Reimaging A Social Contract for Housing with Dignity

 

Stable Housing: A Poverty Alleviation Strategy – Part Two

By: Karen Wawrzaszek

Affordable housing policy is a complex problem impacted by many different forces such as individual prosperity, changes in public mood, and fluctuations in the market.  These forces undermine housing stability and can lead to the displacement of the very people who built the fabric of the neighborhoods we love.  So what do we do when the sum of all the parts are not making our society whole?  When housing the poorest among us continues to elude policymakers and private citizens alike?  

Although it’s not a new question, it’s one that is hitting many families closer to home than ever before.  The reality is that homelessness is no longer an inner-city problem, there are growing numbers of people living without stable and permanent shelter in many of our suburban areas.  

To help paint a picture of the homelessness in our area consider that while recent reports indicate a consistent decrease since the highest per-capita increase in 2016 in homelessness in our area, 2019 marked the first time annual point-in-time counts of the streets, shelters, and temporary housing dipped below 10,000 people on one night[i].  

And while any decline in those numbers is encouraging, they don’t tell the story of what it means to be homeless, or to shift in and out of shelters, friends’ couches, short stay motels, and other inadequate shelter situations.  The impacts on the mental and physical well-being of parents and workers in these situations are bad enough, but the effects on children in these situations can be devastating.  

 

To shed some light on the current circumstances for school aged children living in poverty in Washington, DC, 41% of children living in Ward 7 and 49% of children living in Ward 8 are living in povertyiiiand in many cases are housing insecure.  It is hard to argue that when a child isn’t worried about food and shelter, they perform better and behaviorally more positive in school. (We will explore this data and current policies in a future brief.)

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Source: https://www.dcpolicycenter.org/publications/landscape-of-diversity-in-dc-public-schools/

 As we start to see homelessness cropping up in every corner of our cities, we need to think about the problem differently. It’s common for people to assume that homelessness is about addiction or mental illness.  And while that is true in some cases, the two most significant factors behind homelessness are a lack of access to affordable housing and poverty[ii].  In these situations when people are living paycheck to paycheck, one catastrophic event such as a major illness, the loss of a job, or a car problem can lead to missed rent or mortgage payments, which can quickly spiral to the loss of shelter. 

Further exacerbating this instability are the market forces on wages and land values.  It should come as no surprise that market forces behave very differently for wages than they do for land values.  Wages are based on current economic supply and demand while land values and real estate are priced for their potentialappreciation and cash flow opportunities (whether that be for business or residential).  In essence, the preverbal crystal ball is applied to one pricing methodology but not for the other.  

This is precisely why housing policy is so hard to pin down – it’s chasing two very different targets – wage stagnation and the price inflation in the housing market.  To compound problems, housing has become hyper-local in many markets and the federal supports in the form of tax credits and subsidies don’t insulate residents and developers from escalating costs.  These accelerated markets (especially those experiencing gentrification) make stability very challenging for residents who find themselves forced to pay up or be displaced.

 

So, what can be done to reimagine a social contract for housing as a fundamental right?  One where we agreed that a pre-requisite for dignity requires stable housing – since we know that longer-term employment requires a permanent address?  And one where we recognize that children growing up in a predictable and safe community, where they aren’t moving from shelter to shelter, is better for the economic sustainability of our Country?  

It begins with shifting the power into the hands of the people impacted by housing instability.  In this brief, we examine three solutions that put access at the center of the debate: opportunity zones, housing cooperatives, and penalties for source of income discrimination.  

 

Opportunity Zones, Building wealth in underinvested communities 

Opportunity zones as a tool to broaden investments in typically underserved areas were introduced in the Tax Cut and Jobs Act of 2017, (for a quick primer, check out our previous post on this subject). While some of the investment activity has the potential to accelerate gentrification in areas already experiencing the effects, most of the nearly 9,000 areas selected are historically starved for capital and/or economic development[iii].  

Because the tax benefits increase the longer investors leave their money in the Qualified Opportunity Funds, in theory the funds could create a unique limited partnership structure for residents and local business owners to participate in and grow wealth by creating new enterprises and housing—while mitigating the damaging impacts of gentrification that traditionally push low-income residents out of their neighborhoods.  But the question becomes, how can encouraged economic activity be used to develop affordable housing instead of accelerating market values?

According to an article by Affordable Housing Finance[iv], industry players plan to utilize opportunity zone funds in several ways: 

·     Qualified funds can be used to act as a subsidy to boost the capacity of nonprofit developers with affordable housing projects.

·     Organize statewide or regional consortiums to match projects that need funding with potential investors, and serve as a point for education, technical assistance, and implements these funds. 

·     Address affordable housing needs in rural areas where investors do not usually fund projects.  

·     Help leverage funds to develop much needed workforce housing or missing low-middle assets for people whose incomes have risen too high for low-income housing but can’t afford regular market rate housing. 

·     Main street revitalization in disinvested areas with a plan for community wide growth efforts that engage business, workforce education, and housing. 

It’s easy to see from these quick highlights that the overarching goals of opportunity zones are multi-faceted.  The benefits for residents is a higher volume of housing that is affordable for the population that needs it, coming into the market now, rather than later.  For developers of affordable housing, it releases limits on production because there are no caps, or waitlists, unlike LIHTC and other tax credit or trust fund financing tools. For communities, the benefits have the potential to be huge. Opportunity Zones can bring a broader investor base with a tool that starts conversations about how to leverage existing funding with newly qualified funds.  The new funds can help bring economic development into neighborhoods that have historically been starved of capital and create conditions for local employers to benefit through a refurbishing of the built environment as well as working with local education institutions to ensure the skills are there to meet the demand. 

 

Housing Cooperatives, Building Wealth by Breaking the Renting Cycle

The second way that individuals and households can realize a material increase in wealth building is by breaking the cycle of renting. One of the challenges in affordable housing policy (as discussed in research brief #1[v]) is keeping up with asset price increases that occur through accelerations in the real estate market.  Rising rent costs represent a significant barrier for the working poor to stabilize their housing costs through a typical renter/landlord structure. Unlike other countries, we are still a country that values homeownership (as evidenced by the capital flows to housing and the tax and banking incentives).

Since 1995 housing inflation has outpaced the general rate of inflation by more than 1 percent every year[vi].  With a consistent nation-wide shortage of housing, it is showing no signs of stopping. While housing inflation can be a good thing for homeowners due to increased property value, it puts renters at the mercy of a cycle of moving to avoid high increases, or forking over more money out of their paychecks to cover the new costs.  

There are two options for breaking out of the forever renter trap: homeownership, or shares in a housing cooperative. While homeownership has long been touted as the “American Dream,” it remains out of reach for many of our citizens.  This is when a housing cooperative can step in as a point of entry into an “ownership” asset model, with a less expensive per square foot price than a condo[vii].  

A Housing cooperative is a form of homeownership in which the residents collectively own and control the developments in which they live and thereby shifting the power.  Residents don’t technically own the exact unit where they reside and instead have enjoy ownership by membership stock or shares in the cooperative that owns the land and building, and they enjoy exclusive right to occupy their unit[viii].  

Expenses in the housing cooperative vary based on the organizational structure and include your shareholder loan, insurance, and utilities, loans on the property, maintenance, and taxes.  While that may sound like a lot, it is comparable to a condo. The thing that makes housing cooperatives so attractive is that expenses are at cost and rise only as those costs rise. Residents are also eligible to deduct the same expenses as a homeowner.   Plus, each shareholder has input about decisions that will impact cost—introducing an aspect of financial stability and an ownership mindset. 

Housing cooperatives can be an extremely effective tool for putting people in affordable housing by breaking the rental cycle (thus freeing residents from rent volatility).  The time is right for developers and asset owners to innovate and encourage this model of ownership as a means to grow wealth for community stakeholder in light of the support through the recent tax code changes. 

Income Discrimination Penalties 

While the idea of investing in a housing cooperative or a home is attractive for many reasons, it still may be out of reach for many people. The final policy examined here that has an essential focus on a social contract for housing with dignity is one that is long overdue. It is the emergence of a bill that will increase penalties to landlords who engage in source of income discrimination.  The legislation would primarily impact recipients of the Housing Choice Voucher (HCV), colloquially known as Section 8. 

As it stands, over 50 counties and cities in 11 states, including DC, have enacted laws to penalize landlords for source of income discrimination[ix].  But there is more to do because it is still happening. That’s whatAt-Large Councilmember Elissa Silverman hopes to address in the new bill she put forth that would include stiff fines up to $20,000 for blantant discrimination in housing ads[x].

At the very least households that have housing choice vouchers should be able to live where they want—and access the community assets that will put them in a place to better themselves and their children.  That was the idea behind the portability aspect of the voucher program.  But sadly, for many, that is not the case.  

There are many reasons landlords discriminate against HCV holders.  Some of it is blatant discrimination of voucher holders, while others claim that working with the housing authorities is cumbersome and difficult.  The other major problem with the program is that the subsidies are tied to rent inflation.  Meaning the economics (or profit) for the landlord is tied to the value of the property rather the subsidy, and in an appreciating real estate market this can lead to discrimination in favor of other more predictable market rate adjustable rents. 

First and foremost, discrimination on its own is wrong, and second, this type of discrimination is even more damaging because many people that have the HCVs have waited years to get one, and the time period can run out before they find a landlord willing take it.  Increasing penalties to landlords for discrimination against voucher holders opens up access to better opportunity neighborhoods. 

Whether this bill passes or not, it’s worth noting that the law will catch up to these landlords soon.  In the Fair Housing world, there’s no such thing as the “but I didn’t know defense.” The sad reality is that in some form or another, source of income discrimination is going to continue.  Tying the subsidy to market rent, even small area fair market rent (which DC is part of[xi]) is always going to present challenges to this program because of market volatility. 

 

At the Pomona Society, we believe that education is power. Which is why we attempt to shed some light on the tools that are out there and invite us all to consider new ones. We are hoping to see these programs and tools make great strides in creating stability in the basic human right of dece



[i]For The Third Year In A Row, D.C. Marks A Decline In Homelessness https://dcist.com/story/19/05/01/for-the-third-year-in-a-row-d-c-marks-a-decline-in-homelessness/

[ii]How Homelessness Works https://money.howstuffworks.com/homeless2.htm

iiiChildhood poverty in Washington https://datacenter.kidscount.org/data/tables/6748-child-poverty-by-ward#detailed/21/1852-1859/false/870,573,869,36,868,867,133,11/any/13834

ivOpportunity Zones: The Antidote To Los Angeles' Housing Crisis https://www.forbes.com/sites/forbesrealestatecouncil/2019/03/19/opportunity-zones-the-antidote-to-los-angeles-housing-crisis/#2ddcb07272e1

viA New Tool for Housing https://www.housingfinance.com/finance/a-new-tool-for-housing_o

[v]When Affordable Housing Isn't Affordable - The Tipping Point to Homelessness https://www.pomonasociety.com/blog/2019/5/14/when-affordable-housing-isnt-affordable-the-tipping-point-to-homelessness

[vi]Real Estate Outperforms As Rent Inflation Heats Up https://seekingalpha.com/article/4262968-real-estate-outperforms-rent-inflation-heats

[vii]Condo vs. co-op: Know the differences before buying one https://www.washingtonpost.com/realestate/condo-vs-co-op-know-the-differences-before-buying-one/2018/01/30/804e7bd6-faf5-11e7-ad8c-ecbb62019393_story.html?utm_term=.970f24109d48

[viii]What is a Housing Cooperative https://coophousing.org/wp-content/uploads/2013/11/What-is-a-Housing-cooperative.pdf

[ix]Prohibiting Discrimination Against Renters Using Housing Vouchers Improves Results https://www.cbpp.org/research/housing/prohibiting-discrimination-against-renters-using-housing-vouchers-improves-results

[x]New Bill Would Penalize D.C. Landlords Who Discriminate Against Housing Voucher Holdershttps://dcist.com/story/19/03/05/new-bill-would-penalize-d-c-landlords-who-discriminate-against-housing-voucher-holders/

[xi]Small Area Fair Market Rents https://www.huduser.gov/portal/datasets/fmr/smallarea/index.html

Karen Wawrzaszek