Today’s housing market seems to be suffering from a split personality. While residential real estate continues to be a pillar for the U.S. economy, a sad dichotomy finds more and more of America’s working families experiencing a critical housing need – defined as paying more than half of the household income for housing and/or living in substandard conditions.
Yes, housing production is up, with 1.6 million housing units, including 320,000 multifamily units, predicted to be built this year, according to the National Association of Home Builders. However, the gap in housing affordability for low- and moderate-income households continues to widen. In 2001, 4.8 million working families faced critical housing needs, a 60 percent increase in just four years, according to the November 2002 Center for Housing Policy/National Housing Conference report “America’s Working Families and the Housing Landscape.”
Nationwide, full-time workers have to earn nearly triple the federal minimum wage of $5.15 per hour to afford the rent on a modest two-bedroom apartment, reports the National Low Income Housing Coalition (NLIHC) in its September 2002 report, “Out of Reach.” And, while both homeowners and renters are burdened with the high cost of housing, renters are twice as likely to live in substandard conditions.
Government Assistance The federal government provides programs to owners and developers to subsidize affordable housing, including the HOME Investment Partnerships Program and the Low-Income Housing Tax Credit (LIHTC) program. HOME, a block grant program created by the National Affordable Housing Act of 1990, makes federal money available to state and local governments to produce low- and moderate-income housing. Through the required participation of nonprofit organizations, HOME funds activities such as housing rehabilitation, conversion, reconstruction, new construction, and tenant-based assistance.
LIHTC, established by Congress in 1986, provides private developers with a tax credit for the construction or rehabilitation of affordable rental units. The federal government gives states a per-capita allocation. States then distribute the funds according to their own qualified plans.
But, federal programs are not enough – for two reasons. There is more need than the federal programs can meet, and the applications for funds far exceed the number of dollars available for allocation. The fastest growing segment of the population with critical housing needs are families earning 50 percent to 120 percent of the area median income (AMI). And while there are federal programs targeted for families earning less than 60 percent of the AMI, the majority of this growing group has little or no access to assistance programs. According to the National Housing Conference’s 2002 report, among households earning 50 percent to 80 percent of the AMI, the number with critical housing needs increased by 23 percent between 1997 and 1999. Households earning 80 percent to 120 percent of the AMI rose by 55 percent during the same time period.
Community Initiatives While there isn’t a clear definition for workforce housing, industry experts typically define it as people who work that earn 50 percent to 120 percent of the AMI. Because of the immense need for workforce housing and the limited funds available, it’s critical that states, communities, and the private sector step in to fill the funding deficit. Some of the solutions we are seeing across the country include state bond measures, establishment of housing trust funds, and community specific housing initiatives.
In November 2002, California passed Proposition 46, the largest affordable housing bond measure in U.S. history. In total, the measure will finance $2.1 billion in affordable housing, with its largest segment, $910 million, earmarked for the creation of 22,000 permanent affordable rental units. The first round of funding was released in early 2003 and will result in approximately 8,000 units of affordable rental housing.
In Montgomery County, Md., where rents are extremely high and vacancy rates are minimal, a growing number of multifamily property owners are choosing to opt out of federal subsidy programs and begin charging market-rate rents. The Maryland Housing Initiative Fund has made preservation of affordable units a priority and provides assistance to nonprofits willing to purchase and manage affordable properties. To date, about 850 units have been preserved.
In Los Angeles, where there is a 250,000-unit housing deficit and 50 percent of all renters spend more than 30 percent of their incomes on rent, Century Housing and the National Housing Development Corp., two nonprofits, have teamed with Mayor James Hahn and the city of Los Angeles to develop a new $200 million program called “LA Win!,” Los Angeles Workforce (Housing) Initiative Network. LA Win! will create affordable rental housing and homeownership opportunities for working families, defined as those earning between $34,000 and $67,000 (60 percent to 120 percent of the Los Angeles AMI) and paying no more than 30 percent of their income for housing.
The housing needs of Los Angeles’ working families are becoming more critical. Vital municipal workers, such as teachers and police officers, and blue collar service sector and retail workers are unable to afford to live near where they work. Minimum wage earners are particularly at risk as rents rise faster than inflation and much more rapidly than their incomes. In frustration, families begin to leave high-cost housing markets and employers have difficulty attracting new workers. As the recent report, “In Short Supply,” by the Los Angeles Housing Crisis Task Force concluded, “The city’s housing prices have risen so high that they not only devour the wages of working families, but also threaten the city’s continued economic growth.”
This same reality is being felt in cities across the country, and programs such as LA Win! are only part of the solution. Municipalities and the private sector also must get involved in bringing solutions to bear on the housing crisis. For their part, cities must help bring down the cost of building workforce and affordable housing. Softening requirements on zoning, parking, and impact fees and fast tracking approval times are just some of the solutions. It also is critical that cities adjust their thinking on density issues. Some cities, such as Dallas and Portland, Ore., are beginning to allow higher densities, effective mixed-use infill projects with residential components, and transit-oriented housing development, but more cities need to follow suit.
It can be difficult to convince municipalities to allow mixed-use development and give up the sales tax receipts they receive from strictly retail use properties. But, in areas of huge population growth, such as Southern California, some cities are beginning to rethink the issue. Projections show that in the next 20 years, Orange County – the state’s second largest county and an area with a reputation for being a largely suburban environment favoring large homes on oversized lots – will grow by 600,000 residents, but there will be virtually no more vacant land on which to build. Looking ahead, several Orange County cities have begun converting old, dysfunctional strip retail centers–which are numerous in the county–into mixed-use communities with apartments, condos, and townhouses. The new housing units are built on the former parking lots and over rehabilitated retail space.
Partnering with Nonprofits Private developers across the country also are changing their focus to include mixed-use, infill development. To make a profit while developing workforce and affordable housing within their projects, private developers can partner with nonprofit housing organizations, which are eligible to receive bond monies and tax credits. The projects, most often structured with the nonprofit as managing partner, could include a mix of residential unit types – for instance, 80 percent market-rate units with the balance dedicated to permanent workforce or affordable housing. Nonprofit organizations also are effective partners because they generally have established relationships with municipalities and can often assist in processing and approvals.
But, workforce housing should mean more than just providing units for basic shelter. Housing should be viewed in the wider context of the community and intertwined with elements that promote social values. Affordable and workforce housing communities should be enhanced by services designed to answer residents’ most critical needs, such as on-site childcare, access to transportation and jobs, and job training. By developing communities that bond decent workforce housing with quality of life considerations, we build stronger, sustainable communities, and better lives.
–G. Allan Kingston is president and CEO of Culver City, Calif.?based Century Housing, a nonprofit corporation.