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Senate Staff Issues Report on the State of Affordable Housing

person A.J. Johnson today 11/08/2020

In October 2020, the Senate Majority Staff issued a report titled, "Housing Programs - The Need for One Roof."  The purported purpose of the report is to "begin a needed conversation about reforming our housing system." As noted in the report, "An important first step would be consolidating some of these programs under one roof." As made clear in the report, the "roof" that the Senate Majority Staff is referring to is the Department of Housing & Urban Development (HUD).

Following are some of the major findings and recommendations from the report.

  • The federal government spends over $50 billion per year on low-income housing assistance programs, guarantees $2 trillion in home loans, and provides billions more through the tax code. A Government Accountability Office (GAO) analysis identified 20 different entities administering 160 housing assistance programs and activities.
  • Federal involvement in housing dates back to 1913 when the new income tax allowed for the deduction of mortgage interest and property taxes from federal income. Key housing laws and their provisions include -
    • The Housing Act of 1934: Its reforms were designed to encourage investment in housing and boost construction employment (it was as much a jobs program as a housing program). It also created the Federal Housing Administration (FHA).
    • The United States Housing Act of 1937: This is the "granddaddy" of America’s housing laws.  It created a program whereby states could establish local housing authorities for the creation of affordable housing (Public Housing).  The law also created the United States Housing Agency - a forerunner to HUD - to administer the program at the federal level.
    • The Housing Act of 1949: This law was enacted to address a perceived shortage of affordable and safe housing in the years following World War II, and included new programs for urban redevelopment,  money for public housing construction, and expanded mortgage insurance for homebuyers. The Act also created a program specifically targeted at improving farm and rural housing within the U.S. Department of Agriculture.
    • The Housing Act of 1959: This provided the first significant use of incentives encouraging private developers to build affordable housing for low- and moderate-income households.
    • The Housing Act of 1961:  Further expanded the private sector’s role in providing housing.
    • The Housing & Urban Development Act of 1965: Created HUD and the rent supplement program.
    • The Housing & Urban Development Act of 1968: Created rental and homeownership programs for lower-income families.
    • The Civil Rights Act of 1968: Title VIII (The Fair Housing Act) prohibited Housing discrimination.
    • The Housing Act of 1974: Along with the 1937 and 1949 Acts, these form the "trilogy" of the most important pieces of housing legislation. The Act created the Section 8 Program and Community Development Block Grants (CDBG). As an aside, this is the legislation that started my career in affordable housing. I did my graduate thesis on this law.
    • The Tax Reform Act of 1986: Created the Low-Income Housing Tax Credit Program.
    • The Stewart B. McKinney Homeless Assistance Act of 1987: this was the first comprehensive approach to addressing homelessness at the national level.
    • The National Affordable Housing Act of 1990: Authorized the HOME Investment Partnerships Program (HOME).
    • The Housing & Economic Recovery Act of 2008 (HERA): Created the Housing Trust Fund.
  • Low-income housing assistance programs cover three broad areas: rental housing assistance, federal assistance to state and local governments, and homeowner assistance.
  • The agencies involved in the administration of these programs are primarily HUD (administers most low-income housing assistance programs), the Department of Agriculture (USDA), the Department of Veterans Affairs (VA), and the Treasury Department.
  • There is bipartisan agreement that the system needs improving, with general agreement around the concept of giving greater control to tenants. The general consensus is that housing vouchers are a particularly effective housing tool.
  • The Staff report makes a full-throated recommendation that HUD is the most logical agency to house many of the existing programs.

Examples of Housing Overlap Outlined in the Report

HUD’s and USDA’s Loan Guarantee and Rental Assistance Programs overlap.  GAO’s report on opportunities for collaboration and consolidation in housing programs identified a total of 88 HUD housing programs and 18 USDA housing programs.

  • Loan Guarantee Programs: Both HUD, through the FHA, and the USDA’s Rural Housing Service (RHS) administer single-family and multi-family guaranteed loan programs. The GAO has recommended that Congress require HUD and USDA examine consolidation of certain housing assistance programs, and the single-family loan guarantee programs appear to be prime candidates for such consolidation.  FHA and RHS multi-family loan programs help finance the development of new rental units or the preservation of existing units through refinancing or rehabilitation. Similarities in the delivery structure of the multifamily programs suggest that consolidation could lead to a more streamlined and less bureaucratic experience.
  • HUD & USDA Rental Assistance Programs: In 2018, the Office of Management & Budget (OMB) proposed moving USDA’s rental housing programs to HUD. This is being given serious consideration in Congress.

HUD’s Rental Assistance Programs Serve Similar Populations

HUD has three primary rental assistance programs: (1) Public Housing - HUD provides aid to local public housing agencies (PHAs) that manage properties for low-income residents at affordable rents; (2) Housing Choice Vouchers - local PHAs administer these "portable" vouchers; and (3) Project-Based Section 8 - subsidies go directly to the owners of multifamily housing subsidizing the rent for specific rental units.

Somewhat surprisingly, Public Housing serves the highest average incomes, with an average household income of $15,738, compared to $15,373 for vouchers and $13,301 for Project-Based Section 8. The Housing Choice Voucher program serves more elderly and disabled households than any other HUD rental assistance program. Public housing tenants are most concentrated in the Northeast but about 1/3 of all HUD-assisted housing is in the South.

Why Are There So Many Rental Assistance Programs?

Public housing was the only major form of housing assistance until the 1960s, and a majority of currently occupied units were built before 1969. Privately-owned and subsidized housing production accelerated after 1974 when Section 8 project-based rental assistance was created. Tenant-based assistance also started in 1974, and the voucher program is now HUD’s largest low-income housing subsidy program.

Many housing policy experts have argued that tenant-based vouchers that directly subsidize low-income renters are in many ways superior to programs subsidizing the production and operation of low-income housing. This is highly debatable since such a position assumes there is an adequate supply of rental housing to serve all those with vouchers.

The HOME Program & the Housing Trust Fund (HTF) Overlap

The HTF and the HOME Investment Partnerships Program (HOME), both within HUD, are overlapping programs that the Staff Report suggests should be consolidated or streamlined.

The HTF was created under HERA 2008 and provides funds to states to use for affordable housing,  particularly for rental housing for extremely low-income households. The program provides formula-based grants to states to use for affordable housing. Each state and Washington DC receives a minimum annual grant of $3 million.

The HOME program was authorized in 1990 and provides funding to states and localities for affordable housing activities benefitting low-income households - also by formula. These "block grant" funds are used for four purposes: (1) the rehabilitation of owner-occupied housing; (2) assistance to home-buyers; (3) the acquisition, rehabilitation, or construction of rental housing; and (4) tenant-based rental assistance. The funds are disbursed by HUD - 40% to states and 60% to localities.

There is admittedly a great deal of redundancy and overlap in these two programs and very little doubt that they could be consolidated.

Major Findings & Conclusions

  1. Congress should undertake bipartisan review and reforms to create a modern housing assistance program to improve effectiveness and efficiency.
  2. HUD is the most logical agency to house these programs.
  3. More reliance should be given to the voucher program since it is more cost-effective than place-based programs. For this reason, Congress should explore ways to expand and incentivize the use of vouchers, but a key shortcoming of vouchers is that many landlords will not accept them. Three appear to be three key factors in the reluctance of landlords to accept vouchers: (1) perception of tenants; (2) financial motivation; and (3) dealing with the PHAs. To deal with these factors, Congress should the desirability and cost-effectiveness of federal source of income protections (i.e., add source of income as a protection under the Fair Housing Act),  as well as ways to positively incentivize landlords to accept vouchers, perhaps by providing a bonus for the first voucher recipient a landlord accepts. This recommendation was clearly made by staff that has never owned or operated rental housing. This would have to be one hell of a one-time bonus to convince a recalcitrant landlord to maintain ongoing participation in the voucher program.

Conclusion

As with most Congressional Staff reports, this one will gather as much dust sitting on shelves as it will action from elected officials. However, the recommendations relating to consolidation are likely to get some attention - especially with regard to moving the rural housing programs to HUD. It is also possible that an increase in funding for vouchers, along with an increase in the amount allocated to the LIHTC program, could result in serving significantly more of our lowest-income families than is currently possible. It is also likely that the new incoming administration will be more favorable to increased funding for affordable housing, and some of the recommendations made in this report could become part of the new administration’s affordable housing recommendations.

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