The Relationship Between Housing & Quality of Life
When examining ways to increase affordable housing opportunities, ensuring that opportunity is not limited by where a person lives is critical. Unfortunately, today where people live depends on large part on their income, race, and ethnicity. A critical element in ensuring housing stability is the pursuit of policies that help all households find decent and affordable housing in neighborhoods that offer safety, stability, and opportunity.
There is a lot of anecdotal evidence that one of the best ways to achieve the goal of meeting the affordable housing needs of the country is a two-pronged approach. First, promote residential mobility and a deconcentration of poverty, while second, supporting reinvestment in racially segregated and economically impoverished neighborhoods. The basic building blocks of opportunity are high-quality housing, jobs, good schools, transportation, and healthcare.
In this article, I want to highlight some of the latest research that demonstrates the correlation between where a person lives and quality of life. I want to outline proposals from academia, government and interest groups relating to affordable housing and economic opportunity. Recommendations from these groups relate to the following areas:
- Use tax policy to increase the supply of affordable rental housing;
- Eliminate restrictive and exclusionary zoning that keeps households out of high-opportunity neighborhoods;
- The importance of the federal housing voucher program and how to better equip the program in ways that will help households access high opportunity neighborhoods;
- Examination of a comprehensive approach to revitalizing high-poverty communities;
- Preservation of affordable rental housing;
- Ensuring that the secondary market continues to support affordable rental housing; and
- Maintenance of single-family rentals as a source of affordable housing.
Not all Housing is Created Equal
A strong housing market helps families build wealth, attend good schools, and live in community’s that are more conducive to long-term success. However, segregation and pockets of poverty remain significant problems. This residential segregation has been exacerbated by a long history of disinvestment, discrimination, and counter-productive public policy at all levels of government. One of the best studies I have seen on this problem is “The Making of Ferguson: Public Policies at the Root of its Troubles,” by Richard Rothstein. The report outlines policies in Ferguson, MO that contributed to the racial divide of that city, and many of those same public policies have been implemented in cities across the country. Such policies include urban renewal plans that show little regard for existing residents and often result in involuntary displacement and higher rates of segregation.
America is in many ways a deeply segregated society, both by race and income. In the past 30 years, residential segregation by income has actually increased. Middle-income neighborhoods are in decline and rich and poor are increasingly isolated from other families. In fact, the income, wealth, and educational attainment of the highest income neighborhoods is increasing, while low-income areas are stagnating (see “Worlds Apart: Inequality between America’s Most and Least Affluent Neighborhoods,” Rolf Pendall and Carl Hedman, published by the Urban Institute in 2015).
Discrimination continues to play a major role in segregation. African Americans seeking homes are shown fewer units than white, and when they are shown homes, they are often steered away from white neighborhoods (see “Housing Discrimination Against Racial and Ethnic Minorities 2012,” published by HUD in 2013). Also, wealthy communities continue to adopt exclusionary zoning regulations designed to keep the poor out. For those interested in reading more on this subject, an excellent article appeared in the Washington Post on August 13, 2014, “One of the Best Ways to Fight Inequality in Cities: Zoning,” by Daniel Hertz.
Many Americans live in high poverty areas because those are the only neighborhoods with affordable rent. Government programs help create and preserve some affordable housing in higher income neighborhoods, but the numbers are too low to come close to meeting need. There is also a shortage of landlords willing to participate in the Section 8 Voucher Program, further limiting the potential for affordable housing in wealthier areas.
13.8 million Americans now live in high-poverty neighborhoods (defined as those where more than 40% of residents are poor), nearly twice as many as in 2000 (see “Architecture of Segregation: Civil Unrest, the Concentration of Poverty, and Public Policy,” by Paul A. Jargowsky, published by The Century Foundation in 2015). Communities with high levels of poverty often lack amenities such as high-quality schools, day care centers, recreational facilities and access to high quality jobs. Instead, these areas are often identified by violence, stress, and environmental hazards. There is also often a lack of positive peer influences for children in these areas.
Children in poverty-stricken neighborhoods are also less successful in school, less likely to attend college, and more likely to drop out before high school graduation. Research by Harvard University economist Raj Chetty and others has shown that living in areas that are more segregated by race or income also reduces economic mobility (see “Where is the Land of Opportunity? The Geography of Intergenerational Mobility in the United States,” Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez, published in The Quarterly Journal of Economics, in 2014).
The same research noted above also found that people living in less segregated, low-poverty neighborhoods have a much better quality of life and more economic opportunity – even when they have lower incomes. Children in these households also perform much better academically than children in segregated, lower-income neighborhoods. Young children who move to higher income areas are much more likely to attend college and less likely to become single parents (see “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunities Project,” also by Chetty, Hendren, and Lawrence F. Katz, published by Cambridge in 2015).
The Impact of Rent Burden on Household Success
About 50% of all renters spend more than 30% of their income on housing, and 26% spend 50% of their income on housing. An analysis from Enterprise Community Partners and the Harvard University Joint Center for Housing Studies projects that the number of households spending 50% or more of their income on rent will increase from 11.8 million to 13.1 million by 2025 (see “Projecting Trends in Severely Cost-Burdened Renters: 2015-2025,” Allison Charette and others, Enterprise Community Partners, 2015).
I recently wrote an article for The Tax Credit Advisor on the new HUD Rule regarding the Affirmatively Furthering Fair Housing Assessment Tool. This rule requires recipients of federal housing and community development funding to foster more inclusive communities, promote equal access to community assets, and combat segregation and concentrated poverty. Under the rule, communities need to examine residential patterns and determine whether their laws, policies, and practices are barriers to affirmatively furthering fair housing. If a community determines that a law, policy, or practice is a barrier, it must then take steps to address it. While the goal of the rule is laudable (ensure that low-income renters can live in higher opportunity neighborhoods and revitalize distressed communities), it may be an overreach and could be construed as “social engineering.” There is considerable opposition in Congress to the rule and its long-term implementation is by no means assured.
After paying for housing, the average severely cost-burdened low-income household has barely more than $15 per day to meet all other basic needs – including food, transportation, health care, and savings. This calculation is based on the Joint Center for Housing Studies of Harvard University, “America’s Rental Housing: Evolving Market and Needs” (2013). Based on this same study, a low-income renter living in affordable housing can spend two-thirds more on food, double the amount on health care, and nearly triple the amount on transportation, as are those who are rent-burdened.
While most low-income households have limited access to high opportunity areas, households that receive Housing Choice Vouchers tend to fare much better. However, there are still barriers to the ability of voucher holders to access better communities. High costs and a shortage of landlords willing to participate in the voucher program are primary impediments.
Industry-Wide Policy Recommendations
There are many proposals in the affordable housing industry on how to address the issues of affordability and availability. Chief among these are recommendations regarding how to use tax policy to increase the supply of affordable rental housing.
Due to funding limitations, only 25% of households that are eligible for federal rental assistance actually receive it (see “Chart Book: Federal Spending is Poorly Matched to Need,” by Barbara Sand and Will Fischer, published by the Center on Budget and Policy Priorities, 2013). Waiting lists for federal assistance are incredibly long, and many localities have closed these lists because most people on the list cannot expect to receive assistance due to the wait times. Between 90,000 and 95,000 affordable units are created or preserved by the Low-Income Housing Tax Credit Program (LIHTC), but due to limitations on the amount of credit made available by Congress, the program cannot address the current shortage of 4.5 million affordable units. This information is available from HUD in “Data Sets: Low-Income Housing Tax Credits.”
Following are recommendations for improving tax policy to address some of the affordable housing needs the nation is currently facing.
Expand and improve targeting of the LIHTC Program.
Any overall program for addressing the issue of affordability must focus on increasing the supply of affordable units. The most practical way to do this is to significantly expand the LIHTC program. The LIHTC program is the most successful affordable housing program in U.S. history, and one of the most supported by the nation’s lawmakers. A major reason for the strong support of the program is the fact that private owners of the properties have strong incentives to make the project’s successful, and it is the private industry that faces losses if the projects fail. The program also tends to create high-quality and well-planned developments.
The Bipartisan Policy Center’s Housing Commission has proposed a 50% increase in LIHTC allocations, which would preserve or create an additional 350,000 to 400,000 affordable units over a ten-year period (Bipartisan Housing Commission, “Housing America’s Future: New Directions for National Policy, “ 2013). The President’s budget proposals have proposed allowing states to convert some of their private activity bond authority to allocable tax credits, thus increasing the amount of credit available to the states.
Current proposals relative to the LIHTC program also recognize the fact that not all states have the same needs relative to affordable housing. Tax credits are currently allocated to states based on population, but this formula does not recognize the disparity in need. For this reason, any additional tax credits as the result of a program expansion should be allocated proportionately to states based on their ability to demonstrate a shortage of affordable and available units for very low-income households. Some scholars have suggested changing the allocation to this proportional methodology for all LIHTC allocations – not just any increase in allocation. For an examples of this, see Bruce Katz and Margery Austin Turner, “Rethinking U.S. Rental Housing Policy: Build on State and Local Innovations,” published by the Brookings Institution in 2007.
While almost half of all residents in LIHTC projects are very low-income, the program itself is not designed in a way to create housing that is affordable to the lowest income renters. Without additional subsidies – such as housing vouchers – tax credit affordability can be problematical. One way to improve affordability in the tax credit program is to permit “income averaging.” Under this option, landlords would use income from rents that are charged to higher income tenants to offset the cost of providing rents that are affordable to lower-income residents.
Congress recently made permanent the 9% credit, improving program efficiency. Congress could also make permanent the 4% credit, furthering improving the program (currently the 4% credit changes on a monthly basis, and is never actually 4%).
LIHTC investments also can help support comprehensive revitalization of distressed neighborhoods. More than 45 states give priority to the rehabilitation and preservation of existing housing in their allocation plans. (For additional information on State allocation plans, see Tracy Kaufman, “Preservation Incentives in State Qualified Allocation Plans” [Washington: National Housing Trust, 2011]).
Renters Tax Credit
The largest federal housing program is the Mortgage Interest Deduction (MID) Program for homeowners. Currently, more than 75% of federal housing expenditures support homeownership. More than half of these expenditures benefit high-income households that earn more than $100,000 per year and have little difficulty affording housing. The MID is the nation’s largest housing subsidy, costing $70 billion annually (the LIHTC has cost $100 billion in nearly 30 years). In addition to the MID, homeownership support includes deductions for property taxes and exclusion of capital gains on sales of principal residences, which together cost another $65 billion per year. Legislation changing the tax code to better benefit renters would contribute greatly to the ability of lower-income renters to afford housing.
There have been a number of proposals for a renter’s tax credit, and some states already offer tax refunds or deductions to certain renters. The Center on Budget and Policy Priorities has developed a detailed plan for a federal credit program. The proposal is outlined in “Renters’ Tax Credit Would Promote Equity and Advanced Balanced Housing Policy,” by Barbara Sard and Will Fischer in 2013. The proposal presents a plan whereby states would assist very low-and extremely low-income households pay an affordable share of their income for rent by providing tax credits to landlords who lease to low-income renters, charging the renters no more than 30% of their income for housing.
States would receive a capped amount of credits based on their share of the national population, with a minimum allocation for small states. States would then provide credits directly to tenants – who would use them to rent housing – or provide them to landlords – who would offer specific units at affordable rents. This proposal sounds similar to the LIHTC, but would not be tied to the cost of development in the way that the LIHTC is. While it would not add to the affordable housing stock, it would create the number of units that would be affordable to lower income renters. According to the Center on Budget and Policy Priorities, a credit in the amount of $5 billion annually would assist 1.2 million low-income households.
Eliminate Restrictive & Exclusionary Zoning
A large body of research indicates that restrictive zoning and land use policies drive up the cost of housing, making it very difficult for lower-income families to find affordable housing in high-opportunity areas. For those interested in delving into this issue, some excellent research has been done, including the following:
- Joseph Gyourko and Raven Malloy, “Regulation and Housing Supply.” Working Paper 20536 (National Bureau of Economic Research Working Paper, 2014.
- John M. Quigley and Larry A. Rosenthal, “The Effects of Land Use Regulation on the Price of Housing: What Do We Know? What Can We Learn?” Cityscape 8 (1) (2005).
Approximately 38% of local governments in the nations 50 largest metropolitan areas have zoning codes that are low-density only, restricting density to less than 8 dwelling units per acre. Many of these areas’ zoning codes also prohibit the construction of typical apartment complexes. For more information on this data, see Rolf Pendall, Robert Puentes, and Jonathan Martin, “From Traditional to Reformed: A Review of the Land Use Regulations in the Nation’s 50 Largest Metropolitan Areas,” 2005.
Another problem in many areas is “NIMBYism,” – Not in My Back Yard. Local opposition to affordable developments remains a significant barrier to the construction of housing in certain areas.
Increase Funding for the Housing Choice Voucher Program
The federal Housing Choice Voucher Program plays a critical role in helping low-income families afford quality, safe housing. In 2015, only 25% of households that qualify for rental assistance actually receive it. While Congressional funding for the program has never been enough to come close to meeting the need, tight budget caps and sequestration have further depressed funding. Experts estimate that more than 100,000 vouchers were eliminated due to sequestration.
Most affordable housing experts have called for expansion of the program. The Bipartisan Policy Center’s Housing Commission has proposed providing vouchers for all currently unassisted, cost-burdened, extremely low-income renters (those with incomes below 30% of the median income for their area). Such an expansion would provide 3 million additional vouchers at a cost of $22 billion per year, less than 32% of the federal homeownership subsidies. While an expansion of this type would require considerable investment, the cost pales by comparison to the $70 billion spent annually on the MID.
HUD has taken some steps to expand the use of the voucher to higher-income areas. One action that HUD will be taking is basing the value of a voucher on the ZIP code in which a tenant rents, rather than on a uniform standard that is set across an entire metropolitan area; this variable valuation will help voucher holders afford units in more expensive neighborhoods. A demonstration of this concept in Dallas showed that this change helps voucher holders move to safer and low-poverty neighborhoods.
HUD also recently simplified the portability procedure for using a voucher outside of the original jurisdiction that issued it.
Approaches to Revitalization of High-Poverty Communities
In “An Opportunity Agenda for Renters,” Center for American Progress stated, “Revitalizing distressed communities requires a comprehensive set of strategies that helps residents live in communities that enable them to access better life opportunities.” What this essentially means is that as important as affordable housing is, when it stands alone without providing reasonable access to jobs, health service, etc., the efficacy of the affordability is diminished.
Affordable housing should be an integral part of a revitalization plan, and a good revitalization plan recognizes the barriers that residents of high-poverty communities experience, including limited access to quality housing and transportation, high rates of crime, barriers to securing employment, poor schools, and limited economic activity.
Preservation of Existing Housing Stock
There are a number of existing programs that are designed to preserve affordable housing; these programs need to be funded.
The nation’s unsubsidized affordable housing stock is, in many cases, in a state of disrepair, lacks access to capital, and faces rising rents and conversion to owner-occupied housing. The subsidized stock is threatened by expiring restrictions on affordability as well as disinvestment and disrepair (see “Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions,” published by HUD in 2013). Between 1999 and 2008, nearly 30% of units renting for less than $400 were lost from the nation’s affordable housing stock (Harvard University Joint Center for Housing Studies, State of the Nation’s Housing 2012: Key Facts,” 2012). More than 200,000 units have been lost from the nation’s stock of public housing since the mid-1990s. There are 2.1 million units of subsidized affordable housing whose restrictions expire in the next ten years; half of these units are in high-rent neighborhoods where owners earn below-market rents, meaning they are likely to be lost from the affordable stock unless there is a concerted effort to preserve them as affordable (Harvard University Joint Center for Housing Studies, “State of the Nation’s Housing, 2015”).
Failure to preserve existing affordable housing is a waste of federal resources that have already been invested. It is also bad from an economic standpoint. Over the long-term, constructing a new affordable unit costs 25% to 45% more than acquiring and preserving an existing affordable unit (see “Comparing the Life-Cycle Costs of New Construction and Acquisition-Rehab of Affordable Multifamily Rental Housing,” by Charles Wilkins and others).
The backlog of needed repairs for the nation’s public housing totals more than $26 billion, yet the Public Housing Capital Fund, which provides funding for upgrades and repairs, is severely underfunded. An expansion of Low-Income Housing Tax Credits would assist in meeting these preservation needs, but LIHTC projects typically require additional funds from programs like HOME to be viable for the lowest-income residents.
Summary
National policies need to be developed that will create opportunities for low-income renters to access safe and affordable housing in high quality neighborhoods. It is these neighborhoods that provide the support systems needed for lifestyle success. It is not a choice between promoting residential mobility and reinvesting in distressed neighborhoods. The most successful policies will be those that enable more households to access affordable housing in high-opportunity communities while at the same time creating more opportunities in low-income areas. This goal can be achieved by taking a multi-pronged approach to addressing the affordable housing crisis. This approach includes using the tax policy to increase the supply of affordable rental housing, eliminate restrictive and exclusionary zoning, increase funding for housing choice vouchers, take a more comprehensive approach to revitalizing high-poverty communities, and focus on the preservation of existing affordable housing.