What is Affordable Housing?
The phrase “affordable housing” is a colloquially used as a general term to refer to housing assistance for low-income individuals, including housing vouchers or housing designated for residents below a certain income for the area. Generally, Individual making 80% of Area Median Income (AMI) qualify for Affordable Housing. However, in the case of Low Income Housing Tax Credits (LIHTC) 60% of AMI are qualifying.
Generally, we see Affordable Housing as Multi-Family apartments subsidized by HUD via Section 8 HAP Contracts or Vouchers. In addition, some single-family homes can receive the Section 8 voucher as well. The Section 8 program allows individuals or families to rent and only pay 30% of their income toward the rent – HUD subsidizes the remainder.
In addition, there are some programs available for Veterans that allow them to rent and work toward moving into the communities once they have received training and employment.
In Colorado, the Coalition for the Homeless is purchasing older motels and converting them into housing for the homeless.
All of the above programs are provided to assist individuals and families to seek employment and/or training to improve their lives and living standards. It is a “hand up”.
There is not enough affordable housing supply to meet demand.
As striking as it is to hear that the U.S. needs 7.2 million to 12 million more affordable units, the percentage of affordable homes available is even more concerning. Only 35 of every 100 extremely low income families have access to available affordable housing. That number rises only slightly to 55 for very low income families. (Extremely low income is defined as at or below the poverty line or 30% of area median income (AMI), whichever is higher. Very low income is defined as households with income between 31% and 50% of AMI.) These numbers do not include the more than 500,000 Americans who are homeless. This lack of affordable housing supply means that more and more households are putting a high percentage of their income toward rent.
Households can budget better when their rent is stable.
Affordable housing can help people who are living paycheck-to-paycheck build a future for themselves and their families. I’ve met with residents of our properties across the country who have shared how access to affordable housing completely changed their ability to budget. Residents can now pay down high-interest borrowing — debt that is often accumulated from purchasing common household items. I remember sitting down with one family who explained to me how housing assistance enabled them to pay back loans on things like mattresses and kitchen appliances that were accruing at double-digit interest rates. Affordable rent helps tenants avoid taking on high-interest loans for recurring expenses like food, medicine, school supplies and gas, and instead start saving for their long-term goals, like job certifications, higher education or a down payment on a house.
Affordable housing isn’t ‘one and done’ — it needs to be maintained.
All buildings need upkeep, and that includes affordable units. Too many forget that affordable units aren’t truly available for tenants unless they are properly maintained. The affordable housing industry has a responsibility to maintain quality standards for all properties and each and every tenant.
Private activity bonds (PABs) are a critical source of financing for affordable housing construction and repair. PABs are not only used for affordable housing, and applications for this financing in each state are subject to a volume cap, set by the IRS. For the first time since before the Great Recession, demand for these bonds is exceeding supply in multiple states. Volume cap issues are forcing developers to delay or reduce capital investment and thus reducing the quality standards within existing affordable housing. The challenges in securing this bond financing are exacerbated by the fact that construction costs continue to grow.
Solving this crisis requires long-term commitment and public-private collaboration.
Addressing the affordable housing crises will require the public, private and nonprofit sectors to work together. The private sector can bring scale and innovation to this problem.
Affordable housing is an essential component for making the American Dream accessible to all. It is more than simply bridging the divide between the number of units we have and the number of units we need. This is about giving people a place to live in their communities and the stability required to achieve financial independence, often serving as a critical component in breaking poverty cycles. But most importantly, affordable housing is a long-term investment in communities — one with immeasurably high returns.
What Makes Housing Unaffordable?
Multiple factors contribute to the rising cost of housing, which makes it unaffordable for a growing number of people across the U.S.: Young cites labor costs, the cost of building supplies and limitations surrounding land use keep the creation of new housing slow compared to the creation of new households. With more people in need of a home than there are homes available, costs rise.
The shortage of affordable and available rental housing is most acute for extremely low-income renters. The shortage improves as incomes increase. In the U.S., only 36 rental homes are affordable and available for every 100 extremely low-income renter households. Fifty-eight affordable and available rental homes exist for every 100 renter households with incomes at or below 50% of AMI, while 93 affordable and available rental homes exist for every 100 renter households with incomes at or below 80% of AMI. However, as the next section illustrates, the shortage of affordable and available rental homes for renters with incomes over 50% of AMI can be explained by the shortage of affordable and available rental homes for those with incomes below 50% of AMI. AFFORDABLE RENTAL HOMES Assuming households should spend no more than 30% of their incomes on housing, only 7.4 million rental homes are affordable for the nation’s 11.2 million extremely low-income renters.
ABOUT TODAY’S GUEST
Joining us today is a very special guest! We have Jerry Anderson, President of Federal Consulting Group.
- Prior to Federal Consulting Group, Jerry was associate deputy assistant to the secretary of the office of affordable housing preservation.
- Throughout his career Jerry has been heavily involved with HUD related transactions
- He is one of the few high level executives at the OAHP that developed the Green Initiative and Green Retrofit Program.
- He also served as chairman of HUD’s national loan committee and several other internal committees for loan and process approval.