On July 16, 2021, Novogradac updated its Privacy Notice for California Residents. You should review this updated Privacy Notice before continuing to use our site. By continuing to use our site, you agree to this updated Privacy Notice.
New Research Analyzes Affordable Rental Housing in High Opportunity Areas
It is systematic barriers, not pure preference, that prevent lower-income families from moving to areas of high opportunity, according to research released by Brookings at a Sept. 19 event. This new research from Harvard University’s Opportunity Insights serves as a reminder of the importance of affordable housing in areas of high opportunity.
This research is a follow-up to the preeminent Moving to Opportunity Experiment conducted by Raj Chetty in partnership with the U.S. Department of Housing and Urban Development from 1994-1998. The long-term findings from this research concluded that young children (those under 13) who move to areas deemed “high opportunity” grow up with a better quality of life in adulthood in the form of better health, education, and economic outcomes. Chetty has gone on to become the director of Opportunity Insights (formerly known as the Equality of Opportunity Project), which focuses on research to uncover how children from disadvantaged backgrounds can improve their life outcomes. He is commonly cited in academia, testimony and is a recipient of both a MacArthur “Genius” Fellowship and the John Bates Clark medal.
Opportunity Insight’s most recent addition to this field of research, an experiment entitled Creating Moves to Opportunity: Experimental Evidence on Barriers to Neighborhood Choice, dives into assessing how policy can help low-income households gain access to those high opportunity areas. The research analyzes the Creating Move to Opportunity (CMTO) quasi-experimental program that was implemented in collaboration with the Seattle and King county housing authorities.
What is a High Opportunity Area?
There are many different definitions of what high opportunity areas can be. Opportunity Insights defines them as high mobility areas, meaning where a child will benefit from upward income mobility. There are five factors that can indicate an area as high opportunity: minimal residential segregation, less income inequality, quality primary schools, greater social capital, and greater family stability. Measurable outcomes that come under these five factors include average income, graduation rates, incarceration rates, and more. For the purposes of this study, the research team defined the high opportunity neighborhoods in the Seattle and King county area as census tracts that have already been defined as such in its Opportunity Atlas, created in 2015, which tracks the outcomes of an individual based on where they spent their childhood. The research team added more recent data as well, such as poverty rate and other relevant factors that correlate with economic upward mobility. Lastly, the map was updated based on local public housing authorities’ input about the relevant available housing stock. This was done so that local knowledge of which neighborhoods lead to better long-term outcomes for low-income children could be utilized. The high opportunity areas in Seattle and King counties are areas where the children born there will go on to surpass their parent’s income as an adult.
The CMTO Program Background and Methodology
The research team conducted the experiment in collaboration with the Seattle and King county housing authorities. The sample size was 274 families with young children who were eligible to receive housing vouchers, and was restricted to families on the waitlist for a Housing Choice Voucher who had at least one child under the age of 15. Each family was randomly assigned to either the control group or the treatment group. Neither group was required to move. The control group received standard services, such as voucher briefings, but no specific information about high opportunity areas. The treatment group was offered the following additional services:
1. Search assistance, including:
- providing information for families about high-opportunity areas and the benefits of moving to such areas with young children;
- helping families identify available units in addition to connecting with landlords and completing the application process; and,
- assistance in completing rental applications in the most effective way by addressing issues in credit and rental history as well as overall preparation of rental documents.
This search assistance was provided by the nonprofit group InterIm CDA and their housing navigators that were assigned to each family.
2. Increasing landlord engagement, including
- expediting lease-up processes for landlords through fast inspections and streamlining paperwork;
- explaining to landlords in high-opportunity areas the pilot program and encouraging the landlords to lease their units; and
- providing mitigation funds for as much as $2,000 to cover possible damages to a unit.
3. Short-term financial assistance, including
- providing funds for security deposits, application screening fees, and other lease procedural expenses; and
- Customizing payments to families in ways to address their specific impediments in moving. On average, each family received $1,070 for these payments.
Researchers found the CMTO program:
- increased the number of families who move to high-opportunity areas by 40 percentage points;
- changed where families choose to move, but not overall voucher utilization rates; and
- benefitted subsets of the families at a large, similar rate–across racial and ethnic groups, those born inside and outside the United States, and varying low-income (voucher eligible with an average household income of $19,600/year) levels within the sample. Although it is important to note that there was slightly lower rates of opportunity moves among black households.
Families who move to high opportunity areas were also found to be happier with their new neighborhoods than those who moved within lower opportunity areas. When the treatment group was asked how satisfied they were with their current neighborhood, 62.2 percent responded “very satisfied,” whereas only 28.6 percent reported “very satisfied” in the control group.
It’s important to remember the context of these findings in the Seattle area. The King County Housing Authority often provides additional voucher funding in areas that are more expensive. The city of Seattle had source of income non-discrimination laws established in 1989, which have been found to be helpful for families navigating moves to areas of competitive rental markets. The question of scalability is always something to be considered in research that analyzes the efficacy of programs. For this reason, qualitative methods were also used in this study, and research is considered still ongoing.
Conclusions from Study and Implications for Affordable Housing
This new release from Opportunity Insights concludes that some low-income families do want to move to higher opportunity areas and emphasizes that structural barriers are what prevent them from doing so. One such barrier is lack of affordable housing. According to Freddie Mac’s Affordable Housing in High Opportunity Areas research, 6 percent of subsidized homes are located within high opportunity areas, as defined by Freddie Mac, which was slightly different from the Opportunity Insights study. In recent years, housing finance agencies have begun to recognize the importance of placing LIHTC properties in high opportunity areas, and have been implementing changes in their qualified allocation plans (QAPs) to highlight this importance. Although different state housing finance agencies have different definitions for what qualifies as a high opportunity area, many of the definitions hold common factors to the Opportunity Insights definition–such as access to education, income levels, and economic growth. Some states have been encouraging LIHTC development in high opportunity areas. For example, Illinois explicitly states development in a high opportunity area as a scoring factor for its 2018-2019 QAP. Some states have taken a more subtle approach such as Alabama, which does not explicitly reference high opportunity areas in its QAP, but provides points for LIHTC development in proximity to services such as banking and health care. As recently as of January 2019 out of all 51 states, North Dakota is the only state that does not reference high opportunity areas either explicitly or implicitly in its QAP.
Included in the conclusion of the Opportunity Insights report is the organization’s “support for increasing the availability of affordable housing in higher opportunity areas through policies such as the low-income housing tax credit (LIHTC), project based units, or changes in zoning regulations.” By creating and preserving subsidized housing in high opportunity areas, low-income residents could have easier transitions to high opportunity areas. Certain provisions of the Affordable Housing Credit Improvement Act (AHCIA) would help with this creation and preservation.
Ways the AHCIA can Help
There are multiple provisions in the AHCIA that would help with the creation and preservation of affordable housing. For example, one provision in the ACHIA would expand the 9 percent LIHTC by increasing allocation authority by 50 percent. More allocation authority could lead to placing more LIHTC housing in high opportunity areas, because although some of these high opportunity areas may be considered difficult to develop areas due to their high land costs, the AHCIA would also increase the population cap for difficult to develop areas. The AHCIA is crucial because it tackles both problems: the lack of allocations in high opportunity areas and the financial barriers that currently exist while developing in a high opportunity area.
Increased preservation of affordable housing in high opportunity areas could also be achieved because of the AHCIA. Affordable housing in high opportunity areas are at a higher risk of turning market rate than elsewhere. To combat this, the AHCIA has the following provisions: modification of the 10 year rule; the inclusion of relocation expenses in rehabilitation expenditures; an increase in population cap for difficult to develop areas; the enactment of a permanent minimum 4 percent LIHTC rate; and allowing of agencies to award a basis boost to housing bond-financed developments.
This recent research and accompanying report detail another reason why more LIHTC properties should be built, and why the AHCIA should be passed. The demand for affordable housing is prominent everywhere–from rural to city areas, to low opportunity and higher opportunity areas. Supply is still lacking nationwide. Improvements and expansions to the LIHTC program are crucial.