Meeting Our Nation’s Housing Challenges Report of the Bipartisan Millennial Housing Commission

Meeting Our Nation’s
Housing Challenges
Report of the Bipartisan
Millennial Housing Commission
Appointed by the
Congress of the United States
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.
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Overview of Report
• Thirteen Principal Recommendations
• Fifteen Supporting Recommendations
• Sections on
– Why housing matters
– America’s housing challenges
– The federal role in housing
• Released May 30, 2002
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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
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WHY HOUSING MATTERS
• Family stability and childhood outcomes
• Neighborhood quality and access to
opportunity
• Neighborhood revitalization
• Household wealth
• Contribution to economic growth and
stability
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Family Stability and
Childhood 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
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Neighborhood Quality and
Access 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
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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
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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
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Contribution to Economic
Growth and Stability
• Housing makes up more than one-third of the
nation’s tangible assets
Source:
Bureau of
Economic
Analysis, Survey
of Current
Business,
September 2001
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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
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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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AMERICA’S 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
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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.
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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
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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.
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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.
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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
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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
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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.
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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 prepurchase 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 Commission’s
recommendations.
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Lessons Learned: 1 and 2
1. 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.
2. 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
3. The private sector needs the proper incentives to
be an effective partner in the federal
government’s efforts to address the nation’s
housing challenges.
4. 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 structure’s 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 TOOLS:
Single-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 borrower’s mortgage in
the form of prepaid points, below-market interest rates,
or other subsidized mortgage terms.
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NEW TOOLS:
Preservation 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.
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NEW TOOLS:
100 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
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NEW TOOLS: Financing for
Mixed-Income Rental Housing
• Remove the limits on states’ ability to issue taxexempt 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.
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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 PROGRAMS:
Public 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
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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.
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MAJOR REFORMS TO
EXISTING PROGRAMS:
End 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.
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MAJOR REFORMS TO
EXISTING PROGRAMS:
Work 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.
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STREAMLINE EXISTING
PROGRAMS:
Housing Choice Vouchers
•
•
•
•
Improve utilization and success rates
Increase landlord participation
Link vouchers to housing production programs
Link vouchers to work opportunity and selfsufficiency initiatives
• Link vouchers to non-housing programs
• Allow for the flexible use of Section 8 projectbased units
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STREAMLINE EXISTING
PROGRAMS:
HOME 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
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STREAMLINE EXISTING
PROGRAMS:
Mortgage 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
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STREAMLINE EXISTING
PROGRAMS:
Federal 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.
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SUPPORTING
RECOMMENDATIONS:
1 through 3
1. Increase funding for housing assistance in
rural areas.
2. Increase funding for Native American and
Native Hawaiian housing.
3. Establish Individual Homeownership
Development Accounts to help more lowincome households buy homes.
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SUPPORTING
RECOMMENDATIONS:
4 through 6
4. Allow housing finance agencies to earn
arbitrage.
5. Exempt housing bond purchasers from the
Alternative Minimum Tax.
6. Undertake a study of the Davis-Bacon Act
requirements.
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SUPPORTING
RECOMMENDATIONS:
7 through 9
7. Address regulatory barriers that either add
to the cost of or effectively discourage
housing production.
8. Streamline state planning requirements for
community development programs.
9. Expand the financing options for small
multifamily properties.
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SUPPORTING
RECOMMENDATIONS:
10 through 12
10. Foster a secondary market for
development and construction lending.
11. Launch a demonstration project for
comprehensive community-based work.
12. Improve consumer education about home
mortgage lending.
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SUPPORTING
RECOMMENDATIONS:
13 through 15
13. Improve manufactured homebuyer and
owner access to capital markets.
14. Affirm the importance of the Community
Reinvestment Act.
15. Affirm the importance of the governmentsponsored enterprises.
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To Obtain a Copy
of the Report
1. Download a copy of the report from the
Commission site at http://www.mhc.gov.
Both PDF and Word formats are available.
2. 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
Commission’s 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 [email protected].
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