Tag Archives: federal government

Climate Change and Residential Real Estate

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By U.S. Air Force photo/Staff Sgt. James L. Harper Jr.

Freddie Mac posted an Economic & Housing Research Insight, Life’s A Beach, that addresses the impact of climate change on residential real estate. It discusses the limitations of our potential responses:

Even with significant and coordinated global action like that outlined at the Paris climate conference, some of the projected impacts of climate change appear to be unavoidable. Governments and private organizations are working on plans to mitigate impacts where possible and to adapt to changes that are inevitable. Many are taking notes from the experience of the Netherlands, which has prospered for centuries despite lying below sea level.

However, the dikes and sea walls used by the Dutch may not solve the problems of South Florida. Florida sits on a substrate of porous limestone that holds Florida’s supply of fresh water. As the sea level rises, it infiltrates the limestone underground and contaminates the freshwater supply. A sea wall might stop storm water surges on the surface, but it can’t prevent the underground incursion of salt water.

While technical solutions may stave off some of the worst effects of climate change, rising sea levels and spreading flood plains nonetheless appear likely to destroy billions of dollars in property and to displace millions of people. The economic losses and social disruption may happen gradually, but they are likely to be greater in total than those experienced in the housing crisis and Great Recession. That recent experience illustrated the difficulty of allocating losses between homeowners, lenders, servicers, insurers, investors, and taxpayers in general. The delays in resolving these differences at times exacerbated the losses. Similar challenges will face the nation in dealing with the impact of climate change. (5-6)

The report also highlights a bunch of concrete problems that homeowners and taxpayers will need to confront as climate change wreaks greater havoc:

  • Will the federal government continue to subsidize flood insurance?
  • Will property values in flood zones drop over time?
  • Will climate change increase social dislocation as the landscape of coastal areas is permanently altered by rising sea levels?

The federal government has dropped the ball in taking a leadership role in this area and many states have done so as well. It will likely take a tragedy (likely to be a preventable one) to get them to focus on this in any meaningful way.

Preserving Affordable Housing

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photo by Rgkleit

Alexander von Hoffman of the Harvard Joint Center for Housing Studies has posted an interesting working paper, To Preserve Affordable Housing in the United States. It opens,

Most Americans who have any idea about low-income housing policy in the United States think of it as composed of programs that either build and manage residences – such as public housing – or help pay the rent – such as rental vouchers. Few people realize that much, perhaps most, of the government’s effort to house poor families and individuals is now devoted to supporting privately owned buildings that, courtesy of government subsidies, already provide low-income housing. Similarly, few know of the national movement to prevent these rental homes from being converted to market-rate housing or demolished and to keep them affordable and available to low-income households.

The problem of “preservation of affordable housing” generally refers to privately owned but government-subsidized dwellings developed under a particular set of federal subsidy programs. Although the first of these programs was enacted in 1959, their heyday – when they produced the bulk of government-subsidized low-income housing – lasted from the late 1960s until the mid-1980s. Before these programs were adopted, the government’s chief low-income housing program had been public housing, in which government agencies funded, developed, owned, leased, and managed apartments for people of limited incomes on a permanent basis.

Starting about 1960, however, the government shifted to a new policy in which it provided subsidies limited to a specific length of time to private developers of low-income rental housing. These private developers could be nonprofit organizations or for-profit companies operating through entities that earned limited dividends. In the low-income rental programs of the 1960s the government subsidized the rents of poor tenants by providing low-interest mortgage loans (through mortgage insurance and/or direct payments) to the projects’ developers. In 1974, Congress added another program, Section 8, in which the government signed a contract to pay a portion of the tenants’ rents for up to twenty years, which was as long as the mortgage subsidies had been.

After the low-income rental projects were completed, a number of circumstances threatened to displace the projects’ low-income occupants from their homes. In the early years especially, some owners faced financial difficulties, including foreclosures. Starting in the boom years of the 1980s, others desired to pay back their subsidized mortgages early (or “prepay”) to rent or sell the apartments at lucrative market rates. And eventually all owners reached the end of the time limit of their original subsidies. To keep low-income tenants in the subsidized apartments, housing advocates fought to keep the subsidized projects livable and within the means of poor people. The cause they rallied to was the “preservation of affordable housing.”

*    *    *

Since the late 1980s a wide array of interests – including for-profit owners and investors, non-profit developers and managers, and tenants – have organized their interest-group associations and entered into coalitions with one another to shape government policies. They have worked with sympathetic members of Congress and their aides to preserve the subsidized housing stock for low-income Americans. The road has been rough at times. The Reagan administration was indifferent at best to the issue. Legislation in 1987 and 1990 for all practical purposes banned prepayments, angering the owners’ representatives who opposed these laws. After prepayments were again allowed, advocates and owners joined together again to push for affordable housing preservation programs and procedures. The government programs that they attained in the 1990s became a major component of low-income housing policy in the United States.

Until relatively recently, the interest groups focused on shaping federal policy. They worked to pass – or repeal – national legislation and to influence program rules set by the Department of Housing and Urban Development (HUD). Although the federal government continues to be essential to housing policy, the growing political opposition to large federal spending programs has led advocates of affordable housing preservation to press state governments for financial support. (3-5)

This working paper clearly identifies the problems with “[p]oorly thought out programs” that “encouraged bad underwriting and long-term management” and how they played out in affordable housing projects that were not intended to provide for permanent affordability. (73) It also provides a good foundation for a discussion of where affordable housing policy should be heading now.

Wednesday’s Academic Roundup

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Feds Financing Multifamily

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Brett VA

The Congressional Budget Office has released The Federal Role in the Financing of Multifamily Rental Properties. The report opens,

Multifamily properties—those with five or more units— provide shelter for approximately one-third of the more than 100 million renters in the United States and account for about 14 percent of all housing units. Mortgages carrying an actual or implied federal guarantee have been an important source of financing for acquiring, developing, and rehabilitating multifamily properties, particularly after the collapse in house prices and credit availability that accompanied the 2008–2009 recession. According to the Federal Reserve, the share of outstanding multifamily mortgages carrying such a guarantee increased by 10 percentage points, from 33 percent at the beginning of 2005 to 43 percent at the end of the third quarter of 2014. (A slightly larger increase of about 16 percentage points occurred in the federal government’s market share of the much larger single-family market.) Such guarantees are made by a variety of entities, and some policymakers are looking for ways to make the federal government’s involvement more effective. Other policymakers have expressed concern about that expanded federal role and are looking at ways to reduce it. (1)

This debate is, of course, key to housing policy more generally: to what extent should the government be involved in the provision of credit in that sector?

This report does a nice job of summarizing the state of the multifamily housing sector, particularly since the financial crisis. It provides an overview of federal mortgage guarantees for multifamily projects and reviews the choices that Congress faces when it decides to determine Fannie and Freddie’s fate. That is, should we have a federal agency guarantee multifamily mortgages; take a hybrid public/private approach; authorize a federal guarantor of last resort; or take a largely private approach?

We should start by asking if there is a market failure in the housing finance sector and then ask how the government should intercede to correct that market failure. My own sense is that we intercede too much and we should move toward a federal guarantor of last resort with additional support for the low- and moderate-income subsector of the market.

 

 

 

Floodproofing Communities

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Gordon Tarpley

NYU’s Furman Center has released a Research Brief, Planning for Resilience: The Challenge of Floodproofing Multifamily Housing. The Brief opens,

As sea levels rise and storms become more frequent and severe due to climate change, many urban areas along the coasts and rivers of the United States are facing a flood-prone future. Especially in the older urban areas along the eastern seaboard, there is a significant stock of multifamily housing that will be increasingly at risk. Much of this housing is out of compliance with federal flood-resistant design and construction standards. Some of these buildings have housing units that are out of compliance because, regardless of their age, they were only recently mapped into the floodplain. And, even buildings that have been in the floodplain for longer may be out of compliance with the rules because their construction predated their jurisdiction’s adoption of the standards. (2)

And it concludes,

As the nation’s floodplains expand, the number and types of housing units at risk of flooding also grows. Multifamily housing makes up a larger share of the at-risk housing in the floodplain than was previously understood, and mitigating the risk to this housing and its residents presents unique challenges that local governments must be prepared to face. While there is no easy answer to how to fund the often costly and disruptive retrofit measures needed in these buildings, there are steps that local governments can take to make it easier for buildings to adapt, such as educating owners about risks, providing them with information about retrofit strategies, and helping them finance improvements. Including strategies like these in a long-term resilience plan will make communities stronger and will ensure that multifamily buildings and their residents are not left behind as flood-prone areas adapt. (10)

There is no doubt that this is right. New York City under both Mayors Bloomberg and De Blasio have taken this issue very seriously, but a lot of work remains to be done. And the odds are that the amount of work will only increase with time as sea levels rise higher and higher. Because many other local governments do not have the resources of NYC, they will get their wake up calls the hard way.

Given the broad effects of climate change, resiliency efforts would ideally be led by the federal government. But I don’t see that happening for a long time, probably after an avoidable tragedy on a large scale spurs Congress to action, notwithstanding its ideological commitments.

Friday’s Government Reports

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  • 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.

Monday’s Adjudication Roundup

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