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Paying for Enabling and Equitable Housing

A hand drops a coin into a house-shaped piggy bank with stacks of coins to the sides.

This is the second in a series of articles sharing insights from AARP International’s Equity by Design global dialogue series, which continues with monthly sessions through February 2021.  

Imagine the home where you grew up. Old or newly built, that dwelling unit could be around for over 100 years, which means it is likely that you or someone with a physical or cognitive disability will occupy it at some point. Will your home enable or further dis-able that individual?

In the US, fewer than 2 percent of homes have Universal Design features, or meet the needs of people of all ages, sizes and abilities. The problem is similar in the UK, where 80 percent of the homes that people will occupy 20 years from now have already been built. The first two Equity by Design dialogues—based on a set of guiding principles for enabling and equitable housing—and  a related blog, suggested ways to alleviate these and other disparities. This article addresses the issues discussed with experts during our third dialogue: how to make this housing affordable and how to finance its development.

Houses Grew as Households Shrank

High on the list of barriers to building enabling and equitable housing are outdated zoning codes and cultural preferences in the US, epitomized by the McMansion phenomenon. In the last half century, the average size of a new house has nearly doubled while the average household size has dropped substantially; the result is at least two and often 3-4 times more house per person. “Our preferences have outgrown our needs,” said Minnesota Housing Commissioner Jennifer Ho, a participant in the November dialogue.

Zoning codes have reinforced this trajectory and restricted the development of housing that is affordable to people of all income levels, in part through large minimum lot sizes. And in many communities, it is not possible to expand existing stock by subdividing a large house into two or three apartments. That makes it harder for people to stay in their own communities as they age, which AARP research repeatedly shows people want to do. “My parents moved into the house in the suburbs of Minneapolis that they still live in today 55 years ago, said Ho, “and I swear, if there was a four-plex on the block, I could talk them into moving.”

Affordable Housing is Costly

Cost is a major barrier to developing more affordable housing options, and one factor that drives up cost is the time it takes to complete a development. Feras Qumesya, vice president-development at the real estate investment and development firm Foulger-Pratt, indicated that the life cycle of a development in the US is 4-7 years, and that the cost of materials alone has increased 24 percent over the past decade, yet wages and income have remained stagnant. He also said it costs 15-20 percent more to build affordable housing [1] than to build unrestricted market-rate housing, in addition to other costs. “There are a lot of regulations associated with affordable housing, demanding five or six attorneys, compared with one or two attorneys for market rate transactions; local fees associated with bond issuance are typically added; and developers have higher development fees because of the limited cash flow that comes from the ongoing operation of affordable housing.” As part of the solution, Foulger-Pratt has advocated for waivers from certain impact fees for these public good projects.

Paying for Affordable Housing is Complicated                   

The US builds housing around a structure that was not designed to solve today’s challenges. The Low-Income Housing Tax Credit (LIHTC) is the federal government's main vehicle for generating capital for affordable housing. It is inherently complex, Ho noted, and combined with numerous fees and other soft costs, generates barriers to entry for new developers. There has been some movement in Congress to simplify and improve this finance tool. In July 2020, the House of Representatives passed and sent to the Senate the Moving Forward Act, which among other things, fixes the Low-Income Housing Tax Credit  at 4 percent. Qumesya indicated this by itself could produce approximately 1 million more homes.

Dialogue participants also agreed that current LIHTC features could be better used, including the first right of refusal clause. Qumesya indicated that in a mixed finance model the tax-credit housing units could be owned by a nonprofit community development corporation or cooperative made up of residents, so that at year 15 this entity or resident would own the asset and the community wouldn’t lose affordable units. Minnesota Housing is currently implementing this type of eventual tenant ownership arrangement with indigenous tribes for single-family home development.

Beyond the complexity of the federal government’s LIHTC, Ho lamented the fragmented government funding streams available for housing projects. “As the State Housing Commissioner, I find myself between cities and counties on the one hand and the federal government on the other, and I think what we end up with is many different funding streams that developers have to figure out how to patch together to do a deal,” she said.

As we improve LIHTC and other existing tools, Ho suggested that at the same time we imagine radically different solutions, such as addressing housing affordability through living wages.   

Housing as a Human Right

At their root, the finance tools we use today are built around the investor. “The basic premise of housing in the US is a private-market, wealth, and profit-driven model,” Ho said. “As long as that's the primary function, then housing will work well for people who are affluent and will work less well for people who aren't.” 

Raquel Rolnik, PhD, an urbanism professor at the University of São Paulo and former UN rapporteur for the right to adequate housing, added that “Urban policy is directed by the mantra that the best use for a place is the most profitable one, and that is the problem. I think it's very important culturally to shift towards an idea that the best use of a place is the use that can meet the needs of more people,” she said.  Rolnik provided an example from her work in São Paulo, New York, and other cities, where zoning changes enabled more built space or greater density. Yet these large projects were not accessible to low income and other vulnerable groups, and they actually housed fewer people. “Because private financial actors view these as long-term investments, even an empty building is an asset,” she explained. Decent housing for all is in the public interest. As the dialogue suggested, the fact that financing tools available to the nonprofit developer in the US are the exact same tools available to for-profit developers is an indicator of government priorities that should be questioned.

Rolnik also questioned why market-rate and affordable housing are the only two possibilities, and why tenancy or owner-occupancy are the only possible tenure arrangements. Among the solutions she proposed were to take better advantage of well-located municipal (i.e., public) land and local and regional programs that provide matching funds (such as community land trusts, community development corporations, cooperative housing, and assisted rental housing), and to diversify the forms of tenure. She even proposed appropriate housing with security of tenure for life, stressing that this is particularly important as people age, so they remain financially solvent instead of being indebted to the bank.

“Public policies recently have been much more directed to provide and see housing as a financial asset than as a human right,” Rolnik said. “And the idea that the market will provide adequate housing for all has been revealed completely wrong and led to so much displacement of residents. The challenge now is how to change that, and I don't see any solution to making this possible except by mobilizing public subsidies and de-commodifying housing.”

A National Vision for Housing

Among the silver linings from the pandemic, it has underscored the need for a coherent national approach to housing policy in the US.  This expert dialogue made clear that key elements of such a policy should reflect both regulatory and cultural shifts. Policy changes could include an approach to land use that facilitates housing more people, and reducing the complexity of funding affordable housing—and consequently the time it takes to build it. But policies should also account for historic inequities and changing population needs. This means each of us being more pragmatic about how much house we really need, and most importantly, simply prioritizing housing everyone.  

Watch recordings and register for dialogues on the Equity by Design website.

[1] Affordable housing here refers to housing that is restricted for people who make below a certain level of Area Median Income (AMI) in the relevant jurisdiction.

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