Comparing Rental Housing Across the Atlantic

photo by Tiago Fioreze

The Harvard Joint Center for Housing Studies has released a working paper, Rental Housing: An International Comparison. The abstract reads,

This report compares rental housing in 12 countries in Europe and North America, using individual records from household surveys. Differences in housing characteristics, conditions, and costs across countries reflect a number of factors, including demographics, geography, culture, and government policies. A lack of comparable data can make international comparisons difficult to execute, but such analysis is valuable for understanding and contextualizing differences in affordability and other characteristics of renter households and housing.

The analysis revealed the US, along with Spain, as notably unaffordable for renter households, based on a number of measures. The greater apparent cost burdens reflected a variety of factors, including differences in characteristics of the housing stock and differences in tax burdens, as well as measurement problems.

However, two major influences – differences in the size and availability of housing allowances and the degree of income inequality – emerged as the main drivers of differences in housing affordability. The effects of supply-side factors such as the extent of social housing supply, supply subsidies, and rent controls were unclear, due to problems with the identification and description of below-market rentals in the household survey data. (1)

The housing stock and political context is so different among countries, but this type of analysis is still very useful and can offer valuable lessons to the United States:

One factor that appears to contribute to the pervasive affordability problems in the US is the degree of income inequality. That is not a feature of the housing market per se, but there may be opportunities to address the consequences of income inequality through appropriate housing policies.

Other countries have devoted more resources to ameliorating the problems of unaffordable housing. The US provides fairly generous housing benefits to only a small share of needy households. In the UK, a broadly available system of housing allowances offsets what would otherwise be a much more severe affordability problem than exists in the US. In other countries, affordable rental housing supplied by governments or nonprofits helps to address affordability issues, although the efficiency of that practice, relative to the provision of housing allowances, has been questioned, as it has been in the US. The EU-SILC data used in this analysis did not adequately identify or describe below-market-rate housing, making it impossible to adequately assess the effects of such housing.

The somewhat larger size and perhaps higher quality of units in the US rental stock also affects relative affordability, although relative quality and its effect on cost differences are difficult to assess using the available data. The large share of single-family detached rentals in the US reflects preferences, the demographic mix among renters, land availability, etc., but it could also reflect zoning and other regulations limiting the supply of less expensive multifamily rentals. It is hard to imagine that regulations are more stringent in the US than in some of the more dirigiste nations of Europe, but regulations elsewhere may dictate, rather than constrain, density and cost reductions. The size and quality of the housing occupied by low-income renters in the US reflect the fact that most of those units were originally built for owner occupancy or for higher-income renters. That’s probably true in other countries as well. Whether the extent of such filtering is greater or less in various countries is perhaps worth exploring in the future. (37-38)

Income inequality, housing subsidies and land use reform — the report hits on a trifecta of key issues that housing policy should be dealing with. While I do not see much of an appetite for major reform of the first two items in today’s political climate, there might be support for some loosening of land use restrictions on housing construction. I wonder if there is some room for movement on that third front. Can local jurisdictions be incentivized by the federal government to build more housing?

Homeownership in NYC

photo by Nathan Hart

Brooklyn’s Charles Millard Pratt House

NYU’s Furman Center and Citi have released their joint Report on Homeownership & Opportunity in New York City. It opens,

In New York City, the notoriously high costs of rental housing are well documented. But becoming a homeowner in the New York City real estate market is also a considerable challenge for low- to middle-income households. Households earning less than $114,000 face a severely constrained supply of homeownership opportunities in New York City.

This report seeks to shed light on the extreme variation in homeownership rates among New Yorkers and quantify the homeownership options that exist at different income levels. We do this by analyzing 2014 home sales prices and examining the potential purchasing power of households at various income levels in New York City, as well as in the nearby counties of Nassau, Suffolk, and Westchester.

We use five income categories for this analysis—Low-Income, Moderate-Income, Middle-Income, NYC-Middle-Income, and High-Income. These income bands are based on percentages of Area Median Family Income (AMFI) for the New York City metropolitan statistical area established by the Federal Financial Institutions Examination Council (FFIEC) and are based on data from the 2006-2010 American Community Survey. This report includes an additional middle-income band (NYC-Middle-Income), given that affordable housing programs in New York City serve households up to 165 percent of the U.S. Department of Housing and Urban Development (HUD) area median income (AMI). (3)

You’re all wondering, of course, what NYC-Middle Income is, so the report provides the following explanation of the income categories:

“Low-Income” households have an annual income of $34,000 or less, or 50 percent of AMFI;

“Moderate-Income” households have an annual income between $34,001-$55,000, or 50 percent to less than 80 percent of AMFI;

“Middle-Income” households have an annual income of $55,001-$83,000, or 80 percent to less than 120 percent of AMFI;

NYC-Middle-Income” households have an annual income of $83,001-$114,000, or 120 percent to less than 165 of AMFI; and

“High-Income” households have an annual income above $114,001, or 165 percent of AMFI or greater. (3, emphasis added)

The report finds that

the purchasing power of most New York City households is limited, largely due to growing housing prices and stagnating incomes since 1990. In addition, while New York City had a relatively low share of homeowners compared to the U.S. in 2014, it was disproportionately low for Low-Income and Moderate-Income households relative to their U.S. counterparts.

The vast majority of home sales in New York City in 2014 were at prices unaffordable to Low-Income and Moderate-Income households, which comprised 51 percent of New York City households. Of the nine percent of sales in the city affordable to these households, three percent were affordable to Low-Income households and an additional six percent were affordable to Moderate-Income households. Home sales with prices that were affordable to Low-Income and Moderate-Income households in 2014 were, for the most part, concentrated outside of Manhattan.

Prospects for homeownership were not much better for Middle-Income households. In 2014, Middle-Income households, which comprise 15 percent of New York City households, could afford an additional 13 percent of sales (based on a total purchase price of up to $364,000), leaving 78 percent of sales out of reach for households with incomes of less than $83,000 annually. Less than half of sales in 2014 (42%) were affordable to 77 percent of New York households, including those characterized as NYC-Middle-Income.

Moving outside of New York City does not necessarily improve a New York City household’s potential to buy a home. In Westchester County, only two percent of sales were affordable to New York City Low-Income and Moderate-Income homebuyers combined in 2014. In Nassau County, only 24 percent of sales were affordable to New York City Low-Income, Moderate-Income, and Middle-Income homebuyers in 2014. In Suffolk County, 42 percent of sales were affordable to New York City Low-Income, Moderate-Income, and Middle-Income households. (4)

New Yorkers, and a lot of non-New Yorkers, are going to eat up the graphs in this report (what IS the median sales price in Brooklyn?!?), so it is worth a read for the real estate obsessed (yes, you). But it also has policy implications about the housing stock of the City and the surrounding region. The report itself does not make any policy recommendations, but it offers a stark reminder of how important rental housing policy is to any effort to maintain socio-economic diversity in the City.

 

Caveat Rent-to-Own

keys-1317391_1920WiseBread quoted me in 5 Things You Need to Know When Renting-to-Own a Home. It opens,

Your credit scores are too low. Or maybe you’ve run up too much credit card debt. Whatever the reason, you can’t qualify for the mortgage loan you need to buy a home. But there is hope: You can enter into a rent-to-own agreement and begin living in a home today — one that you might eventually be able to buy.

Just be careful: David Reiss, professor of law and research director for the Center for Urban Business at Brooklyn Law School, said that consumers need to be careful when entering rent-to-own arrangements. Often, these agreements end up with tenants losing money that they didn’t need to spend.

“Potential homebuyers should be very careful with rent-to-own opportunities,” Reiss said. “They have a long history of burning buyers. Does the law in your state provide any protection to a rent-to-own buyer who falls behind on payments? Could you end up losing everything that you had paid toward the purchase if you lose your job?”

These worries, and others, are why you need to do your research before signing a rent-to-own agreement. And it’s why you need to know these five key facts before agreeing to any rent-to-own contract.

1. How Do Monthly Rent and Final Selling Price Relate?

In a rent-to-own arrangement, you might pay a bit more in rent each month to the owner of a home. These extra dollars go toward reducing a final sales price for the home that you and the owner agree upon before you start renting.

Then, after a set number of years pass — usually anywhere from one to five — you’ll have the option to purchase the home, with the sales price lowered by however much extra money you paid along with your monthly rent checks. Not all companies that offer rent-to-own homes work this way. Some don’t ask for more money from tenants each month, and don’t apply any rental money toward lowering the eventual sales price of the home.

This latter option might be the better choice for you if you’re not certain that you’ll be able to qualify for a mortgage even after the rental period ends.

“A pitfall is if the tenant buyer signs into the program but will never be approved for financing, thus never purchases the house,” said John Matthews, president of operations of Chicago Lease to Own. “That is how the scammers out there have used rent-to-own to hurt people. They sell it to those who should never have been in the program and take their portion of the rent every month used ‘for the purchase of their home’ knowing that the tenant will never qualify to buy the home.”

Make sure you know — and are comfortable with — the home’s final sales price and monthly rent payments before you agree to a rent-to-own arrangement. And if you don’t want to pay extra in rent each month for a home that you might never end up buying? A rent-to-own agreement might not be for you.

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.

Bold New Housing Plan?

photo by Cybershot800i

Wanderer Above the Sea of Fog by Caspar David Friedrich

Enterprise Community Partners has released An Investment in Opportunity: A Bold New Vision for Housing Policy in the U.S. I thought it would be useful to highlight its specific proposals to make rental housing affordable for low-income households:

I. ENSURE BROAD ACCESS TO HIGH-OPPORTUNITY NEIGHBORHOODS

  1. Improve the Section 8 program and expand regional mobility programs to help more families with rental assistance vouchers access high-opportunity neighborhoods 
  2. Establish state and local laws banning “source of income” discrimination by landlords and property owners 
  3. Balance the allocation of Low-Income Housing Tax Credits and other federal subsidies to both high-opportunity neighborhoods and low-income communities, while creating more opportunities for mixed-income developments 
  4. Establish inclusionary zoning rules at the state and local levels 
  5. Establish state and local regulations that encourage innovation and promote the cost-effective development of multifamily housing 
  6. Incorporate affordable housing considerations into local and regional transportation planning through equitable transit-oriented development

II. PROMOTE COMPREHENSIVE PUBLIC AND PRIVATE INVESTMENTS IN LOW-INCOME NEIGHBORHOODS

  1. Make the public and private investments necessary to preserve existing affordable housing while creating mixed-income communities 
  2. Build capacity of public, private and philanthropic organizations at the local level to pursue cross-sector solutions to the problems facing low-income communities 
  3. Create state and local land banks and other entities to return vacant and abandoned properties to productive use 
  4. Make permanent and significantly expand the New Markets Tax Credit 
  5. Create a new federal tax credit for private investments in community development financial institutions and other community development entities 
  6. Establish federal regulations that encourage “impact investments” in low-income communities by individual and institutional investors

III. RECALIBRATE OUR PRIORITIES IN HOUSING POLICY TO TARGET SCARCE SUBSIDY DOLLARS WHERE THEY’RE NEEDED MOST

  1.  Reform the Mortgage Interest Deduction and other federal homeownership subsidies to ensure that scarce resources are targeted to the families who are most in need of assistance 
  2. Gradually double annual allocations of Low-Income Housing Tax Credits and provide additional gap financing to support the expansion 
  3. Significantly expand funding to Section 8 vouchers to ensure that the most vulnerable households in the U.S. have access to some form of rental assistance 
  4. Expand funding to the Housing Trust Fund and the Capital Magnet Fund as part of any effort to reform America’s mortgage finance system 
  5. Break down funding silos to encourage public investments in healthy and affordable housing for recipients of Medicaid 
  6. Create permanent funding sources at the state and local level to support affordable housing

IV. IMPROVE THE OVERALL FINANCIAL STABILITY OF LOW-INCOME HOUSEHOLDS

  1. Establish minimum wages at the federal, state and local levels that reflect the reasonable cost of living for each community 
  2. Expand the Earned Income Tax Credit, the Child Tax Credit and other essential income supports to America’s low-wage workers 
  3. Create a new federal fund to help test and scale innovative financial products that encourage low-income households to save, with a primary focus on unrestricted emergency savings 
  4. Help more low-income families build strong credit histories 
  5. Establish strong protections against predatory financial products

Not sure if I could really categorize this as “bold.” “Unrealistic” seems more apt in today’s political environment. Indeed, it reads like a wishlist drafted by a committee.

That being said, I think that Enterprise’s vision is helpful in a variety of ways. First, it offers a pretty comprehensive list of policies and programs that that can be used to  make housing more affordable. Second, it recognizes income inequality is a big part of the problem for low-income households. Third, it acknowledges that current federal housing policy favors wealthy households (cf. mortgage interest deduction) over the poor. Finally, it acknowledges that restrictive local land use policies inflate the cost of housing.

I wonder if a bolder plan would be just to fully fund Section 8 so that all low-income households were able to afford a safe and well-maintained home. Probably just as unrealistic as Enterprise’s vision, but it has the virtue of being simple to understand and execute.

Race, Poverty and Housing Policy

Signing of the Housing and Urban Development Act

Signing of the Housing and Urban Development Act of 1965

Ingrid Gould Ellen and Jessica Yager of NYU’s Furman Center contributed a chapter on Race, Poverty, and Federal Rental Housing Policy to the HUD at 50 volume I have been blogging about. It opens,

For the last 50 years, HUD has been tasked with the complex, at times contradictory, goals of creating and preserving high-quality affordable rental housing, spurring community development, facilitating access to opportunity, combating racial discrimination, and furthering integration through federal housing and urban development policy. This chapter shows that, over HUD’s first 5 decades, statutes and rules related to rental housing (for example, rules governing which tenants get priority to live in assisted housing and where assisted housing should be developed) have vacillated, reflecting shifting views about the relative benefits of these sometimes-competing objectives and the best approach to addressing racial and economic disparities. Also, HUD’s mixed success in fair housing enforcement—another core part of its mission—likely reflects a range of challenges including the limits of the legal tools available to the agency, resource limitations, and the difficulty of balancing the agency’s multiple roles in the housing market. This exploration of HUD’s history in these areas uncovers five key tensions that run through HUD’s work.

The first tension emerges from the fact that housing markets are local in nature. HUD has to balance this variation, and the need for local jurisdictions to tailor programs and policies to address their particular market conditions, with the need to establish and enforce consistent rules with respect to fair housing and the use of federal subsidy dollars.

The second tension is between serving the neediest households and achieving economic integration. In the case of place-based housing, if local housing authorities choose to serve the very poorest households in their developments, then those developments risk becoming islands of concentrated poverty. Further, by serving only the poorest households, HUD likely narrows political support for its programs.

The third tension is between serving as many households as possible and supporting housing in high-opportunity neighborhoods. Unfortunately, in many metropolitan areas, land—and consequently housing construction—is significantly more expensive in the higher-income neighborhoods that typically offer safer streets, more extensive job networks and opportunities, and higher-performing schools. As a result, a given level of resources can typically house fewer families in higher-income areas than in lower-income ones.

The fourth tension is between revitalizing communities and facilitating access to high-opportunity neighborhoods. Research shows that, in some circumstances, investments in subsidized housing can help revitalize distressed communities and attract private investment. Yet, in other circumstances, such investments do not trigger broader revitalization and instead may simply constrain families and children in subsidized housing to live in areas that offer limited opportunities.

The final apparent tension is between facilitating integration and combating racial discrimination. Despite the Fair Housing Act’s (FHA’s) integration goal, legal decisions, which are discussed further in this chapter, have determined that the act’s prohibition on discrimination limits the use of some race-conscious approaches to maintaining integrated neighborhoods.

To be sure, these tensions are not always insurmountable. But addressing all of them at once requires a careful balancing act. The bulk of this chapter reviews how HUD programs and policies have struck this balance in the area of rental housing during the agency’s first 50 years. The chapter ends with a look to the challenges HUD is likely to face in its next 50 years. (103-104, citation omitted)

The chapter does a great job of outlining the tensions inherent in HUD’s broad mandate. It made me wonder, though, whether HUD would benefit from narrowing its mission for the next 50 years. If it focused on assisting more low-income households with their housing expenses (for example, by dramatically expanding the Section 8 housing voucher program and scaling back other programs), it might do that one thing well rather than doing many things less well.

The Founding & Evolution of HUD

Omer Wazir

I had previously blogged about HUD at 50, a hefty tome filled with a lot of interesting chapters. Today, I focus on Chapter 1, written byJill Khadduri, The Founding and Evolution of HUD: 50 Years, 1965-2015 (starting at page 5). The abstract for the chapter reads,

This is an institutional history of the U.S. Department of Housing and Urban Development (HUD), focused on the development of HUD’s major policies and programs over the 50 years from its founding in 1965 to 2015. The chapter emphasizes how the successive secretaries of HUD and the political administrations they operated within shaped the agency and its programmatic responses to housing and urban issues. It attempts to place the evolution of HUD within the contexts of the housing, housing finance, and community development industries; other governmental institutions, including the U.S. Congress and other levels of government; and the most urgent housing and urban problems perceived during each secretary’s tenure. This chapter benefits from hindsight on which policies and programs appear to have had lasting importance. However, it does not focus on the outcomes of HUD policies and is not an assessment of HUD’s effectiveness in dealing with the issues of poverty, urban distress, housing quality and affordability, and fair housing over the past 50 years. (5)

There will be a lot that is familiar to housing nerds in this chapter, but its real value lies in putting all of the pieces together in a coherent narrative, charting the big changes in federal housing policy. How was federal housing policy related to urban policy? How was housing policy related to housing finance policy?  Where do Community Development Block Grants fit in?  How about housing vouchers? Fair housing policy? Enterprise Zones and Empowerment Zones? How important was homeownership vis-à-vis rental housing policy? When did special needs populations and the homeless get more resources? How did large-scale disaster relief fit into HUD’s mission? These issues, and more, are addressed and placed in broader context. Bottom line for housing nerds and aspiring housing nerds: read it, or at least skim it.