changes that affect tenants who are looking for a place to live.” (Slide 3)

This focus somewhat undercuts CSS’ claim that rents in general are rising rapidly because rents for vacancies typically rise much faster than those for existing tenancies. That being said, the study confirms the sense of many that outer-borough neighborhoods are rapidly gentrifying and becoming unaffordable to the households who had historically made their homes there. As CSS indicates, their analysis will certainly be relevant to the debates raging over how to regulate NYC’s housing stock.

It is also relevant to debates over zoning. New York City’s population has grown by almost a million and a half people since 1980. That increase puts a lot of pressure on the cost of housing. Unless, the City comes up with a plan to increase the supply of housing, market pressures will just keep pushing rents higher and higher. Mayor de Blasio is well aware of this, so it will be interesting to see whether the City Council will be on board with plans to increase density throughout the City. Greater density is a necessary component of any affordable housing strategy for NYC.

Housing, Out of Reach

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The National Low Income Housing Coalition has released Out of Reach 2015: Low Wages & HIgh Rents Lock Renters Out. The Introduction reads,

Since its founding in 1974 by federal housing policy expert, Cushing Dolbeare, NLIHC has used data to document America’s housing affordability crisis. As part of her original analysis, Cushing observed a fundamental mismatch between the wages people earn and the price of decent housing, what we now call Out of Reach. Today, housing is still out of reach for far too many, and the gap between what people earn and the price of decent housing continues to grow.

The 2015 Housing Wage is $19.35 for a two-bedroom unit, and $15.50 for a one-bedroom unit. The Housing Wage for a two-bedroom unit is more than 2.5 times the federal minimum wage, and $4 more than the estimated average wage of $15.16 earned by renters nationwide. The Housing Wage is an estimate of the full time hourly wage that a household must earn to afford a decent apartment at HUD’s estimated Fair Market Rent (FMR), while spending no more than 30% of income on housing costs. The data in Out of Reach illustrate the gap between wages and rents across the country. In 13 states and D.C. the 2015 Housing Wage is more than $20 per hour.

Many renters earn far less than the Housing Wage in their community and struggle to find an affordable place to live. This edition of Out of Reach highlights some of the economic challenges facing low income renters, including lagging wages, inconsistent job growth, and the rising cost of living. Undoubtedly, the lack of affordable housing remains the overarching problem for low income households, a problem made worse by these economic challenges.

Expanding and preserving the supply of quality, affordable housing is essential to any strategy to end homelessness, poverty, and economic inequality. As our nation’s policymakers seek ways of overcoming these societal ills, access to affordable housing must be a cornerstone of any proposal. (1, emphasis removed)

Some of the particular findings are disturbing. For instance, “There is no state  in the U.S. where a minimum wage worker working full time can afford a one-bedroom apartment at the fair market rent.” (1) This state of affairs reflects many trends, including the fact that the minimum wage has not kept pace with inflation and is worth less today than it was a few decades ago. It is worth unpacking this finding a bit.

The report defines “affordability” as costing “no more than 30% of a household’s gross income” for rent and utilities. (2) It defines “Fair Market Rent” as “the 40th percentile of gross rents for typical, non-substandard rental units.” (2) In some ways, this report overstates the affordability crisis because minimum wage workers may be able to afford housing that falls below the 40th percentile of gross rents. Perhaps a better measure would have been to determine how many units are available to the minimum wage workers in that jurisdiction. That being said, the report does document how “rents remain out of reach for many renters.” (2) For instance, 75% of extremely low income renters spend more than 50% of their income on housing costs . . ..” (5)

Income and wealth inequality have reached extreme proportions in America today. This report highlights how this is playing out in the context of the housing market. (I would also note, however, that the report does not account for how restrictive land use policies keep the supply of new housing from growing many communities, but that may just be a subject for another report.)

HAMP-ered Foreclosure Prevention

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The Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report, Treasury’s Opportunity to Increase HAMP’s Effectiveness by Reaching More Homeowners in States Underserved by HAMP. The Introduction opens,

TARP’s signature foreclosure prevention program, the Home Affordable Modification Program (“HAMP”), has struggled to reach the expected number of homeowners Treasury envisioned for the program. According to Treasury, TARP’s housing support programs were intended to “help bring relief to responsible homeowners struggling to make their mortgage payments, while preventing neighborhoods and communities from suffering the negative spillover effects of foreclosure.” Treasury announced that HAMP itself aimed “to help as many as three to four million financially struggling homeowners avoid foreclosure by modifying loans to a level that is affordable for borrowers now and sustainable over the long term,.” The only long-term sustainable help provided through HAMP is a permanent mortgage modification, which become effective after the homeowner successfully completes a trial period plan. Through December 31, 2014, according to Treasury data, 1,514,687 homeowners have been able to get into a more affordable permanent HAMP modification (of which, 452,322 homeowners, or 29%, subsequently redefaulted on their HAMP modifications), while there have been 6,165,544 foreclosures nationwide over the same period based on CoreLogic data.” (1, footnotes omitted)

There is a lot of soul searching in this report about why HAMP has been so ineffective and the report offers tweaks to the program to improve it. But perhaps the problem is structural — a program like HAMP was never really in a position to make a bigger impact on the foreclosure crisis.

When compared to the federal government’s intervention during the Great Depression, HAMP seems too modest. President Roosevelt’s Home Owners’ Loan Corporation bought out mortgages from banks in bulk and then refinanced them on more attractive terms than the private sector offered. HAMP, on the other hand, has trouble getting homeowners to apply to the program in the first place.

Bottom line: HAMP is too retail and what we needed and need is something that could be done wholesale.