Category Archives: housing subsidies

Capital ideas

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This country’s shortage of affordable rental units runs into the millions, and Vermont’s is in the thousands. Where’s the money going to come from to build or rehab our way out of this hole? Government spending falls chronically and abysmally short, but there’s a glimmer of hope that a growing fraction of the massive need can come from an unlikely source: private investors. finance1

But first, consider the scale of the need. According to the recent Harvard report on rental housing, 11.4 million renter households are “severely burdened,” paying more than 50 percent of their income for housing. (An additional 9.9 million are simply “burdened,” paying more than 30 percent.)

In Vermont, 26 percent of the 75,000 renter households are severely burdened — that’s 19,500 households living in places that are far beyond their means. And in Burlington, 35 percent of the 9,500 renter households are in that position – about 3,300 households.

The federal government’s primary subsidy for affordable housing development is the Low Income Housing Tax Credit, which produces in about 100,000 affordable rental units a year. Then of course there’s the challenge of maintaining affordability for units whose tax credits expire, a challenge that Vermont’s housing nonprofits and state agencies contend with annually as they marshal limited public resources to preserve the affordability of what’s here. And even though they’ve been largely successful, what’s here isn’t anywhere near enough. Yes, the private market is turning out new rental housing to meet the growing population of renters, but the great majority of those new units are high-end.

A new report from the Urban Land Institute and NeighborWorks America, “Preserving Multifamily Workforce and Affordable Housing,” describes a range of new financing vehicles that seek to create or preserve affordable housing. Sixteen partnerships o investment companies – some new, some well-established — are profiled. One thing they have in common is that they offer returns to their investors– who include philanthropies, university endowments, pension funds and private individuals in the single digits, below what the typical real-estate investor might expect to receive. These entities include private equity funds and two real estate investment trusts (REITs) that focus on affordable multifamily developments.

The hook is that this investment sustains a social good: affordable housing. If “socially responsible investing” is popular among Vermont’s progressive monied class, why can’t affordable housing be one of their fiduciary causes? A creative financier might even find some way to enlist the UVM endowment or the state pension fund in support of affordable housing development.finance2

The report also mentions another possible funding source for affordable housing — the EB-5 program, which pulls in big investments from foreigners (typically from East Asia) in exchange for green cards, and which we’ve harped on before. Yes, EB-5 is supposed to be a job-creation program, but it turns out that real estate development developments are among the most popular EB-5 projects, in part because the construction jobs count. (Check out this article, “Real Estate: Still the Darling of EB-5.”) True, affordable housing isn’t the typical EB-5 project, but it has been done – in San Francisco’s Hunter’s Point Shipyard, and in Seattle, near the Seahawks’ stadium. Next up, Miami.

How about Newport, Vt.? 

Good news, mostly

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  • Little backyard houses — aka “accessory dwelling units” — are springing up all over Vancouver. vancouver This is a partial remedy to the affordable rental shortage that afflicts municipalities all over North America, including Vermont. It also affords an optional living arrangement for older people who want to age in place. In Vancouver, these appendages are called “laneway houses,” and some of them are pretty handsome. There’s plenty of room for additions like this in Burlington, even if we don’t have alleys — and in plenty of other Vermont communities, too.
  •  A “mobility program” in heavily segregated Baltimore moves families from high-poverty public housing complexes in the city to higher-rent, higher-opportunity suburbs. This is an initiative very much in the spirit of affirmatively furthering fair housing, but it serves a small fraction of the subsidy-eligible families in need and it operates largely under the radar, to minimize opposition. One obstacle: a shortage of affordable housing in suburban communities.
  • Plattsburgh has a new 64-unit affordable housing complex, called Homestead on Ampersand.  plattsburgh2It’s just a couple of miles from the neighborhood where complaints about a proposal for a smaller affordable housing complex prevailed.
  • Columbus, Ohio, plans to transform a vacant downtown building into “workforce housing” – which in this case means housing for people who make $40,000 to $60,000 a year. The made-over building would feature micro units – apartments of 300 square feet or so and targeted, presumably, to single Millennials. We’ve touched on the micro movement before, which seems to be taking hold mostly in bigger metro areas (here’s a roundup with a national map; for a more substantial study of the phenomenon, click here).   But it has also spread to Kalamazoo and, as we’ve noted, Syracuse, so there’s no reason it couldn’t work in an over-priced city like Burlington, where officialdom is forever wringing its hands about how young professionals have trouble finding affordable accommodations.

Surprise! Some rents going down

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Burlington’s chronic housing-affordability problem is bad enough — more than a third of the city’s 9,500 renting households are paying more than half their income for rent and utilities, which puts them in the “severely burdened” category — but guess what? It’s getting arguably worse. burlingtonapt

HUD just came out with its 2016 fair market rents for the Burlington/South Burlington metro area, and they’re lower than they were for 2015. This despite the fact that actual rents in this area have been going up every year. (The 2016 numbers are up and down across the state, as Vermont Housing Finance Agency’s news blog helpfully details.)

If you really want to know why Burlington’s numbers went down, you can go to the HUD page to see the methodology. The unfortunate upshot, though, is that anyone with a Section 8 housing voucher is going to have less to choose from in 2016 than they do this year. That’s because apartments that cost more than the “fair market rent” are off-limits for subsidy. (If it makes you feel any better, remember that majority of Burlington’s “burdened” households don’t have vouchers anyway. Nationally HUD rental assistance extends to only about one-fourth of the people who are income-eligible.)

OK, let’s consider a two-bedroom apartment. The 2016 “fair market rent” is $1,172 (as compared to 2015’s $1,302). What are the offerings on Craigslist?

Here are the first 10 listed rents for two-bedroom apartments in Burlington and environs (South Burlington, Colchester) that we found at noon Monday. (Craigslist is constantly updated, so if you do the search the results will vary):

$2,500, $1,600, $2,500, $2,100, $1,425, $2,400, $2,025, $2,000, $2,000, $1,650.

How “fair” is that market? Now, perhaps Craiglist rents tend to be above average (are there studies that document this?), but there’s not much consolation in that, especially if you have a housing-choice voucher.

Renters arise!

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 Since 2005, the number of renters in this country has gone up 9 million, to 41 million, the biggest surge of any decade on record. That brings the share of renting households to 37 percent, the highest in half a century. Meanwhile, their rents are up and their incomes are down: From 2001 to 2014, rents rose 7 percent (above inflation) and incomes dropped by 9 percent.

The biggest increase in renter households, surprisingly, came from the Baby Boomer cohort – people in their 50s and 60s. In fact households 40 and older make up the majority of renters.apartment

These are among the findings in “America’s Rental Housing,” a 44-page study out this week from Harvard’s Joint Center for Housing Studies.

Not only are there many more renters, but many more of those renters can’t comfortably afford to live where they do. In 2014, 49 percent of renters were “burdened” (meaning they paid more than 30 percent of their incomes for rent and utilities) and 26 percent were “severely burdened” (more than 50 percent). According to Vermont Housing Data, Vermont’s current rates are a tad higher: 52.5 percent and 26.4 percent.

Yes, the housing burden falls most heavily on low-income people, but it’s growing among the middle-income stratum as well:

“(T)he sharpest growth in cost-burdened shares has been among middle-income households. The share of burdened households with incomes in the $30,000–44,999 range increased from 37 percent in 2001 to 48 percent in 2014, while that of households with incomes of $45,000–74,999 nearly doubled from 12 percent to 21 percent. Regardless of income level, though, the shares of cost-burdened households reached new peaks in 2014 among all but the highest-income renters.”

Meanwhile, only about one-fourth of eligible lower-income households receive housing assistance (Section 8 vouchers are not an entitlement!); funding for HUD’s three biggest rental assistance programs is about the same (corrected for inflation) as it was seven years ago, when the economy crashed; and the HOME program, a major source of federal funding for housing programs, has been cut way back. Private developers continue to add to the multi-family housing supply, but most of the recent additions “serve the higher end of the market,” according to the report. As it happens, high-income households (annual $100,000 or more) represent a small but fast-growing share of the rental market.

The report asserts:

“The challenge now facing the country is to ensure that a sufficient and appropriate supply of rental housing is available for a diversity of households and in a diversity of locations. While the private market has proven capable of expanding the higher-end rental stock, developers have only limited opportunities to meet the needs of lowest income households without subsidies that close the large gap between construction costs and what these renters can afford to pay. In many high-cost markets, moderate-income households face affordability challenges as well.”rental1

“Diversity of locations” is an invocation of AFFH (affirmatively furthering fair housing) and the goal of ensuring that a good share of affordable housing is in “high-opportunity” neighborhoods,” as in what follows:

“Policymakers urgently need to consider the extent and form of housing assistance that can stem the rapid growth in cost burdened households. Beyond affordability, they also need to promote development of a wider range of housing options so that more renter households can find homes that suit their needs and in communities offering good schools and access to jobs. It will take concerted efforts by all levels of government to capitalize on the capabilities of the private and not-for-profit sectors to reach this goal.”

Dare we suggest that concerted efforts have yet to be mounted, or even contemplated, by government at many levels?

NIMBY notes from all over

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Fresh news of NIMBY opposition to affordable housing comes out of … well, our own backyard.

From North Country Public Radio, we learn that residents in Plattsburgh managed to persuade the planning board to reject a proposed four-building residential complex, alleging familiar sorts of adverse effects that low-income people would have on traffic, safety, property values. plattsbugh Affordable housing is a permitted use in that district, but…

 “It is transient housing,” one resident complained. “ They put people in there who are just out of jail, prison whatever until they can get back on their feet … I don’t want it in my area.”

“This concept of us serving transients is so far from reality,” countered the director of the housing organization that would be referring tenants. “The majority of the people that we serve are disabled. They are the veterans in your community. There are elderly people in your community that we serve…”

She might have also cited reports, like this one, that affordable housing can have an uplifting impact on economic development and property values.

Oh well. The developer is appealing the rejection in court. “The thrust of it was, they did not want ‘these people’ moving into their neighborhood,” the developer’s lawyer said.

Plattsburgh is in good company. Upper Saddle River, a toney community in New Jersey, is being sued for rejecting a multi-family housing complex, and thus, by proxy, new residents who happen to be black or Latino. Another interesting case of NIMBY opposition to multi-family housing recently arose in Arizona, where the “backyard” in question belonged to a mortuary! Apparently the mortuary and the developer resolved their differences, though.

NIMBYism gets some of the credit, or blame, for California’s housing-affordability crisis, and it certainly comes in many forms, as this entertaining catalogue attests. Among our favorites are “mega-mansion NIMBYs.” 

Here a crisis, there a crisis

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Never mind California or the Northeast. The housing-unaffordability problem can be found lots of other places, some of them rather unlikely. If you breeze through news coverage from around the country, you can find stories from all over that use the phrase “crisis” or “crunch” or “shortage” to describe the local or regional housing-unaffordability profile:

Just in the past few days, stories have bubbled up from Taos,  Taos Jackson Hole, Aspen, Madison, Asheville, Hawaii, and Austin — all in crisis mode.

Austin is an interesting case: There’s not only an affordability shortage, most of the supposedly affordable units aren’t really affordable after all, according to a rather scathing audit that just came in. From the report summary: “The City does not have an effective strategy to meet its affordable housing needs. Neighborhood Housing and Community Development has not adopted clear goals, established timelines, or developed affordable housing numerical targets to evaluate its efforts in fulfilling the City’s adopted core values. Key information needed to evaluate program effectiveness is incomplete, inaccurate or unavailable.” Austin3  This, in the latter-day birthplace of public housing that  the mayor pronounced the most economically segregated city in the country.

Among the places you might not expect to find a housing crisis: Minot, N.D., rural Iowa, IowaNorth Platte, Neb. (Say it ain’t so, North Platte!) And to think that this is not something the presidential candidates can even be bothered to talk about!

In fact, every county in the country can be said to be in crisis when it comes to housing extremely low-income households (that is, households with less than 30 percent of median income, 11.3 million nationwide). No county has enough units for such people, according to an analysis the Urban Institute did this summer. For an interactive map that will show you how many affordable units in each county for 100 poor households, click here. In Vermont, Orange, Windsor and Windham counties come out the best, with 49 affordable units for 100 households; Caledonia, Lamoille and Orleans have the fewest, at 29. The national average: 28.

Of course, the national challenge is not just to create plenty more affordable housing but to locate it judiciously. New housing options have to be provided for low-income people in low-poverty neighborhoods, otherwise known as “high-opportunity” areas. That’s what affirmatively furthering fair housing is about — breaking up historic settlement patterns of concentrated poverty and segregation and promoting integration.

Naturally, AFFH generates pushback. So, sprinkled among the wash of “housing crisis” stories are accounts of resistance to affordable housing projects in well-healed suburbs – such as Simsbury, Conn. (median household income$104,000) , and Wilmette, Ill. ($127,000).

Tampering with the sacrosanct

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The presidential candidates have a lot to say about tax reform, but with one exception, they’re not about to get rid the big sacred cow — the mortgage-interest deduction, found on Schedule A of Form 1040:scheduleA (2)

Economists have been complaining about the mortgage-interest deduction for years. It’s a regressive benefit, increasing with income. It enhances inequality, effectively inflates property values and misallocates resources, or so the argument goes. In 2012, the mortgage interest deduction cost the federal government $70 billion, according to the Urban Institute, compared $36 billion for low-income housing subsidies.

But nobody expects that deduction to go away any time soon. It’s a firmly entrenched loophole (aka “third rail”) not only for the wealthy elite, but for the simple majority. The home ownership rate in this country exceeds 60 percent (in Vermont, it’s over 70 percent), and of course the lion’s share of those people are mortgage-holder beneficiaries. IRS2

The ranks of renters are increasing, though, and the more they do, the more seriously they might be taken as a political constituency. Politicians take renters seriously in Germany, where renters are in the majority and the regulatory climate is much more in their favor. Germany doesn’t offer a mortgage-interest deduction, either.

Might the growing numbers of American renters be mobilized to support the elimination of the mortgage-interest deduction — which ostensibly doesn’t benefit them anyway — in favor of increased housing subsidies for low- and moderate-income tenants? That seems like a stretch, unless another Occupy-style movement sweeps the country.

Well, if eliminating the mortgage-interest deduction discourages home ownership, so be it. There’s even evidence that home ownership isn’t necessarily such a wonderful thing, because it damages labor markets:

“We find that rises in the home- ownership rate in a U.S. state are a precursor to eventual sharp rises in unemployment in that state,” write economists David Blanchflower and Andrew Oswald, in a 2013 paper. Why? Partly because higher rates of homeownership curtail labor mobility and lead to longer commutes.

So, who’s the exception among the presidential candidates? Ben Carson. bencarson He’s the only one who has said he’d do away with the mortgage-interest deduction. (Even Bernie Sanders doesn’t go that far – he’d cap it at $300,000.) For a full-throated defense of this Carson stance from someone who doesn’t agree with much of anything else he says, click here. 

Good news, bad news

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First, the bad news:

  • The city council in Parsippany, N.J., faced a stark choice –- affordable housing or Whole Foods — and picked the latter. Just how it happened that the fate of a 26-acre site called Waterview came to this is no doubt a story in itself, but this much seems clear: the powers that be leaned against a 600-plus unit affordable housing development, contending it would be a drain on local taxes. whole-foods1This might not be in the spirit of affirmatively furthering fair housing. That site, next to a neighborhood of single family homes, might well be a “high-opportunity” location for affordable housing in a city with a median family income of $81,000. Whole Foods, we suspect, does not as a general rule move in to low-opportunity areas.
  • The Illinois Housing Appeals Board was established six years ago to hear pleadings by developers contending they’ve been unfairly prevented from building affordable housing projects. The appeal process was created in connection with a law requiring municipalities to submit affordable housing plans to the state if less than 10 percent of their housing units were affordable. Well, it seems that municipalities ignore the law with impunity, the board has no authority, and it has yet to hear a single case. Back to the legislative drawing board? In the Chicago metro area, low income tax credits are issued preponderantly in lower-income areas, an analysis found. Among the wealthy suburbs where opponents are showing up in force is Wilmette (pop. 27,000, median household income $130,000), where a hearing on a 20-unit development drew a crowd the other night.

The good news comes in two forms, tangible and intangible.

  • On the tangible side, 19 units of affordable housing are back on the rolls in Montpelier, thanks to a rehab projectbarre-st-construction by Downstreet Housing and Community Development, with an array of collaborators. These are studios and one-bedrooms on Barre Street, all a short walk to downtown. This is the sort of transit-friendly positioning that we’d like to see more of.
  • One of the collaborators was the Vermont Housing & Conservation Board, an affordable-housing mainstay that has been underfunded for years. A report to the governor from the Council on Pathways to Poverty calls on the state not only to fund VHCB at its full statutory rate ($19.5 million), but also to restore the money meant for VHCB that has been diverted to fill budget gaps since 2001 ($41 million). With full funding, VHCB might be able not only to support more low-income housing, but workforce housing for people who make “middling” wages of $13 to $25 an hour. The report also calls for a $2 lodging fee, half of which would be reserved for affordable housing and homelessness-aversion. This is intangible good news, in the sense that somebody is saying and pushing for the right things that have yet to happen.
  • Speaking of workforce housing, people in Bend, Oregon, are realizing that middle-class people ineligible for subsidized housing are shut out, as housing prices soar. So the City Council is starting to give some serious thought to what can be done for them in addition to low-income people. Again, nothing has happened yet, but we take the fact that this discussion is underway as more (intangible) good news.
  • This item might seem like a stretch for the good news category, but at least it’s of the intangible all-talk variety: A prominent Republican has emerged to say that the housing crisis deserves more attention in the presidential campaign. That’s Scott Brown, the former senator, scottbrow who also happens to be a member of the board of J. Ronald Terwilliger Foundation for Housing America’s Families. In an opinion piece, Brown lamented that housing has been missing from the debates, and said that if he were moderator, he’d ask the candidates what they’d do about the shortage of affordable rentals. Meanwhile, another opinion piece, by foundation president Pamela Patenaude in a housing industry publication, calls for an increase in federal support for the low-income housing tax credit. Hear, hear.

Learning from Massachusetts

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The Greater Boston Housing Report Card 2015 is out, and it’s an eye-opener. Prepared for the Boston Foundation  by the Dukakis Center for Urban and Regional Policy at Northeastern University, it’s a detailed analysis of Massachusetts’ housing-unaffordability crisis –a crisis that results, in part, from not enough housing being produced. What accounts for the insufficiency?Mass2

“We have failed to meet housing production targets because there is no way to do so given the high cost of producing housing for working and middle-income households.”

That’s from the executive summary, which goes on to make the same point in another way:

“(T)he cost of developing new housing for working and middle-income households has become prohibitive in Massachusetts. Radical remedies will be needed to overcome the barriers to housing production …”

And what are the barriers? High development costs, of course ($274 per square foot for urban projects, of which $159 is construction and $41 is land acquisition). And zoning regulations that limit density and where multi-family projects can be built.

Now, you might be thinking, what does any of this have to do with us, up here in our little, rural, unprepossessing state? Metro Boston is another world — far pricier and denser than any place around here.

Well, we’d argue that the problems that Massachusetts is facing are problems we share — albeit on a smaller scale. And remember, Massachusetts has an affordable housing zoning law (Chapter 40B) that’s arguably stronger than what’s on Vermont’s books.

Yes, it would be nice if we could get a comparable report card for housing in Vermont, but failing that, perhaps we can learn something from what the one for Massachusetts.

The report notes that “Although there is a lot of vacant land, most vacant sites are not zoned for multi-family residential development.”

As for zoning:

“Highly restrictive zoning, present in virtually every one of the state’s 351 municipalities, creates an artificially high barrier to development. It pushes developers to propose smaller projects (i.e., fewer units) and smaller units (i.e., fewer bedrooms per unit) in order to reduce the perceived impact on the neighborhoods and — in the case of larger units attractive to families with school-age children — the perceived impact on the town or city’s education budget. The complexity of getting zoning changes approved dramatically extends the development period and increases carrying and soft costs. The cumulative effect drives up both the cost of development (seen in the high level of site costs, financing, and soft costs) and rents.Mass1

“Thus, significant resistance to any change in the local community ambience has also meant that local support has heavily favored low-density, smaller projects, both of which are far more expensive to produce. Higher density housing maximizes the efficiency of land use, and larger projects create economies of scale in development and construction. Massachusetts residents opposed to zoning for multi-family housing at 20 units per acre are astounded to learn that the city of Paris — a pretty nice place to live with undeniable “character” — has a density of approximately 120 units per acre!

“When developers are given permission only to build projects of very low density, they will do so. As a result, the housing that is built will be expensive and affordable only for the very well-to-do or, if public subsidies are involved, to people with very low incomes. Working and moderate-income families will not be able to afford these units. This state of affairs, of course, causes the average cost of producing multifamily housing in the Commonwealth to increase.”

Here we note that merely increasing the housing supply (as some are advocating) isn’t going to solve the affordability problem if the added supply happens to be … luxury-scale and thus … unaffordable to all but the wealthy.

More brainstorming: self-building

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The housing-unaffordability problem is too big, pervasive and complex to yield to single, simple remedies. Yes, government at all levels has to play a substantially bigger role than it does now. But without substantial new federal funding and subsidies — which can’t be found on mainstream politicians’ lists of spending priorities — we might as well brainstorm about piecemeal, alternative solutions.

Having touched on co-living and cohousing in the last post, we bring you a continental variant of this idea: collective building.baugruppe1

This intriguing headline in the Guardian, “The do-it-yourself answer to Britain’s housing crisis,” offers an entrée: community members, with help from a land trust, building their own affordable homes. Britain even has an organization, the National Custom and Self-Build Association, to promote such efforts.

Self-building seems to be an even bigger trend on the continent. In Germany, baugruppen, or building groups, are active all over, and reportedly account for 10 percent of new homes built in Berlin. baugruppe3These are groups of people who come together, often with something in common (they might be musicians, say, or share a political philosophy), and take responsibility for acquiring land, hiring architects and contractors, and creating their own housing. For a summary of how it works, click here, or another brief description, here.

The baugruppe is a well-established form of organization in Germany and apparently gets a good deal of institutional support, including financing from a state bank. Whether something like this could work in this country is an open question.

Mike Eliason, a designer who was author of a seven-part series on baugruppen, seems to think it could, at least in a place like Seattle. For the first article, on the website of a Seattle advocacy organization called The Urbanist, click here. As Eliason describes it, baugruppen projects cost less than traditional models because they do without developers and marketing, as well as real estate agents.baugruppe2

It all sounds reminiscent of cohousing, except that it’s commonly done in an urban setting — as the photos in this post reflect. It also sounds like a fairly middle-class phenomenon, considering how much of a personal investment it requires of its participants. Who has the time and energy necessary to do all the meeting and planning and hiring and so on? Probably not someone who holds down two minimum-wage jobs. Not that we don’t need affordable housing, sometimes called workforce housing, for middle-class professional types, too.