Wednesday, February 13, 2013

The housing crisis requires multiple policy tools

by Ethan Handelman, NHC; Peter Lawrence, Enterprise Community Partners; and Michael J. Novogradac, Novogradac & Company LLP

We have a nationwide affordable housing crisis that is growing despite the housing crash. Over 10 million working families pay more than 50 percent of their income for housing—that’s nearly one in four working households.

In a recent MetroTrends blog post, Robert Lerman argues we should increase funding for programs that help people pay for their housing by reducing funding for programs that create new affordable homes. In fact, we need both approaches to resolve the crisis, and programs like the Low-Income Housing Tax Credit create new homes efficiently and effectively.

Real estate is local, so our affordable housing policy by necessity must be somewhat local too. In places where housing is available but people’s incomes are too low to afford it, demand-side help like housing vouchers can work well. In places where the market has difficulty creating new homes—for instance, because of high land costs, regulatory barriers, not-in-my-back-yard opposition, or physical constraints—supply-side programs that create new homes can work better.

Supply-side programs also create jobs, economic activity, and local tax revenue. Indeed, if we simply add vouchers without adding new homes, the vouchers become harder to use and the resulting higher rents make affordability worse. We have a mixture of demand-side and supply-side programs to respond to the variety of market conditions that exist nationwide.

A primary program to create and preserve affordable housing, the Low-Income Housing Tax Credit (or Housing Credit), creates homes affordable to people with often extremely low incomes and, in many cases, provides better quality homes closer to jobs, transit, and better-performing schools than their previous homes. Even if the new Housing Credit homes sometimes take the place of market rate housing (the few studies Lerman cites are far less conclusive than he implies), they still fulfill the essential public purpose of providing below-market rents to the most vulnerable, including the formerly homeless, older Americans, veterans, and people with disabilities.

The Housing Credit leverages investor capital and private sector asset management expertise to create homes efficiently. Housing Credit pricing has rebounded quickly from the brief low during the financial crisis to levels now of 90 cents on the dollar or more, up front, for tax credits paid out over 10 years, creating housing that must be affordable for at least 30 years and often much longer. And those same investors oversee the projects to ensure their success, which contributes to the cumulative foreclosure rate of 0.62 percent of Housing Credit properties, even during the Great Recession, far less than any other real estate class.

Simplified cost comparisons, such as the 2002 GAO study Lerman cites, present a flawed picture that underestimates the benefit of up-front investor capital (especially given today’s low interest rates), the operational and development risks borne entirely by the private sector, and the reduced budget uncertainty for the government.

The many foreclosed homes resulting from the housing crash are not a quick fix for people in need. Many foreclosed homes are in poor condition, and even more are too distant from jobs, transportation, and good schools. Emerging efforts to aggregate single-family homes into scattered site rentals are a laudable experiment to see whether the model can provide high-quality, affordable homes at scale, but it is an extremely challenging business that is far from proven out.

The Housing Choice Voucher program and similar demand-side housing assistance programs are essential, as are homeownership assistance programs that help families achieve stability and build assets. As the burst housing bubble reminded us, homeownership is neither a one-way bet nor a good fit for all households. Helping families with good credit but low wealth step into homeownership through shared equity and down-payment assistance programs offers a more promising path than trying to shoehorn rental assistance into a homeownership model, as Lerman proposes.

We need housing policy that creates opportunities for those most in need and fits the right tools to the challenges in particular places. That means a mix of producing new rental housing, preserving existing rental housing, assisting households with housing costs, and creating sustainable homeownership.

About the authors
  • Ethan Handelman is the vice president for policy and advocacy at the National Housing Conference.
  • Peter Lawrence is senior director, public policy & government affairs, at Enterprise Community Partners.
  • Michael J. Novogradac, CPA, is managing partner in the San Francisco, California office of Novogradac & Company LLP.

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