Tag Archives: affordable housing

Building HOME

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housing construction

The HOME Coalition, a coalition of affordable housing organizations, has posted Building HOME: The HOME Investment Partnerships Program’s Impact on America’s Families and Communities, its 2015 report. I don’t think HOME is a household word, at least when it is in ALLCAPS, so here are the basics, taken from the report:

For over 20 years, the HOME Investment Partnerships Program (HOME) has proven to be one of the most effective, locally driven tools to help states and communities provide access to safe, decent, and affordable housing for low-income residents. The U.S. Department of Housing and Urban Development (HUD) reports that since HOME’s authorization in 1990, $26.3 billion in HOME funds have leveraged an additional $117 billion in public and private resources to help build and preserve nearly 1.2 million affordable homes and to provide direct rental assistance to more than 270,000 families. The HOME Coalition estimates that this investment has supported nearly 1.5 million jobs and has generated $94.2 billion in local income.

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With HOME, Congress created a program that provides states and communities with unmatched flexibility and local control to meet the housing needs that they identify as most pressing. HOME is the only federal housing program exclusively focused on addressing such a wide range of housing activities. States and local communities use HOME to fund new production where affordable housing is scarce, rehabilitation where housing quality is a challenge, rental assistance when affordable homes are available, and provide homeownership opportunities when those are most needed. Moreover, this flexibility means that states and communities can quickly react to changes in their local housing markets. (7, emphasis removed)

The report calls attention to the fact that Congress has been making big cuts to HOME funding since 2010. These cuts show the complexities inherent in federal housing policy, coming as they do right on the heels of the creation of the National Housing Trust Fund in 2008.

Congress appears to giveth and taketh away from housing programs in equal measure. As an added bonus for Congress, it taketh away on-budget items (HOME) and giveth off-budget items (NHTF, funded by Fannie and Freddie surcharges), making it an even more politically expedient trade-off. HOME dollars are a lot more flexible than NHTF dollars, so even a dollar for dollar trade has significant downsides for state housing programs. There is a lot not to like about this development in federal housing policy.

Tuesday’s Regulatory & Legislative Round-Up

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Fannie, Freddie & The Affordable Housing Feint

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ShapiroPhoto

Robert J. Shapiro

kamarck_mm_duo

Elaine C. Kamarck

 

 

 

 

 

Robert J. Shapiro and Elaine C. Kamarck have posted A Strategy to Promote Affordable Housing for All Americans By Recapitalizing Fannie Mae and Freddie Mac. While it presents as a plan to fund affordable housing, the biggest winners would be speculators who bought up shares of Fannie and Freddie stock and who may end up with nothing if a plan like this is not adopted.  The Executive Summary states that

This study presents a strategy for ending the current conservatorship and majority government ownership of Fannie and Freddie in a way that will enable them, once again, to effectively promote greater homeownership by average Americans and greater access to affordable housing by low-income households. This strategy includes regulation of both enterprises to prevent a recurrence of their effective insolvency in 2008 and the associated bailouts, including 4.0% capital reserves, regular financial monitoring, examinations and risk assessments by the Federal Housing Finance Agency (FHFA), as dictated by HERA. Notably, an internal Treasury analysis in 2011 recommended capital requirements, consistent with the Basel III accords, of 3.0% to 4.0%. In addition, the President should name a substantial share of the boards of both enterprises, to act as public interest directors. The strategy has four basic elements to ensure that Fannie and Freddie can rebuild the capital required to responsibly carry out their basic missions, absorb losses from future housing downturns, and expand their efforts to support access to affordable housing for all households:

  • In recognition of Fannie and Freddie’s repayments to the Treasury of $239 billion, some $50 billion more than they received in bailout payments, the Treasury would write off any remaining balance owed by the enterprises under the “Preferred Stock Purchase Agreements” (PSPAs).
  • The Treasury also would end its quarterly claim or “sweep” of the profits earned by Fannie and Freddie, so their future retained earnings can be used to build their capital reserves.
  • Fannie and Freddie also should raise roughly $100 billion in additional capital through several rounds of new common stock sales into the market.
  • The Treasury should transfer its warrants for 79.9% of Fannie and Freddie’s current common shares to the HTF [Housing Trust Fund] and the CMF [Capital Magnet Fund], which could sell the shares in a series of secondary stock offerings and use the proceeds, estimated at $100 billion, to endow their efforts to expand access to affordable housing for even very low-income households.

Under this strategy, Fannie and Freddie could once again ensure the liquidity and stability of U.S. housing markets, under prudent financial constraints and less exposure to the risks of mortgage defaults. The strategy would dilute the common shares holdings of current private investors from 20% to 10%, while increasing their value as Fannie and Freddie restore and claim their profitability. Finally, the strategy would establish very substantial support through the HTF and CPM for state programs that increase access to affordable rental housing by very low-income American and affordable home ownership by low-to-moderate income households.

Wow — there is a lot that is very bad about this plan.  Where to begin? First, we would return to the same public/private hybrid model for Fannie and Freddie that got us into so much trouble to begin with.

Second, it would it would reward speculators in Fannie and Freddie stock. That is not terrible in itself, but the question would be — why would you want to? The reason given here would be to put a massive amount of money into affordable housing. That seems like a good rationale, until you realize that that money would just be an accounting move from one federal government account to another. It does not expand the pie, it just makes one slice bigger and one slice smaller. This is a good way to get buy-in from some constituencies in the housing industry, but from a broader public policy perspective, it is just a shuffling around of resources.

There’s more to say, but this blog post has gone on long enough. Fannie and Freddie need to be reformed, but this is not the way to do it.

 

Property Tax Exemptions in Wonderland

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Cea

NYU’s Furman Center has released a policy brief, The Latest Legislative Reform of the 421-a Tax Exemption: A Look at Possible Outcomes. This brief is part of a series on affordable housing strategies for a high-cost city. It opens,

Since the early 1970s, New York City has provided a state-authorized, partial property tax exemption for the construction of new residential buildings. In the 1980s, the New York City Council amended the program to require that participating residential buildings in certain portions of Manhattan also provide affordable housing. Most recently, New York State extended the existing program through the end of 2015 and created a new 421-a framework for 2016 onward. However, for the program to continue beyond December, the legislation requires that representatives of residential real estate developers and construction labor unions reach a memorandum of understanding regarding wages of construction workers building 421-a program developments that contain more than 15 units.

This brief explores the possible impacts of the new 421-a legislation on residential development across a range of different neighborhoods in New York City, including neighborhoods where rents and sale prices are far lower than in the Manhattan Core and where the tax exemption or other subsidy may be necessary to spur new residential construction under current market conditions. We assess what could happen to new market rate and affordable housing production if the 421-a program were allowed to expire or if it were to continue past 2015 in the form contemplated by recently passed legislation. Our analysis shows that changes to the 421-a program could significantly affect the development of both market rate and affordable housing in the city (1, footnote omitted)

The 421-a program operates against the backdrop of a crazy quilt real property tax regime where similar buildings are taxed at wildly different rates because of various historical oddities and thinly-sliced legal distinctions. Like the Queen of Hearts, the rationale given by the Department of Finance for this unequal treatment amounts to no more than — And the reason is…because I say so, that’s why!

The brief concludes,

Our financial analysis of the possible outcomes from the 421-a legislation offers some insights into its potential impact on new construction. First, if the 421-a benefit expires in 2016, residential developers would lower the amount they would be willing to pay for land in many parts of the city. The result could be a pause in new residential developments in areas outside of the Manhattan Core as both buyers and sellers of land adjust to the new market.

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Second, if the newly revised 421-a program with its higher affordability requirements and longer exemption period goes into effect in 2016 without any increase in construction costs, the city is likely to have more affordable rental units developed in many parts of the city compared to what the existing 421-a program would have created. Condominium development without the 421-a program may still continue to dominate in certain portions of Manhattan, though the program appears to make rentals more attractive. (12)

The first outcome — lower land prices if 421-a expires — is not that bad for anyone, except current landowners. And it is hard to feel bad for them, given that they should not have expected that 421-a would remain in effect forever (and not to mention the rapid increases in NYC land prices). The second outcome — the new 421-a framework — sounds like better public policy than the existing program.

But one wonders — what would it take for NYC to develop a rational real property tax regime to replace our notoriously inequitable one, one that treats like properties so differently from each other. Can we escape from Wonderland?

Friday’s Government Reports Roundup

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SF’s Airbnboom

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Brian Johnson & Dane Kantner

The Christian Science Monitor quoted me in San Francisco Votes Down Airbnb Limits: Can Competing Interests Be Balanced? It reads, in part,

A defeated ballot measure in San Francisco, which would have imposed further restrictions on users of Airbnb and similar websites, is a sign of how the issue of short-term housing rentals is vexing city governments in the United States and beyond.

From Fort Lauderdale, Fla., to Los Angeles, lawmakers and residents alike are struggling to balance the power of technological change with the many critics of the home-sharing industry: homeowners who complain about deterioration in the quality of life in residential neighborhoods, hotels that fret about lost revenues, and activists who say that short-term housing is stripping the marketplace of affordable long-term units.

Yet even some of the trend’s most ardent critics suggest that more restrictions are not necessarily the answer. Better enforcement of current laws would go a long way toward balancing the conflicting interests, they say.

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On the other coast, just as many cities are struggling. New York City is still up in the air about how to handle the sharing economy, says Brooklyn Law School professor David Reiss, who has followed Airbnb’s evolution.

This week, Airbnb promised to provide detailed data to the New York City Council, he notes. “The company is doing this in part to fend off [legislation] that would severely limit their reach in NYC,” he says via e-mail. One piece of proposed legislation increases penalties for violations of existing laws, and another mandates that the city track illegal apartment conversions, according to Professor Reiss.

Still, the sharing economy is with us for the long term as consumers continue to vote with their wallets, he says. “The bottom line is that we are in a period of transition. And while it is unlikely that we will return to the pre-sharing economy, it is also unlikely that we will have a sharing economy that is driven just by market actors, without government regulation,” he adds.

Home and Marriage

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The Pug Father

TheStreet.com quoted me in First-Time Homebuyers Often Wait to Buy House After Marriage. It reads, in part,

The number of people purchasing their first home, especially Millennials, could be impacted negatively by shifting demographics as the median age for marriage is rising.

A recent survey by NeighborWorks America, the Washington, D.C.-based affordable housing organization, found that 43% the respondents said they intended to buy a home when they “got married or moved in with a life partner.” The median age for a first marriage has risen to 29.3 years old for men and 27 years old for women, according to the U.S. Census Bureau. In 2000, men first got married at 26.8 years old while the median age for women was 25.1 years old.

Other respondents said they would wait to buy a home when other changes occurred, with 22% who will purchase one when they have children and 18% who are still seeking their first full-time job.

Many Millennials are delaying the purchase of a home because not only are they waiting until they are older to get married, a large percentage are also saddled with a large amount of student loans. The survey also demonstrated that 57% respondents admitted that student loans were either “very much” or “somewhat” of an obstacle, a rising concern compared to 49% who expressed this sentiment in 2014.

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“The state of the economy has interfered with their ability to maintain a steady income and this has likely delayed marriage,” said David Reiss, a law professor at Brooklyn Law School. “As a result, they are less likely to become homeowners.”

What’s more, the lack of job security in the current economy has dampened many people’s enthusiasm to own a home.

“Buying a home is a big commitment to your future self and your family: ‘I will make that mortgage payment come hell or high water,’” he said. “Fewer people are going to want to make that commitment if the job market does not give them a reasonable basis to believe that they can live up to it.”