PF Mar 2019 - Market Rate Housing - Pro Position

Resolved: The United States should promote the development of market rate housing in urban neighborhoods.

Pro Position

For a number of years the United States has been facing a shortage of affordable housing for low-income individuals and families. The U.S. Department of Housing and Urban Development (HUD) defines affordable housings as rent or mortgage payments below 30% of the of the resident's after-tax income. Usually when people spend more than 30% of their income on housing, their ability to meet other critical expenses such as food, health-care, etc. are greatly reduced. But building new homes or renovating existing ones to meet the needs of low-income families are very expensive, especially in areas with strong building codes, high labor costs, and little chance that contractors will make enough profit to make it worthwhile. Hence there is a massive shortage of housing.

Aurand, et al 2017:

Of the nearly 43.6 million renter households living in the U.S., 11.4 million are ELI. Assuming housing costs should be no more than 30% of household income (the accepted standard for housing affordability), only 7.5 million rental homes are affordable to ELI renters. This leaves an absolute shortage of 3.9 million affordable rental homes (Figure 1). The shortage of affordable housing turns into a surplus further up the income ladder, giving higher income households a broader range of affordable housing options.
Eight million rental homes rent at a price that is affordable specifically to the income range of the 6.5 million VLI renter households with income between 31% and 50% of AMI. VLI households can also afford the units affordable to ELI households. In total, 15.5 million rental homes are affordable to VLI households.
More than 19 million rental homes are affordable to the 8.9 million LI renter households with income between 51% and 80% of AMI. LI households can also afford rental homes that are affordable to ELI and VLI households, effectively expanding the supply of affordable rental homes for LI households to 34.9 million. There are 5.9 million rental homes affordable to the 4.4 million MI renter households with income between 81% and 100% of AMI. MI households can also afford rental homes affordable to ELI, VLI, and LI households, resulting in 40.7 million affordable homes for MI renter households. In short, ELI renters face the most severely constrained supply of affordable housing. [3-4] [Note: ELI (extremely low income, AMI (area median income) VLI (very low income) LI (low income) MI (middle income) - see source for precise definitions] 

Moreover, existing housing units will depreciate over time and often fall into disrepair. The problem is very visible in urban areas where declining living conditions tend to devalue properties around them. The federal government along with local governments have instituted a number of programs to incentivize contractors to provide affordable housing in low-income urban areas. The USFG provided the Low Income Housing Tax Credit (LIHTC) as an incentive to builders. Despite notable successes, the federal tax incentive is not enough to meet the need.

Jacobus 2016:

Current affordable housing programs are not up to the task because they don’t scale to the level of the challenge. Most new affordable housing is financed through a small pool of mostly federal housing funding. Even private market incentives like the Low-Income Housing Tax Credit are capped at a certain level to limit its impact on the federal budget. This means that building new affordable units in one place takes them away from somewhere else.

In 2019, with rising deficits and the ever-increasing national debt, programs which take money out of the treasury will certainly be under much tighter scrutiny by Congress.

The Impacts

The link between housing and health:

Krieger & Higgins 2002:

Housing is an important determinant of health, and substandard housing is a major public health issue.1 Each year in the United States, 13.5 million nonfatal injuries occur in and around the home,2 2900 people die in house fires,3 and 2 million people make emergency room visits for asthma.4 One million young children in the United States have blood lead levels high enough to adversely affect their intelligence, behavior, and development.5 Two million Americans occupy homes with severe physical problems, and an additional 4.8 million live in homes with moderate problems.
The public health community has grown increasingly aware of the importance of social determinants of health (including housing) in recent years,7 yet defining the role of public health practitioners in influencing housing conditions has been challenging. Responsibility for social determinants of health is seen as lying primarily outside the scope of public health.

The link between housing and poverty:

Cunnigham 2016:

How much could increasing housing benefits reduce poverty among children? Urban Institute research shows that increasing access to housing vouchers to a targeted group of about 2.6 million poor, rent-burdened households with children could reduce child poverty by as much as 21 percent (a bigger impact than we see by expanding transitional jobs, child support, the earned income tax credit, Supplemental Nutrition Assistance Program benefits, or increasing the minimum wage to $10.10). Housing isn’t a panacea—it will take a lot more to end poverty—but it’s a good place to start, and one that is supported by the evidence.
After finding a stable place to live, attending parenting classes, and working with her case manager, Sabrina is doing well by most measures: she’s working in a construction job, figuring out how to maintain a routine that provides her young kids stability, and finding enough energy to play with them after a long day at work. Life is still hard, but it isn’t falling apart. She can make ends meet. She is thinking about a career after her kids enter school in a few years. She is saving for a washing machine and dryer for her apartment. The latest pictures of her children hang proudly on the wall over the TV.

The link between housing and education:

Cunningham & MacDonald looked that relationships between inadequate housing and children's education. They identified the obvious effects of homelessness on students and addressed the effect of poor health outcomes (as seen above) on absenteeism and performance in school. In general, we can look to residential instability.

Cunningham & MacDonald 2012:

Residential instability, in many cases, clearly causes frequent school changes. In one study of Chicago elementary school students, only half remained enrolled in the same school over three years, and the majority of school moves were as a result of residential moves (Kerbow, Azcoitia, and Buell 2003). Students who changed schools frequently lag behind their nonmobile students by a year or more in reading and math, and half of this difference can be attributed to mobility (Garriss-Hardy and Vrooman 2005). Low-income families, generally, have high mobility rates (Coulton et al. 2009). Low-income students attending inner-city schools are more likely to change schools frequently: over 17 percent of all third graders have changed schools more than three times, and frequent movers are more likely to have repeated a grade or have low reading scores (GAO 1994; Garriss-Hardy and Vrooman 2005). As the data on children affected by foreclosure indicate, families affected by foreclosure move and change schools more frequently (Been et al. 2011; Comey and Grosz 2011). These school changes may demand the child adapt to a new curriculum and new teacher, and may often require the child to make up schoolwork covered earlier in the year. Further, as Obradovic and colleagues (2009) note, highly mobile students are at risk for “broken bonds” with teachers that may disadvantage those needing the most help in the classroom. [7]

Solvency

The solution to the problem of inadequate housing is simply to build new houses, without increasing government subsidies and tax incentives. Market-rate housing and renovation in urban neighborhoods creates a filtering effect as middle-income people move into new living spaces, the existing homes they vacate become available to lower-income families that need them most.

LAO 2016:

When new construction is abundant, middle–income households looking to upgrade the quality of their housing often move from older, more affordable housing to new housing. As these middle–income households move out of older housing it becomes available for lower–income households. This is less likely to occur in communities where new housing construction is limited. Faced with heightened competition for scarce housing, middle–income households may live longer in aging housing. Instead of upgrading by moving to a new home, owners of aging homes may choose to remodel their existing homes. Similarly, landlords of aging rental housing may elect to update their properties so that they can continue to market them to middle–income households. As a result, less housing transitions to the lower–end of the housing market over time. One study of housing costs in the U.S. found that rental housing generally depreciated by about 2.5 percent per year between 1985 and 2011, but that this rate was considerably lower (1.8 percent per year) in regions with relatively limited housing supply.

This approach is a functional solution in keeping with laws of supply and demand. When a commodity is scare, its price is high. When the supply exceeds the demand, the prices decline. By building more homes the supply increases, and more homes become available to lower-income people because the availability of more homes decreases prices. 

Badger 2016:

Economists typically counter with a lesson about supply and demand: Increase the sheer amount of housing, and competition for it will fall, bringing down rents along the way to the benefit of everyone. It is understandable that skeptics raise their eyebrows at this argument. It’s theoretical, based on math models and not peoples’ lives. It seems counterintuitive — that building for people who are not poor will help the poor. But the California Legislative Analyst’s Office recently released some positive data backing up this point: Particularly in the Bay Area since 2000, the researchers found, low-income neighborhoods with a lot of new construction have witnessed about half the displacement of similar neighborhoods that haven’t added much new housing.

But, there is no need to wait for the free-market to 'trickle-down'. The government can still provide incentives to encourage the market approach by loosening regulations and restrictions.

Feldman & Wright 2018:

Building more housing of any type affects the price of all other types of housing. For every luxury unit filled, a more modest home is left behind for another family to move up into. Build enough luxury homes, and the prices of regular homes fall, too. There also is a longer-term effect. Housing tends to decline in value over time, as it ages and as tastes for housing change. Older housing then becomes more affordable. Indeed, the Met Council found that the greatest source of new affordable housing comes from existing market-rate homes that have become cheaper over time. This takes time, but increasing supply now will prevent a re-emergence of the affordable housing crisis in the future. And research shows that this process occurs much faster than observers think. But we are not simply relying on markets to work. Our governments have the power to encourage the creation of new, lower-cost, market-rate housing. Governments can start by looking at policies that constrict housing supply by artificially inflating building costs.

The Advantages

First, pro reduces the risks of corruption:

The Low Income Housing Tax credit which currently provides a major portion of federal support for low-income housing is really a cash give-away to developers and their investors.

Edwards & Calder 2017:

So does the LIHTC mainly benefit investors and businesses or low-income tenants? In a report on the LIHTC, the Congressional Budget Office (CBO) said, “the tax credit may allow investors to capture much of the benefits for themselves rather than their tenants.” Similarly, economists Edward Glaeser and Joseph Gyourko have argued that the “LIHTC is not very effective along any important dimension-other than to benefit developers and their investors.” Some statistical studies support that view. A study by Gregory Burge found that “the LIHTC program may significantly benefit project developers and owners, with approximately one-third of the programs’ cost going to low-income households in the form of rent savings.”40 Thus, “the LIHTC program is an inefficient mechanism for generating benefits to low-income households.”41 Economist Ed Olsen notes that LIHTC projects often receive other government aid, and so tenants may only capture about 24 percent of overall project subsidies.

Moreover, the LIHTC is a target for "fraud and abuse". First, by developers...

Edwards & Calder 2017:

The LIHTC is a ripe target for fraud and abuse, which is perpetrated by tenants, developers, and government officials. Tenants abuse the program by occupying housing units to which they are not eligible, often by claiming a false income level on disclosure forms. Developers abuse the program by inflating their reported construction costs to receive excess tax credits. National Public Radio (NPR) profiled a Miami business, Biscayne Housing, which partnered with one of the nation’s top affordable-housing developers.46 The companies stole $34 million from 14 LIHTC projects by submitting inflated construction cost data to the state.

And the LIHTC is abused by government officials...

Edwards & Calder 2017:

Government officials abuse the LIHTC program for personal gain. Because the states receive a limited amount of valued credits that are handed out in a discretionary manner to developers, it creates an open invitation to corruption. In the California ADI scandal, the state treasurer helped steer millions of dollars in tax credits to multiple chosen developers that donated tens of thousands of dollars to his campaign for governor.

Second, pro stimulates the economy:

Promoting the development of market-rate housing, provides the political and economic stimulus to drive down the cost of housing, encouraging business expansion and growth and providing jobs.

Pinto, et al 2016:

In this paper, we make the case that (mostly local) regulation of apartment development is misguided and has harmed workers and their employers—and thus has also harmed the local economy in general. In making our case, we do not suggest that local governments are perversely motivated, that voters are venal, or that local officials are incompetent. Rather, we recognize that the status quo exists because political actors created it in the belief that it would be a good system. As is often the case, such political and policy efforts had unintended consequences. The reality is that the existing system disproportionately benefits existing homeowners, disproportionately harms workers who need economical rental housing, needlessly drives up the cost of economical rental housing, makes it more difficult to launch new local businesses and expand existing local businesses, and harms the locality’s potential for economic growth. We wrote this paper in the hope that local governments that are concerned about these workers and that want to stimulate local economic growth would embrace the policy changes we suggest in recognition of the broad-based benefits of a greatly increased supply of market-rate economical rental housing.

For all these reasons an more we urge a Pro ballot.

Sources:


Aurand, A; Emmanuel, D; Yentel, D; Errico, E (2017) The Gap. A Shortage of Affordable Homes, National Low Income Housing Coalition, March 2017. https://reports.nlihc.org/sites/default/files/Gap-Report_2017.pdf


Badger, E (2016), The poor are better off when we build more housing for the rich, The Washinton Post, February 15, 2016.
https://www.washingtonpost.com/news/wonk/wp/2016/02/12/the-poor-are-better-off-when-we-build-more-housing-for-the-rich/?noredirect=on&utm_term=.dc237db0dbf8


Cunnigham, MK (2016), Reduce poverty by improving housing stability, The Urban Institute, June 26, 2016. https://www.urban.org/urban-wire/reduce-poverty-improving-housing-stability


Cunningham, M & MacDonald, G (2012) Housing as a Platform for Improving Education Outcomes among Low-Income Children, What Works Collaborative, May 2012. https://www.urban.org/sites/default/files/publication/25331/412554-Housing-as-a-Platform-for-Improving-Education-Outcomes-among-Low-Income-Children.PDF


Edwards, C; Calder, VB (2017) Low-Income Housing Tax Credit: Costly, Complex, and Corruption-Prone, Cato Institute, November 13, 2017. https://www.cato.org/publications/tax-budget-bulletin/low-income-housing-tax-credit-costly-complex-corruption-prone#full


Feldman, R; Wright, M (2018) Private market must be a central part of affordable-housing solution, Star Tribune, October 17, 2018.
http://www.startribune.com/private-market-must-be-a-central-part-of-affordable-housing-solution/497866751/


Jacobus, R (2016) Why We Must Build, Shelterforce, March 10, 2016. https://shelterforce.org/2016/03/10/why_we_must_build/


Krieger, J., & Higgins, D. L. (2002). Housing and health: time again for public health action. American journal of public health, 92(5), 758-68. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1447157/


LAO (2016), Perspectives on Helping Low-Income Californians Afford Housing, Legislative Analyst's Office (LAO), February 9, 2016, https://lao.ca.gov/Publications/Report/3345


Pinto, EJ; White, TW; Wilkins CS (1016) Economical rental housing by design for communities that work, AEI Center on Housing Markets and Finance, Sept 29, 2016. http://www.aei.org/wp-content/uploads/2016/09/Economical-Rental-Housing-by-Design-for-Communities-That-Work.pdf