FREE ELECTRONIC LIBRARY - Theses, dissertations, documentation

Pages:     | 1 |   ...   | 8 | 9 || 11 | 12 |   ...   | 34 |

«reNtal HousiNg Policy iN tHe uNited states Volume 13, Number 2 • 2011 U.S. Department of Housing and Urban Development | Office of Policy ...»

-- [ Page 10 ] --

Financial Policy For many years, owner-occupied housing received preferential treatment in finance markets through two mechanisms: Government Sponsored Enterprises (GSEs) and bank capital requirements.

Government either directly or implicitly backed four housing finance entities: Ginnie Mae, a government agency that securitized Federal Housing Administration (FHA) and Veterans Administration mortgages; Fannie Mae and Freddie Mac, private enterprises whose investors believed had the backing of government, and the Federal Home Loan Bank System, which could make low-cost advances to member banks for the purpose of funding mortgages. This article does not extensively discuss GSEs, except to note that for many years these programs drove down the cost of capital required for owner-occupied housing.

Fannie Mae, Freddie Mac, and FHA also would purchase multifamily loans, but, until recently, these businesses were quite small, especially for Freddie Mac and FHA. Freddie Mac nearly got out of the multifamily business altogether when its book of multifamily loans performed very badly in the early part of the 2000s. It is likely that the Affordable Housing Goals that arose from the Federal

Cityscape 45Green

Housing Enterprises Financial Safety and Soundness Act of 1992 did encourage Freddie Mac to start doing more multifamily lending recently, but Fannie Mae and Freddie Mac have long had a far larger footprint in the single-family mortgage business than in the multifamily mortgage business.10 The capital requirements of banks were subtler. When a bank bought and held a mortgage-backed security (MBS) from Fannie Mae or Freddie Mac, the security carried a risk weight of.2, which meant that well-capitalized banks needed to put only 1.6-percent capital behind a GSE MBS. Whole apartment loans, on the other hand, generally carried risk weights of between 50 and 100 percent, meaning that well-capitalized banks needed to put 4- to 8-percent capital against such loans. Although Fannie Mae and Freddie Mac could securitize apartment loans that would also receive favorable treatment, their propensity to do so was quite small. According to the Federal Housing Finance Agency’s Annual Report to Congress, in 2009 Fannie Mae had almost $2.4 trillion in single-family MBS outstanding but only $47 billion in multifamily MBS. Freddie Mac had $1.47 trillion in single-family MBS and $15 billion in multifamily MBS (FHFA, 2010).

The capital standards, which arose from Basil I11 seemed reasonable at the time, because, over the long haul, single-family mortgages, in general, and GSE mortgages, in particular, performed quite well. Historically, however, single-family mortgages have performed quite poorly in some regions of the country (the Midwest in the late 1970s, Texas in the mid-to-late 1980s, New England in the late 1980s and early 1990s, and California in the early to middle 1990s). To some extent, Fannie Mae and Freddie Mac could manage regional downturns through geographical diversification, but these regional problems undermined the idea that home mortgages were inherently safe instruments.

Bank capital is expensive, so the fact that banks needed to put less subsidy behind GSE MBS (which overwhelmingly favored the single-family sector) once again placed apartments at a disadvantage relative to detached single-family homes.

How Renters Are Currently Subsidized Assuming there are compelling reasons on equity and efficiency grounds to subsidize rental housing, it is important to do so in the most efficient and equitable manner possible. Void of the consideration of the proper level of rental subsidy, it is almost indisputably the case that many of the U.S. rental subsidy programs are neither efficient nor equitable.

Currently, renters are mainly subsidized via federal programs in four ways12: (1) the Section 42 LowIncome Housing Tax Credit Program (Tax Credits; LIHTC), (2) the tenant-based Section 8 Housing Choice Voucher Program (vouchers), (3) Public Housing, and (4) other project-based housing assistance, including project-based Section 8. Exhibit 1 depicts the relative size of such programs from 1941 to the present. This article will also not discuss Public Housing and project-based Section 8 Except in the aftermath of the financial crisis, at which point Fannie Mae, Freddie Mac, and FHA dominated both singlefamily and multifamily lending.

Basel I established international standards for defining well and adequately capitalized banks.

A small number of large cities, most notably New York, Los Angeles, and San Francisco, subsidize renters with rent control. Although rent control is not ubiquitous in the United States, it does have a profound effect on rental markets in the places where it exists. For a discussion, see Green and Malpezzi (2003).

–  –  –

housing, because it has been some time since new units have been produced using those programs, and it does not seem likely that any political appetite exists to resume construction through such programs. The LIHTC program, although likely more efficient than past supply subsidy programs, arguably still retains some of the issues endemic to such programs. Vouchers have their own problems (discussed later in the article) but are also statistically the most effective method for providing rental subsidy.

Section 42 Low-Income Housing Tax Credit Program A classic debate in housing policy is whether demand subsidies are better than supply subsidies for housing. The crux of the debate is between what some call the economist view––that the best way to help the poor is to provide direct income subsidies—and the planner/lawyer view—that the government and nonprofits can deliver housing at a lower cost because they do not retain profits.

Some analysts, including Ellen et al. (2007), have also argued that place-based investment programs can have positive spillover benefits, at least in New York City. The planner/lawyer expresses concern that demand subsidies will ultimately flow through to landlords and, therefore, do little to actually help the poor.

Advocates of supply programs argue that, in the absence of supply subsidies, it is never in the interest of developers to build low-rent housing, in part because rents do not rise as rapidly in low-rent buildings. They also note that, because construction costs in many cities are high, affordable rents (generally defined as 30 percent of income) are insufficient for new affordable construction to be feasible in the absence of subsidy. There can be no doubt that, in many cities, unsubsidized rents are not affordable for large numbers of households. Exhibit 2 uses American Community Survey (ACS) data to compare rents at the 25th percentile with household incomes at the 25th percentile.

–  –  –

Among the 50 largest U.S. metropolitan areas, rents at the 25th percentile are always more than 30 percent of income at the 25th percentile. The market alone does not do an adequate job of providing affordable housing.

On the other hand, many analysts (including Malpezzi, 2002) argue that new construction programs for subsidized housing crowd out existing affordable housing. The evidence on whether this is true is actually murky—although empirical tests cannot find evidence that supply programs increase the stock of affordable housing, the lack of a finding may be the result of the design of such tests.13 Supply subsidies have essentially disappeared from American housing policy, with the exception of the Section 42 LIHTC Program (revisit exhibit 1, which shows how the number of public housing units and project-based Section 8 units are declining). Simple simulations may reveal whether the incidence of the program benefits renters or landlords.

The structure of the LIHTC Program essentially offers developers a trade: in exchange for agreeing to limit rents to 30 percent of the 60 percent of Area Median Income (AMI), developers receive a tax credit. If the developers build “ground up” new housing, the credit is equal to 9 percent of qualified construction costs; if the developer rehabilitates an existing property, the credit is equal to 4 percent of qualified construction costs.

A comparison of the value of the tax credit with the value of foregone rents will help explain the nature of the subsidy. An example will clarify. Assume the typical two-bedroom unit is 850 square feet, investors discount the value of tax credits with a 7-percent discount rate, construction costs are $150 per square foot,14 qualified costs are 80 percent of construction costs, market rent is $900 per month and AMI is $50,000. If developers of LIHTC properties agree to charge no more than 30 percent of 60 percent of AMI, their renters will be charged no more than $9,000 per year in rent.

Thus, the federal government helps renters get a subsidy of $1,800 per year in rent for 30 years in exchange for giving up $9,180 (850*120*.09) in tax revenue per year for 10 years.

Assume the real discount rate to the government and renters both is 3 percent. The present value of the rent savings is $35,280. The present value of revenue cost to the government is $78,307. Hence, in this example, less than one-half of the subsidy from the government is going to help the renter.

The fraction of the government subsidy that goes to renters depends on the size of the discount a renter receives. This discount varies considerably from one market to the next. As a crude measure of the size of the rent discount for markets, ACS data are used to compare median rent to 30 percent of 60 percent of AMI by county. (Note: These data are a rough cut at the issue—rents are actually set based on AMIs.) The ACS contains information on median income and median rents in 1,889 counties and municipalities in the 50 United States, the District of Columbia, and Puerto Rico.15 The first thing worth noting is that, in 1,691 counties and municipalities, median rent is less than 30 percent of 60 percent To use statistical language, just because one cannot reject a null hypothesis does not mean that the null hypothesis is true.

This is roughly the cost of construction in Madison, Wisconsin, for a one- to three-story apartment building according to RS Means.

The ACS does not have these data for counties with small populations.

–  –  –

of median income. Unless the median rental unit in these counties is in unacceptably poor condition (and, according to the AHS, only 3 percent of rental housing in the United States suffers from “severe” physical problems and 7 percent suffers from “moderate” physical problems)––these data reveal that, for all but around 200 counties with these data, the LIHTC Program is superfluous— because sufficient numbers of “affordable” units are available, based on the program’s own definition of affordability.

–  –  –

Exhibit 3 shows that, in 60 percent of the largest counties, a household at 60 percent of county median income cannot afford the median rental unit (although, in Dallas County, it is very close).

This is not to say that Dallas County does not have affordability problems. Exhibit 1 makes clear that the top 50 metropolitan statistical areas fail to deliver affordable market rent housing to the bottom income quartile of renters. It does suggest, however, that the method the program uses to define housing need has serious problems.

The affordability issues are most concentrated in New York City, California, and Florida; affordability issues plague these states in smaller cities, too. The fact that all areas are allocated credits based on population suggests that the Section 42 subsidy is not well targeted. The fact that affordable rents are defined as 60 percent of median income also leads to inappropriate targets.

The worst case county among the 20 counties is Kings County, New York (that is, Brooklyn). A household at 60 percent of county income would need a subsidy of $2,825 per year to “afford” the

–  –  –

median rent. Hard costs for apartment construction in New York City outside of Manhattan are about $200 per square foot (Scanlon, 2008). This assumption qualifies a cost of $170,000 for an 850-square-foot apartment. At a real discount rate of 3 percent, the cost of the subsidy from the government is around $130,000 and the benefit to renters is around $55,000.16 Median rents and median incomes are just not sufficient methods for determining housing needs— one needs to investigate how the distributions of rents and incomes vary from one metropolitan area to the next. It may be the case that 30 percent of 60 percent of AMI produces a rent that is not affordable for many, many households. It also may be the case that 30 percent of 60 percent of median rent may be higher than market rent (consider exhibit 3). If the federal government wishes the Section 42 program to help more people more effectively, it needs to reconsider how it allocates tax credits across states and also to think more carefully about entire distributions of rents and incomes, instead of applying arbitrary ratios to medians.

Section 8 Vouchers The Section 8 Housing Choice Voucher Program provides for two types of vouchers: Section 8 project-based and Section 8 tenant-based vouchers. The larger program is the Section 8 tenantbased program, which has portable vouchers. Section 8 tenant-based vouchers currently serve about 1.2 million households nationally; the project-based Section 8 program serves around 30,000 households. The public housing authorities (PHAs) that administer Section 8 determine recipient qualification. Recipients can earn no more than 50 percent of AMI, so the program is targeted to “very” low-income renters. Renters receive a voucher equal to the difference between 30 percent of their income (which is what they are expected to pay for housing) and Fair Market Rent, which is defined as the 40th percentile of rent for an area. PHAs are also required to allocate threefourths of their vouchers to households at the 30th percentile of the rental distribution.

Section 8 is not an entitlement. According to U.S. census data, roughly one-fourth of U.S. households (or 27 million households), earn less than $25,000 per year, which is about one-half of the U.S. median household income (DeNavas-Walt, Proctor, and Smith, 2009). Yet, the best evidence suggests that Section 8 is an effective method for delivering housing subsidy—it is more efficient and equitable than any construction program (Green and Malpezzi, 2003).

Pages:     | 1 |   ...   | 8 | 9 || 11 | 12 |   ...   | 34 |

Similar works:

«Oracle Insurance Policy Administration System Quality Assurance Testing Methodology An Oracle White Paper August 2008 Oracle Insurance Policy Administration System Quality Assurance Testing Methodology Introduction Summary of the Testing Lifecycle Plan Phase Test Plan Specification Phase Test Case Scenario Matrix Test Case Scripts Introduction Testing Environment Test Case and Script Automating Test Cases Execution Phase Executing the Test Case Script Documenting the Test Results Reporting...»

«Consumer’s Quick Check Guide Homeowners Policy Explanation of Coverage Limits and Options: This Consumer’s Quick Check Guide to the Homeowners Policy is based, in part, on Insurance Services Office, Inc.’s (ISO), Personal Lines Homeowners 3 Special Form HO 00 03 10 00 – 2000 Edition. It was developed by the Department of Financial Services based on recommendations by the Standard Personal Lines Advisory Committee. This is intended to provide consumers with a quick and easy to read guide...»

«2016 HANDBOOK OF IMF FACILITIES FOR LOWINCOME COUNTRIES March 2016 IMF staff regularly produces papers proposing new IMF policies, exploring options for reform, or reviewing existing IMF policies and operations. The Report prepared by IMF staff and completed on February 22, 2016 has been released. The staff report was issued to the Executive Board for information. The report was prepared by IMF staff. The views expressed in this paper are those of the IMF staff and do not necessarily represent...»

«February 16, 2012 Editor Policy Analyst Kathleen P. Rubinstein, MPA OVERPAYMENT REPORTING OBLIGATIONS: PROPOSED RULE WOULD krubinstein@bakerlaw.com 713.276.1650 EFFECTIVELY TREAT ALL OVERPAYMENTS AS FRAUD On February 16, 2012, the Centers for Medicare and Medicaid Services (CMS) National Co-Leaders Christopher J. Swift published its proposed rule implementing Section 6402(a) of the Patient Protection cswift@bakerlaw.com and Affordable Care Act (PPACA) that requires Medicare providers and...»

«February, 2014 BPC Policy Brief V. 4 N. 65 Policy Brief Solidarity Among Brothers? Brazil in Africa: trade, investment and cooperation Solidarity Among Brothers? Brazil in Africa: trade, investment and cooperation Policy Brief February, 2014 BPC Policy Brief V.4 N.65 PUC-Rio RECTOR Pe. Josafá Carlos de Siqueira SJ VICE-RECTOR Pe. Francisco Ivern Simó SJ VICE-RECTOR FOR ACADEMIC AFFAIRS Prof. José Ricardo Bergmann VICE-RECTOR FOR ADMINISTRATIVE AFFAIRS Prof. Luiz Carlos Scavarda do Carmo...»

«WHITE PAPER The value of a stand-alone rating engine As more carriers move from legacy policy administration systems (PAS) to newer technologies, critical choices must be made: Do they choose an all-in-one policy suite, a bestof-breed approach, or something in between? As important, will the rating functionality provided by their new policy solution enable them to quickly and easily respond to rapidly changing market conditions? Will it position them as market leaders—or followers? This paper...»

«Five Design Principles for Journal of Crowdsourced Policymaking: Social Assessing the Case of Crowdsourced Media for Off-Road Traffic Law in Finland Tanja Aitamurto, Organizations Hélène Landemore Volume 2, Number 1 Published by the MITRE Corporation Journal of Social Media for Organizations _ Five design principles for crowdsourced policymaking: Assessing the case of crowdsourced off-road traffic law in Finland Tanja Aitamurto, tanjaa@stanford.edu Hélène Landemore,...»

«Critical Social Thinking: Policy and Practice, Vol. 2, 2010 School of Applied Social Studies, University College Cork, Ireland Review Essay Raising Princesses? Gender socialisation in early childhood and the Disney Princess franchise Ashlee Hynes, BA (Early Childhood Studies) This essay is an exploration of some of the messages portrayed to children through the Disney Princess franchise about gender roles. Gender socialisation processes in relation to the Disney Princess brand are reviewed with...»

«RESEARCH PAPERS Centre for Cultural Policy Studies University of Warwick Research Papers No 8 Series Editors: Oliver Bennett and Jeremy Ahearne The Methodological Challenge of Cross-National Research: comparing cultural policy in Britain and Italy Eleonora Belfiore Research Fellow Centre for Cultural Policy Studies TABLE OF CONTENTS Abstract 3 INTRODUCTION 3 THE USE AND ABUSE OF CULTURAL STATISTICS IN CROSS-NATIONAL RESEARCH 4 CULTURAL POLICY ACROSS NATIONAL BOUNDARIES: THE “MODELS OF...»

«NORTH AMERICAN POLICY ADMINISTRATION SYSTEMS PROPERTY & CASUALTY, GENERAL, AND SPECIALTY LINES ABCD VENDOR VIEW Karlyn Carnahan and Donald Light January 2016 This authorized reprint contains material from a recent Celent report profiling North American P&C policy administration systems. The report was not sponsored by Accenture in any way. For more information on the full report, please contact Celent at info@celent.com. CONTENTS Executive Summary Introduction Policy Administration Systems:...»

«This document has been archived. The “Why and When” list at the AAPD Archive identifies why the document has been archived and where current guidance may be found. Internal users may also access the OAA Policy Division webpage to locate current policy and regulations. TITLE: CIB 98-21 Contractor Progress Reports new AIDAR coverage MEMORANDUM FOR ALL CONTRACTING OFFICERS AND NEGOTIATORS TO: DISTRIBUTION LIST FAC /s/ FROM: M/OP, Marcus L. Stevenson, PROCUREMENT EXECUTIVE SUBJECT: Contractor...»

«Guidance note PROVIDING ADVISORY SERVICES FOR POLICY DEVELOPMENT IN THE FIELD OF INTANGIBLE CULTURAL HERITAGE UNESCO GUIDANCE NOTE TABLE OF CONTENTS PROVIDING ADVISORY SERVICES FOR POLICY DEVELOPMENT IN THE FIELD OF INTANGIBLE CULTURAL HERITAGE Why this note? Introduction Policy making in the context of the Convention and its Operational Directives Policy making in the context of other international instruments relating to ICH National contexts for policy making for ICH safeguarding The...»

<<  HOME   |    CONTACTS
2016 www.theses.xlibx.info - Theses, dissertations, documentation

Materials of this site are available for review, all rights belong to their respective owners.
If you do not agree with the fact that your material is placed on this site, please, email us, we will within 1-2 business days delete him.