Secretary Castro Joins The Atlantic To Discuss the Future of Housing

Secretary Castro Joins The Atlantic To Discuss the Future of Housing

Rapid gentrification in several San Francisco neighborhoods contributes to the city’s ongoing rental affordability crisis.

Limited public resources devoted to rental housing, “not in my back yard” (NIMBY) opposition to the siting of affordable multifamily housing, restrictive land use regulations, stagnating incomes, and shifting demographic pressures are among the factors contributing to what many, including HUD Secretary Julián Castro, are calling an affordable rental crisis in the United States. On December 2, 2015, a diverse group of housing researchers, practitioners, and advocates gathered at The Atlantic Housing for Tomorrow Forum to discuss the affordability challenge and some potential solutions. The forum featured a conversation with Secretary Castro, who offered his views on the current state of housing markets and policies. Castro and others highlighted the need for strong local initiatives as well as an ongoing federal commitment to improving housing outcomes.

Castro said that although housing markets generally are much better off now than during the recent financial crisis, tremendous challenges remain, including the rental affordability crisis. This crisis, he said, will be compounded by the wave of aging baby boomers who are eager but ill prepared to age in place. The “traditional toolkit” of low-income housing tax credits, the HOME Investment Partnerships Program, the Community Development Block Grant program, the Housing Choice Voucher Program, and public housing is not sufficient to meet the need, according to Castro — at least at current funding levels. This limited commitment of public resources for rental housing, he said, demands new and creative solutions, such as the National Housing Trust Fund and the Rental Assistance Demonstration program, to increase public and private investment to preserve and construct affordable housing. Castro did highlight one case of adequate funding — the HUD–Veterans Administration Supportive Housing (HUD-VASH) program — that has reduced homelessness among veterans by 36 percent since 2010, indicating the potential of assistance programs that receive full backing from Congress.

Additional rental demand comes from households who wish to own their homes but are unable to do so. Castro said HUD’s role in helping renters to become homeowners, through the Federal Housing Administration (FHA), is to set the “credit score floor” in a way that expands the market while maintaining responsible lending standards. He noted that FHA has been especially critical for giving minority borrowers access to credit.

Referring to the U.S. Supreme Court’s affirmation of the disparate impact principle and the finalization of HUD’s Affirmatively Furthering Fair Housing rule, Castro called 2015 “a very big year for fair housing.” He noted, however, that bias and discrimination and their legacies continue to restrict opportunity for too many people, and that NIMBYism continues to limit opportunity for low-income households by keeping public and affordable housing out of desirable neighborhoods. Castro argued that only strong community engagement and local leadership — not federal requirements — can overcome this resistance. Lisa Belkin, author of Show Me a Hero, agreed, noting that the federal government’s 1980s “victory” in forcing Yonkers, New York, to construct low-income and affordable housing more evenly throughout its jurisdiction was not followed by similar efforts throughout the nation because it was such a difficult and protracted battle. Belkin called the experience in Yonkers a cautionary tale; although crime did not spike and home prices did not drop after the affordable housing was built, the units have deteriorated in the decades since they were built and now require substantial new investment to repair them.

Chris Herbert of the Harvard Joint Center for Housing Studies and Eileen Fitzgerald of Stewards of Affordable Housing for the Future characterized the affordable rental crisis as both an income problem and a supply problem. Herbert pointed out that approximately half of all renters pay more than 30 percent of household income on housing, and Fitzgerald added that 44 percent of seniors pay that amount. Mark Calabria of the Cato Institute agreed with Herbert and Fitzgerald, arguing that many localities need to build housing more densely to increase supply and alleviate affordability pressures. This would require changes in zoning laws and regulations in many jurisdictions. The Brookings Institution’s Bruce Katz stated that demographic and economic forces make densification of cities not only necessary but inevitable. He projected that demand for housing in metropolitan centers will only intensify as employers continue to “revalue” the advantages offered by the concentration of knowledge and skills in cities.

Some high-cost markets such as San Francisco are already experiencing intense pressures from gentrification, in which increasing demand from high-income households escalates housing costs. Dara Shortt, executive director of the Housing Rights Committee of San Francisco, described the traumatic displacement of low-income households in the Mission District of San Francisco as an influx of technology workers raises both demand and rents. Although affordability concerns are especially acute for low-income households, Adrianne Todman, executive director of the District of Columbia Housing Authority, said that as in San Francisco, affordability is increasingly a problem for middle-income households in Washington, DC, as well as for low-income households. Just outside of the District of Columbia, Montgomery County, Maryland, established a moderately priced dwelling unit (MPDU) program to address the need for affordable and workforce housing. Residential developments of more than 50 units must ensure that 12.5 percent of the units are affordable to moderate-income buyers. The program gives developers a density bonus, allowing construction of the same or a greater number of market-rate units as would have been built without the MPDU requirement. Since 1974, the program has produced 14,000 MPDUs, 10,000 of which are for-sale units. A developer who builds in the county, EYA president Bob Youngentob, said that the county offsets only some of the cost; the remainder is borne by the landowner, developer, and market-rate buyers. EYA has nevertheless embraced inclusionary zoning and made it work financially. Clarence Snuggs, director of the Montgomery County Department of Housing and Community Affairs, said that they are still tweaking the MPDU policy to strike the appropriate balance between allowing residents to gain equity and keeping units affordable. Currently, the new owner-occupied units must remain affordable for 30 years. The program shows promise for including affordable units in new construction that presumably would also relieve rental price pressure by increasing the overall supply in a market. Although Katz, Calabria, and others insist that such supply approaches are essential, Shortt expressed skepticism. She argued that the number of new homes needed to increase overall supply enough to begin to push prices down to affordable levels at the low end of the market in San Francisco is unrealistic. She noted that most new construction in San Francisco has been high-end apartments, and because a large proportion of these have been second homes, they are not opening up units to relieve demand pressure for low-end units. Finally, she reported that the construction of new affordable units is barely outpacing the loss of rent-controlled units associated with new, primarily high-end development.

With demand for affordable rentals rising in many markets and a host of factors restricting supply, solutions that address both the income and supply sides of the issue must come from the combined efforts of government at all levels and the private sector. Although there is no simple fix, successful programs such as HUD–VASH and Montgomery County’s MPDU program show promising approaches to the nation’s ongoing rental affordability crisis.