CLOSUP Student Working Paper Series Number 49 December 2018
Is Affordable Housing Attainable?
Miranda J. Pearson, University of Michigan
This paper is available online at http://closup.umich.edu Papers in the CLOSUP Student Working Paper Series are written by students at the University of Michigan. This paper was submitted as part of the Fall 2018 course PubPol 475-750 Michigan Politics and Policy, that is part of the CLOSUP in the Classroom Initiative. Any opinions, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the view of the Center for Local, State, and Urban Policy or any sponsoring agency
Center for Local, State, and Urban Policy Gerald R. Ford School of Public Policy University of Michigan
Running head: IS AFFORDABLE HOUSING ATTAINABLE?
Is Affordable Housing Attainable? Miranda J. Pearson The University of Michigan
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2 IS AFFORDABLE HOUSING ATTAINABLE? Introduction: Growing up people often spend time dreaming of their perfect home, in hopes that one day if they work hard enough and put enough money aside, that their dream will become a reality. A perfect home where one can raise their children and grow old in, one where they can share special moments and create lasting memories in, but today, for many American’s that dream is slipping further away from reality. Now, fast forward to adulthood and imagine working a fulltime job at minimum wage and having to pay over half of one’s paycheck for a place that should barely be called a home. Think about what it is like to have to make certain trade-offs such as paying rent or buying groceries and medication. How would you decide what was more important? Being a homeowner is more than just owning a house, it is a stepping stone for success and it is critical to someone’s health and opportunity (Cassidy, 2018). To some people they assume that by creating more affordable housing it will attract crime and decrease their sense of safety. Affordable housing is more than housing criminals, it is housing your grandmother who cannot stay in her large home any longer. It is housing for your son or daughter who just graduated college and is burdened with student loan debit. It is for your co-worker who finally had the courage to leave their abusive relationship and start over for themselves and their children. But how do we provide more affordable housing in Michigan? To tackle this rising crisis, we are going to need all hands-on deck to make sure that our American families have an affordable and quality place to lay their heads at the end of the day. In the pages to come, we will look at the history of affordable housing and how the past housing policies have influenced what we have today. We will address the impacts that families in Michigan are feeling due to the lack of affordable housing and the rising number of individuals on a fixed income. We will explore what
3 IS AFFORDABLE HOUSING ATTAINABLE? is being done at the State and Federal level and how those policies change what our local government and municipalities are doing. Lastly, we will look at recommendations to promote better access to affordable housing, the three recommendations that I plan to explore are increasing the funding for housing voucher for programs like Section 8, decreasing the amount of mandates and regulations for zoning and the development of housing trust funds that could help fill the gaps where the federal government money falls short. Background: Since the 1930’s there has always been a debate about affordable housing policy and what is the best approach to combat the need of affordable housing for our U.S. families. Finding the answer to the affordable housing problem is not an easy fix. Housing impacts many different disciplines: politics, economics, social services and more. During the Great Depression the Department of Housing and Urban Development was created to alleviate housing hardships. Then in 1937 the Federal Housing Administration (FHA) passed the US Housing Act, which gave tax subsidies to Public Housing Agency (PHAs) that rent to low income individuals and families. This policy was a huge step in the right direction because it allowed people to find affordable housing that was not in blighted areas or had poor infrastructure. I 1969 the “Brooke Amendment was passed, which set the limit on the amount a renter had to pay for public housing at 25% of the renter’s income, but then soon increased to what we used today, 30%. The next change to housing policy was in 1974, the Housing and Community Development Act. This Act is the foundation for what we know today as Section 8 housing and it was dispersed in the form of a block grant in hopes of giving more authority to local jurisdictions. In 1986, the Tax Reform Act passed and created the Low-Income Housing Tax Credit (LIHTC) which was designed to attract investors and developers to build affordable housing units by providing a dollar for dollar
4 IS AFFORDABLE HOUSING ATTAINABLE? tax credit. Though this tax credit cost approximately $8 billion in the annual budget, according to the National Housing Law Project There are about 2,000,000 tax credit units today and this number continues to grow by an estimated 100,000 annually. Since then there has not been a deep investment into helping the people with the greatest need when it comes to a housing burden. Then from 2000-2009 Michigan felt the effects of the lost decade which destroyed its economy and job markets then just when we think things cannot get any worse, they do. In 2008 the United States was severely impacted by the housing market crash and during that time Michigan and states alike saw drastic drops in housing cost and many home foreclosures that led to a decrease in homeownership and an increase in the number of people renting (Garber, 2016). With the homeownership decreasing by 5% and the number of people renting rising the cost of rent is rising quickly, but income and wages are staying stagnate. Thankfully, in 2009 President Barack Obama passed the American Recovery and Reinvestment Act, that essentially created stimulus packages that put money back into tax payers’ pockets and started the rebuild process for Americans. Affordable Housing in Michigan: Throughout the great state of Michigan its residents are still feeling the effects of low affordable housing options. For the southeast side of the state, in Detroit, there are many things that are impacting their affordable housing. As the city’s economy started declining in the mid20th century, droves of middle- and upper-class residents fled to the suburbs while other families, particularly African Americans, who did not have the financial means to leave remained in a city that lacked adequate jobs, educational opportunities, and market investments. Detroit’s housing challenges—including vacant properties and declining homeownership—and
5 IS AFFORDABLE HOUSING ATTAINABLE? its nascent rebound have captured most of the national spotlight (Urban Institute, 2018). For the African American communities in the Detroit area they were facing foreclosures at an alarming rate and because these communities were not aware of the help in the community, the number of foreclosures grew. Quicken Loans in Detroit decided to do something about the increasing numbers of foreclosures and partnered up with United Community Housing Coalition to go door to door to talk to over 3,000 residents about tax exemptions that could help lower their payments. One population that will be significantly impacted in the next few years by the lack of affordable housing is our seniors. There is a growing number of seniors who are looking for affordable housing that are on a strict fixed income. Overall growth in the region will be driven by older households, rather than new residents. Southeast Michigan is expected to grow by 377,000 people between 2010 and 2040, but the number of senior households is expected to grow by 415,000. This means the number of non-senior households is projected to drop by 38,000, and seniors’ share of the region’s households is forecast to rise from 22 to 37 percent (Urban Institute, 2018). We have been aware for years now that there was going to be an increase in the numbers of seniors, but we still have not yet prepared for it. In Washtenaw county they are partnering with the University of Michigan to provide a share housing opportunity. The main focus is on providing resources to seniors, but I believe that it provides a huge benefit for college students who cannot afford to live in Ann Arbor by themselves. With the shared housing projects the seniors can get help with their rent along with having some form of interaction to combat social isolation and loneliness and help around the house with chores that they might not be able to do by themselves anymore. I think this is a cost productive way to pair people up might not have known each other before to work together for a mutual outcome of having affordable housing,
6 IS AFFORDABLE HOUSING ATTAINABLE? Federal Housing Programs: In this section we are going to look at three Federal Level programs that the Michigan State Housing Development Authority (MSHDA) administers. The three that we will be looking at is the Housing Choice Voucher Program better known as Section 8, the Rural Rental Housing Program (Section 515) and the Low-Income Housing Tax Credit (LIHTC). The first program that we will look at is the Rural Rental Housing Program, which was created by the United States Department of Agriculture (USDA). Affordable housing problems do not only effect people living in the urban parts of Michigan, but also, we can find the same issues in the rural parts on Michigan. As I mentioned before housing policy is interconnected in so many ways to other important aspects, like transportation and access to services, so when we try to develop housing at the state-wide level, we must analyze the impacts of both rural and urban housing problems. Many of rural America’s 65 million residents experience acute housing problems that are often overlooked while public attention is focused on big-city housing issues. Farm workers, especially those who move from place to place to find work, suffer some of the worst, yet least visible, housing conditions in the country (Strauss, 2014) For our rural communities the Rural Housing Service states that the Rural Rental Housing (Section 515) Loans are direct, competitive mortgage loans made to provide affordable multifamily rental housing for very low-, low-, and moderate-income families, elderly persons, and persons with disabilities. This is primarily a direct housing mortgage program; its funds may also be used to buy and improve land and to provide necessary facilities such as water and waste disposal systems. The next federal policy that we will look at is the Housing Choice Voucher Program (Section 8). According to the HUD the housing choice voucher program is the federal government's major program for assisting very low-income families, the elderly, and the disabled
7 IS AFFORDABLE HOUSING ATTAINABLE? to afford decent, safe, and sanitary housing in the private market. The way that the housing choice voucher works is that once approved the individual or family is given a voucher and can use that at any public housing unit that accepts housing vouchers. For the majority, this voucher allows them to find housing where they do not pay more than 30% of their income towards rent. This program does have one setback, there are often waiting lists due to the increase in demand of affordable housing. According to MSHDA it administers approximately 28,000 Housing Choice Vouchers. The last federal policy that we will look at is the LIHTC which is a program that gives State and local LIHTC-allocating agencies the equivalent of nearly $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households ( U.S. Departments of Housing and Urban Development, 2018). In Michigan, the Michigan State Housing Development Authority (MSHDA) is the agency that oversee the LIHTC and According to (MSHDA) the maximum tax credit a project may receive is based on a percentage of the portion of rental housing (whether the housing is newly constructed or rehabilitated) that the owner agrees to maintain as both rent and income restricted for a period of at least 18 years. At a minimum, either 20 percent of the units must be for residents whose incomes do not exceed 50 percent of area median income or 40 percent of the units must be for residents whose incomes do not exceed 60 percent of the area median income. This policy overall has be extremely productive, but for some at the CATO institute, they believe that the $9 billion Low-Income Housing Tax Credit program is vulnerable to abuse and that the costs of projects may be inflated
8 IS AFFORDABLE HOUSING ATTAINABLE? MPSS Data: Though Michigan has housing vouchers that provide access to public housing opportunities, the public housing choices are not always the nicest or up to date. Through the Center for Local State and Urban Policy (CLOSUP) data collection we looked at some of their data surrounding housing. We decided to run a crosstabulation to compare what local officials from different regions in Michigan thought about their housing stock in their jurisdiction and if 120 100 80 Strongly Agree Somewhat Agree
60
Neither Somewhat Disagree
40
Strongly Disagree 20 0 UP & Norther Lower Peninsula
Central Lower Peninsula
Southern Lower Peninsula
MPSS Fall, 2017 * Left out people who answered do not know (n= 159) they think it suffers from blight. In Figure 1 above we can see that throughout the three regions in Michigan they all somewhat agree that they have blighted housing stock. The figure below is broken down into different regions; UP & Northern Lower Peninsula, Central Lower Peninsula and Southern Lower Peninsula. For each region the local officials were asked if there were blighted stock in their jurisdiction. Their options for answers are: Strongly agree, somewhat agree, neither, somewhat disagree, or strongly disagree. In the crosstabulation we left out the
9 IS AFFORDABLE HOUSING ATTAINABLE? people who did not answer the question (n=159). The data that is shown above is strictly the opinion of the local officials and does not represent what it actually is. Recommendations: Housing policy is not simple by any means, it is complex and intertwines between all sorts of policy sectors. In my opinion if families and individuals do not have affordable housing, they will not be able to grow and be a productive member of society. When it comes to writing housing policy and recommending suggestions to improve the access to quality affordable housing, I propose three recommendations; (1) increasing funding for housing vouchers (2) decrease the mandates and regulations for zoning laws (3) develop housing trust funds to help fill gaps where the federal government falls short. Earlier in the analysis we touched on the different kinds of federal voucher programs that help families in both rural and urban neighborhoods obtain public housing. The way the vouchers work is that they subsidize the housing so that people are not paying more than 30% of their income on rent, so in a sense the government is picking up what is left over. Currently, in Michigan there is a long wait list that is attached to obtaining a housing voucher. If the local, state of federal government could allocate more money to housing vouchers we can get people back on their feet and create and environment so that they can hold down and job and start to save money. I think that with the housing vouchers they should be informed of different educational training session that are happening in their area that they should attend to build their knowledge about saving and steps to becoming a homeowner. With good ideas come the question about cost, and how are we going to afford this. Since this is a federal program, I think that we can allocate money from the defense budget and move it to the Section 8 housing
10 IS AFFORDABLE HOUSING ATTAINABLE? vouchers. Homeless veterans are a rising population and we should be doing more to make sure that those who have served our country are taken care of. My next recommendation to improve the access to affordable housing is more of a conservative approach, but I feel that if we can reduce the amount of regulations and mandates on zoning and land use laws, we will be able to open up more room to grow. According to a study created by the CATO Institute the growing number of rules and regulations on urban land use has stemmed from well-intentioned efforts to promote public safety, environmental objectives, and aesthetic goals for development. But a major side effect of this growing volume of rules has been to deter construction and reduce the supply of housing, including multifamily and low-income housing. With reduced supply, many U.S. cities suffer from housing affordability challenges. With that being said research has shown that states who have higher restrictions on zoning regulations receive more money from the federal government and rely more heavying on their support. For some at the CATO Institute their research suggest that policymakers can tackle housing affordability problems at the state and local levels by overhauling zoning and land-use rules. They can cap or reduce local regulation, fast-track approval processes, and compensate property owners for regulatory takings. Additional federal aid is not the answer, and it may even undermine incentives for local governments to make needed reforms (Calder, 2017). This recommendation changes the way we traditionally think
about affordable housing. My last recommendation to tackle the affordable housing crisis is to create local trust funds that resemble what we have federally that was created through George W. Bush’s administration in 2008, the National Housing Trust Fund. I think if counties could promote local Millages or implement a local tax on the newly passed marijuana law to collect dollars that
11 IS AFFORDABLE HOUSING ATTAINABLE? would support the trust funds, municipalities could use the money collected to do what their jurisdiction needs the most with their money. This would take away some of the reliance on federal dollars and allows each municipality to be in control of where the money goes. For example, if I lived in an area where the were many houses that were abandoned or condemned, I could allocate that money into the investment of fixing the homes and turning them into houses that are affordable. Conclusion: In the end there are many impactful programs that are being funded throughout the federal government and other through other state programs. These programs do different things across the spectrum. Some focus on education about tax exemptions that can provide some relief to families that are facing foreclosure. Other programs like the LIHTC provide dollar for dollar tax credits that incentivize developers to either rehabilitate or build new affordable housing options. We also have options that allow people a chance to pay a reasonable amount in rent so that they can put money towards other things that can boost them economically. For some groups of people, they do not want to see anymore handouts when it comes to housing, they want to see changes in the zoning regulations and mandates for land use laws. I think what is important when these policies are created is that we can look at all of the options to decide what is going to provide our American people the most effective way to sustain their overall life. In some places we will be able to make cuts, and, in some places, we will need to foot the bill for innovative programs expand how we look at our affordable housing options. Currently 40% of Michigan residence cannot afford basic needs (Cassidy, 2018) and that is unacceptable. Michigan can do better than that and I believe that in the coming years we will decrease the number of residences who cannot afford basic needs.
12 IS AFFORDABLE HOUSING ATTAINABLE? References A Brief Historical Overview of Affordable Rental Housing (2015). Retrieved December 9, 2018, from https://nlihc.org/sites/default/files/Sec1.03_Historical-Overview_2015.pdf Garber, J. (2016, February 11). Here's How the US Housing Market has Been Impacted by the 2008 Crash. In Business Insider. Retrieved December 10, 2018, from https://www.businessinsider.com/impact-of-2008-crash-on-housing-2016-2 Low-Income Housing Tax Credits (n.d.). In National Housing Law Project. Retrieved December 10, 2018, from https://www.nhlp.org/resource-center/low-income-housing-tax-credits/ Tackling Southeast Michigan’s Biggest Housing Challenges (2018, July). In Urban Institute Retrieved December 10, 2018, from https://www.urban.org/features/tackling-southeastmichigans-biggest-housing-challenges Strauss, L. R. (2014). USDA Rural Rental Housing Programs. In National Low-Income Housing Coalition . Retrieved December 10, 2018, from https://nlihc.org/sites/default/files/2014AG-152.pdf Calder, V. B. (2017, October 18). Zoning, Land-Use Planning, and Housing Affordability. In CATO Institute. Retrieved December 10, 2018, from https://www.cato.org/publications/policy-analysis/zoning-land-use-planning-housingaffordability#full
13 IS AFFORDABLE HOUSING ATTAINABLE? Low Income Housing Tax Credit (LIHTC). (2018). In Michigan State Housing Development Authority. Retrieved October 7, 2018, from https://www.michigan.gov/mshda/0,4641,7-141-5587_5601-21934--,00.html Cassidy, J. (2018, June 25). Housing is key to health and opportunity. In Michigan League for Public Policy. Retrieved October 7, 2018, from https://mlpp.org/poverty-issues/housing-is-the-key-to-health-and-opportunity/ Cassidy, J. (2018, June 21). A crack in Michigan's foundation. In Michigan League for Public Policy. Retrieved October 7, 2018, from https://mlpp.org/poverty-issues/a-crack-in-michigans-foundation/