Housing policy in the United States an introduction

Ebook Housing policy in the United States an introduction present the content: trends, patterns, problems; housing finance; taxes and housing; the low-income housing tax credit; public housing; privately owned rental housing built with federal subsidy; state and local housing policy and the nonprofit sector; fair housing and community reinvestment; home ownership and income integration...

in the United States

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in the United States

AN INTRODUCTION

ALEX F SCHWARTZ

© 2006 by Taylor & Francis Group, LLC

Routledge is an imprint of Taylor & Francis Group

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Library of Congress Cataloging-in-Publication Data

Schwartz, Alex F.,

1957-Housing policy in the United States : an introduction / Alex F Schwartz.

p cm.

Includes bibliographical references and index.

ISBN 0-415-95030-9 (hb : alk paper) ISBN 0-415-95031-7 (pb : alk paper)

1 Housing policy United States 2 Housing United States 3 Housing United States Finance 4

Low-income housing United States 5 Public housing United States 6 Rental housing United States

Taylor & Francis Group

is the Academic Division of Informa plc.

RT4120_RT4119_Discl.fm Page 1 Monday, January 23, 2006 2:14 PM

Dedicated to the memory ofGale Cincotta Co-Founder, National People’s Action and National Training and Information Center

andCushing Dolbeare Founder, National Low Income Housing Coalition

of Kansas City, and Jan Pasek of the Philadelphia Housing Authority for providing “before”and “after” photos of HOPE VI developments

I am especially grateful for the close reading provided by my father, Charles Schwartz

My daughter, Annie Schwartz, who has long asked me to explain what I do, kept me goingwith her irrepressible company Finally, the book would never have been more than adream were it not for the encouragement and inspiration provided by my wife, JenniferFleischner She also read the draft manuscript with care and put up with stacks of papersand books in the living room I can’t thank her enough

Any errors of fact or interpretation are my responsibility alone

— almost 35% of the nation’s population (National Low Income Housing Coalition 2005a)and more than double the number lacking health insurance — confronted serious housingproblems or had no housing at all

This book tells the unfinished story of how the United States has tried to address thenation’s housing problems It looks at the primary policies and programs designed to makedecent and affordable housing available to Americans of modest means It examinesthe strengths and weaknesses of these policies and programs and the challenges that stillremain The book takes a broad view of housing policy, focusing not only on specific hous-ing subsidy programs, such as public housing, but also on the federal income tax code andregulations affecting mortgage lending, land use decisions, real estate transactions, andother activities integral to the housing market Although some of these broader aspects ofhousing policy provide financial incentives for investments in affordable housing, othersattempt to make housing available to low-income and minority households and communi-ties by penalizing discriminatory practices and through other regulatory interventions.Put simply, then, this book is about policies and programs designed to help low-income and other disadvantaged individuals and households access decent and affordablehousing It examines programs and policies that subsidize housing for low-income house-holds or that attempt to break down institutional barriers, such as discriminatory practices

in the real estate industry, that impede access to housing

2• Housing Policy in the United States

The book is intended to be a general overview of housing policy It is beyond its scope

to delve deeply into programmatic details or to cover all aspects of the field in equal depth.The focus is on federal and, to a lesser degree, state and local programs and policies thatsubsidize housing for low-income households or otherwise attempt to make housingaccessible to this population Much less attention is given to policies concerned with thephysical aspects of housing, such as design standards and building regulations — exceptwhen they are explicitly employed to promote affordable housing The book does not exam-ine in detail the operation of housing markets or provide a comprehensive legislative his-tory of housing policy

Although the field of housing policy is relatively small — especially in comparison tosuch areas as health care and education — it is fragmented and specialized Most of thefield’s literature is technical and focused on particular subtopics, such as public housingredevelopment, the expiration of federal housing subsidy contracts, mortgage lending reg-ulation, and racial discrimination Although these studies certainly cover key topics inhousing policy, they do so at greater length, at a higher level of detail, and with more tech-nical jargon than is desirable for a general introduction to the field I hope this text canserve as a guide to housing policy and provide a point of departure to more specializedreadings

WHY HOUSING MATTERS

Few things intersect with and influence as many aspects of life as housing does Housing isfar more than shelter from the elements As home, housing is the primary setting for fam-ily and domestic life, a place of refuge and relaxation from the routines of work and school,

a private space It is also loaded with symbolic value, as a marker of status and an sion of style Housing is also valued for its location, for the access it provides to schools,parks, transportation, and shopping; and for the opportunity to live in the neighborhood

expres-of one’s choice Housing is also a major asset for homeowners, the most widespread form

of personal wealth

Although good housing in a good neighborhood is certainly no guarantee againsttragedy and misfortune, inadequate housing increases one’s vulnerability to a wide range oftroubles Physically deficient housing is associated with many health hazards Ingestion oflead paint by children can lead to serious learning disabilities and behavioral problems.Dampness, mold, and cold can cause asthma, allergies, and other respiratory problems, as

or excessive heat can raise the risk of health problems such as cardiovascular disease.Research on the link between housing conditions and mental health is less extensive,but also indicates adverse consequences from inadequate or crowded conditions Unstablehousing conditions that cause families to move frequently are stressful and often interferewith education and employment (Rothstein 2000) When low-income families face highrent burdens, they have little money left to meet other needs Vulnerability to crime isstrongly influenced by residential location People who live in distressed neighborhoodsface a greater risk of being robbed, assaulted — or worse — than inhabitants of more afflu-

ent areas do (Bratt 2000).

Introduction •3

Perhaps the importance of housing for the well-being of individuals and families isbrought into sharpest relief in light of the depredations of homelessness The homeless are atmuch greater risk of physical and mental illness, substance abuse, assault, and, in the case ofchildren, frequent and prolonged absences from school The mere lack of a mailing addressmakes it immeasurably more difficult to apply for jobs or public assistance, or to enroll chil-dren in school (Bingham, Green, & White 1987; Hoch 1998; Urban Institute 1999)

The Economic Importance of Housing

Housing is a mainstay of the U.S economy, consistently accounting for more than one fifth

of the gross domestic product (GDP) (see Figure 1.1) In 2004, residential constructionand remodeling comprised 6% of GDP An additional 11% derived from rental paymentsand the equivalent payments made by homeowners Spending on furniture, appliances,utilities, and other expenses for household operation contributed another 7% to GDP.The total value of the nation’s housing stock, at $13.4 trillion in 2003, comprised 39%

of all fixed assets and consumer durable goods Residential construction in 2001accounted for 3.5 million jobs and $166 billion in local income (Millennial Housing Com-mission 2002: 12)

At the local and regional level, housing is also critically important The construction,development, and sale of housing generate employment, income, and tax revenue In addi-tion to the employment and income generated directly through construction activity,housing development generates indirect economic benefits from the expenditures of con-struction workers and vendors on locally supplied goods and services Other economicbenefits derive from the consumer spending of the households residing in new housing.The National Association of Home Builders estimates that construction of 100 new single-family homes generates about 250 full-time-equivalent jobs for the local community dur-ing the construction period and about $11 million in income for local businesses andworkers The subsequent expenditures of the households that come to live in these 100new homes generate an additional 75 jobs and $3 million in income annually (MillennialHousing Commission 2002; National Association of Home Builders 2001)

Residential construction is also a major source of revenue for all levels of government

In 2001, home building generated about $65 billion in taxes and fees The development of

100 single-family homes generates about $1.2 million in local government revenue duringthe year of construction Afterward, the 100 units generate about $472,000 annually forlocal governments through property taxes as well as other taxes and fees paid by homeown-ers (Millennial Housing Commission 2002; National Association of Home Builders 2001) Housing also underpins the economy through home equity, which totaled more than

$8.4 trillion in 2003 (Joint Center for Housing Studies 2004) When interest rates are low

— as they have been since the mid 1990s — homeowners tap into this equity by ing their mortgages Some do so to replace their previous mortgage with a lower cost loan,thereby freeing up funds for other purposes Many homeowners who refinance also takeout additional money to pay off credit cards and other loans or pay for home improve-ments, tuition, investments, and other needs

refinanc-In 2003 alone, homeowners took out more than $139 billion in cash from their homeequity (Housing and Urban Development [HUD]2004m), accounting for 45% of all mort-gage refinancings From 2000 through 2004, mortgage refinancing exceeded $7.9 trillion

4• Housing Policy in the United States

in constant 2004 dollars (Joint Center for Housing Studies of Harvard University 2005:Table A-4) Were it not for the wave of mortgage refinancing in the early 2000s, the eco-nomic recession of the period would have been more severe, and the subsequent slowrecovery would have been slower still In addition to cash-out mortgage refinancings, theprofits realized from the sale of homes also contribute to the economy Capital gains on thesales of homes total about $125 billion a year (Millennial Housing Commission 2002: 12)

THE GOALS AND FORMS OF HOUSING POLICY

Housing policy is seldom just about housing Nearly every housing program initiated sincethe 19th century has been motivated by concerns that go beyond the provision of decentand affordable housing For example, the regulatory reforms of the late 19th and early 20thcenturies proscribing minimum standards for light, ventilation, fire safety, and sanitationderived at least as much from a desire to stem the spread of infectious disease and curbantisocial behavior, as from a wish to improve living conditions for their own sake (Mar-cuse 1986; Lubove 1962) Similarly, in passing the original public housing legislation in

1937, Congress was more interested in promoting employment in the construction tradesthan in providing low-income housing (Marcuse 1986; Radford 1996; von Hoffman 2000)

In a recent appraisal of state and local housing programs since the 1930s, Katz et al.focus on seven goals for housing policy, only two of which directly concern the affordabil-ity and physical adequacy of housing:

Figure 1.1 Housing’s contribution to gross domestic product (GDP).

0 1982

1972 1968

1956 1958 1954

Source: Bureau of Economic Analysis 2005

Introduction •5

& Sawyer 2003)

Governments can shape housing policies in various ways They can provide assistance

in the form of direct subsidies or through tax incentives They can use their regulatorypowers to influence the availability of mortgage loans, the practices of real estate agents,and the type, the amount, and the cost of housing that can be built in particular areas Direct subsidies can take the form of categorical federal programs, such as publichousing, or of block grants that give local governments more autonomy to develop theirprograms Subsidy programs can support the construction and renovation of specificbuildings, or they can provide rental vouchers to help families afford existing, privatelyowned housing Programs may favor particular income groups and households and indi-viduals with particular needs (the elderly, the homeless, or persons with disabilities) Pro-grams can emphasize the preservation of the existing stock of affordable housing(subsidized or not) or the creation of additional units

Policies may promote homeownership, rental housing, or alternative forms of tenure

— such as cooperatives and mutual housing Policies also differ in the extent to which theyrely on government agencies for program implementation Some, such as public housingand rental vouchers, rely almost exclusively on government agencies; others involve part-nerships with for-profit or nonprofit developers

HOUSING POLICY IN THE UNITED STATES: AN OVERVIEW

Although most people probably associate housing policy in the United States with publichousing and other subsidies for the poor, the federal government provides a much largerhousing subsidy for the affluent in the form of tax benefits for homeownership Whereasfewer than 7 million low-income renters benefited from federal housing subsidies in 2003,nearly 150 million homeowners took mortgage interest deductions on their federal incometaxes Federal expenditures for direct housing assistance totaled less than $32.9 billion in2004; however, mortgage-interest deductions and other homeowner tax benefits exceeded

$100 billion (see Figure 1.2) Moreover, the lion’s share of these tax benefits, for reasonsdiscussed in Chapter 4, go to households with incomes above $100,000

In addition to the mortgage-interest deduction, other tax expenditures for ership include the deductibility of property tax payments, reduced taxes on the sale ofresidential properties, and low-interest mortgages for first-time homebuyers financed bytax-exempt bonds The primary tax incentives for investing in rental housing consist of thelow-income housing and historic rehabilitation tax credits and low-interest mortgagesfinanced by tax-exempt bonds

homeown-Excluding tax expenditures, the federal government provides subsidies for low-incomehouseholds in three basic ways: (1) supporting the construction and operation of specifichousing developments; (2) helping renters pay for privately owned housing; and (3) pro-viding states and localities with funds to develop their housing programs

6• Housing Policy in the United States

The first form of assistance, known as supply-side or project-based subsidies, includespublic housing, the nation’s oldest low-income housing program, established in 1937 Italso includes several other programs, such as “Section 8 New Construction,” in which thefederal government helps subsidize the construction and sometimes the operation of pri-vately owned low-income housing Although the federal government spends several billiondollars annually on public housing and other supply-side programs, nearly all of thismoney goes to the preservation or replacement of housing built before the mid 1980s.Other than a small amount of housing designated for rural areas and for low-income eld-erly and disabled households, virtually no new housing has been built in the past twodecades with federal project–based subsidies

Subsidies designed to help low-income households rent existing housing in the privatemarket were first established in the mid 1970s and in less than a decade became the domi-nant form of low-income housing assistance Under this approach, the government pro-vides low-income households with vouchers that cover the difference between 30% of theirincome and a maximum allowable rent

The third major form of federal housing subsidy consists of block grants that fundhousing programs crafted by state and local governments States and localities usuallyreceive block grants on a formula basis and have latitude to use the funds for a wide range

of purposes, although block grant programs are not without restrictions on how the fundscan be spent The oldest and largest block grant program, Community Development BlockGrants (CDBG), gives states and localities the most discretion in determining how fundsmay be used The HOME Investment Partnership program focuses on a narrower range ofhousing activities than CDBG

In total, nearly 6.9 million low-income households currently receive some form ofrental assistance The single largest category, accounting for 2.0 million units, consists of

Figure 1.2 Direct and tax expenditures for housing in millions of constant 2002 dollars.

Direct Expenditures for Housing Assistance

1976 1977 1978 1979 1980 1982 1983 1984 1985 1986 1987 199

1 199

2 199 3 199 5

1997 1999 2000 2001 2002 200

3 2004 1998

1996 1994 199

0 1989 1988 1981

Source: Dolbeare and Crowley 2002

Introduction •7

privately owned housing with project-based federal subsidies Rental vouchers come next,

The Low-Income Housing Tax Credit, tax-exempt multifamily bonds, and the HOME

of this housing is subsidized by multiple funding sources For example, the Low-IncomeHousing Tax Credit has contributed to the development of more than 1.23 million rentalunits (more than the entire stock of public housing); however, more than one quarter ofthis housing was also financed with tax-exempt bonds, and other tax-credit projects alsoreceived funding through the HOME program (see Table 1.1)

Housing policy is not limited to subsidy programs and tax incentives It also affectshow housing is financed, developed, rented, and sold In other words, housing policy isalso concerned with the institutions, regulations, and practices that shape the availability

of housing for low-income and minority households The dramatic growth in ship after World War II, for example, was in large part due to federal intervention in thehousing finance system in the 1930s, which among other things instituted 30-year, fixed-rate mortgages, federal mortgage insurance, and the secondary mortgage market

homeowner-Since the 1970s, the federal government has passed several laws and regulationsattacking mortgage lending practices that discriminate against minority neighborhoodsand households Legislation passed in the early 1990s required key institutions in the hous-ing finance system to increase their lending to minority and other “underserved” commu-nities Other legislation, such as the Fair Housing Act of 1968, focused on thediscriminatory behavior of real estate agents Finally, building codes, zoning, and otherland use regulations shape the amount, type, and cost of housing that can be built withinindividual communities

ORGANIZATION OF THE BOOK

This book provides an overview of housing subsidy programs and of regulations thatattempt to make housing available to the disadvantaged Chapter 2 sets the rest of the book

in context by summarizing key trends and patterns in the housing market It traces ing construction trends over time, examines the nation’s major housing problems and thepeople they affect and summarizes changes over time in federal expenditures on housingassistance

hous-Chapter 3 describes how the nation’s housing finance system has evolved sincethe start of the 20th century Among other topics, it discusses the key role of the federalgovernment in reshaping housing finance during the New Deal, with the introduction ofgovernment-insured mortgage insurance, the establishment of a secondary mortgage mar-ket, and the promotion of long-term, fixed-rate mortgages The chapter gives particularemphasis to the growing role of the secondary mortgage market and government-spon-sored enterprises (Fannie Mae and Freddie Mac) in the housing finance system and inmaking homeownership more available to low-income and minority borrowers

About one fifth of privately owned housing with direct federal subsidies is assisted by the U.S Department of Rural vices (formerly Farmers Home Administration) HUD programs account for about 1.5 million units of privately owned housing.

Commu-nity Development Block Grant program and programs for the homeless and people with AIDS.

8• Housing Policy in the United States

Table 1.1 Overview of Federally Subsidized Rental Housing in 2004

1,999,545 29% Includes 434,000 units funded

through the Dept of Agriculture's Section 515 program plus 1,502,400 units of HUD-funded housing

Deep subsidy programs 1,709,808 25% Includes various

project-based Section 8 programs that cover the difference between 30% of tenant income and the rent, as well

as housing for the elderly and disabled

Shallow subsidy

programs

289,737 4% Includes interest-rate subsidy

programs (Sections 236 and 221(d)3) without additional subsidies and Section 8 Moderate Rehab program Low-income housing tax

credits (2003)

908,563 13% An additional 323,000

tax-credit units were also financed with tax-exempt bonds

Tax-exempt bond

financing (2003)

850,000 12%

HOME funding (2003) 113,553 2% Assumes that only a third of

341,000 rental units funded with HOME funds did not also receive funding through tax-exempt bonds

or tax credits

Sources: Vouchers, public housing: HUD, 2004i; Other project-based subsidies: National Housing Trust,

2004a, ICF Consulting Team, 2005, and Millennial Housing Commission, 2002; Low-income housing tax credits: HUD, 2004j; Tax-exempt bonds: National Council of State Housing Finance Agencies, 2004, HOME: National Council of State Housing Finance Agencies, 2005.

Introduction •9

Chapter 4 focuses on the importance of federal tax policy to housing It details the ferent ways by which the federal government uses the tax code to subsidize homeownerand, to a much lesser degree, rental housing Among other topics, it shows the extent towhich tax subsidies for homeowner housing benefit affluent homeowners far more thanhouseholds of more modest means

dif-Chapter 5 looks at the Low-Income Housing Tax Credit, the most important taxincentive for producing affordable housing and the largest active subsidy program forrental housing today The chapter describes the basic operation of the tax-credit programand how it generates equity for low-income housing It also provides an overview of theexisting stock of tax-credit housing, and an assessment of the program’s strengths andweaknesses

Chapter 6 turns to the oldest federal housing subsidy program, public housing Thechapter traces the historical evolution of public housing and discusses the origins of theprogram’s most critical problems, including concentrated poverty and social isolation,poor physical condition, and deficient management It also reviews recent efforts to reformand rebuild public housing, most notably the HOPE VI program for the revitalization ofextremely distressed developments

Chapter 7 focuses on federal programs that subsidize low-income housing built by vate and nonprofit organizations Combined, these programs have produced more than 1.9million housing units However, with the exception of the Section 515 program for ruralhousing, they have funded virtually no housing since the 1980s Unlike public housing,which is owned by governmental authorities and has no limit imposed on the duration ofthe subsidy, housing developed under these programs receives subsidies for a limitedperiod, after which it can convert to market rate occupancy The challenge now is to pre-serve this housing for continued low-income occupancy

pri-In Chapter 8, the focus shifts from supply-side, project-based housing subsidy grams to demand-side approaches, specifically rental vouchers that allow low-incomehouseholds to lease rental housing in the private marketplace The chapter traces the evo-lution of demand-side programs since their inception in 1974 and assesses the strengthsand weakness of this approach It looks at trends over time in the ability of different types

pro-of households to secure housing with vouchers and how these success rates vary in ent housing markets Finally, the chapter discusses the ability of rental vouchers to facili-tate racial and economic integration

differ-In Chapter 9, the book broadens its focus from federal housing programs to programsdesigned and administered by state and local governments, often with the close collabora-tion of nonprofit organizations The chapter discusses how states and localities utilize fed-eral block grants and tax-exempt bond financing for housing and how they areincreasingly using housing trust funds and inclusionary zoning to fund the development ofaffordable housing The chapter also summarizes the role of community development cor-porations and other nonprofit organizations as partners to state and local government indelivering housing assistance

Chapter 10 provides an overview of housing policies and programs that target uals with special needs, including the homeless, the elderly, people with AIDS, and peoplewith mental illness The chapter summarizes the development of key programs aimed atthese populations

individ-10• Housing Policy in the United States

Chapter 11 turns from housing subsidy programs to programs and policies that rely onlaws and regulations to make housing accessible and available to low-income and minorityhouseholds The chapter summarizes the impact of racial discrimination in housing andmortgage markets on the housing opportunities available to minority households, as well

as the success of fair-housing and fair-lending laws in combating such discrimination Chapter 12 discusses two dominant themes in housing policy today: homeownershipand income integration It examines how all levels of government are promoting home-ownership and the integration of low-income and more affluent households within thesame communities and housing developments The section on homeownership will sum-marize the variety of ways by which government is seeking to increase homeownershipamong low-income and minority households, including down-payment assistance, softsecond mortgages, and regulatory measures affecting the secondary and primary mortgagemarkets The section on income integration will summarize a variety of programs aimed atmoving public housing residents and other low-income households into middle-incomeneighborhoods and creating mixed-income housing developments

Finally, Chapter 13 reflects on some of the recurring themes raised in the previouschapters and discusses their implications for future directions in federal housing policy Itlooks at how the priorities of housing policy have evolved over time and the mechanismsused to pursue them In doing so, it assesses the extent to which federal housing policy hassucceeded in addressing the nation’s housing problems and the areas in which it falls short

dwell-This chapter will provide a brief overview of the most important trends in the housingmarket, with a focus on housing affordability Data become dated quickly, so the chapterwill emphasize long-term trends It will concentrate on the demographic and other charac-teristics of households with affordability problems and the extent to which physical defi-ciencies and crowding remain a problem In addition, the chapter will also examine themost fundamental housing problem of all: homelessness It will also trace trends in federalfunding for housing

HOUSING CONSTRUCTION TRENDS

Since 1975, the construction industry in the United States has produced on average morethan 1.75 million homes annually As a result, much of the nation’s housing stock is quitenew More than one fifth of the nation’s homeowners in 2003 and one quarter of all subur-ban homeowners lived in housing built no earlier than 1990 Conversely, only one fifth

of all homeowners and less than one third of all renters live in housing built before 1950(see Table 2.1)

Although residential construction trends have always been cyclical, expanding andcontracting with changing macroeconomic conditions and changes in the availability andcost of mortgage credit, this characteristic has become less extreme since the mid-1980s

12• Housing Policy in the United States

As will be discussed in Chapter 3, this partly reflects the growth of the secondary mortgagemarket and the increasing integration of housing finance within global financial markets.Since the mid-1980s, residential construction has been heavily dominated by single-family homes As shown in Figure 2.1, single-family structures account for a large andgrowing proportion of annual housing starts Single-family structures accounted for morethan 77% of total housing starts in 2004, up from less than 56% in 1980 and 65% in 1990.The increasing dominance of single-family housing in part reflects the sharp decline inmultifamily housing in the late 1980s

Table 2.1 Location of Housing by Year of Construction (Percent Distribution)

metropolitan areas

Non-1990–2003 21.7 14.1 25.6 20.0 11.4 7.9 14.5 12.9 1980–1989 13.4 10.3 15.4 11.6 14.6 10.0 20.1 12.5 1970–1979 18.5 14.3 19.3 20.8 21.2 19.6 22.5 22.1 1960–1969 12.7 14.0 12.8 11.1 13.7 13.5 15.0 10.3 1950–1959 12.0 15.2 11.9 9.2 9.6 11.0 8.8 8.0 Before 1950 21.7 32.2 15.0 27.2 29.6 38.0 19.1 34.3 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: U.S Census Bureau 2004c.

Figure 2.1 Annual housing starts by building type, 1975 to 2004.

1990 1989 1988 1981

Source: U.S Census Bureau 2004a, 2004b

Trends, Patterns, Problems •13

As will be discussed in Chapter 3 and Chapter 4, changes in the mortgage finance tem and the federal income tax code greatly reduced investment in rental housing Multi-family housing starts have edged upwards since the mid-1990s, but they remain well belowthe volume of the early 1980s During most of the 1990s, multifamily construction waseclipsed by manufactured housing Shipments of mobile homes and similar types of manu-factured homes equaled or exceeded multifamily housing starts most of the period,although the number of manufactured homes put in place has declined since the late 1990s

sys-in large part due to problems sys-in this segment of the mortgage lendsys-ing sys-industry and also toexcess production in the previous period (Apgar, Calder, Collins, & Duda 2002)

Most of the nation’s residential construction is taking place along the fringes of urbanAmerica and outside the Northeast, as illustrated in Table 2.2 For example, two out ofthree owner-occupied homes built from 2000 to 2003 are located in the suburbs, as aremore than half of all occupied rental units Only 16% of owner-occupied homes and 29%

of occupied rental units built in this period were located in central cities Nonmetropolitanareas claimed about 18% of all new owner units and 16% of the rental The South domi-nates every other region in new home construction It accounts for nearly half of all ownerand rental units built from 2000 through 2003 The West and Midwest each accountfor about one fifth of the new housing stock, with the Northeast lagging far behind withjust 9%

Housing has become larger and more luxurious over time The median size of occupied homes has increased steadily from 1973 to 2004, rising from 1,526 to 2,195square feet Multifamily units have also become larger, but not to the same degree assingle-family homes The percentage of new single-family homes built with central airconditioning has increased from 49% in 1973 to 88% in 2003—reflecting the southern tilt

owner-of home construction as well as increasing levels owner-of amenity Similarly, the proportion owner-ofnew homes constructed with two or more full bathrooms has increased from 60% in 1973

to 95% in 2003 (U.S Census Bureau 2005a) (see Table 2.3)

TENURE

In only two decades, the predominant form of housing tenure in the United States changedfrom renting to ownership A majority of the nation’s households rented their homesthrough 1940 From 1940 to 1960, the national homeownership rate shot up from 44 to

Table 2.2 Location of Occupied Housing Built 2000 to 2003

Total units (thousands) 4,672 1,019 5,691 Percent distribution:

Inside metropolitan areas 81.6 84.3 82.1

14• Housing Policy in the United States

62%, an increase driven in large part by fundamental changes in the housing finance tem—changes shaped by federal policy, as discussed in Chapter 3 As shown in Figure 2.2,homeownership increased by only 2.5 percentage points over the subsequent two decades.Homeownership rates declined slightly in the 1980s, but turned around in the 1990s,setting new records nearly every year since the late 1990s As discussed in Chapter 3,Chapter 11, and Chapter 12, recent increases in homeownership reflect a combination offavorable economic conditions, low-interest rates, and changes in mortgage underwritingpractices and standards derived in large part from increased federal regulatory pressure toimprove mortgage lending to low-income and minority households

sys-Table 2.3 Selected Characteristics of New One-Family Houses

Year of

Percent equipped with air conditioning

Percent with two

or more full bathrooms

Source: U.S Census Bureau 2005a.

Figure 2.2 U.S homeownership rate, 1900 to 2004

Trends, Patterns, Problems •15

Although the national homeownership rate stood at a record high of 69.1% at theend of 2004, homeownership is far more prevalent among some groups than others

As shown in Table 2.4, homeownership rates are highest among married couples, Whites,middle-aged and older household heads, and in suburban and nonmetropolitan areas.For example, the homeownership rate for married-couple families, at 84%, is more than

Table 2.4 Homeownership Rates by Selected Demographic and Geographic Characteristics

Household type

Married-couple families 78.3 79.1 84.0 Other family households 49.5 46.0 53.3 One-person households 46.2 49.8 55.8

65 Years and older 75.0 77.0 81.1

Race and ethnicity

Non-Hispanic White 69.1 70.2 76.0 Non-Hispanic Black 45.6 42.0 49.1

Outside metropolitan area 73.5 72.9 76.3

Source: U.S Census Bureau 2005e.

16• Housing Policy in the United States

30 percentage points higher than for other families; the White homeownership rate, at76%, is 28 percentage points higher than the Hispanic rate and 27 points higher than theBlack rate The table also shows that although homeownership rates increased across theboard from 1993 to 2004, only two groups—the elderly and single-person house-holds—experienced significant increases from 1983 to 1993 Few other categories saw anyincrease during this period, and many experienced substantial decreases

Characteristics of Homeowners and Renters

Homeowners and renters differ from each other in many ways One basic difference isthat homeowners are far more affluent than renters and have become more so over time.Table 2.5 shows that the median household income of homeowners in 2003, at $51,061,was more than double that of renters, compared to 75% greater in 1991 The differencesare starker with regard to wealth In 2001, at $4,800, the median net wealth of renters inthe United States amounted to just 3% of the median for homeowners ($171,800)

Owners and renters diverge in many other respects, as shown in Table 2.6 ers are far more likely to reside in detached single-family homes and far less likely to live inmultifamily housing They are more likely to reside in the suburbs or outside metropolitanareas than in the central city They are more likely to be White and less likely to be from aminority racial or ethnic group Owners and renters are equally likely to have childrenunder 18, but owners are far more likely to be married couples and renters to be single-female households

Homeown-Homeowners are more likely to be elderly, but less likely to live alone Homeown-Homeownersare far less likely than renters to live in poverty and spend a substantially smaller percent-age of their income on housing-related expenses Almost all homeowners have access toone or more automobiles; nearly one fifth of renters do not Although the vast majority ofowners and renters reside in physically sound housing, renters are more than twice aslikely as owners to reside in homes with moderate or severe physical deficiencies

HOUSING CONDITIONS

The primary goal of housing policy has traditionally been to improve the quality of thehousing stock and eliminate substandard housing The first building code and land usereforms of the late 19th and early 20th centuries were aimed at improving the overcrowdedand squalid living conditions endured by impoverished immigrants and other city dwell-ers—conditions that threatened the public health and safety of the larger population(Krumholz 1998; Scott 1969) In his second inaugural address, President Franklin D.Roosevelt spoke of “one third of a nation ill housed.” He did not exaggerate In 1940, fully45% of all households lived in homes without complete plumbing, especially in rural andsouthern areas, with the proportion exceeding 80% in such states as Alabama, Arkansas,Mississippi, and North Dakota (U.S Census Bureau 2005b)

Housing conditions improved dramatically in the second half of the 20th century Asshown in Figure 2.3, the percentage of homes without complete plumbing declined to 17% by

1960, to less than 3% by 1980, and to little more than 1% by 1990 In large part, the rapidimprovement in housing conditions reflected the growth of the urban population and themigration of African Americans to northern cities from the rural South (Heilbrun 1987)

Trends, Patterns, Problems •17 Table 2.5 Median Household Income and Net Wealth, Owners versus Renters

Source: Income: U.S Census Bureau 2004c.

Wealth: Joint Center for Housing Studies of Harvard University 2004.

Table 2.6 Profile of Homeowners and Renters, 2003

Percent manufactured housing 7.6 4.0 Median year structure built 1972 1968 Percent with no motor vehicle available 3.3 19.9 Percent severe physical problems 1.3 3.1 Percent moderate physical problems 2.5 7.5 Median age of householder 51 48 Percent elderly householders 24.0 12.7 Percent households with children under 18 36.0 36.1 Percent married-couple households 61.9 26.4 Percent female-headed households 10.7 23.5 Percent one-person households 21.4 37.8 Percent bachelor’s degree or higher 29.7 20.5 Percent citizen of U.S 97.1 88.9 Median housing cost burden 18 28 Percent spending 30% or more on housing 21.1 45.5 Percent spending 50% or more on housing 6.2 16.6

Source: U.S Census Bureau 2004c.

18• Housing Policy in the United States

Over the past two decades, the most widely used measures of physical quality are twocomposites derived from the American Housing Survey, a biannual study of the nation’shousing (see Appendix) Units are categorized as having “severe” or “moderate” housingproblems if they have one or more designated deficiencies with regard to plumbing,heating, hallways, upkeep, electric service, and kitchen equipment (see Table 2.7 for fulldefinitions) By either measure, the quality of the nation’s housing stock has improved tothe point that only a small portion is physically deficient

Table 2.8 presents the incidence of owner and rental housing with severe and moderatephysical problems from 1991 through 2003 Since 1993, severely deficient housing hasmade up about 2% of the total occupied housing stock—around 1% for owners and 3% forrenters In absolute numbers, about 2 million households resided in severely deficienthousing in 2003, just over half of whom were renters The number and percentage of unitswith moderate physical deficiencies have also remained within a narrow range during thisperiod, shifting from 4 to 5 million units, or from 4 to 5% of the total occupied stock.Housing deficiency occurs infrequently across most demographic and geographic cat-egories Table 2.9 compares the extent to which different groups of homeowners and rent-ers encounter physical deficiencies In no case does the prevalence of severe deficiencyexceed 5% Moderate deficiencies are more common, but hardly widespread They aremost prevalent among African American households, especially in nonmetropolitan areas(19%), but in most cases remain well below 10%

Figure 2.3 Incomplete plumbing and crowding, 1940 to 2000.

More than 1.5 People Per Room

1940 1950 1960 1970 1980 1990 2000

Source: U.S Census Bureau 2005b, 2005f

Trends, Patterns, Problems •19

Other Indicators of Housing Quality

Although it is customary to focus on severe and moderate physical problems within thehome, it is also worthwhile to consider external building conditions and, more impor-tantly, the character of the immediate neighborhood The American Housing Surveyprovides data on both With regard to external building conditions, 14% of all homeownersand 26% of all renters reported one or more problems with roofing, exterior walls, win-dows, or foundations Such problems are especially prevalent among minority and poorhouseholds, as well as among households that also face severe or moderate housing prob-lems within their homes (see Table 2.10)

Table 2.11 presents several indicators of neighborhood quality for various groups ofowners and renters It shows, for example, that 7% of all homeowners and 13% of all rent-ers consider crime in their neighborhood to be “bothersome.” Renters are also more likely

Table 2.7 Definition of Severe and Moderate Physical Housing Problems

Plumbing: Lacking hot or cold piped water or a flush

toilet, or lacking bathtub and shower, all inside the

structure (and for exclusive use of the unit), unless

there are two or more full bathrooms

Plumbing: On at least three occasions

during the past 3 months, all flush toilets broken at the same time for 6 hours or more

Heating: Having been uncomfortably cold last

winter for 24 hours or more because the heating

equipment broke down, and it broke down at least

three times last winter for at least 6 hours each

time

Heating: Having unvented gas, oil, or

kerosene heaters as the primary heating equipment

Hallways: Having all four of the following problems

in public areas: no working light fixtures, loose or

missing steps, loose or missing railings, and no

working elevator

Hallways: Having any three of the four

hallway problems associated with severe housing problems

Upkeep: Having any five of the following six

maintenance problems: (1) water leaks from the

outside, such as from the roof, basement,

windows, or door; (2) leaks from inside structure,

such as pipes or plumbing fixtures; (3) holes in the

floors; (4) holes or open cracks in the walls or

ceilings; (5) more than 8 by 11 in of peeling paint

or broken plaster; or (6) signs of rats in the last

90 days

Upkeep: Having any three or four of the six

upkeep problems associated with severe housing problems

Electric: Having no electricity, or all of the following

three electric problems: exposed wiring, a room

with no working wall outlet, and three blown fuses

or tripped circuit breakers in the last 90 days

Kitchen: Lacking a kitchen sink, refrigerator,

or cooking equipment inside the structure for the exclusive use of the unit

Source: U.S Census Bureau 2004c.

20 • Housing Policy in the United States

Trends, Patterns, Problems •21

than owners to reside where nearby buildings have bars on their windows or have beenvandalized, or where trash, litter, or junk has accumulated on nearby streets or properties

On the other hand, renters tend to be more satisfied than homeowners with neighborhoodshopping Across most of the indicators of neighborhood quality, conditions are usuallysubstantially worse for Black, Hispanic, and poor households

Table 2.9 Severe and Moderate Physical Housing Problems in 2003 Among Homeowners and

Renters by Selected Characteristics a

22• Housing Policy in the United States

Severe physical problems 260 27.9

Moderate physical problems 728 40.6

Severe physical problems 459 44.2

Moderate physical problems 1,116 44.2

Black households (owners and renters)

Severe physical problems 192 44.7

Moderate physical problems 554 47.0

Hispanic households (owners and renters)

Severe physical problems 161 49.5

Moderate physical problems 360 50.6

a Totals in thousands.

Note: External building problems include problems with roofing, exterior walls, windows, and/or foundations Source: U.S Census Bureau 2004c.

Trends, Patterns, Problems •23CROWDING

Overcrowding, like physical deficiency, used to be far more widespread than it is today Twomeasures are commonly used to measure crowding: one or more persons per room and 1.5persons or more per room By either standard, the incidence of crowding has declinedsharply (Figure 2.3), reflecting decreasing family size as well as larger dwelling units In 1940,almost 7 million households, 20% of the national total, lived in homes with more than oneperson per room, and 9% faced a crowding level in excess of 1.5 persons per room By 1980,the incidence of crowding had dropped by nearly half, to 3.6 million households (4.5% of allhouseholds) Severe overcrowding meanwhile declined by 60%

The subsequent two decades, however, saw increases in overcrowding By 2000, the ber of overcrowded households had increased by 66% to more than 6 million households, or5.7% of the total This increase is due almost entirely to growth in foreign immigration Crowd-ing among native-born households decreased from 4 to 3% between 1980 and 2000; it doubledamong the foreign born from 13 to 26%, with increases particularly pronounced among His-panic immigrants (Joint Center for Housing Studies of Harvard University 2004: Table A.8)

num-AFFORDABILITY

The affordability of housing is today of far greater concern than physical condition orcrowding Whereas less than 2% of all households reside in severely deficient housing andless than 6% confront overcrowded conditions, more than 11% spend half or more of theirincome on housing expenses, including 16% of all renters

Unlike the physical aspect of housing, affordability is not exclusively a housing lem Rather, it encompasses housing costs and income Housing, in other words can bemade more affordable by reducing expenses or increasing income The most commonstandard of housing affordability in the United States is 30% of income Householdsspending 30% or more of their pre-tax income on housing are viewed as having anexcessive housing cost burden Housing cost burdens are defined as severe when housingexpenses amount to 50% or more of income

prob-These thresholds have no intrinsic meaning—until the 1980s the maximum acceptablecost burden was typically set at 25%; nevertheless, they are widely used For example, sev-eral federal housing subsidy programs are designed so that tenants pay no more than 30%

of adjusted family income (25% until the early 1980s) Until recently, very low-incomefamilies with severe cost burdens received priority status on the waiting list for publichousing and other subsidy programs

The concept of affordability is more complex when applied to owner-occupied ing as opposed to rental housing For the latter, affordability is simply the ratio of rent(preferably gross rent, which also includes utility costs) to income For homeowners, onemust also factor in the tax benefits from mortgage interest and real estate taxes and thepotential for capital appreciation However, the value of homeowner tax deductions var-ies widely by income and location; many low- and moderate-income homeownersreceive no tax benefit from their interest and tax payments (see Chapter 4) Moreover,the amount of profit (capital gains) achieved through the sale of housing is highlycontingent on when the home was purchased and where it is located (Hartman 1998a;Quigley & Raphael 2004)

hous-24 • Housing Policy in the United States

Trends, Patterns, Problems• 25

26• Housing Policy in the United States

Finally, in the case of homeownership, it is important to consider not only the currentincome of the owner but also the potential for increased income in the future Becausefamilies typically expect to stay in place for a minimum of several years, they may be will-ing to accept a relatively high cost burden in the short term, assuming that their income islikely to grow at a faster rate than their housing expenses This is especially true when theyhave a long-term, fixed-rate mortgage (Quigley & Raphael 2004)

Housing affordability is measured in several ways The National Association of tors, for example, publishes a housing affordability index that compares median familyincome to the minimum income necessary to afford a median-priced house (National Asso-ciation of Realtors 2005; Nagel 1998) When the index falls below 100, the typical familylacks the income necessary to purchase a typical house The National Association of HomeBuilders provides an alternative measure, indicating the percentage of newly built homesthat can be acquired by households earning the median family income (Nagel 1998) TheNational Low Income Housing Coalition publishes a report each year (“Out of Reach”) thatcompares fair market rents at the state and local levels with the amount of rent households

Real-at different income levels can actually afford Real-at 30% of income The report also covers thenumber of hours that a household must work at minimum wage to afford a two-bedroomapartment at the fair market rent (National Low Income Housing Coalition 2004a)

The most widely used measure of affordability focuses on housing cost burdens—the percentage of income spent on income Housing cost burden can be expressed as themedian percentage of income spent on income or as the percentage of households facing

an excessive or severe cost burden These measures may apply to the population as

a whole or to particular groups, such as low-income, minority, or elderly households.Figure 2.4 shows the median percentage of income spent by all renters and owners from

Figure 2.4 Median housing cost burdens for renters and homeowners, 1975 to 2003.

Trends, Patterns, Problems •27

1973 though 2003 It shows that although the ratio of median renter income to mediangross rent has remained fairly constant at around 28%, the corresponding ratio ofmedian owner income to median after-tax mortgage payment is more volatile, reflectingchanges in interest rates

Nearly 25% of all homeowners and more than 40% of all renters spent 30% or more oftheir income on housing in 2003 These burdens are highly concentrated among low-income households, as illustrated in Table 2.12 Seventy percent of all renters and 63% of

Income group

Bottom

Lower middle quartile

Upper middle

Severe cost burden

Owners: total

households

2,530 4,016 4,569 1,668 554 157 6,948 Owners: % of

income group

63.4 43.5 37.8 10.1 2.7 0.7 9.6 Owners: % of total

income group

70.1 56.6 50.1 5.2 0.7 0.1 22.6 Renters: % of total

income group

18.0 20.4 21.1 23.8 15.7 5.9 15.2 Owners: % of total

28• Housing Policy in the United States

all homeowners in the bottom tenth of the income distribution spend more than half theirincome on housing, as do 50% of all renters and 38% of all homeowners in the bottomquartile The incidence of severe cost burdens drops off sharply in higher income groups,especially among renters For example, only 5% of renters in the “lower middle quartile”(second from bottom) of the income distribution confront severe housing cost burdens, as

do 24% of homeowners within this income group

Expressed differently, the bottom quartile of the income distribution accounts for 93%

of all renters with severe cost burdens and 66% of all homeowners with severe cost dens The top two quartiles, in contrast, account for less than 1% of all renters and 10% ofall homeowners with severe cost burdens Moderate cost burdens of 30 to 50% are morewidely distributed across the income spectrum than severe cost burdens, especially amonghomeowners, but are still most prevalent among lower income households

bur-Michael Stone devised an alternative measure of housing affordability that reflects the factthat families with the same income can afford to spend different amounts on housing, depending

on their other basic needs For example, a married couple with no children and annual income of

$30,000 could afford to spend more than 40% of its income on housing; however, a couple with

Stone’s approach is based on an estimate of a household’s expenses for taxes, food,clothing, health care, transportation, and other basic needs These expenses are then sub-tracted from the household’s total income to determine what it can afford to spend onhousing If the household spends more than this amount, it is “shelter poor.” Interestingly,

Upper middle

Renters: % of

income group

11.2 22.0 26.0 27.1 7.1 1.8 20.4 Renters: % of total

households

10.5 37.3 53.2 39.3 6.7 0.8 100.0 Owners as % of

Note: Income quartiles are equal fourths of households sorted by income Bottom decile and quintile are the

lowest tenth and fifth of households, respectively.

Source: U.S Census, American Community Survey, as presented in Joint Center for Housing Studies of Harvard

University, 2005, Table A-11.

Trends, Patterns, Problems •29

the total number of households that are shelter poor is very similar to the number ing at least 30 percent of their income on housing What differs is their distribution byhousehold size Under Stone’s definition, a higher percentage of large families are shelterpoor, as are a smaller percentage of small households

spend-Although Stone’s approach is much less arbitrary than using a fixed percentage ofincome, it is much more difficult to adopt—especially since the federal governmentstopped publishing the key data that Stone used on expenses for basic needs Some of theshortcomings of the standard percentage of income approach are addressed by the criteriagovernments use to determine eligibility for housing subsidies If a household has morethan four members, the maximum income to qualify for assistance is increased to reflectthe household’s greater expenses Similarly, the maximum eligible income for smallerhouseholds is reduced to reflect their lower nonhousing expenses In sum, Stone teaches usthat the percentage of income devoted to housing is not by itself of concern; rather, it is thesacrifices and deprivation that can result when not enough income is left after paying forhousing to cover other basic needs

This point is further underscored by an analysis of consumer expenditure data lies in the lowest expenditure quintile (a proxy for the lowest income quintile) that spend

Fami-at least half of their income on housing spend almost 50% less on nonhousing tures, and 67% less on food, than households managing to spend no more than 20% oftheir income on housing Elderly households in the bottom quintile with severe housingcost burdens spend only a third as much on health care as elderly households with a costburden of less than 20%: $64 versus $195 per month (Joint Center for Housing Studies ofHarvard University 2004)

expendi-Affordability and Tenure

Until recently, policy analysts have focused primarily on the housing cost burdens of ers and paid less attention to those faced by owner households Renters are more likely toconfront severe and moderate cost burdens than homeowners are; however, homeownersaccount for a large and growing share of households with cost burdens In 2003, nearly 7million homeowners spent more than half of their incomes on housing—46% of all house-holds with severe cost burdens (Table 2.12) From 2000 to 2003, homeowners with severecost burdens increased by more than 22%, compared to 18.5% among renters In addition,moderate- and middle-income homeowners (i.e., with incomes above the bottom quartile)experience severe and moderate housing cost burdens more often than renters of similarincome (see Table 2.12 and Table 2.13) The growth in severe cost burden among home-owners increases the risk of mortgage default and foreclosure and increases their suscepti-bility to predatory lenders (as discussed in Chapter 11)

rent-Employment and Housing Affordability

As indicated earlier, employment does not necessarily prevent households from ing severe housing cost burdens Although severe cost burdens occur most often amongextremely low-income households (with incomes no greater than 30% of the area median),