What is Affordable Housing, Anyway?
How do you define affordable housing?
This isn’t an easy question.
Let’s start with the more technical answer.
The Department of Housing and Urban Development (HUD) says “Affordable Housing” is when a household spends less than 30 percent of their post-tax income on housing. If a household spends more than 30% on housing then they are considered “cost burdened” and may have difficulty affording necessities such as food, clothing, transportation, and medical care. And, for now, let’s just say there are a lot of people in America who are cost burdened.
We are not claiming this simple equation is accurate or well represents affordability in general, but it is definitely a critical equation. This equation is at the heart of determining how federal affordable housing funding is distributed to states and ultimately onto affordable housing tenants and projects. We will come back to the definition a bit later. First let’s put this in context.
18 million families are paying more than 50 percent of their income on housing.
The National Low Income Housing Coalition released a report in 2019 that showed that out of 11 million extremely low income renters (households making 30% or less than the area median income, AMI, in their HUD defined region) in America, only 4 million were able to afford housing. In other words, for every 100 extremely low income households there are only 37 affordable and available homes for rent. While those well under the median income are most gravely in need of affordable housing, the shortage certainly doesn’t stop there.
Affordable and Available Rental Homes per 100 Renter Households, 2017
National statistics might make it seem like there is enough housing for those near the median income (see chart), but availability on a national scale doesn't take into account proximity to one’s job, family or community. Twenty-five of the 100 largest metropolitan areas in America have shortages of homes affordable and available to renters with household incomes up to 100% AMI. More than 750,000 extremely low-income households occupy rental homes that create a cost burden for them, that would otherwise be affordable and available to middle income renters. So while it is true that there is technically enough housing that is affordable and available to renters with household incomes up to 100% AMI, those houses are not all located where the people are or where the jobs are.
Ok, so there is a problem…
but why does it exist? That’s a very deep question, and it gets into all sorts of unfortunate realities about inequality, history of property ownership, systems of oppression and so on. But, on the surface, there are two basic reasons.
Incomes are too low
Low income jobs aren't paying enough for people to afford to pay rent. In no state can a full-time worker making minimum wage in their state afford a two-bedroom apartment at fair market rent. On average across America, if a person worked forty hours a week they would need to make $17 an hour to afford a small one or two bedroom apartment without the cost of housing being a cost burden. The federal minimum wage is $7.25, so someone working a federal minimum wage job would have to work 127 hours a week to afford an average two bedroom apartment.That’s essentially like working three jobs.
While wages have effectively grown only with inflation throughout the country, average housing prices have gone up by 188 percent in the last 30 years and the median rent has increased by more than 60 percent since 1960. If the cost of housing goes up but incomes do not, then it it rather obvious that it will become harder and harder for americans to afford their housing.
So we could, and we would argue should, raise the minimum wage to a “living wage” but the other side of this equation is that cost of housing itself.
2. Housing is too Expensive
Housing developers and future homeowners are not building enough homes despite the growing demand and growing population. At the risk of oversimplifying a very complicated issue, there are the Six “L’s” that can define roughly the reasons that housing has become too expensive. Now, there are lots of reasons about why each of the five are true, but we will explore that in future posts.
Limited Supply. The number of houses being built each year is barely keeping up with the number of new households, and it is projected to only get worse, and isn’t covering replacement and second-home demand nor allowing for normal levels of vacancies. If this trend continues house prices and rents will continue to rise, exasperating the amount of affordable housing.
Labor. One of the primary reasons that housing production is struggling to keep pace with the growing country is that there isn’t enough skilled labor to build enough houses. During the Great Recession a lot of carpenters were out of work, and even though the market has recovered many of the carpenters never came back to carpentry, and recruiting new people to the profession hasn’t proven to be easy. The houses aren’t going to build themselves...
Legislators. Zoning ordinances, the regulations that define what can be built where within a town or city, often limit the density of units that can be built in a given area, and the result is that in areas of great demand, like growing cities, there are very few places left that can add units. If there is legislation or regulation that says you can’t add units in the places where there is demand, then the units that get built end up being more and more where there is not as high of demand, or they just don't get built at all.
Land. Land is really expensive in areas where housing is expensive. This is a compounded issue given the limits on development due to zoning ordinances. This is making land a very imited resource near growing cities, which creates a real estate market where the cost of land gets higher, so the houses get more expensive, few people can afford them, but the demand is high enough that they get sold or rented and the pattern continues.
Lending. Because Developers typically build their projects with some sort of interest bearing capital they need to either sell or rent their units so they can, not only, pay themselves a wage and maybe some profit, but also pay back all of the other investors and lenders with interest. This is to say that it is not only the cost of land and labor and materials directly, but as those go up they get increased even more because the developers invisible costs “soft costs” go up too.
Luxury. Non-subsidized housing developers are building more and more luxury units because the costs to build housing (along with the cost of land) is so high that it is the housing typology that is most likely to make the returns that lenders, investors or banks are looking for. (Some are just greedy, but that’s not always the case). This will only work until the luxury housing market is saturated. But as long as the supply for housing is so tight, more people will continue to live cost burdened because they don’t have a choice to rent something they can actually afford.
Low incomes + expensive housing = lots of cost burdened people
Renter Households with Cost Burden by Income Group, 2017
Cost burden is when someone pays more than 30% of their income on rent, a severe Cost Burden is when they spend more than 50% of their income on rent. There are tens of millions of people in this country who are Cost Burdened by their cost of housing (see chart below). Many of them will likely, at some point, be unable to pay for other basic needs like food, childcare and healthcare, or risk not paying rent or missing a mortgage and being evicted or foreclosed on. This isn’t a small issue. This is, as many say, a housing crisis.
So, what’s being done?
Well, there are Affordable Housing subsidies distributed by the Federal government, but this issue continues to subsist in the face of these programs, as they are drastically underfunded to deal with the scale of the issue at hand.
Capital “A” Affordable Housing
Typically when you hear the term “Affordable Housing” people are typically talking about capital “A” Affordable Housing which is housing that is subsidized so that households at specified income ranges are able to afford it without paying more than 30% of their income. It can be subsidized in number of ways, but the typical subsidy models are:
Government Owned Housing
Sometimes government owned housing is called “Public housing” or more colloquially and some may say pejoratively “the projects”. Due to state-sanctioned racially discriminatory planning ordinances, these government owned communities have historically been known for low quality housing that is poorly maintained and is seen as a model to merely concentrate poverty and people of color. The basic model was that the government would build housing and would maintain ownership, and rent the units out to low income households at rates they could afford. This model started in 1949 to help solve the growing need to support those in America who couldn’t afford housing, and lasted until 1973 when the federal government stopped developing new housing due to the growing concern that concentrating poverty was not beneficial to the individuals or the communities, and because the government was struggling to manage and maintain the housing it now owned. Government owned housing certainly still exists, there are just no longer more developments being built and owned by the government. However, because the housing still exists there is still a “public housing operating fund” in the federal budget to keep up with needed maintenance though it is always underfunded.
Vouchers
Affordable housing assistance in the form of publicly-funded vouchers became the new model in 1974 by way of an amendment to Section 8 Housing Act of 1937. Sometimes these vouchers or the housing they subsidize are referred to as “Section 8 vouchers” or “Section 8 houses” in reference. There are basically two models of this affordable housing voucher:
Tenant Based Voucher (Housing Choice Voucher Program). A low income tenant finds any housing they like where the landlord accepts vouchers, the low-income tenant pays 30% of their qualified income and through the voucher the government pays the landlord the difference between what a low-income tenant can afford and the market value of the rent. The housing choice voucher program is the federal government's major program for assisting very low-income families, the elderly, and the disabled to afford housing in the private market. The participant is free to choose any housing that meets the requirements of the program and is not limited to units located in subsidized housing projects, though only one in four families who qualify for voucher assistance actually get it.
Project Based Voucher. Section 8 also authorizes a variety of "project-based" rental assistance programs, where the owner of a building reserves some or all of the units in their building for low-income tenants, and in return the federal government guarantee to make up the difference between the tenant's contribution (typically 30% of their qualified income) and the “fair market value” (what other similar things are renting for in the area).
Privately-Owned Subsidized Housing
While there are a lot of subsidy programs that help create privately-owned subsidized Affordable Housing, the most widely used is the Low Income Housing tax Credit (LIHTC) which was introduced in the 1986 Tax Reform Act. This program is a bit more complicated but is by far the largest federal program encouraging the creation of affordable rental housing for low-income households, with an estimated Federal cost of around $9 Billion per year.
Affordable Housing developers apply for the allocation of the tax credit and if selected the government will allow the project to reduce how much it pays in taxes over 10 years in exchange for the developer keeping the rents low (typically affordable to households making 60% AMI or lower) for 30 years. However, often affordable housing developers are non-profits, so they don't have tax liability to use the tax credit internally, so they instead find a partner who agrees to invest in the project in exchange for them being able to use the credits on their own taxes (often the partners are corporations)... Don’t worry if this seems hard to follow, it is exceptionally convoluted! So this indirect subsidy model offsets some of the cost of the development of the units, allowing the developer to offer lower rents. Tenants who qualify for the income restrictions apply to rent a unit in the project and typically pay around 30% of their income to live there.
Privately-Owned Subsidized Housing are often dependent on LIHTC Affordable housing developers are often non-profits known as CDCs or Community Development Corporations.
Lowercase “a” affordable housing
Lowercase “affordable housing” is more of a conceptual framing around housing that is affordable to a specific person, community or demographic as opposed to “Affordable Housing” which refers to subsidized housing that is defined technically through all sorts of regulations and governing bodies. This is concept is also known as “affordable by design”, “naturally-occurring” affordable housing, or affordable without subsidy.
So, for example, it is possible to create subsidized Affordable Housing that is not affordable for one demographic, but for another it is affordable...I know, it can be confusing.
CoEverything & Arizmendi Association of Coops are partnering to develop, design and build affordable by design ADUs in the East Bay Area. Read more about it in this Next City article.
No one said it would be easy...
This is where we wish we could say we had an easy solution and all you had to do was sign up and all of America could afford their housing. This is NOT the case.
Non-subsidized developers operating in the business as usual/status quo models can’t create affordable housing for those who need it most. Effectively, all of the allocated Federal funding for Affordable Housing subsidy is used every year, and the current federal budgets don’t come close to keeping, or catching, up with demand.
So while we don’t have a silver bullet, we can offer some ideas that we and others are using, testing or advocating for that help to close the housing gap and create a more just and equitable housing system. Below are some of those ideas.
Community Land Trusts: Hold land in a non-profit that represents the community with the specific intent to maintain affordability over time.
Community Land Cooperatives: Create alternative ownership models that shift the ownership and value of land to our communities directly to increase the inter-generational wealth of those struggling most and to maintain affordability over time.
Co-Living & Cohousing: Lower the common space cost per unit by sharing space and resources with others.
Investment Cooperatives and/or Crowdfunding: Shift the value of land to our communities directly.
Construction Innovation: Develop more efficient construction methods to lower the cost of building and renovation for new housing.
Inclusionary Zoning: City requires unsubsidized affordable housing in projects of a certain size.
Affordable Housing Density Bonuses: Lower the land cost per unit by allowing more units in less space.
Vote: Vote for public officials from President to City Councilor who support housing for all.
Organize/ Advocate: Organize and ask your Representatives to support the increase in Affordable Housing subsidy and to support programs like a universal voucher program.
For more information on these ideas and others please get in touch with us through the contacts form on our home page or email hello@coeverything.co. For the millions of families and individuals that struggle to find housing they can afford, let’s try everything we can to try and solve our housing crisis.