Affordable Housing

A generation of government partnership with housing providers has changed the way we provide subsidized housing. "Public housing" was provided directly by the federal government for returning World War II veterans, at a time when the nation was in a transition from depression to a development boom. In the 1960s, government largely got out of direct development in favor of subsidies to private sector providers. "Mobile" rent subsidies, carried by tenants, were installed in the '70s in an attempt to reduce concentrations of poverty. Mixed income and scattered site developments have become more prevalent in recent years. Today, affordable housing encompasses not only rent relief for those in economic need but projects that target persons with disabilities and some that offer transition to home ownership: the American dream.

The "affordable" in "affordable housing" refers not to the development cost of the real estate but to the reduced rent burden for its tenants. HUD calls housing costs affordable when a household pays no more than 30% of its income for rent (or mortgage and taxes) plus basic utilities. A single wage earner household at minimum wage and a 40 hour work week can "afford" a housing cost of less than $250 per month. Even a two wage earner household at minimum wage can devote not quite $500 per month to housing costs. $500 is still well below the average for rent rates in most of the Northeast.

How best to provide assistance to households of this kind is a matter of constant debate. Not surprisingly, in an era of federal downsizing and privatization, the talk is of less government involvement, not more. One plan with strong support is to take the federal government out of housing entirely. A proposed reorganization of HUD and other agencies calls for the merging of over 550 programs into three block grant funds for transfer to the states, as well as conversion of the FHA to a government owned corporation. FHA would then in theory focus on market driven approaches and risk sharing.

In addition to the change to block grant funds, proposals call for a transition from project to tenant based assistance. Under the project based system, a developer can plan on a certain rent and, in exchange, commit to house a low or moderate income household. Under the proposed system, assistance travels with the household, and, should a household vacate, assistance does, too. Project based subsidies spur housing development by providing owners with government guaranteed rents. In turn, the guarantee makes projects bankable and creates a stream of income sufficient to assure a level of quality over time. This income often provides the first rungs of an economic ladder toward a financially feasible project. Without these rungs, and particularly in a growing economy, private market interest is likely to turn elsewhere. The loss of project based income is particularly devastating to Cornerstone projects developments to kick start economically or physically blighted areas.

Conversion of the FHA to a corporate form akin to Fannie Mae and Freddie Mac will necessitate a restructuring of FHA insured loans. Appraisers will be called upon to evaluate projects as these can be expected to compete in the marketplace, without subsidies. The certainty of government guaranteed income and occupancy will be removed; commitments to long term maintenance and oversight will be gone. Because the operating histories of these formerly subsidized projects would be made largely irrelevant, market based analysis would be required. As complex program guidelines and special assumptions are put aside, the expertise and knowledge of the appraiser become more important. The academic exercise of risk rates derived from layers of special funding and grants will be replaced with market derived data. Local market familiarity, market research, and "in the street" data gathering will become the true basis for valuation. These appraisals will be critical, as an inadvertent over valuation could result in loan defaults and risk for the newly reformed FHA.

The affordable housing industry is no stranger to change. The question is, can the changes now proposed be implemented to improve the industry, or will the changes simply lop off productive programs for a lack of political preference. Providers of affordable housing have learned from experience what does and does not work. That expertise is applied daily in decisions of funding, construction, and management. It is to be hoped that, in the course of restructuring, what has been learned is not lost.

Sharon L. Anderson, Anderson Development Group, Inc.