Tag Archives: low-income

Housing Vouchers for Landlords

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Collinson and Ganong have posted The Incidence of Housing Voucher Generosity to SSRN. The abstract of this important paper is a little technical for non-economists. It reads:

What is the incidence of housing vouchers? Housing voucher recipients in the US typically pay their landlord a fixed amount based on their income and the government pays the rest of the rent, up to a rent ceiling. We consider a policy that raises the generosity of the rent ceiling everywhere, which is equivalent to an income effect, and a policy which links generosity to local unit quality, which is equivalent to a substitution effect.

Using data on the universe of housing vouchers and quasi-experimental variation from HUD policy changes, we analyze the incidence of these policies. Raising the generosity of the rent ceiling everywhere appears to primarily benefit landlords, who receive higher rents with very little evidence of medium-run quality improvements. Setting ZIP code-level rent ceilings causes rent increases in expensive neighborhoods and decreases in low-cost neighborhoods, with little change in aggregate rents. The ZIP code policy improves neighborhood quality as much as other, far more costly, voucher interventions.

The eye-catching part is that raising “the generosity of the rent ceiling everywhere appears to primarily benefit landlords, who receive higher rents with very little evidence of medium-run quality improvements.” The paper itself fleshes this out more: “a $1 increase in the rent ceiling raises rents by 41 cents; consistent with this policy change acting like an income effect, we find very small quality increases of around 5 cents, meaning that as much as 89% of the increase in government expenditure accrues to landlords.” (20-21)

Given the inelasticity of the supply in many housing markets, this is not such a surprising result. That is, if demand increases because of an increase in income but supply does not, the producer (landlords) can capture more of that income just by raising prices. This finding should give policymakers pause as they design and implement voucher programs. The question that drives them.should be — how can they maximize the portion of the subsidy that goes to the voucher recipient?

Top Ten Issues for Housing Finance Reform

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Laurie Goodman of the Urban Institute has posted A Realistic Assessment of Housing Finance Reform. This paper is quite helpful, given the incredible complexity of the topic. The paper includes a lot of background, but I assume that readers of this blog are familiar with that.  Rather, let me share her Top Ten Design Issues:

  1. What form will the private capital that absorbs the first loss take: A single guarantor (a utility), multiple guarantors, or multiple guarantors along with capital markets execution? How much capital will be required?
  2. Who will play what role in the system? Will the same entity be permitted to be an originator, aggregator, and guarantor?
  3. How will the system ensure that historically underserved borrowers and communities are well served? To what extent will the pricing be cross subsidized?
  4. Who will have access to the new government-backed system (loan limits)? How big should the credit box be, and how does that box relate to FHA?
  5. Will mortgage insurance be separate from the guarantor function? (It is separate under most proposals, but in reality both sets of institutions are guaranteeing credit risk. The separation is a relic of the present system, in which, by charter, the GSEs can’t take the first loss on any mortgage above 80 LTV. However, if you allow the mortgage insurers and the guarantors to be the same entity, capital requirements must be higher to adequately protect the government and, ultimately, the taxpayers.)
  6. How will small lenders access the system? (All proposals attempt to ensure access, some through an aggregator dedicated to smaller lenders—a role that the Home Loan Banks can play.)
  7. What countercyclical features should be included? If the insurance costs provided by the guarantors are “too high” should the regulatory authority be able to adjust capital levels down to bring down mortgage rates? Should the regulatory authority be able to step in as an insurance provider?
  8. Will multifamily finance be included? How will that system be designed? Will it be separate from the single-family business? (The multifamily features embedded in Johnson-Crapo had widespread bipartisan support, but the level of support for a stand-alone multifamily legislation is unclear.)
  9. The regulatory structure for any new system is inevitably complex. Who charters new guarantors? What are the approval standards? Who does the stress tests? How does the new regulator interact with existing regulators? What enforcement authority will it have concerning equal access goals? What is the extent of data collection and publication?
  10. What does the transition look like? How do we move from a duopoly to more guarantors? Will Fannie and Freddie turn back to private entities and operate as guarantors alongside the new entrants? How will the new entities be seeded? What is the “right” number of guarantors, and how do we achieve that? How quickly does the catastrophic insurance fund build? (16-17)

None of this is new, but it is nice to see it all in one place. These design issues need to thought about in the context of the politics of housing reform as well — what system is likely to maintain its long-term financial health and stay true to its mission, given the political realities of Washington, D.C.?

Speaking of politics, her prognosis for reform in the near term is not too hopeful:

The current state of the GSEs can best be summed up in a single word: limbo. Despite the fact that Fannie Mae and Freddie Mac were placed in conservatorship in 2008, with the clear intent that they not emerge, there is little progress on a new system, with a large role for private capital, to take their place. Legislators have realized it is easy to agree on a set of principles for a new system but much harder to agree on the system’s design. It is unclear whether any legislation will emerge from Congress before the 2016 election; there is a good chance there will be none. (26)

She does allow that the FHFA can administratively move housing finance reform forward to some extent on its own, but she rightly notes that reform is really the responsibility of Congress. Like Goodman, I am not too hopeful that Congress will act in the near term. But it is crystal clear that there is a cost of doing nothing. In all likelihood, it will be the taxpayer will pay that cost, one way or another.

Location Affordability in NYC

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Following up on two earlier posts (here and here) about Citizens Budget Commission policy briefs on housing affordability, I turn to a third one, Location Affordability in Large U.S. Cities. As a refresher, “Location affordability recognizes that the costs of housing and transportation, usually the two largest items in household budgets, are inextricably linked, and considering them together in relation to income gives a good sense of a city’s location affordability.” (1) the CBC’s key findings are that,

  • For moderate- and middle-income households, location costs in New York City are below the 45 percent affordability threshold due mostly to low commuting costs. New York City ranks well—ranging from second to sixth most affordable—among the 22 large cities.
  • For low-income households, location costs in New York City exceed the affordability threshold. A low-income family requires 47 percent of income for these costs and a single worker household requires 56 percent; for a single person earning a wage at the national poverty line, location costs in New York City are particularly burdensome at 101 percent of income. Almost all cities examined were unaffordable to low-income households. (1, citation omitted)

There are a lot of interesting implications that arise from these policy briefs.  Most important, they provide another (if it were even necessary) argument that scarce affordable housing dollars should be concentrated on low-income households. After all, NYC moderate- and middle-income households are doing better than in most other large American cities when transportation expenses are taken into account in an affordability index.

It would be most worthwhile for the de Blasio Administration to incorporate something like HUD’s Location Affordability Index into its housing plan.

Reiss in CSM on Rental Policy

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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.

*     *     *

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.”

Rent Regulation and Housing Affordability

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NYU’s Furman Center issued a fact brief, Profile of Rent-Stabilized Units and Tenants in New York City, that provides context for the deliberations of the Rent Guidelines Board as it considers a rent freeze for NYC apartments subject to rent stabilization.

Rent regulated (rent stabilized and rent controlled) apartments clearly serve households that have lower incomes than households in market rate apartments. Median household income (fifty percent are below and fifty percent are above this number) is $37,600 for rent regulated and $52,260 for market rate households.Thus, market rate households have median incomes that are nearly 40% higher than rent regulated ones.

The median rent is $1,155 for rent regulated and $1,510 for market rate households.Thus, median rents are about 30% higher for market rate tenants.

Despite these differences, the number of households that are rent burdened (where rent is greater than 30% of income) is similar for the two groups: 58% for rent regulated and about 56% for market rate households. (4, Table D)

The Furman Center brief provides a useful context in which to consider NYC’s rental housing stock as well as the households that live in it. Given the nature of NYC households, however, I would have wished for a more finely detailed presentation of household incomes and rents.

NYC’s distribution of income is skewed toward the extremes — more low-income and high-income households and therefore fewer middle-income ones than the rest of the nation. Given this, it would have been helpful to have seen the range and distribution of incomes and rents, perhaps by deciles. The Furman Center brief indicates that updated data will be available next year, so that may provide an opportunity to give a more granular sense of dynamics of the NYC rental market.

Mayor de Blasio’s housing plan outlines his commitment to preserving affordable housing. One element of that commitment is to preserve rent regulated housing. Understanding that market sector and the households it serves is essential to meeting that commitment.

Affordable Housing Preservation in NYC

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Leaders of Brooklyn Legal Services Corporation A have released a white paper, Mayor de Blasio’s Housing Plan:  The Most Important Housing Plan in NYC History? Just to get the suspense out of the way, they pretty much feel that it is. But they do push the Mayor to pay more attention to the preservation aspect of his Housing Plan. They write,

Based upon our experience, representing the low-income tenants we serve, we have observed that rent decontrol is often brought about by predatory actions from landlords to push protected tenants out of their apartments in order to reach decontrol status. In 2013, over 30,000 New York City families were displaced from their homes. Without access to free legal services, many of these families had to represent themselves in Housing Court and were unable to fight the predatory and often illegal actions that made them lose their homes. The most recent reports from the Task Force to Expand Access to Civil Legal Services commissioned by the Chief Judge of the State of New York stated that 99% of tenants are unrepresented in eviction cases in New York City. The need for legal services is very real, and without increasing the very limited resources available for such services the fight for preserving affordable housing will almost certainly not be successful.

Brooklyn A’s attorneys are constantly witnessing how this perfect storm of rising housing values and limited supply of affordable housing can impact low-income communities. In many neighborhoods landlords are more incentivized than ever to try and push out rent protected tenants by any means necessary, so that they can void the rent protections and bring in new tenants willing to pay the inflated market price. We are currently representing tenants from a building whose main waterline, boiler and gas meters were destroyed in the middle of the night, only a short time after the tenants refused offers by their landlords to get bought out of their apartments. In another recent case the landlord shut off all heat, hot water, and sewage in the building to provoke a vacate order to force the rent-stabilized tenants out. The tenants had to live in emergency Red Cross shelters for a period of time because they lost their home; including one who had lived at the building for thirty years. Unfortunately, these are just a couple of examples of increasingly common practices by landlords to violate and then deregulate those apartments. (2, footnotes omitted)

During earlier run ups in real estate prices, landlords seeking to make a quick profit were known to send in thugs with baseball bats and pit bulls to frighten tenants, particularly elderly tenants, so that they would move and make the apartments available for tenants who would paid higher rents. The predatory equity that has been documented in NYC in the last decade has used less obviously threatening behaviors such as “repairs” that lead to long term loss of utilities and frivolous filings in housing court. But the goal is the same — get rid of tenants paying low rent-regulated rents.  Brooklyn Legal Services Corporation A is right to focus on the role that legal services attorneys can play in protecting existing affordable housing in a cost-effective way.

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.