Rent’s Way Too High for Low-Income DC Residents

March 27, 2014

The National Low Income Housing Coalition celebrates the 25th anniversary of Out of Reach — its annual report on rental housing (un)affordability for low-income households.

As in the past, it provides figures for the U.S. as a whole, each state and the District of Columbia, along with rankings of highest and lowest-cost jurisdictions.

The Big Picture

The big-picture story is well-known, though the figures give it new punch.

There’s a growing shortage of units that are both affordable and available to extremely low-income renter households, i.e. those whose gross incomes are at or below 30% of the median for the area they live in.

There are 10.2 million of them — about one in four of all renter households. Three-quarters of them spend at least half their income on housing, leaving them little for other expenses — and at high risk of homelessness.

Their so-called severe housing burdens are partly the result of the growing shortage — a 7 million unit deficit in 2012. They also reflect inadequate funding for housing assistance programs, which now help only about a quarter of eligible households.

Rental housing in the District is more expensive than in all but one state — Hawaii — according to NLIHC’s measures (of which more below).

A modest two-bedroom apartment, plus basic utilities would be out of reach even for workers who earn the local average for renters — and way out of reach for minimum wage workers.

How NLIHC Measures Housing Affordability

As I’ve written before, NLIHC uses several major measures:

  • The fair market rent for a two-bedroom apartment, as set for the jurisdiction by the U.S. Department of Housing and Urban Development.
  • The housing wage, i.e., how much a full-time worker would have to earn per hour for the apartment to be affordable at the customary 30% of gross income.
  • The estimated average wage for renters, based on several federal sources.

We’re cautioned against comparing this year’s figures to those NLIHC has previously reported because, it says, the FMR methodology HUD now uses introduces more year-to-year variability. Frustrating for those of us who want to track trends. And who doesn’t?

Be that as it may, here’s what we learn about how affordable rents are out of reach for several, mostly overlapping groups of low-income households in the District.

Perspectives on Rental Housing Costs in DC

The FMR for a two-bedroom apartment in the District is $1,469 a month. It would thus be affordable for a household earning $58,760 a year. This translates into a housing wage of $28.25 an hour — $20 more than the current minimum wage.

A minimum wage worker would have to put in 137 hours a week, every week to afford the apartment. Looked at another way, a household would have to include 3.4 full-time, year round minimum wage workers.

And in another way, the gap between the full-time minimum wage and earnings that would make the apartment affordable is nearly as large as the FMR — $1,049 a month.

The apartment is unaffordable, though far less so for District residents earning the local average for renters — $1,327. The gap in this case is $142. The renter would have to work 44 hours a week, year round to close it.

The gap reported for ELI households is $667 a month, but it’s surely larger for many. For one thing, the gap is based on the maximum 30% of AMI, though many households have to get along on less. For another, the AMI itself is misleadingly high because it’s inflated by incomes in nearby suburbs.

Last and worst off are households that rely solely on one member’s SSI (Supplemental Security Income) benefits. For them, the gap is a jaw-dropping $1,253.

Notwithstanding the caution, I’ll note that the gaps are all bigger than those NLIHC reported last year. This is not only because rental costs are rising — and low-cost rental units vanishing. It’s also because incomes aren’t keeping up — at least, for households in the bottom 40%.

The average hourly wage for renters is only 32 cents higher than what NLIHC estimated for 2013, while the housing wage is $1.10 higher. And though the District’s minimum wage will rise to $11.50 in 2016, it will still be less than half this year’s housing wage.

Do we need more local funding for affordable rental housing programs? Oh yes, we do.

 


DC Rents Way Out of Reach for Low-Income Households

March 20, 2013

We’ll learn next week what Mayor Gray plans to do about the affordable housing shortage in the District of Columbia.

We know he’s promised a one-time $100 million investment, but we’ll need his budget proposals to learn where the money would go — and if that’s all he’ll commit to.

The latest annual rental housing (un)affordability report from the National Low Income Housing Coalition provides a useful set of figures indicating needs in the District, as well as in each state and the nation as a whole.

If they don’t create a sense of urgency, I don’t know what will.

As I explained last year, NLIHC uses several set of figures — most of them drawn from federal sources — to arrive at what it calls a housing wage. This is the amount a renter would have to earn to afford a modest two-bedroom apartment, plus basic utilities in each jurisdiction.

The cost of the apartment is the U.S. Housing and Urban Development’s fair market rent estimate. The standard for affordability is the usual 30% of gross income.

NLIHC also does some calculations based on the applicable minimum wage — $8.25 in the District — and the average wage of renters in each jurisdiction.

Not surprisingly, the two-bedroom apartment is way out of reach for low-wage workers in the District — considerably further out of reach than for low-wage workers nationwide.

The same is apparently true for many other D.C. renters, since their average wage falls shorter as well.

Here first are the big picture numbers.

  • A household would have to have earnings totaling $4,707 a month — $56,480 a year — to afford the two-bedroom apartment in the District.
  • Assuming full-time, year round work, this translates into a housing wage of $27.15 an hour — a higher housing wage than for any state except Hawaii, though somewhat lower than for any of the top 10 metro areas, according to dcist .
  • The average renter wage here is $102 less per month than what would make the apartment affordable — an annual shortfall of $1,224.

And now the truly bad news figures for low-income District residents.

  • The two-bedroom apartment costs $607 a month more than would be affordable for an extremely low-income household, i.e., one whose income is at or below 30% of the median for the area.*
  • The apartment costs $983 a month more than a full-time minimum wage worker can afford.
  • So s/he would have to work 132 hours a week, every week to afford it — or live with three other full-time minimum wage workers and another working part-time.
  • This is 28 hours a week more than what NLIHC calculates for minimum wage workers nationwide, though it uses the lower federal minimum for them.
  • For residents who depend on Supplemental Security Income, the apartment costs a mind-blowing $1,199 more than would be affordable.

The story in the District is in many ways like the story NLIHC tells for the nation as a whole. The number of renter households has increased. Vacant apartments are scarce, creating the usual supply-demand pressure on costs.

But the supply side is also affected by the upscaling of once-affordable rental housing — and the fact that most new construction is also for fairly well-off households that, at least for now, prefer renting to owning.

This is how the free market works. It’s why we need public investments to create and preserve housing that’s affordable for low-income households.

And why we need vouchers that will enable others to live in market-rate units without spending more than half their income for rent, as nearly two-thirds of extremely low-income households in the District do.

The District has the revenues to make living in this high-cost city affordable for residents who haven’t shared in the prosperity those revenues indicate — that’s in fact made rents even less affordable for them.

It will have to choose to make ongoing commitments — and to target a very significant portion to its lowest-income residents who are homeless now or at high risk because they really can’t afford the rent they’re paying.

The Mayor says he’s worried that his One City will become “a city of only ‘haves’.” Let’s see what he does to make it more genuinely “inclusive” of the have-nots.

* According to the estimate NLIHC uses, this would be a maximum of $32,190.


Two Ideas for Harnessing Tax Reform to Affordable Housing Expansion

December 10, 2012

The Presidential campaigns primed us (again) for comprehensive tax reform. And now it’s reportedly on the table as negotiators try to forge a “grand bargain” that will pull us back from the so-called fiscal cliff.

Some key differences between Republicans and Democrats, as you undoubtedly know. But cross-party agreement on broadening the base — an oblique term for getting rid of tax breaks.

As I’ve mentioned before, the second largest tax break for individual filers is the home mortgage interest deduction. It cost the federal government an estimated $140.5 billion last year alone.

Chances Congress will get rid of this homeownership preference altogether are somewhere close to zero, I think.

But two organizations have ideas for changing it to address the affordable housing needs of low and moderate-income people.

Creating a Revenue Stream for the National Housing Trust Fund

The National Low-Income Housing Coalition would convert the mortgage interest deduction to a tax credit — thus making it available to all homeowners instead of only those who itemize.

The Coalition would also drop the cap on the mortgage value subject to the benefit from $1 million to $500,000. Same for the interest paid on home equity loans.

These changes, it says, would save the federal government at least $20 billion a year — maybe as much as $40 billion.

NLIHC wants at least some of the savings — actually additional revenues collected — to provide a funding stream for the National Housing Trust Fund.

Brief summary of my earlier post on why that’s needed.

Congress created the Trust Fund in 2008 to provide federal financial support for affordable housing construction and preservation — mainly rental housing that extremely low-income households can afford, i.e., those with incomes no greater than 30% of the median for their area.

To finance the Fund, Congress allocated a percent of the value of new business generated by Fannie Mae and Freddie Mac.

Then the housing bubble burst. The agency that regulates Fannie and Freddie effectively declared itself their legal guardian because the risky loans they’d made put them at risk of insolvency.

And it told them to indefinitely suspend what, in ordinary times, they would have contributed to the Trust Fund.

So the Fund has remained one of those good ideas on paper only.

The NLIHC proposal is the latest of several to put some money into it — and so far as I know, the only one that would give it an ongoing revenue stream.

Creating a Renters’ Credit

The Center on Budget and Policy Priorities also begins with a revenue-raising conversion of the mortgage interest deduction to a tax credit.

In its proposal, some share of the savings would go to states in the form of tax credits they would then distribute to reduce rental costs for low-income families — mainly those classified as extremely low-income.

The credits would work somewhat like housing vouchers, though the way they’d compensate rental housing owners is different.

They’d generally ensure that beneficiaries paid no more than 30% of their income for rent — the usual standard for affordability. And state agencies administering the credits could do this in several different ways.

They could give the credits — or some of the credits — directly to renters, who’d then find suitable apartments (and willing owners).

The owners would then claim the credits on their tax returns, based on the difference between what the tenants paid and the units’ market rates.

Or they could pass the credits through to their mortgage holders, who’d claim the credits and lower mortgage payments accordingly. This, of course, only if the mortgage holders agree to such an arrangement.

States could also allocate some credits to specific affordable housing projects. In this case also, the owners would claim the credits or pass them through.

Finally, states could allocate credits directly to financial institutions, with the understanding that they’d reduce mortgage payments for owners who agree to rent at affordable rates.

If, as the Center suggests, the total cost of the credits were capped at $5 billion a year, about 1.2 million more very low-income renter households would have affordable places to live.

And the number who are now paying at least half their income for rent would be cut in half. An estimated 700,000 low-income families would no longer have to choose between a roof over their heads and other basic needs.

Like the NLIHC proposal, the Center’s is an innovative approach to our nationwide affordable housing problem — and the disproportionate financial assistance our system now provides to homeowners in the top fifth of the income scale.

As Will Fischer at the Center notes, Congress doesn’t have to choose one or the other. The two could work nicely together.

And with a proper cap on the mortgage interest tax credit, there’d still be money left over to help reduce the deficit that’s apparently top-of-mind for our federal policymakers.


New DC Rental Cost Figures Show Need for More Affordable Housing Investment

April 26, 2012

“How expensive is D.C. for renters?” a recent headline on DCentric asks.

The short answer from the latest report by the National Low Income Housing Coalition is “very” — more expensive, in fact, than only a year ago.

As the DC Council decides what to do with Mayor Gray’s proposed budget, it should ask whether a $19.9 million cut to the Housing Production Trust Fund will get us to that One City the Mayor is so fond of talking about.

Or will it instead drive up the already-high family homelessness rate — and leave even more families choosing between rent and other basic needs? A rhetorical question I know.

So let’s turn to the report.

How NLIHC Calculates Affordability

NLIHC uses several sets of figures to assess rental housing (un)affordability nationwide and for states, counties and major metropolitan areas.

The first set is the U.S. Department of Housing and Urban Development’s fair market rents for two-bedroom apartment units — those in either the 40th or 50th percentile of all reasonably well-maintained units in the area, basic utilities included.

The second figure is the standard 30% of income that both government agencies and analysts use to determine whether housing is affordable for a particular household or group of households.

NLIHC also uses figures from other federal sources to estimate the average local wage for renters — obviously important when the issue is whether rents are affordable.

What We Learn About Rental Housing Affordability in the District

No surprise to learn that rental costs in the District are rising, but so is average income. Not enough for renters, however.

  • The 2012 FMR for a two-bedroom apartment in the District was $1,506 per month — $90 more than in 2011.
  • A household would have had to earn $60,240 a year for the apartment to be affordable — $1,800 more than the year before.
  • This translates into an hourly wage of $28.96, assuming full-time, year round work — $3.79 more than the estimated average for D.C. renters.
  • Renters earning the average — $25.17 an hour — would thus have paid $2,364 more per year for the apartment than they could afford.

Things get worse, of course, for poor and near-poor residents.

  • For what HUD defines as extremely low-income renters, i.e. those earning 30% of the median for the area, the two-bedroom apartment cost $700 more than they could afford.
  • The hourly wage that would have made it affordable is three and a half times what a full-time, year round minimum wage worker earns.
  • Looked at another way, the minimum wage worker would have had to put in 140 hours every week or live with another full-time minimum wage worker and a third who worked half-time.
  • Because the minimum wage remained flat while the two-bedroom FMR rose, the apartment was over $1,000 further out of reach than it was only the year before.
  • What would be affordable for the minimum wage worker is an apartment costing no more than $429 a month — about 37% of the current FMR for an efficiency in the D.C. area.
  • For residents dependent on Supplemental Security Income, any FMR unit is even more absurdly out of reach because the most they could afford is $209 a month.

Rent’s Too Damn High. But Why?

What’s happening here is basically what’s happening nationwide — less supply and more demand. And, as always, growing demand for a shrinking supply drives prices up.

On the supply side, affordable rental units are disappearing. This is a long-term trend, as the Harvard Joint Center for Housing Studies has shown.

Many low-cost units are being converted to upscale rentals or condos. Others stand empty — or have already been razed — because their owners didn’t maintain them.

Meanwhile, for various reasons, publicly-subsidized low-cost units are going-going-gone — 150,000 lost in the last 15 years, says HUD Secretary Shaun Donovan.

At the same time, more households are seeking rental housing.

The recession and related foreclosure crisis are partly responsible for this. They’ve driven more households into the rental market. Other households are staying there because they’re leery of buying — or unable to get credit because lenders have become leery too.

Needless to say, the recession has also pushed many more households into the low-income category. They’re now more than a quarter of all renter households.

What Now?

Public policies have helped create the affordable housing crisis for low-income — and even not-so-low-income — renters. Public policies will have to help solve it.

Growing the economy — even if combined with policies and programs that get more workers into so-called living wage jobs — won’t be enough.

Policymakers, including our own Mayor and DC Council, have to invest in creating and preserving housing that’s affordable for low-income people.

The Mayor doesn’t have to wait for a report from his Comprehensive Housing Task Force to know that. Nor does the Council.


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