The Affordable Housing Crisis

By Josh Weiss

The relative end of the mortgage crisis has left in its wake plummeted home prices, increased unemployment and has resulted in many Americans losing their homes. This recession has triggered many to consider the benefits of renting, and in many cases, left others with no choice but to rent. The benefits of renting are extensive, and include transferring the responsibility of upkeep and maintenance to the landlord, not tying up funds in the form of a down payment, and most importantly, eliminating the risk of loss of your investment. It is for this reason that most Americans rent at some stage in their lives. Moreover, even during the recent home buying boom, the share of U.S. households living in rental housing never fell below 30 percent. However, even though the first quarter of 2011 has shown signs of economic expansion, such as adding 192,000 jobs to the labor force (as per the Bureau of Labor Statistics), the overall unemployment rate is still high.

Additionally, a study performed by the Joint Center for Housing Studies of Harvard University compared current renters' cost burdens (which are defined as the cost of rent and utilities and should be less than 30 percent of household income) to those from the year 2000. They found that households where renters' costs were between 30 to 50 percent of income (defined as moderately cost burdened) increased 29 percent to 49 percent of renters, and households where renters' costs exceeded 50 percent of income (defined as severely cost burdened) increased 6 percent to 26 percent of renters. It is for these reasons, as well as many others, that have caused affordable housing to be in high demand.

Affordable Housing on the Rise
Federal housing assistance programs are generally required to target extremely low income households (defined as less than 30 percent of area medians) and very low income households (defined as 30 to 50 percent of area medians). The American Housing Report, published by the Joint Center for Housing Studies of Harvard University, states that "at present, there are approximately seven million federally assisted housing units nationwide, enough to house just one quarter of the lowest-income renters eligible for assistance." While there is a significant shortage of affordable housing units, there are indicators which seem to imply that the development and availability of affordable housing is on the rise.

• On March 31, 2011, New York State Governor Cuomo announced his state budgets. Included in his budget was the extension of the low-income housing tax credit by $4 million in aggregate credit awards to taxpayers that develop qualifying housing projects for low-income New Yorkers. According to the 2009 American Housing Survey, six million (15 percent) of the nation's 39 million occupied rentals were assisted through the low-income housing tax credit program. This budget increase should therefore have a significant positive increase on the development of new affordable housing units. For example, Phipps Houses, one of New York's largest developer and manager of affordable housing with nearly 13,000 units, has over 1,000 units in the pipeline.
• In 2010, many of the affordable housing lenders saw an increase in activity primarily due to the federal stimulus money and record low-interest rates. The Affordable Housing Finance Agency says the biggest winner was Citi Community Capital, which provided close to $3 billion to affordable housing projects, an increase of $2.4 billion as compared to 2009. Many believe this momentum will continue in 2011.
• The Federal Housing Administration is working on making its construction to permanent financing program (section 221(d)(4) program) more user-friendly for tax credit deals, with the intention of streamlining the process and encouraging new investors to enter the industry.

The past decade was not good for affordable housing. Falling renter incomes and rising rents were the primary causes in the first half of the decade and were compounded by the recession and mortgage crisis in the second half of the decade. All in all, the number of severely cost-burdened renters climbed by 1.5 million in the first half of the decade to 9.1 million, and by the end of the decade, that number increased to 10.1 million (as disclosed in the American Housing Report published by the Joint Center for Housing Studies of Harvard University). It is clear that the need for additional affordable housing units is dire. With the hope of more budget increases, additional government subsidy programs and the possibility of additional tax breaks, the gap of the affordable housing demand will hopefully begin to decline to more manageable levels.

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