Tag Archives: Housing and Urban Development

Location Affordability

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Following up on an earlier post on NYC’s (Affordable) Housing Crisis, I turn to the Citizen Budget Commission’s report on Housing Affordability Versus Location Affordability. The report opens,

How much more would you pay for an apartment just a short walk from your job than for an equivalent apartment that required an hour-long commute by car to work?

This question highlights two important points about the links between housing costs and transportation costs. First, transportation costs typically are a major component of household budgets, usually second only to housing. Second, a tradeoff between housing costs and transportation costs often exists, and taking both into account can provide a better measure of residential affordability in an area than only considering housing costs.

In recognition of these important points, the U.S. Department of Housing and Urban Development (HUD) has developed a Location Affordability Index (LAI) that measures an area’s affordability based on housing and transportation costs relative to income. This policy brief uses the HUD data to compare costs for a typical household in New York City to those in 21 other cities . . .. (1, footnote omitted)

The report finds that “Low transportation costs and high incomes make New York City relatively affordable: New York City is in third place in location affordability. Housing and transportation costs for the typical household are 32 percent of income in New York City, with lower ratios only in Washington, D.C. (29 percent) and San Francisco (31 percent). This is well within HUD’s 45 percent affordability threshold for combined costs as a percent of income.” (1)

This report makes a very important point about the cost of living in different cities. It should also reframe some of the national discussion about affordable housing policy. It would be great if there were a way to account for length of commute in the Location Affordability Index to make a better apples to apples comparison among cities when it comes to the housing choices that are available to households.

Reiss on The Future of the Private Label Securities Market

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I have posted The Future of the Private Label Securities Market to SSRN (as well as to BePress). I wrote this in response to the Department of Treasury’s request for input on this topic. The abstract reads,

The PLS market, like all markets, cycles from greed to fear, from boom to bust. The mortgage market is still in the fear part of the cycle and recent government interventions in it have, undoubtedly, added to that fear. In recent days, there has been a lot of industry pushback against the government’s approach, including threats to pull out of various sectors. But the government should not chart its course based on today’s news reports. Rather, it should identify fundamentals and stick to them. In particular, its regulatory approach should reflect an attempt to align incentives of market actors with government policies regarding appropriate underwriting and sustainable access to credit. The market will adapt to these constraints. These constraints should then help the market remain healthy throughout the entire business cycle.

NYC’s Abandoned Public Housing

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The Community Service Society issued an important report, Strengthening New York City’s Public Housing. Public housing has a terrible reputation in much of the country, but the New York City Housing Authority traditionally had the reputation, notwithstanding its real flaws, as the best large public housing system in the nation. This report makes a strong case that many of its current flaws are the result of systemic disinvestment at the federal, state and local levels in recent years. The report concludes,

the analysis confirms the reality of the appalling living conditions in NYCHA apartments reported by residents and the media for several years. But the Authority’s reputation or its competence should not be at issue; it performed relatively well until its resource base fell apart in the period following 2001. Government defunding was and is the root cause of the accelerating deterioration over the last decade. The state and city were major contributors to that decline, often at levels equivalent to the federal disinvestment. They should be open to a major role in restoring NYCHA.

Moreover, existing institutional arrangements that make NYCHA opaque to public scrutiny need to be changed—those that mask the Authority’s financial condition and its failures to comply with local housing and building codes—because they cloak the real consequences of government defunding and, as a result, deprive residents, advocates, concerned elected officials, and the interested public of the information they could use as ammunition to press for needed resources. The NYCHA Board also needs to be freer to act as a leading advocate for the Authority. Its governance structure should be reconsidered to assure the Board the independent voice it needs to better make the case for itself and its residents. (27)

The de Blasio Administration has made affordable housing a centerpiece of its agenda, so there is reason to think that this report will get its attention. Let us hope so — there is a lot of solid infrastructure which just needs its deferred maintenance issues addressed. But the report also highlights various operational changes that can lead to real improvements in the lives of NYCHA residents.  These reforms could provide many low-income households with decent homes.

Armed, Unarmed or Harmed by Knowledge?

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I posted Armed, Unarmed or Harmed by Knowledge? A Comment on the FHA’s Housing Counseling Pilot Program to SSRN (and to BePress). The abstract reads,

The FHA has requested input on its Homeowners Armed with Knowledge (HAWK) for New Homebuyers pilot program. This comment letter argues that housing counseling is not a proven solution to the problem it is meant to solve, excessive defaults by FHA borrowers. HAWK is a traditional housing counseling program but the scholarly literature casts into doubt the efficacy of such programs. It would be better to take time to research which counseling strategies, if any, are proven to be effective. This is true for the FHA but also for other government agencies, such as the Consumer Financial Protection Bureau, that have devoted significant resources to unproven financial counseling programs.

This comment was submitted to the FHA in response to its request for input on its Homeowners Armed with Knowledge (HAWK) for New Homebuyers program.

Regular readers of this blog will be familiar with my take on this topic as the comment is adapted from blog posts that have addressed various financial education topics.

Input on Housing Counseling

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HUD has issued a Notice, Federal Housing Administration (FHA): Homeowners Armed With Knowledge (HAWK) for New Homebuyers (Docket No. FR-5786-N-01).

HAWK is a pilot that will

provide FHA insurance pricing incentives to first-time homebuyers who participate in housing counseling and education that covers how to evaluate housing affordability and mortgage alternatives, to better manage their finances, and to understand the rights and responsibilities of homeownership. The goals of the HAWK for New Homebuyers pilot (HAWK Pilot) are to test and evaluate program designs that meet these objectives:

•To improve the loan performance of participants and reduce claims paid by FHA’s Mutual Mortgage Insurance Fund (MMIF).

• To expand the number of families who improve their budgeting skills and housing decisions through access to HUD-approved housing counseling agency services; and

• To increase access to sustainable home mortgages for homebuyers underserved by the current market. (27896)

I have already noted that HAWK is based upon some pretty sketchy research about the efficacy of housing counseling. The Notice presents additional research (in footnotes 5-8) that supports its goals, but I have to say that it seems cherry picked to me. The notice says, for instance, “some studies show” and “Several major studies have recently noted a correlation . . ..” But the Notice does not seem to contextualize these studies at all. A meta-analysis (see here too) of financial education initiatives is decidedly less optimistic.

It seems that the FHA and the CFPB have gone whole hog on counseling even though the evidence is not there to support such strong support. On the bright side, HAWK is a pilot program and the FHA will evaluate it to see whether it meets its goal of “improving loan performance.” (27903) I am just worried a bit worried though, because the FHA’s materials seem to show an unwarranted bias toward counseling that a review of the relevant literature does not seem to bear out.

The HAWK Notice requests comments by July 14, 2014, so you’d better act fast if you have something to say!

Reiss on Castro at HUD

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Law360 quoted me in Obama Chooses San Antonio Mayor As Next HUD Chief (behind a paywall). It reads in part,

President Barack Obama on Friday nominated San Antonio Mayor Julian Castro to be the next secretary of housing and urban development, a move that observers say will result in the continuation of his administration’s housing policies.

If confirmed, Castro would take over an agency that is still dealing with the after-effects of the bursting of the housing bubble in 2007 and the resulting foreclosure crisis. HUD is also struggling to deal with a dearth of affordable housing in major metropolitan areas and reforming the Federal Housing Administration’s work.

Obama called Castro an “all-star” who has done a “fantastic job” in San Antonio over the last five years.

“He’s become a leader in housing and economic development,” the president said.

Speaking at the White House on Friday, Castro said that he looked forward to helping Americans get access to “good, safe affordable housing.”

“We are in a century of cities. America’s cities are growing again and housing is at the top of the agenda,” Castro said.

Castro would take over HUD from outgoing Secretary Shaun Donovan, whom Obama nominated to lead the Office of Management and Budget. Donovan would in turn replace Sylvia Mathews Burwell, Obama’s nominee to be the next secretary of health and human services.

Among his major tasks will be overseeing the FHA, which provides a government guarantee on mortgages issued to low-income and first-time homebuyers. The agency, which is led by Commissioner Carol Galante, last year was forced to take a $1.7 billion bailout from the Treasury Department as its reserves were depleted due to losses on bad loans.

In response, the FHA has increased insurance premiums on most new mortgages by 10 basis points and sold off some defaulting mortgages as part of a series of reforms aimed at bolstering its capital levels. Even with those changes, the bailout was necessary.

HUD has also been a key player in the Obama administration’s heavily criticized programs aimed at stemming foreclosures, including the Home Affordable Mortgage Program, and in efforts to develop affordable housing stock around the country.

The department is also at the center of fair lending and fair housing litigation against banks and other lenders.

Castro’s views on those subjects are unknown, but observers expect him to follow closely policies established by his predecessor Donovan.

“Our conversations lead us to believe that Castro is unlikely to deviate materially from the existing FHA single-family strategy,” Isaac Boltansky, an analyst at Compass Point Research & Trading LLC, said in a note to clients.

Castro, 39, is serving his third term as San Antonio’s mayor. A rising star in the Democratic party, Obama tapped Castro to give the keynote address at the 2012 Democratic National Convention in Charlotte, North Carolina.

In many ways the appointment is seen as a political decision as much as a policy one for housing experts, and a departure from Donovan, an expert on housing policy.

“Donovan focused his entire career on housing and affordable housing in particular. He is known for his deep understanding of housing issues. Mayor Castro has had a broader portfolio of concerns as a big city mayor,” said Brooklyn Law School professor David Reiss.

*     *     *

While Castro has focused on affordable housing issues, the mayor of San Antonio is a nonexecutive position, Reiss noted.

“So his ability to implement his vision will be tested in this new position,” he said.

Housing Affordability in NYS

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The NYS Comptroller issued a report, Housing Affordability in New York State. The report finds that

The percentage of New York State households with housing costs above the affordability threshold, as defined by the U.S. Department of Housing and Urban Development (HUD), rose for both homeowners and renters from 2000 to 2012, according to U.S. Census Bureau data. As of 2012, more than 3 million households in the State paid housing costs that were at or above the affordability threshold of 30 percent of household income. Within that group, more than 1.5 million households paid half or more of their income in housing costs. Statewide, the estimated percentage of rental households with rents above the affordability level increased from 40.5 percent in 2000 to 50.6 percent in 2012. (1, footnote omitted)

The report suggest that “that many New Yorkers are feeling pressure from a combination of stagnant or declining real income and increasing housing costs. A combination of factors including comparatively slow economic growth over time, a rising real estate tax burden, and limited housing supply in many areas of the State contribute to the increasing challenge New Yorkers face in finding affordable housing.” (2)

A pretty consistent theme on this blog is that limits on housing production necessarily limit housing affordability. While this seems obvious to me (perhaps I hang around too many economists?!?), it certainly is not to other people. Many people with whom I discuss affordable housing policy acknowledge that in theory, limits on the supply of housing should effect the price of housing (they all took Econ 101 when they were in college). But they look around New York City, see new high rises going up while housing prices are going up at the same time. They then doubt that increasing the supply of housing will reduce the cost of housing. All I can say is who are you going to believe — your Econ 101 teacher or your own lyin’ eyes?

But of course that is not a compelling argument. So I tell my interlocutors that it is necessary to take into account the fact that NY is seeing a dramatic increase in demand. This demand comes from the increasing resident population as well as the inflow of the ultra rich who want a (fifth?) part-time home in NYC as well as a safe place to park some capital. This high demand masks a problem that NY has faced for decades — too little new housing construction to support the existing residents, let alone all of the new residents.

The de Blasio Administration has acknowledged the need for increased housing construction as part of its program to increase housing affordability in the five NYC counties. The Comptroller’s report acknowledges that a similar dynamic is occurring throughout New York State. Perhaps Governor Cuomo will identify ways in which the State government can take a leading role in encouraging housing construction in all 62 of New York State’s counties.