Meeting Our Nations Housing Challenges

1
Meeting Our NationsHousing Challenges

• Report of the BipartisanMillennial Housing
  Commission
• Appointed by theCongress of the United States

2
A Congressional Commission

• Authorized in October 1999 (P.L. 106-74)
• Members (22) appointed in December 2000 by chairs
  and ranking minority members of
• House and Senate Appropriations Committees and
  Subcommittees for VA, HUD and Independent
  Agencies
• Senate Banking, Housing and Urban Affairs
  Committee and Housing and Transportation
  Subcommittee
• House Financial Services Committee and Housing
  and Community Opportunity Subcommittee

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Legislative Mandate

• To examine, analyze, and explore
• the importance of housing, particularly
  affordable housing, to the infrastructure of the
  United States
• the various possible methods for increasing the
  role of the private sector in providing
  affordable housing, including the effectiveness
  and efficiency of such methods
• whether the existing programs of HUD work to
  provide better housing opportunities for
  families, neighborhoods, and communities, and how
  such programs can be improved.

4
Overview of Report

• Thirteen Principal Recommendations
• Fifteen Supporting Recommendations
• Sections on
• Why housing matters
• Americas housing challenges
• The federal role in housing
• Released May 30, 2002

5
The MHC Vision
To produce and preserve more sustainable,
affordable housing in healthy communities to help
American families progress up the ladder of
economic opportunity
6
WHY HOUSING MATTERS

• Family stability and childhood outcomes
• Neighborhood quality and access to opportunity
• Neighborhood revitalization
• Household wealth
• Contribution to economic growth and stability

7
Family Stability andChildhood Outcomes

• Disruptive moves affect school, job performance
• For welfare-to-work recipients, housing plus job
  assistance results in better employment outcomes
  than job assistance alone
• Homeownership has especially positive effects for
  children in terms of school success and social
  behavior
• Better-quality housing is related to lower levels
  of psychological distress and improved
  educational and economic achievement

8
Neighborhood Quality andAccess to Opportunity

• Unemployment, crime, high-school dropout, and
  teen pregnancy rates higher in high-poverty
  urban, rural areas than elsewhere
• Incidence of depression and anxiety higher among
  inner-city youth
• Relocating families to better neighborhoods can
  improve educational, mental health, and
  behavioral outcomes

9
Neighborhood Revitalization

• Relocating families can improve outcomes so can
  revitalizing distressed neighborhoods
• Important to strengthen schools, provide access
  to services, connect residents to jobs
• Rundown and abandoned structures can have a
  contagious effect
• Concentrated public investment in housing can be
  first step in reclaiming neighborhoods

10
Household Wealth

• Homeownership
• Insulates households from rising rental costs,
  home prices
• Enables households to build equity, wealth
• Refinancing can be source of cash for other
  spending, investment
• Capital gains on home sales add liquidity to the
  economy, stimulate consumer spending

11
Contribution to Economic Growth and Stability

• Housing makes up more than one-third of the
  nations tangible assets

SourceBureau of Economic Analysis, Survey of
Current Business, September 2001
12
The Housing Sector

• In 2000, home building and remodeling accounted
  for about 4 percent of GDP
• In 2001, new residential construction was
  associated with roughly 3.5 million jobs
  nationally and 166 billion in local income
• In 2001, home building was the source of about
  65 billion in combined taxes and fees

13
The Housing Finance System

• Serves as a critical stabilizing force
• Manages risk
• Provides expanded, continuous access to mortgage
  credit
• Benefits derive largely from
• Evolution of a strong secondary market
• Role of the Federal Housing Administration and
  the Government National Mortgage Association
• The Federal Home Loan Banks

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AMERICAS HOUSING CHALLENGES

• Affordability is the single greatest housing
  challenge facing the nation
• Extremely-low income households face the greatest
  problems, but
• Affordability problems reach across all but the
  highest income groups
• The burden on working families
• The shrinking rental supply
• Constraints on production and preservation
• Persistent homeownership gaps

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Income Group Definitions

• Extremely low income (ELI) below 30 of area
  median income (AMI)
• Very low income (VLI) 30.1 to 50 AMI
• Low income (LI) 50.1 to 80 AMI
• Lower income less than 80 AMI
• Moderate income (MI) 80.1 to 120 AMI
• High income (HI) above 120 AMI

16
Measures of Affordability

• Most federal programs measure affordability by
  the relationship of income to housing costs.
• Spending 30 to 50 of income on housing is
  considered a moderate affordability problem.
• Spending more than 50 of income on housing is
  considered a severe affordability problem.

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Owners and Renters Face Affordability Problems
Source HUD tabulations of the 1999 American
Housing Survey (AHS) prepared for the MHC.
18
Cost-Burdened Households

• May have incomes too low to cover even modest
  rental costs
• May live in high-cost markets where even a
  moderate income is insufficient
• May be unable to earn adequate wages to manage
  housing plus basic needs due to age, disability,
  or difficulty finding full-time work
• May need to trade off neighborhood quality in
  order to lower housing costs

19
Burden on Working Families

• Of the 11.3 million LI households with severe
  housing affordability problems in 1999, nearly
  one-quarter had earnings at least equivalent to
  full-time work at the minimum wage (10,712 per
  year).
• Many families with significantly higher earnings
  face moderate and severe housing affordability
  problems.

20
The Shrinking Rental Supply

• The supply-demand gap affects ELI households and
  those earning between 60 and 120 of AMI.

• Affordability is a problem primarily for ELI
  households.

Source HUD tabulations of the 1999 AHS prepared
for the MHC.
21
Constraints on Production

• Inadequate financing for multifamily housing in
  particular
• Insufficient federal subsidy
• Lack of secondary markets for development and
  construction loans, and loans on small
  multifamily properties
• Development controls such as local zoning and
  subdivision regulations

22
Impediments to Preservation

• Federal programs that under-budget for
  operations, maintenance, and renovations
• Federal tax policies
• Codes oriented toward new construction rather
  than moderate rehabilitation
• Inadequacy of federal subsidy needed to cover the
  gap between affordable rents and operating costs

23
Persistent Homeownership Gaps

• Despite recent gains, minority and low-income
  homeownership rates still lag.

Source U.S. Bureau of the Census, Current
Population Survey, 1993 and 1999.
24
Barriers to Homeownership

• The high cost of housing generally
• Costs associated with buying a home
• Underwriting standards applied by
  mortgage lenders
• Cost and availability of mortgage credit
• The largest single constraint on
  lower-income households is lack of savings.
• Recent research indicates that face-to-face
  pre-purchase education and counseling reduces
  loan delinquencies by as much as 34 percent.

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THE FEDERAL ROLE IN HOUSING

• Historical overview
• Programs active today
• Appendix 3 of the Commission report provides a
  description of past and current federal housing
  programs.
• Lessons learned
• These lessons informed the Commissions
  recommendations.

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Lessons Learned 1 and 2

• Affordable housing developments cannot be
  isolated from the broader community in which they
  are located and must provide access to decent
  schools, job opportunities, and transportation.
• Decisions about the location and management of
  affordable housing are best made by state or
  local governments, rather than the federal
  government.

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Lessons Learned 3 and 4

• The private sector needs the proper incentives to
  be an effective partner in the federal
  governments efforts to address the nations
  housing challenges.
• When resources are limited, there are difficult
  tradeoffs between making rents affordable to the
  poorest tenants and ensuring that enough income
  flows into a property to cover the repairs
  necessary to sustain the structures useful life.

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PRINCIPAL RECOMMENDATIONS

• New tools (5)
• Administered by states working with localities
• Targeted to unmet need
• Involve the private sector as appropriate
• Major reforms to existing programs (4)
• Realignment with the programs stated missions
• Streamlining of existing programs (4)
• Work well but could benefit from some improvement

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NEW TOOLSSingle-Family Tax Credit

• State could use for two purposes
• to promote the production or rehabilitation of
  units in eligible census tracts where
  production/rehabilitation costs exceed the market
  value of the completed properties and/or
• to achieve affordability for low-income buyers by
  applying the credit against the borrowers
  mortgage in the form of prepaid points,
  below-market interest rates, or other subsidized
  mortgage terms.

30
NEW TOOLSPreservation Tax Incentive

• Within appropriate federal guidelines and under
  state oversight, sellers who transfer ownership
  to a preservation entity would qualify for tax
  relief.
• The preservation entity must commit to
  long-term affordability and comply with criteria
  established by the state.

31
NEW TOOLS100 Percent Capital Subsidy

• On units earmarked for ELI households
• Rents paid by tenants and would cover operating
  expenses, including an adequate reserve
• Eligible uses would include new construction,
  preservation, and acquisition with or without
  rehabilitation

32
NEW TOOLS Financing for Mixed-Income Rental
Housing

• Remove the limits on states ability to issue
  tax-exempt debt for specific multifamily
  properties.
• To be eligible for financing, properties must
  reserve at least 20 percent of units for families
  earning no more than 80 percent of AMI.
• Congress should consider requiring states to
  develop a qualified allocation plan for the use
  of this resource.

33
NEW TOOLS Community Development Waivers

• Allow governors to reserve up to 15 percent of
  federal block grant funds to support
  comprehensive, geographically defined
  redevelopment projects sponsored by local
  governments.
• Governors would have limited waiver authority to
  facilitate the blended use of funds, which would
  have to be consistent with the purposes of the
  respective block grant programs.

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MAJOR REFORMS TO EXISTING PROGRAMSPublic Housing

• Apply private real estate principles
• Provide for an orderly transition at severely
  distressed properties
• Allow debt financing of capital needs
• Simply the rating of public housing agencies
  (PHAs)
• Test new rent-setting mechanisms
• Exempt small PHAs from unnecessary and burdensome
  reporting requirements

35
MAJOR REFORMS TO EXISTING PROGRAMS FHA

• Restructure the Federal Housing Administration
  (FHA) as a wholly owned government corporation
  within HUD.
• Combine FHA and Ginnie Mae into a single entity
  based on the model laid out in the Government
  Corporation Control Act.
• Provide for more flexible multifamily and
  single-family operations.

36
MAJOR REFORMS TO EXISTING PROGRAMSEnd
Homelessness

• Address transitional homelessness by increasing
  the supply of units affordable to ELI households
  using tools such as the 100 percent capital
  subsidy.
• End chronic homelessness by providing an
  additional 15,000 units of permanent supportive
  housing over each of the next 10 years.

37
MAJOR REFORMS TO EXISTING PROGRAMSWork
Requirement

• Fund the services and supports needed to enable
  families who receive housing assistance to find
  and maintain employment.
• Fund financial incentives (e.g., income
  disregards, savings accounts exempt from resource
  limitations) to enable families to keep more of
  their earnings.
• Continue to experiment with stepped and flat
  rents.

38
STREAMLINE EXISTING PROGRAMSHousing Choice
Vouchers

• Improve utilization and success rates
• Increase landlord participation
• Link vouchers to housing production programs
• Link vouchers to work opportunity and
  self-sufficiency initiatives
• Link vouchers to non-housing programs
• Allow for the flexible use of Section 8
  project-based units

39
STREAMLINE EXISTING PROGRAMSHOME and the LIHTC

• Improve the HOME Investment Partnerships Program
  (HOME)
• Increase funding for HOME
• Improve the Low Income Housing Tax Credit (LIHTC)
  program
• Eliminate barriers to combining the LIHTC with
  HOME and other programs

40
STREAMLINE EXISTING PROGRAMSMortgage Revenue
Bond

• Repeal the 10-year rule
• Allow housing finance agencies 18 months to issue
  new mortgages using prepayment funds
• Given the enforcement of Mortgage Revenue Bong
  income limits
• Remove purchase price limits
• Repeal the first-time homebuyer eligibility
  requirement
• Remove eligibility restrictions on Veterans
• Increase the limits on home improvement loans to
  the FHA Title I loan level

41
STREAMLINE EXISTING PROGRAMSFederal Budget Laws

• Shift appropriations risk away from property
  owners, lenders, and tenants by
• moving project-based, Section 8 Housing
  Assistance Payment contract funding from the
  discretionary to the mandatory part of the
  federal budget and/or
• offering some form of insurance to
  owners/lenders to minimize the appropriations
  risk in their pricing.

42
SUPPORTING RECOMMENDATIONS1 through 3

• Increase funding for housing assistance in rural
  areas.
• Increase funding for Native American and Native
  Hawaiian housing.
• Establish Individual Homeownership Development
  Accounts to help more low-income households buy
  homes.

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SUPPORTING RECOMMENDATIONS4 through 6

• Allow housing finance agencies to earn arbitrage.
• Exempt housing bond purchasers from the
  Alternative Minimum Tax.
• Undertake a study of the Davis-Bacon Act
  requirements.

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SUPPORTING RECOMMENDATIONS7 through 9

• Address regulatory barriers that either add to
  the cost of or effectively discourage housing
  production.
• Streamline state planning requirements for
  community development programs.
• Expand the financing options for small
  multifamily properties.

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SUPPORTING RECOMMENDATIONS10 through 12

• Foster a secondary market for development and
  construction lending.
• Launch a demonstration project for comprehensive
  community-based work.
• Improve consumer education about home mortgage
  lending.

46
SUPPORTING RECOMMENDATIONS13 through 15

• Improve manufactured homebuyer and owner access
  to capital markets.
• Affirm the importance of the Community
  Reinvestment Act.
• Affirm the importance of the government-sponsored
  enterprises.

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To Obtain a Copyof the Report

• Download a copy of the report from the Commission
  site at http//www.mhc.gov. Both PDF and Word
  formats are available.
• The Commission Web site also provides
  instructions on how to obtain a report from the
  Government Printing Office.

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CD-ROMs

• The report comes with a CD-ROM that includes a
  PDF version of the report, a description of the
  Commissions methodology, testimony submitted
  during hearings, and documents submitted during
  focus meetings.
• A separate CD-ROM, available through the National
  Housing Conference, contains products prepared by
  MHC consultants and others. To request a copy of
  this CD-ROM, send an email message to
  cegan_at_nhc.org.