Tag Archives: affordable housing

Location, Location, Location of NYC Affordable Housing

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NYU’s Furman Center has released a white paper, Housing, Neighborhoods, and Opportunity: The Location of New York City’s Subsidized Affordable Housing. The report opens,

Rent burdens for low- and moderate-income renters continue to grow in New York City, inviting calls for more affordable housing. While the primary goal in developing affordable housing should arguably be to provide safe housing at a reasonable cost so that households have more residual income available for food, medicine, transportation, and other essential goods, housing programs also take people to particular neighborhoods. New York City neighborhoods provide widely varying access to services and opportunity. Thus, city policymakers need to pay attention not only to the number or quality of subsidized, affordable units produced, but also to the characteristics of the neighborhoods where those units are built. (1)

In order to provide some data about that, the paper examines where 235,000 units of subsidized rental housing are in New York City. Unsurprisingly, many of the units are in neighborhoods like Upper Manhattan, the South Bronx and Central Brooklyn where land costs were historically low.The paper studies important characteristics of neighborhoods where the subsidized housing stock is located: isolation from the rest of the City; student performance; public amenities like parks; public safety; poverty; and housing cost. It also looks at how these characteristics have changed in the 2000s.

One key finding from the report that will be of interest to those who think about how New York City is changing over time: tens of thousands of properties have opted out of affordability restrictions, particularly in more expensive neighborhoods like Manhattan below 96th Street, and it looks like tens of thousands more will opt out over the next decade.

As the Mayor’s team develops its affordable housing strategy of building and preserving 200,000 units of affordable housing, this report presents some sobering data on the affordable housing challenges that the City faces. My takeaway is that the City should be doing more to encourage housing construction more generally to increase the overall supply, in addition to subsidizing affordable housing directly. Subsidies will never create enough units on their own to house all of the people who call and want to call NYC “home.”

Housing Subsidies For Those Who Need Them

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The National Low Income Housing Coalition has posted Aligning Federal Low Income Housing Programs with Housing Need. The Executive Summary goes right to the heart of the matter:

The number of renters in the United States has steadily increased since 2006 and will continue to rise as new households form in the post-recession economy. In 2012, one out of four renter households had incomes at or below 30% of the area median income (AMI) for a total of 10.3 million households categorized as extremely low income (ELI). In the same year there were just 3.2 million units affordable and available to ELI households, creating a shortage of 7.1 million rental units affordable to these households.

Despite this evidence of a substantial need for deeply affordable rental housing, the low income housing resources that are provided by the federal government are only able to reach 23% of the eligible population. (iii)
This study looks at the extent to which the Low Income Housing Tax Credit (LIHTC), the HOME program and the Federal Home Loan Banks’ Affordable Housing Program (AHP) serve ELI households. It finds that in general, “these three programs do not serve ELI households on their own. Their ability to serve ELI households depends on the addition of one or more forms of subsidy, usually housing choice vouchers (HCV).” (iii)
The study identifies common themes from its research on this topic:
  • Developers layer multiple funding sources while adapting to rapidly changing political and fiscal environments. Many also rely on non-traditional resources, such as private donations, to fill funding gaps.
  • Reducing or eliminating mortgage debt is critical to be able to serve ELI households.
  • Cultivating strong local partnerships is a key factor affecting developers’ ability to serve ELI households. Often, local jurisdictions that have prioritized affordable housing are willing to donate land or property at a low cost.
  • Cross-subsidization is an important strategy used by many developers committed to inclusive properties that serve ELI households. This strategy incorporates units affordable to ELI households into projects containing other units occupied by households with a broader mix of incomes. The rents paid by higher income households supplement the overall operating expenses of the project, compensating for the lower rents that ELI households can afford.
  • While the case studies highlighted some very effective strategies for serving ELI households without the use of vouchers, there is not one model that can be easily replicated. (iii-iv)

None of this is particularly earth shattering, but it is useful to to look into this topic in a systematic way. The Coalition hopes that this report “will contribute to the broader conversation about simplifying the process of financing affordable housing developments, refining existing programs so that they incentivize developers to serve ELI households, and finding ways to fund the ongoing operating costs of units that do serve ELI renters.” (iv)

As an off-the-cuff response, I wonder if the nation’s affordable housing agenda is benefited from such a complex funding environment for housing for extremely low income households. Can it just be funded more comprehensively, acknowledging the reality that it requires deep subsidies from the get-go? What is the opportunity cost of requiring developers to devote so much time to creating such complicated deal structures? In the current political environment, I doubt that affordable housing advocates have the stomach to raise these questions, lest Congress decides to cut back affordable housing subsidies even further. But in the long term, these are questions worth asking.

Reiss on Drop in FHA Premium

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Law360 quoted me in FHA Premium Cut Sets Up Fight Over Future Of Housing (behind a paywall). It reads in part,

President Barack Obama’s plan to lower premiums on Federal Housing Administration insurance has rekindled a battle with Republicans over the rehabilitation of the recently bailed out government mortgage insurer and the government’s role in the U.S. housing market more broadly.

Obama on Thursday officially laid out a plan that would see the FHA charge borrowers half a percentage point less on mortgage insurance premiums beginning this month in a move to boost affordability for the low- and middle-income borrowers who traditionally rely on FHA-backed mortgages.

The announcement came as the FHA continues to recover from a post-financial crisis shortfall that saw the long-standing program receive a $1.7 billion bailout from the U.S. Department of the Treasury in 2013, the first time the FHA has needed federal support.

Obama’s move on mortgage insurance premiums could make the road to a secure FHA take that much longer, and, coupled with earlier policy changes by the Federal Housing Finance Agency on mortgages backed by Fannie Mae and Freddie Mac, set up a renewed fight with Republicans over government support for the housing market.

“What’s at stake is not just housing prices and mortgage rates,” Brooklyn Law School professor David Reiss said. “What’s implicit of all of this is: What’s the appropriate role of the government in the housing market?”

The president’s plan would see the FHA charge borrowers 0.85 percent annual premiums on their mortgage insurance, down from the 1.35 percent they currently pay. First-time homebuyers will see a $900 drop in their mortgage payments each year under the new policy, according to a fact sheet released Wednesday by the White House.

“It’ll help make owning a home more affordable for millions” around the country, Obama said in a speech in Phoenix on Thursday.

Housing analysts said that the move could help boost the housing market at the margins but would not entice a large number of first-time buyers to get into the housing market.

The lower mortgage insurance premium will prove to be “marginally beneficial for the average borrower, in our opinion, and consequently, we do not believe this news … is a catalyst for higher housing demand and higher earnings estimates,” Sterne Agee analyst Jay McCanless said in a note Thursday.

But what the rate cut does is put in clear relief Obama’s plan to boost the housing market and provide a strong government role in that key economic sector, even if it means potentially putting added pressure on the agencies that provide government assistance to the housing market. Those agencies include the FHA as well as the Federal Housing Finance Agency and the two failed mortgage giants over which it has authority, Fannie Mae and Freddie Mac.

“The tension is between financial responsibility and public policy about housing,” Reiss said.

In the FHA’s case, lowering the mortgage insurance premium is likely to increase the amount of time that the agency will need to get to a 2 percent capital level that is mandated by Congress.

An independent audit of the FHA’s finances released late last year found that the agency’s Mutual Mortgage Insurance Fund stood at a positive $4.8 billion as of the end of September after being as much as $16.3 billion in the hole in 2012.

Still, while the gain on the fund has been real, its capital ratio stood at only 0.41 percent in that period, far lower than the mandated 2 percent.

*     *     *

Obama had backed congressional efforts to eliminate Fannie Mae and Freddie Mac and boost private capital in the mortgage market, but they failed amid disagreements between the Senate and House Republicans. The issue is now largely dormant.

That has left a vacuum for Obama to fill, Reiss said.

“Because Congress refused to act, Republicans are going to be stuck with a more activist government because they refused to come to the table and put together a proposal that can pass,” he said.

Reiss on Housing Unaffordability

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TheStreet.com quoted me in Homeownership Unaffordable For Most Americans in Major Cities. It reads in part,

Homeownership remains unaffordable for most Americans who are living in major cities.

A median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas, which is actually an improvement from 2013, according to a report by Interest.com, the Chicago-based consumer financial information website.

The most affordable metro areas area Atlanta, Minneapolis and St. Louis while San Francisco is the least affordable since the median income in the city is 46% less than what is required to buy a median-priced home in the area. Median-income households in San Diego, New York and Los Angeles don’t fare much better.

*     *     *

Many potential homeowners should evaluate what kind of mortgage they really need, said David Reiss, a law professor at Brooklyn Law School. Since most homeowners only stay in their house for an average of seven years, getting a traditional 30-year mortgage may not be the solution and an adjustable rate mortgage which resets after a period of years could be more affordable.

“This advice holds particularly true for families that are thinking about having more kids, since they may move sooner than they think if they come to realize that they want more space,” he said.

Reiss on Fair Housing Falsehood

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The Providence (R.I.) Journal quoted me in its Truth-O-Meter column:  Mike Stenhouse: According to HUD, It’s Unfair, Unjust for Wealthy to Live in Exclusive Neighborhoods. The column reads, in part,

For more than three years, the Rhode Island Division of Planning has been working on RhodeMap RI, a long-term economic development plan meant to help guide efforts to improve the state’s economy.

The process, partly financed by a $1.9-million grant from the U.S. Department of Housing and Urban Development (HUD),  didn’t get much notice until a nearly 200-page draft of the plan was released in mid-September, igniting a firestorm of controversy.

Critics of the plan denounced it as a thinly disguised blueprint for social engineering. If it is implemented, they say, local communities will be forced to cede authority to the federal government on issues such as affordable housing and land use, and individual property rights will be under threat.

Supporters, including Governor Chafee and the planners and community leaders who drafted the plan, say it’s a well crafted, comprehensive guide that will help move the state’s economy forward over the decades ahead. They say there’s nothing in the plan that would infringe on individual property rights or local home rule.

The debate grew so heated at one meeting a shouting match broke out, with charges of racism and bigotry hurled. And last week, at a meeting of the Statewide Planning Council, opponents called it unconstitutional, socialist and even treasonous. Nonetheless, the council voted unanimously to adopt it.

Mike Stenhouse, CEO of the Rhode Island Center for Freedom and Prosperity, a conservative research group, has led the opposition. A few weeks ago, he talked about the plan on WPRO-AM’s “The Dan Yorke Show.”

Yorke asked Stenhouse to cite a component of the plan “that highlights what you think is problematic.”

“I’m going to give you my interpretation,” Stenhouse responded. “I don’t have their plan in front of me. What we believe, for instance, take Poppasquash Point in Bristol. According to HUD, it is patently unfair and socially unjust that wealthy people can live in an exclusive neighborhood.”

We wondered whether Stenhouse was right about HUD’s view of wealthy neighborhoods such as Poppasquash Point, one of the state’s priciest enclaves.

When we asked Stenhouse about his statement, he told us he was not directly quoting HUD, but said that his statement was “an accurate interpretation of HUD’s openly stated intent.” He provided links to multiple documents to support his position.

While we don’t view Stenhouse’s statement as a direct quote of HUD policy, we do  believe that listeners who heard Stenhouse’s preface — “according to HUD” — would assume he was summarizing HUD’s policy.

Stenhouse’s backup is comprised primarily of links to a news story and an editorial in Investor’s Business Daily and links to various legal  documents and HUD regulations.

*    *    *

According to David Reiss, a professor of real estate and housing policy at Brooklyn Law School, “HUD does not interpret the FHA [Fair Housing Act] to mean that `wealthy people’ can’t `live in an exclusive neighborhood.’”

“An exclusive neighborhood is an expensive one – the FHA does not ban expensive neighborhoods.” Reiss continued in an email statement. “What it does do is ban exclusionary practices.  Exclusionary practices are those that exclude people based on certain of their characteristics such as their race, sex or religion.  To my knowledge, HUD has never taken the position that merely living in an exclusive – that is, expensive — neighborhood violates the FHA.”

We also asked HUD whether Stenhouse had accurately characterized its rules.

“There are simply no policies, practices, regulations or anything that can validate such hyper hyperbole,” Brian Sullivan, a public affairs officer with HUD, said in an email statement.

Our ruling

Mike Stenhouse said “According to HUD, it is patently unfair and socially unjust that wealthy people can live in an exclusive neighborhood.”

There’s no doubt that HUD has challenged what it considers to be discriminatory practices at the community level, including exclusionary zoning ordinances.

But that’s not nearly the same as objecting to the right of wealthy people to live in expensive neighborhoods.

We rule Stenhouse’s claim False.

Fannie and Freddie Begin a New Stage

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The Federal Housing Finance Agency has ordered Fannie and Freddie to begin making contributions to the Housing Trust Fund and to the Capital Magnet Fund.  These two funds were created pursuant to the Housing and Economic Recovery Act of 2008, the same statute that authorized placing the two companies in conservatorship. In 2008, FHFA Acting Director DeMarco suspended payments into the two funds because the two companies were being bailed out by the federal government. Now that the two companies are on firmer financial footing, the FHFA has lifted the suspension. The suspension will go back into effect for a company if it has to make a draw from Treasury under the Senior Preferred Stock Purchase Agreement, that is if the company does not have enough excess monies to make the payments into the two funds from its own income.

This action is not so surprising, given Watt’s past statements. It does, however, have some interesting implications. In terms of the GSE shareholder litigation, these allocations reduce the enterprises’ capital by a not insignificant amount; if shareholders were to win one of their lawsuits, monies placed in these two funds would be unavailable to them. In terms of housing finance reform, this action signals that the companies have moved beyond their crisis stage into a more stable one. It also emphasizes that the FHFA can take big steps on its own when it comes to housing finance reform, notwithstanding Congressional gridlock. All in all, it feels like the beginning of a new stage in the lives of the two companies.

The FHFA has issued an Interim Final Rule and Request for Comments relating to the payments into the two funds. The rule “implements a statutory prohibition against the Enterprises passing the cost of such allocations through to the originators of loans they purchase or securitize.” (1) Comments are due 30 days after the interim final rule is published in the Federal Register.

Reiss on GSE Privatization

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GlobeSt.com quoted me in Waiting to Say Goodbye to the GSEs. It reads in part,

US HUD Secretary Julian Castro added another “to do” item to the lame duck Congress’ list of things they should get done before they adjourn on Dec. 11: pass the bipartisan Johnson-Crapo Senate bill introduced earlier this year that would wind down the GSEs.

“This could be, I believe, a good victory in the lame duck session or next term of Congress for housing finance reform,” he said in an interview with Bloomberg Television earlier this week. The crux of the plan – doing away with Fannie Mae and Freddie Mac, creating a backstop for these loans and removing tax payer risk – are all supported by the Obama Administration, he said.

“Housing finance reform will continue to be a priority for the Obama Administration,” Castro said.

The multifamily finance industry has been expecting GSE reform for years now; certainly there have been calls for their dismantlement when they were placed in conservatorship in 2008 during the depth of the financial crisis. Many in the industry, in fact, would welcome their sunset, in the expectation that the private sector could fully and more efficiently and more cheaply provide the same level of funding.

That is not the unanimous sentiment though. In fact, opinions about the subject in commercial real estate range, widely, across the board from “it is about time” to “the politics are too strident for it to happen” to “maybe it will happen but it is difficult to believe the GSEs could entirely be replaced by the private sector.”

*     *     *

David Reiss, a professor of Law and Research Director, Center for Urban Business Entrepreneurship (CUBE) at Brooklyn Law School, has been calling for the privatization of Fannie and Freddie for some time and is dismissive of the “Chicken Little claims” that the sector will collapse if the government reduces its footprint in multifamily and single-family housing finance.

“With a carefully planned transition, it is eminently reasonable to believe that we can put private capital in a first loss position for multifamily housing so long as the government retains a role in subsidizing affordable housing and acting as a lender of last resort when necessary,” he tells GlobeSt.com.