Tag Archives: affordable housing

Dems Favor Land Use Reform

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photo by DonkeyHotey

The Democratic Party has released its draft 2016 Policy Platform. Its housing platform follows in its entirety. I find the highlighted clause particularly intriguing and discuss it below.

Where Donald Trump rooted for the housing crisis, Democrats will continue to fight for those families who suffered the loss of their homes. We will help those who are working toward a path of financial stability and will put sustainable home ownership into the reach of more families. Democrats will also combat the affordable housing crisis and skyrocketing rents in many parts of the country that are leading too many families and workers to be pushed out of communities where they work.

We will increase the supply of affordable rental housing by expanding incentives and easing local barriers to building new affordable rental housing developments in areas of economic opportunity. We will substantially increase funding for the National Housing Trust Fund to construct, preserve, and rehabilitate millions of affordable housing rental units. Not only will this help address the affordable housing crisis, it will also create millions of good-paying jobs in the process. Democrats also believe that we should provide more federal resources to the people struggling most with unaffordable housing: low-income families, people with disabilities, veterans, and the elderly.

We will reinvigorate federal housing production programs, increase resources to repair public housing, and increase funding for the housing choice voucher program. And we will fight for sufficient funding to end chronic homelessness.

We must make sure that everyone has a fair shot at homeownership. We will lift up more families and keep the housing market robust and inclusive by defending and strengthening the Fair Housing Act. We will also support first time homebuyers, implement credit score reform to make the credit industry work for borrowers and not just lenders, and prevent predatory lending by defending the Consumer Financial Protection Bureau (CFPB). And we will help underwater homeowners by expanding foreclosure mitigation counseling. (4-5, emphasis added)

Much of the housing platform represents a continuation of Democratic policies, such as increased funding for affordable housing, improved enforcement of the Fair Housing Act and expanded access to counseling for distressed homeowners.

But the highlighted clause seems to represent a new direction for the Democratic Party: an acknowledgement that local land use decisions in areas of economic opportunity (read: the Northeast, the Bay Area and similar dynamic regions) are having a negative impact on low- and moderate-income households who are priced out of the housing markets because demand far outstrips supply.

This is a significant development in federal housing policy, flowing from work done by Edward Glaeser and Joseph Gyourko, among others, who have demonstrated the out-sized effect that the innumerable land use decisions made by local governments have had on the availability of affordable housing regionally and nationally.

There is a lot of ambiguity in the phrase “easing local barriers to building new affordable rental housing developments,” but the federal government has a lot of policy tools available to it to do just that. If Democrats are able to implement this aspect of the party platform, it could have a very positive impact on the prospects of households that are priced out of the regions where all the new jobs are being created.

The State of the Union’s Housing in 2016

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photo by Lawrence Jackson

The Joint Center for Housing Studies of Harvard University has released its excellent annual report, The State of the Nation’s Housing for 2016. It finds,

With household growth finally picking up, housing should help boost the economy. Although homeownership rates are still falling, the bottom may be in sight as the lingering effects of the housing crash continue to dissipate. Meanwhile, rental demand is driving the housing recovery, and tight markets have added to already pressing affordability challenges. Local governments are working to develop new revenue sources to expand the affordable housing supply, but without greater federal assistance, these efforts will fall far short of need. (1)

Its specific findings include,

  • nominal home prices were back within 6 percent of their previous peak in early 2016, although still down nearly 20 percent in real terms. The uptick in nominal prices helped to reduce the number of homeowners underwater on their mortgages from 12.1 million at the end of 2011 to 4.3 million at the end of 2015. Delinquency rates also receded, with the share of loans entering foreclosure down sharply as well. (1)
  • The US homeownership rate has tumbled to its lowest level in nearly a half-century. . . . But a closer look at the forces driving this trend suggests that the weakness in homeownership should moderate over the next few years. (2)
  • The rental market continues to drive the housing recovery, with over 36 percent of US households opting to rent in 2015—the largest share since the late 1960s. Indeed, the number of renters increased by 9 million over the past decade, the largest 10-year gain on record. Rental demand has risen across all age groups, income levels, and household types, with large increases among older renters and families with children. (3)

There is a lot more of value in the report, but I will leave it to readers to locate what is relevant to their own interests in the housing industry.

I would be remiss, though, in not reiterating my criticism of this annual report: it fails to adequately disclose who funded it. The acknowledgments page says that principal funding for it comes from the Center’s Policy Advisory Board, but it does not list the members of the board.

Most such reports have greater transparency about funders, but the interested reader of this report would need to search the Center’s website for information about its funders. And there, the reader would see that the board is made up of many representatives of real estate companies including housing finance giants, Fannie Mae and Freddie Mac; national developers, like Hovnanian Enterprises and KB Homes; and major construction suppliers, such as Marvin Windows and Doors and Kohler. Nothing wrong with that, but disclosure of such ties is now to be expected from think tanks and academic centers.  The Joint Center for Housing Studies should follow suit.

Walkers in the City

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photo by Derrick Coetzee

The Center for Real Estate and Urban Analysis at The George Washington School of Business has released Foot Traffic Ahead: Ranking Walkable Urbanism in America’s Largest Metros for 2016. The Executive Summary opens,

The end of sprawl is in sight. The nation’s largest metropolitan areas are focusing on building walkable urban development.

For perhaps the first time in 60 years, walkable urban places (WalkUPs) in all 30 of the largest metros are gaining market share over their drivable sub-urban competition—and showing substantially higher rental premiums.

This research shows that metros with the highest levels of walkable urbanism are also the most educated and wealthy (as measured by GDP per capita)— and, surprisingly, the most socially equitable. (4)

This strikes me as a somewhat over-optimistic take on sprawl, but I certainly welcome the increase in walkable urban places over a broad swath of metropolitan areas. The report’s specific findings are that

There are 619 regionally significant, walkable urban places—referred to as WalkUPs—in the 30 largest U.S. metropolitan areas. These 30 metros represent 46 percent of the national population (145 million of the 314 million national population) and 54 percent of the national GDP.

The 30 metros are ranked on the current percentage of occupied walkable urban office, retail, and multi-family rental square feet in their WalkUPs, compared to the balance of occupied square footage in the metro area. The six metros with the most walkable urban space in WalkUPs are, in rank order, New York City, Washington, DC, Boston, Chicago, San Francisco, and Seattle.

Economic Performance: There are substantial and growing rental rate premiums for walkable urban office (90 percent), retail (71 percent), and rental multi-family (66 percent) over drivable sub-urban products. Combined, these three product types have a 74 percent rental premium over drivable sub-urban.

Walkable urban market share growth in office and multi-family rental has increased in all 30 of the largest metros between 2010-2015, while drivable sub-urban locations have lost market share. The market share growth for 27 of the 30 metros is two times their market share in 2010. This is of the same or greater magnitude as the market share gains of drivable sub-urban development during its boom years in the 1980s, but in the reverse direction.

Indicators of potential future WalkUP performance show that many of the metros ranked highest for current walkable urbanism are also found at the top of our Development Momentum Ranking—namely, the metros of New York City, Boston, Seattle, and Washington, DC. This indicates that these metros will continue to build on their already high WalkUP market shares and rent premiums.

There are also some surprising metros in this top tier of Development Momentum rankings, including Detroit, Phoenix, and Los Angeles.

The most walkable urban metro areas have a substantially greater educated workforce, as measured by college graduates over 25 years of age, and substantially higher GDP per capita. These relationships are correlations, and determining the causal relationships requires further research to prove.

Walkable urban development describes trends resulting from both revitalization of the central city and urbanization of the suburbs. For nearly all metros, the future urbanization of the suburbs holds the greatest opportunity; metro Washington, DC, serves as a model, splitting its WalkUPs relatively evenly between its central city (53 percent) and its suburbs (47 percent).

Social Equity Performance: The national concern about social equity has been exacerbated by the very rent premiums highlighted above, referred to as gentrification. Counter-intuitively, measurement of moderate-income household (80 percent of AMI) spending on housing and transportation, as well as access to employment, shows that the most walkable urban metros are also the most socially equitable. The reason for this is that low cost transportation costs and better access to employment offset the higher costs of housing. This finding underscores for the need for continued, and aggressive, development of attainable housing solutions. (4, footnote omitted)

There is a lot of import here. Is there more than a correlation between walkability and the educational level of the workforce and, if so, why? Why don’t more housing affordability studies take into account transportation costs when evaluating the affordability of a given community? What is the trend line of this new direction toward urbanism and how far can it go in the face of decades of investment in car-based communities? This annual study will help us answer those questions, over time.

White-Segregated Subsidized Housing

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The  University of Minnesota Law School’s Institute on Metropolitan Opportunity has issued a report, The Rise of White-Segregated Subsidized Housing. While the report is focused on Minnesota, it raises important issues about affordable housing program demographics throughout the country:

  • To what extent do the populations served by programs match those of their catchment areas?
  • To what extent do the served populations match the eligible populations of their catchment areas?
  • To what extent do the served populations match the demographics of those who have applied for the programs?
  • To what extent do variants among those metrics matter?

The Executive Summary opens,

Subsidized housing in Minneapolis and Saint Paul is segregated, and this segregation takes two forms – one well-known, and the other virtually unknown.

At this point it is widely recognized that most Minneapolis and Saint Paul subsidized housing is concentrated in racially diverse or segregated neighborhoods, with few subsidized or otherwise-affordable units in affluent, predominately white areas. Because subsidized units are very likely to be occupied by families of color, this pattern increases the region’s overall degree of segregation.

But what has been overlooked until today, at least publicly, is that a small but important minority of subsidized projects are located in integrated or even-predominately white areas. Unlike typical subsidized housing, however, the residents of these buildings are primarily white – in many instances, at a higher percentage than even the surrounding neighborhood. These buildings thus reinforce white residential enclaves within the urban landscape, and intensify segregation even further.

What’s more, occupancy is not the only thing distinguishing these buildings from the average subsidized housing project. They are often visually spectacular, offering superior amenities – underground parking, yoga and exercise studios, rooftop clubrooms – and soaring architecture. Very often, these white-segregated subsidized projects are created by converting historic buildings into housing, with the help of federal low-income housing tax credits, historic tax credits, and other sources of public funding. Frequently, these places are designated artist housing, and – using a special exemption obtained from Congress by Minnesota developers in 2008 – screen applicants on the basis of their artistic portfolio or commitment to an artistic craft.

These places cost far more to create than traditional subsidized housing, and include what are likely the most expensive subsidized housing developments in Minnesota history, both in terms of overall cost and per unit cost. These include four prominent historic conversions, all managed by the same Minneapolis-based developer – the Carleton Place Lofts ($430,000 per unit), the Schmidt Artist Lofts ($470,000 per unit), the upcoming Fort Snelling housing conversion ($525,000 per unit), and the A-Mill Artist lofts ($665,000 per unit). The combined development cost of these four projects alone exceeds $460 million. For reference, this is significantly more than the public contribution to most of the region’s sports stadiums; it is $40 million less than the public contribution to the controversial downtown football stadium.

These four buildings contained a total of 870 units of subsidized housing, most of which is either studio apartments or single-bedroom. For the same expense, using 2014 median home prices, approximately 1,590 houses could have been purchased in the affluent western suburb of Minnetonka.

In short, Minneapolis and Saint Paul are currently operating what is, in effect, a dual subsidized housing system. In this system, the majority of units are available in lower-cost, utilitarian developments located in racially segregated or diverse neighborhoods. These units are mostly occupied by families of color. But an important subset of units are located in predominately white neighborhoods, in attractive, expensive buildings. These units, which frequently are subject to special screening requirements, are mostly occupied by white tenants.

As a matter of policy, these buildings are troubling: they capture resources intended for the region’s most disadvantaged, lowest-income families, and repurpose those resources towards the creation of greater segregation – which in turn causes even more harm to those same families.

Legally, they may well run afoul of the Fair Housing Act and other civil rights law. Recent developments have established that the Fair Housing Act forbids public or private entities from discriminating in the provision of housing by taking actions that create a disparate impact on protected classes of people, including racial classes. Moreover, recipients of HUD funding, such as the state and local entities which contribute to the development of these buildings, have an affirmative obligation to reduce segregation and promote integration in housing.  (1-2)

No doubt, this report will spur a lot of soul searching in Minnesota. It may also spur some litigation. Other communities with subsidized housing programs should take a look at themselves in the mirror and ask if they like what they see. They should also ask whether federal judges would like it.

Inclusionary Housing: Fact and Fiction

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photo by Bart Everson

The Center for Housing Policy has issued a policy brief, Separating Fact from Fiction to Design Effective Inclusionary Housing Programs. I am not sure fact was fully separated from fiction when I finished reading it.  It opens,

Inclusionary housing programs generally refer to city and county planning ordinances that require or incentivize developers to build below-market-rate homes (affordable homes) as part of the process of developing market-rate housing developments. More than 500 local jurisdictions in the United States have implemented inclusionary housing policies, and inclusionary requirements have been adopted in a wide variety of places—big cities, suburban communities and small towns.

Despite the proliferation of inclusionary housing programs, the approach continues to draw criticism. There have been legal challenges around inclusionary housing requirements in California, Illinois, Idaho, Colorado and Wisconsin, among others. In addition to legal questions, critics have claimed inclusionary housing policies are not effective at producing affordable housing and have negative impacts on local housing markets.

While there have been numerous studies on inclusionary housing, they unfortunately do not provide conclusive evidence about the overall effectiveness of inclusionary housing programs. These studies vary substantially in terms of their research approaches and quality. In addition, it is difficult to generalize the findings from the existing research because researchers have examined policies in only a handful of places and at particular points in time when economic and housing market conditions might have been quite different. Given these limitations, however, the most highly regarded empirical evidence suggests that inclusionary housing programs can produce affordable housing and do not lead to significant declines in overall housing production or to increases in market-rate prices. However, the effectiveness of an inclusionary housing program depends critically on local economic and housing market characteristics, as well as specific elements of the program’s design and implementation. (1, endnotes omitted and emphasis in the original)

The brief concludes that, in general, ” mandatory programs in strong housing markets that have predictable rules, well-designed cost offsets, and flexible compliance alternatives tend to be the most effective types of inclusionary housing programs.” (11, emphasis removed)

I have to say that this research brief does not give me a great deal of confidence that mandatory inclusionary zoning programs are going to be all that effective.  Indeed, the conclusion suggests that many ducks need to line up before we can count on them to make a real dent in affordable housing production. While this by no means should imply that they should be curtailed, we should continue to evaluate them carefully to see if they live up to their promise.

Affirmatively Furthering Neighborhood Choice

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Professor Kelly

Professor Kelly

Jim Kelly has posted Affirmatively Furthering Neighborhood Choice: Vacant Property Strategies and Fair Housing to SSRN (forthcoming in the University of Memphis Law Review). He writes,

With the Supreme Court’s Inclusive Cmtys. Project decision in June 2015 and the Obama Administration’s adoption, the following month, of the Final Rule for Affirmatively Furthering Fair Housing, local government accountability for ending segregation and resolving the spatial mismatch between affordable housing and economic opportunity has been placed on a more solid footing. Instead of being responsible only for overt, conscious attempts to harm protected groups, jurisdictions that receive money from HUD will need to take a hard look at their policies that perpetuate the barriers to housing opportunity for economically marginalized protected groups. The duty to Affirmatively Further Fair Housing, although somewhat aspirational in its formulation, requires HUD grant recipients to engage with fair housing issues in a way that the threat of litigation, even disparate impact litigation, never has.

For cities struggling with soft residential real estate markets, HUD’s concerns about land use barriers to affordable housing may seem tone deaf. Advocates challenging exclusionary policies have often focused on cities with high housing costs. Even a city with large vacant problems, such as Baltimore, was sued primarily because of its location with a strong regional housing market. But, concerns about social equity in revitalizing communities make the Final Rule’s universal approach to AFFH very relevant to cities confronting housing abandonment in its older, disinvested neighborhoods. This Articles has shown that attention to the Final Rule’s new Assessment of Fair Housing (AFH) reporting system is warranted both as a protective measure and as an opportunity to advance core goals of creating and sustaining an attractive and inclusive network of residential urban communities. (30-31)

For those of us who have trouble parsing the contemporary state of fair housing law in general and the AFFH rule in particular, the article provides a nice overview. And it offers insight into how fair housing law can help increase “the supply of decent, affordable housing options to members of protected groups . . .” (2) Not a bad twofer for one article.

Fannie & Freddie’s Duty to Serve

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Alan Cleaver

The Federal Housing Finance Agency had issued a request for comments on a proposed rulemaking back in December about Enterprise Duty to Serve Underserved Markets. Comments were due yesterday. I drafted a short comment letter on one of the many topics raised by the rulemaking. The abstract reads,

The FHFA has requested input on its proposed rule that would provide a Duty to Serve credit to Fannie Mae and Freddie Mac (The Enterprises) for eligible activities that facilitate a secondary mortgage market for mortgages related to preserving the affordability of housing for homebuyers, among other things.  I write to comment regarding the preservation of affordable homeownership through shared equity homeownership programs.

The Proposed Rule requires that each Objective of an Underserved Markets Plan be measurable in order to determine whether it has been achieved by the Enterprise.  The Proposed Rule requires that these programs “promote successful homeownership.” § 1282.34(d)(4)(iii).  While the Proposed Rule addresses ways that ensure that housing remains affordable for future owners after resale, it does not offer a way to measure successful or sustainable homeownership for participants while they are in a shared equity program.

The FHFA should require that the Enterprises measure the tenure of homeowners participating in shared equity programs and disallow Duty to Serve credit if participants fail to maintain their housing for reasonable length of time.  While this comment is being made in the context of shared equity programs, it applies with equal force to all homeownership programs that are counted for Duty to Serve purposes.