Testimony of Donald Smith,
Executive Director, Housing Authority Of The City of Los Angeles
to
The Commission on Affordable Housing and Health Facility
Needs for Seniors in the 21st Century
November 7, 2001
Given by
Mr. Ed Griffin,
Director of Planning

I. Introduction:

We commend the Seniors Commission for taking a comprehensive approach in tackling the challenge of meeting the housing and other needs of the elderly, and of the soon-to-be elderly 76 million "baby boomers". The elderly are already suffering as a result of the nation's increasing housing crises. As the elderly population grows and housing costs continue to rise, the struggle to cover housing, food, medical, transportation and home assistance costs will intensify, particularly for those with low and very low-incomes.

For 19 years beginning in 2011, just over 7 persons/minute will turn 65 in the United States. In a reversal of the trend since World War II, poverty rates for the elderly may rise significantly due to inadequate provision for retirement. Inadequate incomes, unaffordable housing, escalating health care costs, and inadequate family and financial resources for needed assistance in the home may be the unwelcome reality for the much of the next generation of seniors. By promoting partnerships among organizations that provide housing or other services to the elderly, increasing funding opportunities, and by increasing eligibility for funding opportunities to include all credible organizations capable of delivering results, the nation can increase the impact and scope of its efforts to meet the coming challenge.

Subsidy to motivate the private sector is part of the solution. Since private for-profit and nonprofit organizations tend to target affordable housing to those from 60% of median income to just over the median, some funding must be targeted to Public Housing Authorities (PHAs) to reach the very low-income. PHAs serve those with incomes below 50% of median. Congress has seen in HUD's mark-to-market efforts and the high rates of private owners opting out, that the private sector is an important, but not necessarily reliable over the long-term, partner when providing assisted housing ceases to meet the owner's investment expectations. PHAs have successfully and consistently provided housing services to low and very low-income families, the elderly, and those with disabilities for more than 60 years. This public policy commitment and success linked with an average resident income near 20% of median argues for continued federal investment in the nation's only enduring housing effort for the poor.

With a 2000 Census population of 3,694,820, Los Angeles is second only to New York City in population. Of that total, 12.8% or 472,937 were 60 years old or older, and 31.3% or 1,156,479 were "baby boomers" aged 35 to 55. Geographically, Los Angeles can simultaneously encompass Manhattan, Boston, Pittsburgh, Cleveland, Milwaukee, Minneapolis, Saint Louis and San Francisco. Los Angeles is the nation's new "port of entry" and is arguably its most diverse city. Greater national attention and funding must be given to this cutting edge city in the most populous state.

II. Background:

Addressing the needs of the large demographic shift of "baby boomers" from working age to old age will compete for resources with other serious challenges. Increased security needs caused by the September 11 attacks, ongoing health care cost and delivery issues, and a substantial accumulation of deferred infrastructure needs in transportation, education, affordable housing, and other areas will demand national and local attention. This year, California is holding a series of meetings to discuss its housing and other infrastructure crises, and to plan to meet the needs of an expected population growth of 1 person per minute over the next decade.

For the next forty years, the "baby boomers" will transform retirement and eldercare as they transformed and dislocated age related markets for the last 50 years. Over their lives, the fortunate of the leading edge "boomers" benefited from their parents' investment in school, college and hospital construction, economic expansions, low housing costs, and jobs with generous pensions, all capped by a pre-retirement 1990's stock market boom. The Commission's task will be to define and meet the challenges faced by the greater numbers of the mid and lagging members of that generation, who encountered markets changed by leading "boomers." Since the mid-1970's newspapers have tracked the social and economic impact of the demographic shift - increased school crowding, rising housing costs, business downsizing, and pension reduction or elimination.

As to personal preparedness for retirement, the trend is disheartening. Inflation adjusted wages for much of America have at best risen modestly, and in many cases declined. The 1950's long-term employment, higher wage, job-with-pension manufacturing economy has given way to the new, temporary or serial employment, lower wage, low-or-no-pension service economy. The number of people covered by pension plans declined by nearly 10% in the 1980's. By late 1999, the Social Security Administration reported that only 40% of employers provided traditional pensions, and only 47% of workers were covered by some retirement savings program, whether a pension, 401K, or other plan.

These and other changes have negatively affected family finances. Consumers have built record high debt levels. The debt-to income ratio reportedly reached a record 20.5% in 1998 from 16.5% in 1993. Debt continued to climb to mid-2001. In tandem with the negative debt trend, the U.S. savings rate declined for three decades: 8% in the 1970's, 7% in the 1980's, to 4% in 1997, and negative numbers from late 1999 to early 2001. The drop in savings occurred despite the entry of 76 million "baby boomers" into what are historically high savings age groups. Wage, pension, debt, and savings trends coupled with increased longevity may reverse the declining elderly poverty rates achieved over the last half-century. They may also create a prolonged competition between the newly elderly and younger generations for jobs and affordable housing.

III. The California and Los Angeles Challenge:

The elderly and near elderly will need federal housing assistance to bridge the gap between their inadequate incomes and rising housing costs, and between their incomes and need for supportive services. Public Housing Authorities (PHAs) must be a key partner in national, state and local efforts to meet this challenge. The public policy purpose of PHAs is to serve low and very low-income persons. These groups are likely to grow and experience more severe income and housing inadequacies as they age.

California, especially in its large cities such as Los Angeles, will face more extreme and diverse versions of these challenges. Population growth coupled with decades of insufficient housing construction has already caused a housing crisis, with an especially severe shortage of affordable housing. For the ten-year period of 1991-2000, the City of Los Angeles issued construction permits for an average of 3641 units/year. The "Regional Housing Needs Assessment 1998-2005" placed the need at 8037 units/year. Overcrowding is the twin of unaffordable housing, and has been a serious and growing problem since 1979 per a Los Angeles Housing Department study.

Growing income disparity has been reported as a national problem, and census data show California is one of the more challenged states, with both more millionaires and more people living in poverty. The California and Los Angeles history of attracting high numbers of "immigrants" from other states and countries means more residents will not have the extended family networks so important to assisting the elderly. Energy, transportation, school construction and quality, and other infrastructure needs already are straining State resources. The City of Los Angeles established, but is still currently working to fund a $100 million Housing Trust Fund to begin address the City's extreme shortage of housing. Federal assistance will be required to construct, acquire and operate housing for those with incomes below 50% of median.

The high rates of real estate appreciation, particularly in California, have been celebrated as a counter-balance to the nation's low savings rates. The primary asset of most Americans is the equity in their home, although the surge in home equity loans is reducing the value of even that "forced savings." Because of this rise in home costs, California has a low homeownership rate. Home equity does not exist at any level for the 61% of Los Angeles households that rent (2000 Census.) Reverse mortgages or selling a home is not a retirement supplement option for millions of people.

Retirement incomes in Los Angeles may be similarly unhelpful. Although Congress recognized the growing importance of personal savings for retirement by raising 401K and IRA regular and catch-up limits earlier this year, the historically low use of 401Ks and IRAs is not encouraging. In a 1999 press briefing, Gene Sperling, the Director of the National Economic Council, said, "Seventy-three million Americans have no employer-provided pensions, 50% have no pensions whatsoever. Only 18% -- or 20% have IRAs." Most 401k's and IRAs are not fully funded. Of 1997 U.S. taxpayers, an estimated 6% paid the maximum into a 401K and 4% contributed the maximum to an IRA. (US Treasury estimate). Small businesses are 85% of the Southern California economy. The accepted national estimate is that less than 20% of small businesses provide a retirement plan for their employees. Just 84% of employers of 100 or more provide pension plans for their workforce. (EBRI Databook on Employee Benefits (4th ed.), Employee Benefit Research Institute (1997) as cited in the 3/23/1999 Statement of the Investment Company Institute to the Subcommittee on the Oversight, Committee on Ways and Means Hearing on Pension Issues.)

Very low vacancy rates (1 to 3%) are common in a wide range of U.S. markets and have raised rents so sharply in some markets that property owners may be beginning to experience price resistance. An October 9, 2001, Los Angeles Times article reported that the vacancy rate in Los Angeles County remained at just under 5% (just over 3% in the City of Los Angeles), and rose slightly in Orange County to just over 3%. In the first three quarters of 2001, rents rose 5.5% on average in Los Angeles County versus an annual increase of 11.4% in 2000, and rose 7.1% in Orange County versus a 10.2% annual increase in 2000. Rental property prices increased to $78.35 per square foot in 2001 from $78.05 in 2000, "with buyers confident they'll be able to increase their return on investment by raising rents about 7% a year."

The article further reported that in 2001, "buyers of rental properties are accepting annual Returns on Investment (ROI) of about 6% versus ROI of 8% to 12% in 1999 and 2000." These expectations or investor demands, supported as they are by population growth and a construction shortfall, will likely succeed in driving rents higher, sustaining the current "sellers' market." Solving the Los Angeles and California housing cost crisis requires substantial new construction, particularly for the low and very low-income.

The market is as negative for renters as it is positive for property owners. Prior to current market conditions the HACLA consistently had a high Section 8 lease-up rate. The HACLA now estimates that in order to compensate for the sudden drop to a 41% success-rate for Voucher holders, it may need to sustain a pool of up to 10,000 active housing seekers. This flooding of the tight Los Angeles rental market with poor families, the elderly and those with disabilities, all searching for housing that will accept Section 8, may be necessary to meet required lease-up goals. A consequence will be that each successful voucher holder will make the market tighter for those still searching. Current housing market conditions provide owners with little reason to bother with a housing program governed by regulations that limit their asking rents to HUD's restrictive Fair Market Rent (FMR) levels, or to spend time or money to meet HUD Housing Quality Standards (HQS) or other requirements. Owners can have more profit and less aggravation renting to the unsubsidized.

IV. The Housing Authority of the City of Los Angeles Is Part of the Solution:

The Housing Authority of the City of Los Angeles (HACLA) builds its knowledge of and capacity to meet the increasingly diverse needs and circumstances of the elderly by serving them in all its programs. Large public housing communities, small scattered sites, senior/disabled complexes, Section 8, Shelter+Care for the homeless, the Rental Rehabilitation program, Housing Opportunities for Persons with Aids (HOPWA) and Welfare-to-Work vouchers are just some of the housing programs serving the elderly. The HACLA also provides a range of services and opportunities for the elderly from supports for the frail elderly in "senior/disabled buildings" to training for dynamic resident leaders and senior resident volunteers assisting youth in public housing communities.

Of the nearly 120,000 individuals assisted by the HACLA, 10.9% are 62 or older: 9.5% of residents served by the Housing Services Division (owned housing), and 11.3% of participants served by the Section 8 Division. Of Section 8's current 36,552 contracted households, 23.2% are designated "Elderly" and 23.7% are designated "Disabled." The Housing Services Division manages 8316 units, with the elderly represented in all housing types, and about half (1232) of elderly residents living in complexes designated as "senior/disabled."

In complexes designated only for the elderly or disabled, the average annual income is $10,228 with an average monthly rent of $221. For all Housing Services residents, the average annual resident income is $12, 613. For all Section 8 participants the average income is $11,995. The average Section 8 Housing Assistance Payment (HAP) made on behalf of all participants is $499.

The lack of supply, and thus dearth of affordable, housing has deeply impacted the market dependent Section 8 program. The Section 8 registrant wait list numbered 150,000 at the beginning of 2001, and is currently approximately 120,000. The difference reflects the HACLA's moving 30,000 registrants to the applicant stage in an effort to address the market conditions described in the preceding section. Excessive numbers of applicants must be issued Vouchers to accommodate the low 41% success-in-contracting rate of Voucher holders, and thus restore Los Angeles to its historically high lease-up rate. For 25 years, under "normal" housing market conditions, the "wait" on the HACLA's Section 8 wait list was described as "several years" for those fortunate enough to have registered for the application lottery the last time registration was opened, and as "not for a decade or more" for those waiting to register.

Similarly, properties under the Housing Services division have been and remain at an effective 100% occupancy level. To service monthly unit turnover, the Housing Services division maintains an open and frequently updated wait list, which currently totals 13,545. Of that, 46.7% are applicants for one-bedroom units, and 29.5% of the total applications are confirmed as having elderly or disabled heads-of-household. The current wait for a one bedroom unit is 18 to 20 months for an initial interview, followed by a few to several months wait to lease a unit.

V. Recommendations - Federal Housing Production and Other Programs:

A. First, An Adequate Supply of Affordable and Accessible Housing

Housing industry groups have argued for years on behalf of programs to fund the construction, acquisition, and rehabilitation of housing for those below 50% of median income, with a mix of resident incomes, and awarded to localities on the basis of need. The coming surge in the elderly population, and greater public sympathy for low-income seniors, would indicate a federal program to construct low and very low-income senior housing is a place to start. The HACLA, like many nonprofits, has a record of successful housing management, maintenance, construction and rehabilitation experience. In Los Angeles and California, substantial additional housing must be built.

Specific actions include:

Recommendation 1:

Encourage inter-departmental coordination and cooperation at the Federal level to promote an integrated, comprehensive effort to assist the elderly similar to the successful collaboration of the Departments of Labor, Health and Human Services, and HUD for Welfare-to-Work and the Workforce Investment Act.

Example: Integrate the requirement for replacement housing for seniors with major transit system projects by requiring a certain level of senior housing at major transit hubs, and at interchanges between transit systems. Transportation is a critical need of seniors for access to health care, marketing, and points of social and economic vitality. Current transit projects seldom pay much attention to also meeting the need for affordable housing or the needs of those needing affordable housing. Requiring at least small retail and commercial centers at the transit hubs would synergistically support transit use, protect transit hubs, and serve those living in the incorporated low-income housing.

Recommendation 2:

Increase the capacity of organizations to serve the elderly and the range of services capable organizations can provide by expanding eligibility for a wide range of funding and Federal grants, and address the deeper needs of the very low-income seniors by specifically identifying PHAs as eligible or priority recipients.

Example: Increase the number of units and the pool of providers of housing to very low-income seniors by making PHAs eligible for Section 202 funding (elderly housing).

Recommendation 3:

Because seniors are often members of larger families, broadly fund new housing construction for those below 50% of median as recommended to the Millennial Commission by industry groups, with the following guiding principles:

• Promote low income housing construction and take advantage of nonprofit and PHA experience and powers to act as developer, partner, landowner, and asset manager by providing construction funding.



• Make Section 8 project-based assistance a flexible development tool to meet a the wide variety of local markets and demographics.



• Grant regulatory priority to construction and neighborhood revitalization, and exempt such efforts from other social policy constraints such as poverty deconcentration and mobility goals.



• Support income mixing goals.



• Permit increased density for senior housing, since excessive density is not a significant problem in most of the country, and multi-storied senior housing communities can be successful.

Recommendation 4:

Provide funding for senior housing and senior services.

Example: Add $500 million to the Public Housing Capital Fund, to be awarded on a competitive basis to PHAs to upgrade, construct, or acquire housing for seniors. Allow recipients to use a portion of awarded funds to provide services for seniors. Several years ago, the Council of Large Public Housing Authorities (CLPHA) began promoting this concept as their "Elderly Plus Initiative."

Recommendation 5:

Address the diversity of senior housing needs and of local markets by creating and supporting a wide range of programs and local flexibility.

Examples:

• Senior Section 8: Increase Housing Choice Vouchers for the elderly and disabled, and allocate them on the basis of population needs. Incorporate funding for special needs of the elderly, such as transportation, moving expenses, and security deposit assistance.



• Improve Section 8 FMR & Annual Adjustment limits and flexibility: In tight rental markets, with rising rents, new owners decline Section 8, and current owners decline to renew, because rents or rent increases offered are too low. This creates special hardships for the elderly who wish to lease in place or remain in place. Seeking and moving to new housing is often a significant physical, financial and emotional hardship.



• Promote partnerships among providers of housing and other services: Reward or require recipients of other federal grants to serve the low or very low-income elderly to partner with nonprofits and PHAs to develop comprehensive approaches to meet elder needs. Reward or require HUD and PHA flexibility in developing effective partnerships to address local needs and opportunities, whether the result is the provision of services to existing PHA residents, or PHA provision of housing assistance in the context of a partners' provision of housing or services.

B. More Than Housing Is Needed - Provide A Wide Range of Services:

In addition to housing and housing assistance, the HACLA provides a wide range or economic, educational, health, social, and recreation services to all age groups, in both age specific and intergenerational formats. From this experience in both family and senior/disabled sites, the HACLA has learned the key to a community's success is to provide access to and support for involvement of members of the community in a wide variety of community activities. This is especially true for the elderly, for whom physical and social inactivity can be a quick trip to depression, decline and death.

Many elderly can only maintain a good quality of life if they have some assistance with some life tasks, without which they advance to requiring nursing home care. In-home assistance can severely strain family resources, and nursing home costs are first heavy drains on families, then when savings are exhausted, are heavy drains on Medicaid. The growth in Long-term Care policies reflects the national concern, however these policies are out of the reach of many to most moderate and low-income families, and their ability to deliver on a large scale has yet to be tested.

To its housing expertise, the HACLA adds its successes in providing and contracting for social services provision, from being the City's highest rated Workforce Investment Act (WIA) One-Stop employment services provider, to one of the nation's highest rated Welfare-to-Work grantees, to providing and coordinating a wide range of social, health, education and recreation services to all age groups. In its senior/disabled sites, the HACLA promotes and supports Senior Clubs, activities and trips, social services and meals programs. Senior Service Coordinators coordinate elder services.

A wide range of programs and partnerships will be needed to avoid deluging the nation's nursing home system. Supporting seniors in remaining active and healthy will improve their quality of life, allowing them to age as independently as possible, and will reduce costs for the federal government by avoiding extensive nursing home care. Encouraging collaboration at the Federal, State and local level as described above will support current efforts and successes in bridging the frequent gap between public housing residents and local public and private services.

Recommendation 6:

Increase State, County and City support by requiring CDBG and other Federal funds recipients to include meeting the housing, housing modification, and other needs of the elderly as program goals, and to include nonprofits and PHAs as partners, and/or include their residents as targeted beneficiaries.

C. Explore, Pilot and Expand Approaches to Serving the Frail Elderly:

The HACLA actively promotes resident participation in "In-Home-Care" services provided by the City and County. For years the HACLA has employed Senior Citizens Assistants for each of its senior/disabled complexes, on a part-time to full time basis depending on the size of the complex. These services were expanded thanks to grant funding to provide Senior Service Coordinators at a few sites. Managing the service and support needs of this growing, aging, and increasingly frail population will require increased funding for in-home care, and for more supportive environments such as assisted living facilities.

Assisted living facilities are seen as part of the solution to the high cost of nursing homes. Although 32 states have granted Medicaid waivers to spur the creation of assisted living facilities, California has not. Medicaid distribution (Medi-Cal in California) is functionally controlled by the Nursing Home lobby (reportedly among the strongest in California.) The Federal government could assist California, and perhaps other states, in providing lower cost assisted living to low income seniors by conditioning its awards to states of federal Medicaid funds on the States' granting priority, or at least eligibility, for such funds to nonprofits and PHAs that initiate or operate assisted living facilities.

Medicaid assistance is needed in addition to the housing subsidy because assisted living facilities cannot be operated for low-income residents without deep federal subsidy. The current estimated break-even point for assisted living is $1500 per bed per month. Even private for-profit operators are encountering difficulties in matching operating costs to the public's ability to pay. Reportedly, a number of private companies providing assisted living are in financial distress - near or moving toward bankruptcy.

Concentrate research, on a regional basis, into assisted and supported living program designs, and require inclusion of nonprofits and PHAs.

Example: Regional "mini-summits" would be a good place to start.

VI. Summary:

Federal leadership, legislation, and funding will be needed to address the surge in the elderly population and their expected housing and supportive service needs. Delay will only intensify the challenge. Our recommendations should enable the nation to begin to make real progress in meeting the ever-closer challenge.

Recommendations:

1. Encourage inter-departmental coordination and cooperation at the Federal level to promote an integrated, comprehensive effort to assist the elderly similar to the successful collaboration of the Departments of Labor, Health and Human Services, and HUD for Welfare-to-Work and the Workforce Investment Act.



2. Increase the capacity of organizations to serve the elderly and the range of services capable organizations can provide by expanding eligibility for a wide range of funding and Federal grants, and address the deeper needs of the very low-income seniors by specifically identifying PHAs as eligible or priority recipients.



3. Because seniors are often members of larger families, broadly fund new housing construction for those below 50% of median as recommended to the Millennial Commission by industry groups.



4. Provide funding for senior housing and senior services.



5. Address the diversity of senior housing needs and of local markets by creating and supporting a wide range of programs and local flexibility.


• Senior Section 8
• Improve Section 8 FMR & Annual Adjustment limits and flexibility
• Promote partnerships among providers of housing and other services



6. Increase State, County and City support by requiring CDBG and other Federal funds recipients to include meeting the housing, housing modification, and other needs of the elderly as program goals, and to include nonprofits and PHAs as partners, and/or include their residents as targeted beneficiaries.



7. Concentrate research, on a regional basis, into assisted and supported living program designs, and require inclusion of nonprofits and PHAs.