|May 30, 2002|
Millennial Housing Commission Reports to Congress
Cites Need to Reform and Streamline Programs
Poor Hardest Hit by Lack of Affordable Rental Units
Washington—Calling for “a new vision for the nation’s housing,” a bi-partisan commission created by Congress today released its final report after an extensive
17-month-long study that included public hearings held in Atlanta, Chicago, Los Angeles, Oakland, New York and Washington.|
The report of the 22-member Millennial Housing Commission, co-chaired by former Congresswoman Susan Molinari and noted attorney and housing expert Richard Ravitch, acknowledges that Americans are among the best housed people on earth and that federal housing support has been “tremendously successful” for most households; helping to produce a 67.8 percent national homeownership rate.
But the report warns, “There is simply not enough affordable housing. The inadequacy of supply increases dramatically as one moves down the ladder of family earnings. The challenge is most acute for rental housing in high cost areas, and the most egregious problem is for the very poor.”
Other troubling signs, according to the MHC: More than 28 million Americans now spend more than 30 percent of income on housing; working a full-time job no longer guarantees access to decent housing, and the homeownership rate for black and Hispanic Americans remains 27 percent below the national average.
“This is not a report about specific funding levels, nor does it lay out quantitative goals,” the MHC document states. “Instead, this report presents a new vision for the nation’s housing…to produce and preserve more sustainable, affordable housing in healthy communities to help American families progress up the ladder of economic opportunity.”
Throughout the report, the commission stresses the importance of housing not only to the nation’s economic health but also to the overall health of society as a whole.
“Success in federal housing policy needs to be evaluated not just according to the number of housing units produced but also in terms of whether the housing produced improves both communities and individual lives…It is time for America to put these quality-of-life considerations on a par with cost considerations and make housing programs work to improve communities and individual lives,” the report states.
In all, the MHC report outlines 13 principal recommendations grouped into three main categories: The creation of new housing tools, major reform of several current housing programs and the streamlining of existing programs. The key recommendations as outlined in the report’s executive summary follow. The complete report is available on the Millennial Housing Commission home page, www.mhc.gov.
- Enact a new homeownership tax credit.
The Commission recommends a state-administered homeownership tax credit, modeled on the successful Low Income Housing Tax Credit for rental housing. States would be able to use this flexible credit, under a qualified allocation plan, for two purposes. In qualified census tracts, where the cost to build or rehabilitate a unit will be greater than the appraised value of the completed home, states may use the credit to offset the developer’s total development cost. A credit used in this manner would thus serve a community development purpose in addition to providing a new unit at a cost to the buyer that reflects local market conditions rather than the otherwise prohibitively high cost of development. Or, states may allocate the credit to lenders who in turn provide lower-cost mortgages to qualified buyers. In either form, the credit will extend the benefits of homeownership to low-income households and the communities in which they choose to live.
- Support preservation with a broad system of tools, beginning with exit tax relief.
The stock of affordable housing units is shrinking. Some properties are in attractive markets, giving owners an economic incentive to opt out of federal programs in favor of market rents, and many owners have done so. Other properties are poorly located and cannot command rents adequate to finance needed repairs. In general, properties with lesser economic value are at risk of deterioration and, ultimately, abandonment, unless they can be transferred to new owners. To remove an impediment to transfer, the Commission recommends that Congress recognize and authorize “preservation entities,” organizations that would acquire and own such properties and commit to the preservation of existing affordability. The Commission further recommends that Congress enact a preservation tax incentive to encourage sellers to transfer their properties to such entities. Subject to state housing finance agency oversight, an owner who sells to a preservation entity would be eligible for exit tax relief.
- Provide capital subsidies for the production of units for occupancy by extremely low-income households.
This new tool would address the multiple problems of housing inadequacy that bear most heavily on extremely low-income (ELI) households, most of whom report paying well over half their incomes for housing costs. The most dramatic problem is the severe shortage of available units. No production program currently serves these households, and a significant portion of existing units that would be affordable to some of these families is occupied by higher-income households spending less than 30 percent of their incomes on housing. The capital subsidy would be used to produce new units and/or preserve existing units for ELI occupancy, eliminating debt on the units—and thus removing the debt service component from the household’s monthly rental payment. No more than 20 percent of the units in any one development would have ELI occupancy restrictions. This program would thus result in more and better-quality units for ELI households and a degree of deconcentration of poverty.
- Enact a new mixed-income, multifamily rental production program.
In most housing markets, an increase in the housing supply would be beneficial because it would lower rents at all price levels. Scarcity begets higher rents. The Commission therefore recommends a new multifamily production program with modest federal targeting requirements that, because of its relative simplicity, would attract private capital to produce multifamily rental housing. The essence of this recommendation is to take the limits off of states’ ability to issue tax-exempt debt for specific housing and community development purposes. States may choose to allocate the resource via an allocation plan in order to target production to specific areas, such as those characterized by employment and other opportunities that would be particularly beneficial to the low-income families residing in the rent-restricted units.
- Facilitate strategic community development by empowering state and local governments to blend funding streams.
State and local leaders have trouble coordinating affordable housing activities with transportation, economic development, employment, training, childcare, and educational activities, because funding for such purposes is delivered through separate federal-to-state funding streams. To facilitate the combined used of such funds in support of comprehensive neighborhood redevelopment, the Commission recommends that Congress authorize governors to set aside up to 15 percent of federal block grant funds received. Funds could be combined and used for specific projects developed with the support of local government(s). Funds would be used for the same purposes as they were intended (e.g., job training, childcare, transportation, housing, social services), but in support of comprehensive neighborhood redevelopment. Localities would undertake a comprehensive planning process with meaningful public input to create a holistic development strategy for a particular neighborhood. Projects selected would benefit from consolidated review and decision-making. Governors would have limited authority to waive federal regulations that interfere with the combined use of funds.
- Transform the public housing program.
Public housing agencies (PHAs) are encumbered by federal regulations that undermine local decision-making authority and make it difficult for PHAs to provide quality housing to low-income families. For example, the centralized system of public housing funding—wherein funds flow to PHAs as a whole and not to individual properties—makes it difficult for PHAs to finance needed capital improvements through the private markets. Meanwhile, federal funding for such activities has fallen short by approximately $20 billion to date. To transform the program, the MHC recommends a gradual transition to a project-based approach, with subsidies flowing to specific properties based on the rents that units would command after any needed renovation. This transformation would enable PHAs to rehabilitate properties using funds borrowed in private markets. If feasible, obsolete properties could be repositioned using the HOPE VI program. The recommendation also addresses troubled agencies, the program’s overly complicated rent structure, and the disproportionate regulatory burden on small PHAs.
- Revitalize and restructure the Federal Housing Administration within HUD.
Revitalizing and restructuring FHA is an urgent priority for congressional action. FHA’s multifamily insurance is an indispensable tool for stimulating housing production, and its single-family insurance extends homeownership opportunities to low-income families and minorities. FHA’s potential, however, is limited by its outmoded structure and confining statutes. The Commission therefore recommends that Congress restructure FHA as a wholly owned government corporation within HUD, governed by a board chaired by the HUD Secretary. Such a structure would enable FHA to adapt its programs to evolving markets without relying on Congress to legislate each change, and it could be accomplished with no substantial budget impact. It would also enable FHA to invest in technology, leading to increased efficiency and reduced risk, and to attract and compensate staff at competitive levels, securing the skills needed to manage its nearly $500 billion mortgage insurance program. Equally important is that under such a restructuring the FHA would remain with HUD and would be an effective force for the production and preservation of affordable housing. The Commission also outlines recommendations intended to provide FHA with more flexible multifamily and single-family operations. If Congress chooses not to restructure FHA, the MHC recommends that its proposed improvements be implemented within the current FHA organization.
- End chronic homelessness.
Homeless families and individuals generally fall into two categories: the transitionally homeless and the chronically homeless. Transitionally homeless households need adequate housing, first and foremost, while those who are chronically homeless confront health or substance abuse problems in addition to extreme poverty. With its capital subsidy for units targeted exclusively to extremely low-income households and its recommended improvements to public housing, vouchers, and the HOME and Low Income Housing Tax Credit programs, the Commission believes that the tools needed to end transitional homelessness will be available. For the chronically homeless, permanent supportive housing, which combines housing with intensive rehabilitative and other social services, is needed. The Commission recommends the elimination of chronic homelessness over a 10-year period by the creation of additional units of permanent supportive housing and the transfer of renewal funding for such units to HUD’s Housing Certificate Fund.
- Over time, establish a work requirement linked to housing assistance.
As with other “means-tested programs,” a household qualifies for housing assistance based on its income. Housing programs that set rents at a percentage of household income create a disincentive to increase income through work or marriage and a powerful barrier to household movement up the ladder of economic opportunity. The Commission recommends several measures to move assisted families up and out of assisted housing units, over time, through a combination of work requirements and supportive services, enabling them to increase their incomes and freeing up the housing units for other, currently unassisted families. In addition, the Commission recommends continued experimentation with and changes to the rent structure of public and assisted housing to reduce the disincentives to work and marriage.
Streamlining of Existing Programs
In addition to the principal recommendations described above, the Millennial Housing Commission endorsed a number of supporting recommendations: increase funding for housing assistance in rural areas; increase funding for Native American housing; establish Individual Homeownership Development Accounts to help more low-income households buy homes; allow housing finance agencies to earn arbitrage; exempt housing bond purchasers from the Alternative Minimum Tax; undertake a study of Davis-Bacon Act requirements; address regulatory barriers that add to the cost of housing production; streamline state planning requirements for community development programs; expand the financing options for small multifamily properties; foster a secondary market for development and construction lending; launch a demonstration project for comprehensive community development; improve consumer education about home mortgage lending; improve the access of manufactured home buyers to capital markets; affirm the importance of the Community Reinvestment Act; and affirm the importance of the government-sponsored enterprises.
- Expand and strengthen the housing choice voucher program.
The voucher program serves 1.6 million households and is for the most part highly successful. In some markets, however, program administration and regulatory complexity create an effective disincentive for private owners to accept voucher-holding tenants, especially when owners can instead rent to unsubsidized tenants. The Commission recommends increased authority for local program administrators to change payment standards in response to market conditions, and, recognizing the versatility of the program, it proposes measures to match voucher holders with services that complement efforts to embrace employment and other opportunities. Additional recommendations strengthen and enforce the requirement that owners of housing produced with federal assistance accept voucher-holding households—including extremely low-income households, for whom the Commission recommends a special type of voucher—in all cases subject to a local cap to encourage deconcentration of poverty. Finally, the Commission asserts that the voucher program is distinctly worthy of additional funding in substantial annual increments.
- Reform the HOME and Low Income Housing Tax Credit programs, and increase funding for HOME.
The HOME and Low Income Housing Tax Credit programs are both highly successful. Outdated rules and regulations, however, inhibit their potential for production and preservation activities, particularly those that would provide new or rehabilitated units affordable to the lowest-income households. The Commission recommends elimination of these rules and of programmatic complexities that burden project developers and owners. In the case of the tax credit, the Commission recommends elimination of uncertainties that can spoil investor appetite. To support the efforts of former welfare recipients, the Commission calls for a change to the tax code to allow states to use Temporary Assistance to Needy Families (TANF) funds for one-time grants to tax credit properties. The grants would be used to reduce the rents on particular units, which would be occupied by working poor, including former welfare, households. In the case of the HOME program, the Commission recommends substantially increased appropriations.
- Improve the Mortgage Revenue Bond program.
State housing finance agencies (HFAs) issue Mortgage Revenue Bonds (MRBs) and use the proceeds to generate single-family mortgages. A statutory provision known as the “10-year rule” limits HFA use of scheduled repayments and mortgage prepayments and has resulted in substantial lost mortgage volume to date. This provision should be repealed immediately. In addition, as long as income limits are enforced, the Commission recommends repeal of purchase price limits, as well as restrictions that limit eligibility to first-time homebuyers and restrictions that apply in some states and limit eligible Veterans. These measures combined will help to ensure that HFAs maximize the public benefit associated with bond issuance in the interest of promoting homeownership for low-income families.
- Revise federal budget laws that deter affordable housing production and preservation.
Budget laws inhibit the U.S. Department of Housing and Urban Development (HUD) from entering into contracts requiring more than one year’s funding. As a consequence, HUD cannot offer the owners of multifamily housing multiyear contracts for rental assistance, and owners cannot obtain financing on the terms most advantageous for capital investment in the affordable housing stock. As a practical matter, Congress has never failed to appropriate funding to renew existing contracts for rental assistance. The Commission recommends, therefore, that funding for rental assistance be moved to the “mandatory” category of federal expenditures, so that private-sector lenders will be willing to finance repairs. The MHC suggests alternate measures that would have the same effect.
Selected media coverage of MHC report:
- “Work Requirement Urged for Fed Housing,” Jennifer Loven, Associated Press, May 18, 2002
- “Housing on the Back Burner,” David Broder, Washington Post, June 9, 2002
- Letter to the Editor in Response to Broder: “Not a forgotten issue,” Mel Martinez, Secretary of Housing and Urban Development, June 21, 2002
- “Facing Up to the Housing Crisis,” New York Times editorial, July 5, 2002
- “Housing issue primed for big return,” Neal Peirce commentary, Washington Post, July 6, 2002