Sign Up For Novogradac Industry Alert Emails

Federal Reserve Seminar Details the Keys to Opportunity in the Housing Market

Published by Peter Lawrence on Tuesday, December 12, 2023 - 4:56AM

While there are no simple answers to the country’s affordable housing crisis, a Sept. 26 Keys to Opportunity in the Housing Market seminar hosted by the Federal Reserve discussed both the present and the potential future of the affordable housing market. 

The first set of panelists discussed short-term improvements to the present housing market such as considering preventative measures, focusing on social services and addressing wealth inequality. For future solutions to the housing shortage, the second set of panelists analyzed the impact of zoning laws, expiring Section 8 covenants and Faircloth to Rental Assistance Demonstration (RAD) amendments. 

Panelist discussions prove how complex addressing the housing crisis can be and provide myriad best practices in solving this issue. 

The Affordable Housing Market from the Pandemic to the Present

In recent years, COVID-19 pandemic-related housing policies provided a safety net for America’s most vulnerable populations, preventing many evictions and foreclosures as the nation dealt with the unprecedented economic consequences. Even before the pandemic, worst-case housing needs were rising. According to the U.S. Department of Housing and Urban Development (HUD), households with Worst Case Housing Needs can be defined as “very low-income renters—households with incomes at or below 50% of area median income—who do not receive government housing assistance and who pay more than one-half of their income toward rent, live in severely inadequate conditions, or both”. The expiration of the pandemic-related housing policies meant even more renter households struggled to cover housing costs. 

According to September’s Worst Case Housing Needs Report, the number of households facing worst case housing needs increased from 2019 to 2021. However, due to pandemic rental housing assistance programs offered by HUD, other federal programs, states and localities, vulnerable renters were more able to avoid losing their housing. According to the report, 26.6% of very low-income (VLI) renters were able to avoid resorting to worst-case housing needs because they had rental assistance. Other factors contributing to the increased number of households facing worst case housing needs mentioned in the report were new households formed due to population increase, a widening rental assistance gap and an ongoing shortage of affordable housing. As the country exits the pandemic, many of those safety nets, such as eviction moratoriums, are coming to an end. As a result, continued efforts to solve the housing crisis are needed. 

The Current State of the Rental Market Post-Pandemic

The first set of panelists examined the current state of the rental housing market. The panel consisted of Igor Popov, a chief economist at Apartment List; Jacob Haas, a senior research specialist at Eviction Lab; Anamita Gall, a civic designer for The Lab @ DC in the Office of the City Administrator; and Senta Leslie, an associate director for Eviction Prevention at the Virginia Department of Housing and Community Development. Popov kicked off the conversation by comparing rental prices from 2020 to 2023. United States median rent fell in 2020, but increased significantly in 2021 as the effects of the pandemic began to decrease. The rate at which rents were increasing slowed in 2022 and 2023, but the expirations of government-funded pandemic rental assistance programs meant that the affordable housing crisis is similar to pre-pandemic levels. 

Haas highlighted some of the tools that could be used to address this affordable housing shortage. Eviction diversion, rental assistance, eviction process reforms, eviction sealing, legal aid and just-cause policies are all ways to keep at-risk individuals and families housed. Gall amplified the need for social services and emphasized that the housing crisis is an interconnected issue that intertwines education, preventative outreach and stopping commercial investors from buying up large number of properties. According to Leslie, the rental housing market is currently like a “game of musical chairs,” as people in need rely on the evictions of others to get a chance at affordable housing. She stated that the housing crisis should be treated like a math problem to ensure affordability, whether by increasing the minimum wage, building more affordable housing or redistributing wealth. Increasing outreach before evictions occur rather than waiting until it has already happened would also be beneficial. Since most people who experience eviction are children, these fundamental changes in our affordable housing system are essential to give support for future generations.

Panelists Discuss Zoning Policy Reform as a Key to Creating Affordable Housing

A second group of panelists discussed potential policy solutions to increase the stock of affordable housing. Those panelists consisted of Nicholas Marantz, assistant professor of urban planning and public policy at University of California, Irvine; Vince Wang, assistant professor of real estate at the University of Washington; Annette Kim, associate professor at Sol Price School of Public Policy at University of Southern California; and Ophelia Basgal, an affiliate at the Terner Center for Housing Innovation. The panel was moderated by Dr. Jenny Schuetz, a senior fellow at Brookings Metro. 

Morantz and Wage both discussed the implications of zoning policy reform as a way to create affordable housing. According to Marantz, local governments currently exercise their authority to create exclusionary zoning laws, which promote single-family housing. This is notable because single-family housing is significantly more expensive and takes up more space than duplexes, triplexes or other multifamily buildings. Morantz suggested a state affordable housing appeals program that would shift the burden of proof in determining whether a municipality has satisfied its regional housing obligations from the developer to the municipality. This would hold the state more accountable in making sure that its residents have their housing needs met. According to his research, state affordable housing appeals system would increase the stock of deed-restricted below-market-rate housing, below-market-rate housing in high-opportunity areas, the stock of homes affordable to households with incomes at 80% to 120% of area median income (AMI), and the affordability of existing market-rate homes. 

Wang also contributed his research on the increasing popularity of mandatory inclusionary zoning (IZ) policies, which he states can help solve wealth disparity and increase access to transportation. Mandatory IZ policies were one and a half times more likely to produce at least one below market rate (BMR) home than a voluntary IZ program, and IZ policies with flexible income requirements help greater BMR unit productivity. When market-rate housing for middle income households are created, it can open up affordable homes that were occupied by households who can afford more, giving low-income households affordable housing in areas with access to good transportation, quality education and more job opportunities. Relying on natural market forces often is not beneficial when providing a public good such as housing, and government intervention is necessary to make sure everyone is included, according to Wang. 

To paint a better picture, Sara Bronin of Cornell University is creating a National Zoning Atlas that outlines zoning codes by state in order to make information more accessible. As more awareness is drawn to these zoning regulations, the causes of affordable housing crisis will become more apparent to lawmakers and community leaders. 

Renewing Expiring Section 8 Contracts in Gentrified Areas–a Case Study

Annette Kim explored the possibilities of renewing expiring Section 8 contracts and low-income housing tax credit (LIHTC) affordability use periods in gentrified areas by presenting a case study of Rolland Curtis Gardens in central Los Angeles. In this study, there were 140 affordable rental homes available in Rolland Curtis Gardens, but the private developer was not interested in continuing the restrictions on 48 homes with Section 8 contracts. Rolland Curtis Gardens had 300 code violations and illegal evictions, and public funding and covenants were used to finance this development. The solution was to create a community land trust and combine it with Section 8 assistance and LIHTCs to remodel and refinance apartments in areas where maintaining affordable housing was no longer financially feasible. Community land trusts hold restrictions on the private affordable housing supply and allow for the resale price to stay within a reasonable range. By using the strength of both activists and professional affordable housing developers, cities could prevent covenants from expiring, thus preventing rents from being raised to unaffordable levels. Cities could also increase allowable density, floor area ratios and lower parking ratios especially for affordable housing near transit to make affordable housing more accessible. That is just one way these affordable housing subsidies can preserve and create much-needed affordable housing. To join other affordable housing advocates looking to resolve technical and administrative LIHTC program issues, join the LIHTC Working Group.   

Faircloth to RAD

Lastly, Ophelia Basgal presented her research on the impact of the Faircloth amendment and RAD. Under the amendment sponsored by Sen. Faircloth, R-North Carolina, to the Quality Housing and Work Responsibility Act of 1998, public housing authorities (PHAs) were prevented from adding to the public housing stock more than was in operation as of Oct. 1 1999, and due to demolitions and dispositions, the amount of public housing has declined over the years. RAD was established in 2012 and gave PHAs the power to convert Section 9 public housing funding to project-based Section 8 rental assistance with private ownership for public housing and HUD’s other non-public housing legacy rental assistance programs. According to Basgal, $15 billion has been spent to convert 175,000 rent assisted homes as of Sept 2023. However, 1,101 PHAs that could develop up to nearly 260,000 more public housing homes under their respective Faircloth cap, according to HUD. Despite the opportunity for growth, there are some barriers: lack of PHA administrative capacity, lack of experience of PHAs with working with affordable housing development partners and difficulties with Faircloth to RAD contract rents being too low. The solution to this, as presented during the panel, is to combine Faircloth to RAD with project-based vouchers and build relationships with affordable housing developers to build new homes. Basgal also stated that larger housing authorities will have more experience handling these issues and experience with using LIHTCs would give PHAs the technical expertise to be able to utilize Faircloth to RAD in a more efficient manner.

Using the Tool Kit

Since the expiration of pandemic-related housing assistance and protections, low-income households facing worst-case housing needs have lost the safety net these measures provided. According to Senta Leslie, the current nature of the housing market calls for a reevaluation of our current systems to solve the affordable housing crisis. 

The first panel exemplified that considering preventative measures, focusing on social services and addressing wealth inequality are potential starting points for short-term improvements. The second set of panelists showed that analyzing zoning laws, renewing expiring covenants and using the Faircloth to RAD option to rehabilitate and create public housing are all ways to provide more affordable housing in the long-term. 

The LIHTC was cited by Kim and Basgal as a key to opportunity in the affordable housing crisis with respect to expiring contracts and affordability use periods, as well as demolished public housing. Rep. Emanuel Cleaver, D-Missouri, recently called on the Housing Ways and Means Committee in support of the Affordable Housing Credit Improvement Act (AHCIA), which incentivizes creation of low-income housing. Cleaver stated in a letter to his colleagues that the LIHTC is “the most effective public-private federal tool for addressing our country’s shortage of affordable housing.” 

Passing the Affordable Housing Credit Improvement Act (AHCIA, H.R. 3238, S. 1557),  with its provisions to expand and enhance the LIHTC, would finance the development of 1.9 million additional affordable rental homes over the next 10 years, according to Novogradac. The passing of the AHCIA in combination with zoning reform and other solutions discussed would open the doors to new opportunities for low-income housing and work toward addressing the affordable housing supply shortage. 

Learn more about Novogradac's expertise and many services