New Housing and Displacement

Lsanburn

The Institute of Governmental Studies at UC Berkeley has issued a research brief, Housing Production, Filtering and Displacement: Untangling the Relationships. It opens,

Debate over the relative importance of subsidized and market-rate housing production in alleviating the current housing crisis continues to preoccupy policymakers, developers, and advocates. This research brief adds to the discussion by providing a nuanced analysis of the relationship between housing production, affordability, and displacement in the San Francisco Bay Area, finding that:

• At the regional level, both market-rate and subsidized housing reduce displacement pressures, but subsidized housing has over double the impact of market-rate units.

• Market-rate production is associated with higher housing cost burden for low-income households, but lower median rents in subsequent decades.

• At the local, block group level in San Francisco, neither market-rate nor subsidized housing production has the protective power they do at the regional scale, likely due to the extreme mismatch between demand and supply.

Although more detailed analysis is needed to clarify the complex relationship between development, affordability, and displacement at the local scale, this research implies the importance of not only increasing production of subsidized and market-rate housing in California’s coastal communities, but also investing in the preservation of housing affordability and stabilizing vulnerable communities. (1)

This brief takes on an important subject — the relationship between new housing and displacement — and concludes,

There is no denying the desperate need for housing in California’s coastal communities and similar housing markets around the U.S. Yet, while places like the Bay Area are suffering from ballooning housing prices that are affecting people at all income levels, the development of market-rate housing may not be the most effective tool to prevent the displacement of low-income residents from their neighborhoods, nor to increase affordability at the neighborhood scale.

Through our analysis, we found that both market-rate and subsidized housing development can reduce displacement pressures, but subsidized housing is twice as effective as market-rate development at the regional level. It is unclear, however, if subsidized housing production can have a protective effect on the neighborhood even for those not fortunate enough to live in the subsidized units themselves.

By looking at data from the region and drilling down to local case studies, we also see that the housing market dynamics and their impact on displacement operate differently at these different scales. Further research and more detailed data would be needed to better understand the mechanisms via which housing production affects neighborhood affordability and displacement pressures. We know that other neighborhood amenities such as parks, schools, and transit have a significant impact on housing demand and neighborhood change and it will take additional research to better untangle the various processes at the local level.

In overheated markets like San Francisco, addressing the displacement crisis will require aggressive preservation strategies in addition to the development of subsidized and market-rate housing, as building alone won’t protect specific vulnerable neighborhoods and households. This does not mean that we should not continue and even accelerate building. However, to help stabilize existing communities we need to look beyond housing development alone to strategies that protect tenants and help them stay in their homes. (10-11, footnote omitted)

The brief struggles with a paradox of housing — how come rents keep going up in neighborhoods with lots of new construction? The answer appears to be that the broad regional demand for housing in a market like the Bay Area or New York City overwhelms the local increase in housing supply. The new housing, then, just acts like a signal of gentrification in the neighborhoods in which it is located.

If I were to criticize this brief, I would say that it muddies the waters a bit as to what we need in hot markets like SF and NYC: first and foremost, far more housing units. In the absence of a major increase in supply, there will be intense market pressure to increase rents or convert units to condominiums. Local governments will have a really hard time overcoming that pressure and may just watch as area median income rises along with rents. New housing may not resolve the problem of large-scale displacement, but it will be hard to address displacement without it. Preservation policies should be pursued as well, but the only long-term solution is a lot more housing.

I would also say that the brief elides over the cost of building subsidized housing when it argues that subsidized housing has twice the impact of market-rate units on displacement. The question remains — at what cost? Subsidized housing is extremely expensive, often costing six figures per unit for new housing construction. The brief does not tackle the question of how many government dollars are needed to stop the displacement of one low-income household.

My bottom line: this brief begins to untangle the relationship between housing production and displacement, but there is more work to be done on this topic.

Preserving Affordable Housing

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.”

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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.

Primer on NYC Affordability Crisis

"2014 July NYC's 432 Park Avenue" by The Hornet

Enterprise has released a report, 2015 New York City Housing Security Profile and Affordability Housing Gap Analysis. Its conclusions are not shocking, but they are sobering:

  • Of 2 million renter households in New York City, nearly 640,000 are low-income and severely cost-burdened.
  • There is not a single neighborhood in NYC that provides enough affordable housing to match the number of very low-income households in that community.
  • Both the regulated and unregulated rental housing markets of NYC are not meeting the affordable housing needs of low-income renters.
  • Even though the market added rent stabilized units between 2011 and 2014, the stock affordable to lower income families declined.
  • Competition exacerbates the gap between the number affordable units and the number of low-income renters, forcing many to pay beyond their means. (33)

As with many such studies, it offers a cogent analysis of the problem but offers very little by way of possible solutions. It hints at one such solution when it notes that

By any measure, the demand for affordable housing in New York City outstrips supply – even on the rent regulated market. Low-income households are squeezed even further by competition from higher income households for the cheapest units. The acute shortage forces the majority of lower income households in housing that costs beyond their means. (27)

Increasing the supply of housing will, if everything else is equal, reduce the cost of housing. The de Blasio Administration is certainly on board with an approach to increase density in NYC but many other elected officials are not — or at least resist it when it comes to their own backyards.  While more housing is not a sufficient solution to the affordability problem in NYC, it is certainly a necessary component of a solution.

The report also does not deal with the big elephant in the affordable housing policy room — the social demographics of NYC are undergoing a secular shift as the city gets hotter and hotter for global elites. It is unclear how much government can affect that trend, particularly at the local level.

The Challenge of Rising Rents

Nyu_law_vanderbilt

NYU’s Furman Center has issued a research brief, The Challenge of Rising Rents: Exploring Whether a New Tax Benefit Could Help Keep Unsubsidized Rental Units Affordable. The brief considers whether the creation of “a new property tax subsidy program aimed at maintaining affordability in buildings that currently provide affordable rents could be attractive to owners.” (1)

The brief concludes that

The bulk of New York City’s housing stock that is affordable to low-income households is in buildings that currently receive no government subsidy to maintain low rents. In a city where the real estate market is booming and the supply of housing is constrained, the upward pressure on these rents is likely to continue. However, our analysis here suggests that there are some markets in the city where an owner of an unsubsidized building would agree to restrict future rent increases in exchange for a tax benefit.

If owners think their building is in a neighborhood likely to experience rapid rent increases, they are not likely to participate in a program like the one we have outlined. But, owners who are less optimistic about rent growth in their neighborhood may be willing to sign up in exchange for the certainty of a 30-year tax break. Owners might be more likely to participate in this program than our modeling suggests if it were bundled with another benefit or if the regulatory requirements were less onerous. (11)

This is obviously a good exercise to undertake, but I wonder if most landlords believe that their buildings are like Lake Wobegon children — above average, one and all. So, if the success of this proposal rests on reaching pessimistic landlords, it may be relying on a very small pool of landlords indeed.

Thurday’s Advocacy & Think Thank Round-Up

Wednesday’s Academic Roundup

Reiss in CSM on Rental Policy

The Christian Science Monitor quoted me in Census Outlines ‘Poverty Areas’: Which States Hit Hardest? It reads in part,

The number of US residents living in “poverty areas” has jumped significantly since 2000, according to a Census Bureau report released Monday.

According the 2000 Census, less than 1 in 5 people lived in poverty areas. But more recently, 1 in 4 residents have lived in these areas, according to census data collected from 2008 to 2012.

The Census Bureau defines a poverty area as any census tract with a poverty rate of 20 percent of more.

Sociologists and other analysts point to the Great Recession, in particular housing and job challenges, as well as slow and uneven growth since the recession.

“With the advent of the financial crisis and the bursting of the housing bubble, many people lost their homes and thus needed to rent or move in with relatives,” says Cheryl Carleton, an economics professor at Villanova University near Philadelphia. “[I]ndividuals need to move where they can afford to live … which is going to be in areas where public housing is available or housing prices and rental rates are low, which is more likely to be in a ‘poverty area.’ ” Professor Carleton made her comments via e-mail.

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Law professor David Reiss suggests that changes to homeownership policies could help.
“Federal and state housing programs could do more to support a market for well-maintained rental units for low-income households,” e-mails Professor Reiss, who teaches at Brooklyn Law School. “Many low-income households have difficulty maintaining homeownership because of irregular incomes and low wealth.”