AFFORDABLE HOUSING, BUT FOR HOW LONG? THE OPPORTUNITY AND CHALLENGE OF MANDATING PERMANENTLY AFFORDABLE HOUSING.

• Author: Reina, Vincent J.

Introduction 1267 I. The Housing Affordability Challenge 1269 II. Policy Responses 1275 III. Defining Permanent Affordability 1277 IV. Potential Opportunities and Challenges of Permanent Affordability 1281 A. The Potential of Permanent Affordability Mandates 1282 B. Challenges and Unintended Consequences of Mandating Permanent Affordability 1287 V. Policy Implications 1291 Conclusion 1293 INTRODUCTION

The federal government and local governments have historically tied housing affordability requirements to subsidies designed to promote affordable housing development. In the first half of the 20th century, the federal government promoted affordable housing development through the Public Housing program, which was publicly financed, owned, and managed. (1) With the creation of the U.S. Department of Housing and Urban Development (HUD) in the 1960s, the federal government moved toward programs and incentives that promoted private sector ownership and management of subsidized affordable housing units. (2) Through these programs, owners commit to maintaining affordable units for fixed periods of time in exchange for subsidies. (3) But because some owners choose to exit private sector programs after the affordability restriction periods end, it remains unclear what the mandated length of these affordability restriction periods should be. (4)

In light of recent housing affordability challenges, housing advocates have increased calls for "permanent affordability" requirements on housing developments that receive any form of public subsidy. (5) Permanent affordability means mandating affordability restrictions on a property, or the land on which it is developed, that run in perpetuity--unless the governing agency agrees to release the property from its affordability contract. This Article discusses the role and length of such affordability restrictions, and the potential benefits and challenges associated with mandating permanent affordability.

Part I of this Article outlines the current housing affordability problems. Part II then describes where the preservation of subsidized affordable housing sits among other policy responses aimed at addressing current housing affordability problems. Part III defines the concept of "permanent affordability" and Part IV highlights the opportunities and challenges associated with mandating it. Finally, Part V explores the policy implications of a permanent affordability mandate, and Part VI concludes that permanent affordability mandates can be an effective tool in addressing housing affordability in some contexts.

1. THE HOUSING AFFORDABILITY CHALLENGE

   There is a plethora of research evaluating the scale and nature of the current national housing affordability problem. Most of this research assesses the severity of housing cost burdens, which is the share of household income spent on housing. (6) This research points to two distinct realities. First, the level of rent burdens, particularly those faced by the lowest-income households, have escalated dramatically nationwide. (7) Second, the existing inventory of housing affordable to the lowest-income households is small and shrinking. (8)

   In 2017, nearly 31% of all households and 46% of renter households spent over 30% of their income on rent. (9) According to HUD, households that spend over 30% of their income on housing are housing cost burdened. (10) The situation is far worse for low-income households. In 2017, over 88% of U.S. renters with household incomes less than $20,000 were rent burdened, whereas only under 1% of households in this bracket spent less than 20% of their income on rent. (11) Further, nearly half of all renters suffer from excessive rent burdens. (12) The impact of rent burden is not limited to a particular market, with households in both high-cost markets and relatively low-cost markets carrying high levels of rent burden. (13) Moreover, while the effects of rent burden are not new, research shows that between 2000 and 2010, the extent of these burdens increased dramatically because increases in rent far outpaced income growth. (14) By 2010, almost every Metropolitan Statistical Area ("MSA") in the United States reported higher rent burdens than it had ten years earlier. (15)

   One of the key drivers of the current affordable housing crisis is the lack of supply of lower-cost housing units. Across the United States, there are only 37 affordable housing units available for every 100 extremely low-income renters. (16) The lack of affordable units available to low-income renters is a national phenomenon. (17) Every MSA in the country has fewer affordable rental units available than needed by extremely low-income households. (18) A common argument against using housing cost burdens as the only measure of housing affordability is that people may choose to spend more on housing. (19) Another critique is that some of these rent burdens are driven by an issue with the sorting of units in most markets. The sorting issue suggests that there are affordable units in a market but some low-income households must rent a higher-cost unit, and thus experience housing cost burdens, because a comparatively higher-income household is renting the more affordable unit. As a result, it is not that there is an insufficient number of units affordable to low-income households in many markets, it is just that some of those units are not available for low-income households to rent. A report published by the RAND Corporation provided a hypothetical matching game to test the impact of sorting on rent burdens in housing markets. (20) The RAND study ranked renters along the income distribution within their particular MSA, then ranked all rental units in that market by price, and finally matched each household to the rental unit that had the same rank in the distribution. (21) The study found that even when households sort themselves perfectly--meaning that if every household was ranked on the income distribution from lowest to highest, and if every rental unit was ranked from cheapest to most expensive, and subsequently matched based on that rank--the majority of low-income renters in almost every MSA in the country would be rent burdened. (22)

   The United States is losing more affordable rental units than those being produced, with or without a government subsidy, in any given year. (23) This pattern will likely continue going forward considering the inadequate supply response to the demand for rental units in many markets. (24) The lack of supply response is only increasing demand and prices throughout the rent distribution in many markets. (25) A lack of filtering--meaning the most expensive units becoming more affordable over time as they depreciate (26)--is contributing to the current affordability crisis. Further, due to high demand and an inadequate supply response, some units may be "filtering up"--meaning existing units are being upgraded, and prices are going up in units that would traditionally filter down. (27) Meanwhile, units at the very bottom of the rent distribution traditionally exit the market due to depleted housing quality, which decreases the supply of the cheapest units. (28) In theory, these units can be recapitalized and re-enter the housing supply throughout the rent distribution, but there is clear evidence that this is not happening in many markets. (29)

   For example, in Philadelphia, over 7000 units of affordable housing exited the housing supply between 2014 and 2016 because their cost increased or because they dropped out of the housing stock entirely. (30) Meanwhile, the city added close to 3000 high-cost units. (31) This loss of market-rate affordable housing increased both the number of rent-burdened low-income households and the level of their rent burdens, (32) and consequently increased demand for the remaining few subsidized affordable units in Philadelphia.

   As demand for affordable housing has increased, new threats have emerged to the existing stock of subsidized affordable housing. Many of the existing subsidized affordable housing units across the country will either reach the end of their affordability restriction periods, or require major recapitalization, over the coming decade. (33) Specifically:

   Over 590,000 units in Section 8 project-based rental assistance (PBRA) properties where an owner will have the option to renew their subsidy or exist the program; over 450,000 units in Low-Income Housing Tax Credit (LIHTC) properties; and 120,000 units in HOME-financed properties where the subsidy and affordability restrictions are due to expire over the next 10 years.... [M]any of these properties will renew the subsidy, apply for a new one, or maintain their units as affordable absent any subsidy. How many units will remain affordable, and for how long, is unknown.... There are an additional 1 million LIHTC units approaching their 15-year disposition period over the next 10 years. While their affordability restrictions do not expire, many of these units will need rehabilitation as part of a normal life-cycle recapitalization. (34)

   At the same time, publicly-owned affordable housing ("public housing") is also at risk. There is a consistent lack of adequate federal funding for necessary repairs, which leads to severe deterioration of units that affects the health and safety of tenants and can render some units uninhabitable. (35) The national backlog for repairs is estimated to be well over $26 billion. (36) At the local level, the consequences and effects of this backlog are well documented in the media. A recent news article claimed that 2500 units in Washington D.C.--close to one-third of the city's public housing portfolio--require "urgent" attention. (37) New York City's public housing portfolio is also experiencing deteriorating conditions, which has resulted in a multitude of health-related lawsuits. (38) The scale of housing quality issues in public housing presents a challenge...