Affordable housing is existing housing

We see gobs of money spent on new “affordable housing”.

Ok, “gobs” is not a very precise term. Marlys Harris reports in streets.mn affiliate MinnPost that nonprofits are pushing for 4500 units of affordable housing on the Central Corridor. You can do the math on how much that would cost.

Let’s define “affordable housing”. Obviously different programs have different definitions. Wikipedia says: “In the United States and Canada, a commonly accepted guideline for housing affordability is a housing cost that does not exceed 30% of a household’s gross income.”

This of course is arbitrary. Clearly it is more difficult to spend 35% of gross income than 30%, or 30% than 25%. Canada once had a 20% rule, India has a 40% rule.

Incomes vary, so typically affordable housing programs are concerned with affordability relative to median household income.

So why is it government’s business to build, or encourage to be built, new, affordable housing?

Public housing, the “projects,” were often built in the US from the New Deal through the Great Society eras, and were one set of attempts in the US to address the problem by building new houses to replace inadequate old houses. (Public Housing has an earlier history in Europe, e.g.). But soon these projects came to be seen as the problem not the solution. Newer housing programs diffuse these housing projects a bit more (I suppose they could not have been diffused less) throughout metropolitan areas (scattered-site housing), though there is a focus on affordable housing around transit stations, limiting the diffusion. (and Marlys Harris reports Myron Orfield research “since 1986, 83 percent of affordable housing units in the metro have been located in a way that contributes to segregation.” The HUD program HOPE VI aims to fix existing housing projects, though it may replace 2 units with 1, thereby reducing the supply of housing.

The downside of scattered site housing is the reduction in economies of agglomeration. If there are services that are easier to provide at one location serving more people, scattering the housing increases the costs of reaching those services. The aim is to reduce the diseconomies of agglomeration (the crowding, the low employment rates, etc.)

There are also housing voucher programs. In the US, “Section 8” (or Housing Choice Voucher Program) is a major version of this. It currently subsidizes the rents of 1.5 million households. (The program also has a supply-side component, which subsidizes the production of housing).

In the Twin Cities there are a variety of programs. The one that annoys me most is the Transit Oriented Development (TOD) grants. which says:

The Livable Communities Act (LCA) Transit Oriented Development (TOD) program is a new funding resource intended to help catalyze Transit Oriented Development in and around light rail transit, commuter rail, and high-frequency bus transit stations by focusing on proposals that are:

  • In a Transit Improvement Area (TIA) designated by the Minnesota Department of Employment and Economic Development (DEED) or TIA-eligible station areas located along light rail, commuter rail or bus rapid transitways operational by 2020.
  • Within one-quarter mile of any spot along high frequency local bus lines.
  • Within a one-half mile radius of bus stops or station on high-frequency express routes where significant passenger infrastructure is in place.

 

The Livable Communities TOD program is an extension of the established Tax Base Revitalization Account (TBRA) and Livable Communities Demonstration Account (LCDA) programs, and allows applicants to combine in one application requests for resources from four different funding categories:

    • Tax Base Revitalization Account (TBRA) Contamination Cleanup Site Investigation TOD grants – these grants are intended for applicants that have or will purchase a redevelopment site with suspected or perceived contamination and are seeking public funding to assist with the cost of determine the scope and severity of the contamination and to develop a cleanup plan. The investigation grants are intended to encourage an early start to the environmental remediation process.
    • TBRA Contamination Cleanup TOD grants – these grants are intended for applicants that have recently completed their cleanup site investigation and are seeking public funding to assist with the cost of implementing a cleanup plan and beginning redevelopment.
    • Livable Communities Demonstration Account (LCDA) Pre-Development TOD grants – these grants are intended for applicants who are defining their project through such activities as design workshops, preparing redevelopment, corridor or station area plans, developing zoning and land use implementation tools such as overlay zones or zoning districts, or determining strategies for land banking and land acquisition.
    • LCDA Development TOD grants – these grants are intended for applicants that are ready to:
      • acquire sites and/or conduct site preparation activities; and/or,
      • begin development or redevelopment and are ready to build the infrastructure necessary to support it.

 

 
 
I am okay with contamination cleanup site grants. Someone has to clean them up, and clearly we have failed previously in making the polluters accountable.
 
It is the Livable Communities grants that puzzle me. The transit system was supposed to create value, the developers should be paying a premium to be near it (a premium which we can capture to help pay for the infrastructure), we shouldn’t be paying them.
 

We have lots of existing housing that is slowly deteriorating due to lack of capital infusion. Yet we spend money to create new developments. Wouldn’t it be better to give money or vouchers (if you don’t trust them with cash) to the people you want to help (low or low-middle income people), and let them purchase (and repair) housing on the open market? Or give money to people salvaging existing structures that would otherwise go unused, if salvage costs are less than new construction. There are at least 700 vacant and condemned properties in the City of Minneapolis alone (2011 data). This does not include vacant rental properties. The Census found 15,000 vacant units in the City of Minneapolis. Making housing “affordable” should start there.

If there were a demand for housing near transit, which there should be if it is in fact as useful as the planner claim, it will be quickly met if local jurisdictions don’t create too many needless regulations. That demand should be fulfilled by serving the best and highest use, to maximize the value captured by the community from its infrastructure.

New affordable housing is the same model we have with public infrastructure, it is much sexier to build a new road or rail line than maintain or rehabilitate an old one.

Clearly it is sad when someone cannot afford to live in adequate housing. But there is lots of housing around which is vacant or not fully occupied, and there are lots of people with inadequate housing. Unemployment in the residential construction trades is still relatively high. Neighborhood groups are trying to save some of these vacant and condemned houses.

This seems like a market clearing problem, not one requiring new supply.

 

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6 Responses to Affordable housing is existing housing

  1. Janne September 24, 2012 at 4:49 pm #

    Oy.

    This post does a gross disservice to providing any illumination on affordable housing funding, affordable housing policy, or where there are opportunities to affect the market.

    It jumbles up discontinued affordable housing policies with confusing and inaccurate descriptions of unrelated programs, and provides no scale for the public investment. It also neglects to acknowledge the significant private resources going into affordable housing.

    I encourage Mr. Levinson to research his content prior to posting (maybe consider limiting the critique to one funding source next time). I also invite Mr. Levinson to figure out how to get people back into the six vacant units (in two triplexes) on my block in the very in-demand Lowry Hill neighborhood.

  2. Allison September 25, 2012 at 4:09 am #

    I disagree with the premise of this article that so much money is being spent on affordable housing. We see less and less spent every year at the state and federal level on this critical community need. Much affordable housing in the form of public housing has not been updated since the 1960s and 1970s and is in severe need of updates, so I would agree that we should update that precious resource. However, to suggest that all this money could be used to rehab existing homes is false. Affordable housing developers can create quality housing that lasts for 30+ years and serves the broader community in a more sustainable way than a duplex or triplex can.

  3. Ben September 25, 2012 at 5:45 am #

    I don't think there is enough emphasis on co-habitation. The great thing we all don't want to do. (sound like bicycling?) With boomers getting older I think we should revisit this as a legitimate form of density. (making it easier to rent )

    With co-habitation my landlord has combined three adults (households normally) basic needs, into one sustainable request.

    The last time I signed a lease was, 2007.

    • Ben September 25, 2012 at 5:49 am #

      I pay %12 percent in housing costs.

  4. Sam Newberg
    Sam Newberg September 25, 2012 at 8:31 am #

    I've spent many years researching and preparing affordable housing market studies, and from that point of view several thoughts come to mind reading this:

    One, often my demographic downloads indicate the demand for affordable housing comes overwhelmingly from single person households. A single person may not want a large, vacant, foreclosed home in need of repairs, particularly in a sketchy neighborhood. An new building with studios and one-bedroom units may be a much better solution.

    Second, that vacant forceclosed home may not really be habitable, and could even cost more to renovate, making it unaffordable.

    Third, these are not statistics – they are people with jobs and incomes who have something of a choice as to where to live (perhaps not many good choices). Often it is a single mother with kids and a job, or an elderly person on a fixed income (Hell, even nuclear families with a working mother and father could qualify for affordable housing – you can earn as much as $50,000 as a household and still do so). These people are consistently demonstrating they'd like to live in a good location (like near transit, employment and amenities), and I believe they have the right to do so. Even if 15,000 vacant units exist in Minneapolis, I'd like to see the cost comparison between renovating them and simply building new. (The answer is both should occur, but even the best analyst will have a difficult time determining what that balance is.)

    Often my "comps" – apartments with rents affordable to households of a certain income – are simply older, market-rate apartments without many frills. Sometimes they are in great shape. Even where a supply exists, I consistently find the demand typcially outstrips the supply and in order to create "new" affordable units, there is additional cost. The LIHTC program is a nice blend of taxpayers assisting with the creation of affordable housing while allowing the private market to participate.

    Lastly, the creation of affordable housing and transit intrinsically tied together adds value, even considering the subsidy involved and even where low-incomes woudl otherwise be priced out. Building 100 affordable units near light rail still results in millions of dollars of real estate value, taxable real estate, and furthermore it allows 100 households to live near transit and have quality access to employment, perhaps saving significantly on the operation of a vehicle. As a taxpayer, I'm willing to support subsidizing affordable housing at transit stations all day. It clearly adds value to my community.

    Perhaps the Livable Communities TOD grant program could use an overhaul – parhaps not. But the market clearly demands to live near transit and encouraging that creates value.

  5. Faith September 25, 2012 at 9:30 am #

    Many homes are sitting vacant and not being rehabbed for use as affordable housing because renovation is expensive, not affordable. In the conversations I have had with nonprofits who build and rehab affordable housing, they acknowledge it doesn't make financial sense to rehab houses that are in poor condition. A lot of the houses that are vacant have been badly maintained over the years and need repairs that can total $100,000 or more. The cost of repairs can easily exceed the future value of the house in an area where the property values are fairly low and is often more than rebuilding a new single-family house. Foundation and government can be necessary to bridge the gap but still may not be sufficient.

    Fixing an old house is often a labor of love – whether by an individual or a group of volunteers – to create a nice place to live. It may be a good idea, but it does not necessarily provide affordable housing choices.