How to Build more Affordable Housing?
All US cities have a shortage of affordable housing units and long waiting lists for them. Some estimate that only under a quarter of eligible households actually receive housing assistance in any form, public housing, housing vouchers or private but federally assisted housing. The under-supply occurs in thriving and prosperous parts of the country as well as in poor and struggling regions.
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| A public housing development dating to the 1930s in Fort Worth, TX, slated to be demolished as part of RAD (photo: ArchPlan) |
For every 100 extremely low-income (ELI) renter households in the country, there are only 29 affordable and available rental units. Extremely low-income households—a definition used by the U.S. Department of Housing and Urban Development (HUD)—earn 30 percent of area median income or less. [...]
Nationwide, only 28 affordable, adequate, and available units exist for every 100 extremely low-income renter households. (Baltimore: 43)
What causes this pervasive scarcity of affordable housing and what are the right remedies? Of those two questions, the first is relatively easy to answer: Cost! The cost of housing is much higher than what eligible people can afford, thus there is a substantial need for subsidy. That money doesn't exist, at least not in the budgets of the federal Department of Housing and Urban Development and even less in the coffers of local housing agencies. Charities and nonprofits face the same gap and the same scarcity of funds.Not one county in the United States has an even balance between its ELI households and its affordable and available rental units. As a result, ELI households have to search harder for a place to live, spend more than 30 percent of their income on rent, or live in substandard housing. (Urban Institute)
Perception of Public Housing in the US. (photo: The Atlantic)
The second question of how to best fill the demand for affordable housing is much more complicated than funding or the lack of it. There is also considerable debate about what type of housing is needed, where it should be placed, who should run it, and whether funds should be project-based or household-based. The traditional model was "project based" and housing agencies or developers received subsidies or tax credits for their housing projects. The voucher model is household-based and in it households receive rent subsidy enabling renters to go outside of "projects", thus allowing dispersal of poverty. The trend towards vouchers creates a systemic undersupply if it is not accompanied by a proportional increase of affordable units as the Baltimore voucher allotment process illustrates:
...more than 58,000 people have signed up for a chance to be randomly selected for a spot on the Housing Authority of Baltimore City's Section 8 wait list. Only 25,000 will be chosen, and then only 6,000 to 9,000 are expected to receive one of the housing vouchers.
"We don't need a lottery. We need housing," said [Teddy] Maddox, who signed up for the wait list last week with help from staff at Health Care for the Homeless. He pays $500 a month to rent a room in the Sandtown-Winchester neighborhood, which takes most of the $721 he gets each month in disability benefits, his only source of income.
If he were able to secure a Section 8 voucher, he would pay $216 a month toward his rent, leaving him $505 to pay for his other needs. He said he's been on the city's waiting list for a public housing unit for five years. (Baltimore SUN)
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| Vacant housing in Baltimore (photo: Washington Post) |
Baltimore’s story is a familiar one, shared by Rust Belt cities from Detroit to Cleveland. It’s a tale of a city ensnared by global forces that deindustrialized its economic engine — the steel plants — and destroyed its manufacturing sector. Washington Post).
Following this track for a moment: How can this implausible scenario of concurrent abundance and scarcity exist? And isn't the simple answer to the affordable housing shortage just to open up all the abandoned houses to low income families or even the homeless? The Baltimore Sun columnist Dan Rodricks called this type of proposal one that you might hear at suburban backyard barbecues. In other words, he thinks it is naïve, and he is right.
The grandiose oversupply of residential structures does not translate into low rents, although it usually does result in really low for-sale prices. Why? The answer is complicated and has mostly to do with location and the extreme disparities of urban housing markets, which are reflective of extreme disparities in everything else in certain locations. In other words, many areas have a functioning market where supply and demand regulate prices just as the textbook suggests, for all of the basic necessities and amenities a community may desire. But many other areas have no market, i.e. no demand due to poverty and the associated absence of health, good schools, grocery stores, services, sanitation, etc.
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| New affordable housing in Baltimore developed by a private non-profit: Lilliam Jones apartments (photo: ArchPlan) |
The deciding factor of affordability is the ratio between income and housing cost. That cost is supposed to stay under 30%, leaving 70% of net income for other needs. If poverty is so pervasive and concentrated that a great number of residents are unable to afford even relatively low rents, as the above example of Teddy Maddox shows, then there is really no market at all, since a market requires sufficient purchase power to at least contemplate basic buyer-seller transactions, including those between landlord and tenant.
Another maybe even more important reason for the persistence of abandonment in light of real need is the cost of making the boarded up housing units compliant with code and HUD standards. That cost is typically much higher than the possible proceeds from rent, even if vouchers supplement what low income, renters can pay themselves. The cost of rehabilitation is the result of Baltimore's position in the heart of a prosperous and growing metro region where construction cost is dictated by a strong demand for construction in the overall market not by those areas where the market is weak or absent. Strong markets include many thriving sections of Baltimore City itself.
This conundrum convinced the Governor of Maryland this week to intervene with an unprecedented $700 million program to boost demolition and development in those areas where the vacant houses are concentrated. It isn't entirely clear how much of that program is
"new money" and how it be will be spent, except that the Governor expressed a high preference for demolition following a rather simplistic calculation that reduced supply would reduce the over-supply and somehow reinstate a market. But if the extreme locational disadvantages are not removed as well, the demolition will do very little as has been amply demonstrated in many other rust-belt cities including Detroit and Philadelphia. It certainly does not generate development demand.
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| Governor Hogan announces State investment for slum clearing |
An additional burden are the property taxes which are twice as high in the city than in surrounding areas. As a result, some owners would rather abandon their properties than rehabilitate them.
In response to those conditions Baltimore and some other cities have created widespread tax breaks for apartments, and many places require a certain amount of affordable housing to be part of larger new developments via "inclusionary zoning". States administer federal low income housing tax credits. Baltimore's housing agency is attacking its large stock of dilapidated houses with a pretty sophisticated and multi-pronged strategy dubbed "Vacants to Value", which not only tries to refill vacant houses but also increase the supply of affordable units available for rent or first time home-buyers. Five years of that program has hardly made a dent in the overall number of abandoned properties but has brought about positive results in some target areas, where one now finds robust new construction and revitalization where there previously was absolutely no market (More about that in another future article).
Cost, it turns out, is not only the reason why legacy cities are stuck with large amounts of abandoned housing. It is also the reason for the overall affordable housing shortage across the nation. Rents in many regions far exceed the 30% threshold that HUD considers to be the sustainable margin for the cost of housing. The larger the gap between the rich and the poor in general, the lower the percentage of market rate units that are affordable to poorer segments of the population, creating the affordable housing supply shortages shown at the beginning of this article.
This simple pattern is overlaid by new policies that try to avoid high concentrations of poverty that result from traditional public housing. The attempts to create dispersed affordable units in "areas of opportunity" which look like market rate housing and are free of the stigma associated with living in "the projects", were accompanied by massive demolition and the elimination of high-density public housing. Reduction of public housing started with HUD's HOPE VI program some time ago and continues today under the flag of "RAD". In the Rental Assistance Demonstration programs, old-style public housing is eliminated or sold to private developers for rehabilitation, while tenants receive vouchers.
The Rental Assistance Demonstration was created in order to give public housing authorities (PHAs) a powerful tool to preserve and improve public housing properties and address the $26 billion dollar nationwide backlog of deferred maintenance. RAD also gives owners of three HUD "legacy" program (Rent Supplement, Rental Assistance Payment, and Section 8 Moderate Rehabilitation) the opportunity to enter into long-term contracts that facilitate the financing of improvements. [...]. In RAD, units move to a Section 8 platform with a long-term contract that, by law, must be renewed. This ensures that the units remain permanently affordable to low-income households. (HUD)
The demolition of HOPE VI resulted in an overall reduction of affordable units. The RAD program is designed to avoid reducing the amount of available units, but, by applying the dispersal concept, it opens up another issue: acceptance of affordable units in areas of opportunity. The problem is easy to see if one considers the history of America's suburbanization, in which racial policy and discrimination against the poor played a dominant role.
Postwar policies which heavily subsidized homeownership outside of cities created high concentrations of poverty inside of all cities in the country while the suburbs exploded with income stratified communities devoid of affordable housing.
It is still nearly impossible to locate affordable housing in those suburban areas except for the inner ring suburbs which themselves have now begun to show symptoms long only associated with cities. Concentrated poverty there eliminates them from the pool considered as "areas of opportunity". This centrifugal pattern isn't some obvious natural law – just take a look at other countries. In some countries, public policies have resulted in the opposite of the US pattern. In Paris, for example, the rich live in the city and the poor in the banlieu. Few European cities have real ghettos, but when they have anything that feels like it it is likely in a suburb.
The recent US trend back to the city, in which educated, highly-mobile, mostly young folks seek out urban life is beginning to upset our prevailing post-war pattern in the US as well, ironically putting additional stress on the availability of affordable housing thanks to "gentrification". At the same time lower-income city people pushing into the inner ring suburbs make the absence of affordable housing in the suburbs even more acute. Americans tend to frown upon what is deemed social engineering. The lack of corrective measures lets tensions rise when suburban politicians and residents alike agree on the desire of keeping the poor cooped up in the central city. At the same time suburbanites continue to turn up their noses about the social ills of their central city. High crime, badly performing schools, high unemployment, poor services, and the resulting general sense of grime are seen as specific to cities, even though the same issues are beginning to take a hold of the inner ring older suburbs.
The prevailing order of uses could have been described in those simple geographic terms at the height of America's urban crisis in the 90's, but today it is not only false, but carries uncomfortable and damaging racial overtones. Not only have special benefits districts cleaned up entire swaths of the city to almost suburban cleanliness levels, but urban life with the influx of immigrants and well-to-do professionals, the wide selection of restaurants, and increasingly diverse retail has replaced suburban diaspora as the lifestyle of choice represented in movies and TV series.
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| Modern "social housing" in Germany |
The household-based strategy of housing support and RAD attempt to break through this US order that specifies where poverty "belongs". Unfortunately, pivoting away from project support is also part of the larger trend of selling off public assets to private entities, a strategy followed in the hopes that it will bolster the cash supplies in public coffers. While cash is welcome to fix the remaining housing stock, the privatization arrangement can hardly be called sustainable. The sellout has hardly worked in any of the other contexts in which it has been tried, such as waterworks, electric utilities, public hospitals, public transit, or public toll roads. The cash must be recovered, but now it will be private owners having a hard time recovering it while maintaining the public benefits that the public assets once provided. For a private entity to make a profit and continue the public service it would take nothing less than a miracle. Why should a private entity be able to keep housing affordable and at the same time in top shape, a feat that eluded housing agencies for ages? Even some measure of added efficiency cannot achieve that goal easily. The predictable outcomes are either that the public benefits diminish through higher costs, or the private entity goes bankrupt. Possible also, that due to those bleak perspectives there will be no interest for private ownership to begin with. The latter is a problem that plagues the HUD housing project privatization and incentive programs.
This battery of problems has pretty much thwarted most affordable housing strategies so that the housing crisis remains and with it the high concentration of poverty found in most cities, whether it is New York, Chicago, St. Louis or Baltimore. Even sunbelt cities like Fort Worth (by some counts America's fastest growing city), Los Angeles, or San Diego know of concentration of poverty, high numbers of homeless, poorly performing city schools, and the worsening housing crisis.
I wouldn't be surprised if the construction of larger scale affordable "public" housing would soon become again an acceptable project-based support strategy. The Austrian capital of Vienna has proven all along that public housing can be human, dignified, modern and still be owned and operated by a public agency.
Klaus Philipsen, FAIA
edited by Ben Groff, JD
Related articles on this blog:
The American Rental Crisis
Affordable Housing - Anything the Vienna Model can Teach us?
Links and sources:
Could Baltimore's 16,000 Vacant Houses Shelter the City's Homeless? The Atlantic Oct 20, 2014
Urban Institute: We have mapped America's rental housing crisis
The Atlantic: The Power of Public Housing.
San Francisco Examiner: Build more Housing to Solve the Crisis
Thousands sign up as city's Section 8 wait list opens for first time in a decade (Baltimore SUN)Baltimore has more than 16,000 vacant houses. Why can’t the homeless move in? (Washington Post May 12, 2015The Atlantic: The Power of Public Housing.
San Francisco Examiner: Build more Housing to Solve the Crisis
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