Affordable Housing Institute : US

In a country with multiple levels of government, which one should tackle particular housing problems?

Last week, I posted about the three levels, and their natural affinity for one of the three principal actors in affordable housing:

 

·         National = capital (efficiency, scale, incentives)

·         Regional = people (consumer demand)

·         Local = property (use, density, taxation)

 

Most programs — probably all, now that I come to think about it — interact with all three. 

 

So who should do what? 

 

Who’s got it?  Have you got it?

 

Take the case of workforce housing, about which I’ve written frequently.  We’ve seen that it mixes ownership and rental tenures, and usually serves people with incomes above the LIHTC ceiling (60% of Area Median Income) and below the homeownership threshold (where families can tap the mortgage interest and real estate tax deductions) which, in high-cost areas, is 95% to 115% of AMI, not the 80%.  It’s empty space.  Who gets it?

 

Hey, I thought that was a local responsibility.

 

In Recap Web Update 58 (emailed periodically, free, register here!), my colleague Ethan Handelman and I laid out the case for a new tax credit — a new national initiative targeting capital.  What income ceiling should it reach? 

 

My post How Rich Is Poor? about Santa Barbara’s innovative workforce housing efforts triggered an interesting dialog with Rob Pearson, executive director of its housing authority. 

 

A man with the good sense to have well-trimmed facial hair

 

To solve Santa Barbara’s problem, Mr. Pearson needs housing affordable to people at 160% of area median income (because the area is much larger than his landlocked town of Santa Barbara).  Should the Federal government go up that way?  Where does the city’s responsibility begin?  And what about the state’s?

 

Imagine an aerial map of the United States, subdivided city by town, colored gray everywhere (because the program does not exist).  Now highlight in blue the parts that need workforce housing (that is, where LIHTC and market rents do not converge or abut) above the LIHTC level (60% of AMI). 

 

The blue places probably need workforce housing

 

You would find that the blue areas concentrate near large cities, along the coasts, and in the landlocked desirable spots (Salt Lake City, Anchorage, Boulder) or those with strong anti-growth policies (Austin TX, Boston).

 

At this point the senators from non-blue states, and those that have pro-growth policies (like Phoenix or Houston), rise to object: “Our economies are strong and we have affordable housing prices, because we haven’t adopted restrictive zoning, development moratoria, linkage, or extreme environmental protection review procedures).  Your high housing prices are the state’s responsibility, not the nation’s.”

 

 

“At this point,” continue the rural and pro-growth representatives, “the state should step in.”

 

Go back to our conceptual map of America.  Fade out the city-boundary lines and brighten the state boundary lines.  How many states have a noticeable blue glow?  There’s where you will probably find Representatives and Senators who support the proposed credit, if it is capped at (say) 95% of median income.

 

Zoom back into a particular state (as I’m flying to California, and besides it’s the largest and most complex state, choose that one).  Treat the whole state as blue, because we have now enacted an 80%-of-AMI workforce tax credit.  How many areas need a fiscal initiative that goes up to (say) 115% of AMI?  Color those areas yellow.

 

The yellow spots — strong markets — are smaller and further disbursed.  San Francisco, sure.  Pockets of San Jose.  Half or more of greater Los Angeles.  San Diego and the entire I-5 corridor up to Los Angeles.  Have you yellow-highlighted a majority of assembly members?  If so, you have both a policy case (markets distributed around the state) and a political case (voters concerned about the issue) for a state-level tax credit.

 

Boldfaced cities need workforce housing

 

It should be no surprise that, over a decade ago, California was the nation’s first state to enact a state low income housing tax credit?  Nor should it be surprising that among the fourteen-plus that have so far followed California, we have almost exclusively urban states, such as Massachusetts and Rhode Island.

 

Finally, pretend that the affordability ceiling is a dial that one can scale up or down as desired. 

 

Crank up the housing impulses!

 

The higher the ceiling, the fewer and further separated are the areas that benefit from a tax credit (smaller, brighter lights); the lower the ceiling, the more, larger, smoother, and more contiguous they are.

 

In practical and policy terms, where is the proper boundary of Federal versus state/ local activity?  It’s got to be somewhere when the portion of the political unit served is (say) 30% or more.  Otherwise the wealth transfer among political units gets extreme and politically insupportable. 

 

As a result, far out-of-norm communities (like Santa Barbara, Cambridge, or New York City) will tend to have multiple levels of similar resources (Federal and state tax credits; Federal, state and local soft loan programs).  The program for each smaller unit of government will tend to be intellectually similar to the larger one (best practice and market education), smaller scale (total dollars), and with different but compatible eligibility requirements or affordability goals. 

 

Which means, logically enough, that if Santa Barbara wants to reach people at 120% or 160%, then in comes the state (California already has a state tax credit, and the voters just approved Proposition 1-C with its $100 million housing bond). 

 

Local programs stand on the state’s shoulders, who in turn stand on the Feds’

 

Thus, in my conceptual parfait, the Federal programs might go to 95%, the state would top up to 120%, and the locality of Santa Barbara would provide resources for the rest. 

 

Tastiest when mixed and layered

 

This means a heavily mixed-income and mixed-finance community … but then, Santa Barbara’s unique, isn’t it?

 

That’s how you work together, boys!

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