HOUSING POLICY

Reader Input Helps Shape 10-Point Plan for Next President

AFFORDABLE HOUSING FINANCE • May 2008

BY ANDRE SHASHATY AND DONNA KIMURA

AFFORDABLE HOUSING FINANCE readers have spoken on the subject of housing policy priorities for the next president of the United States, and their top recommendation is to provide more rental subsidies. This was followed in order of priority by the need to pick a strong leader for the Department of Housing and Urban Development (HUD) and streamline the agency's operations.

AFFORDABLE HOUSING FINANCE readers were asked to help prioritize a long list of housing policy proposals published in the March issue. Our goal is to reduce the list to a short but powerful set of 10 urgent policy initiatives the next president should enact soon after taking office next January. Next on the list of priorities indicated by our readers was reforming the Federal Housing Administration (FHA), followed by fully funding operating subsidies for public housing properties, and enacting exit-tax relief.

Also placing very high on the list were proposals to strengthen the low-income housing tax credit (LIHTC) program and expand it to help cover the cost of preserving existing federally subsidized housing.

The voting gave us valuable guidance on what to include as we work to create an industrywide consensus on a 10-point plan. In addition to the voting, we talked to many experts in the field, including members of our Editorial Advisory Board. We also received suggestions from readers with policy ideas that were not in our original list of options.

Our original list of policy ideas included a recommendation to appoint a bipartisan commission to look at housing and urban policy as well as a call to form an executive committee to look at how the regulatory structure failed to prevent the subprime mortgage collapse.

We decided to leave these ideas out of the document because they are too broad and general. Instead, we will limit our proposals to specific programmatic initiatives that address urgent needs, would generate quick results, and would establish certain principles that could be the foundation for a more comprehensive policy to be developed later. We also decided to build on successful current programs as much as possible rather than suggesting new ones.

However, our policy proposals will be presented with an introduction that suggests new ideas and strategies to explore. We agree with many commenters who believe that federal housing assistance must be far more flexible, so it can serve a variety of income groups, including moderate- income people, and homeowners as well as renters.

Winning political support

Members of AFFORDABLE HOUSING FINANCE's Editorial Advisory Board stressed the need to make proposals that will have political appeal to Congress and the next president. They advised us to emphasize policy ideas that will offer more than just an increase in the supply of affordable housing. They said our proposals should be designed to have maximum benefits in stimulating the economy through job creation, protecting the environment, and addressing other highly visible policy concerns.

The board said our proposals must also be designed to appeal to Congress at a time when it will be concerned about reducing the budget deficit and reforming the overly complicated tax code.

Several board members said it was likely the next president will propose some form of tax reform. If radical restructuring of the tax code was enacted, they added, it could supercede many specific changes to the code now being sought by our industry.

They suggested it may be unwise to push for those specific changes now, knowing that they have little political appeal on their own and will have little relevance if a broad reform is undertaken.

The problem with proposing a simple increase in funding for vouchers and other rental assistance is that it requires a great deal of federal money for a program that does not connect to the public policy issue that will most likely be crucial in 2009: economic stimulus and job creation. In addition, the program is disliked in some circles for lacking any mechanism to encourage self-sufficiency.

So, instead of asking for an increase in the programs as they now operate, we are proposing that the increase be targeted to specific situations to advance policy goals in addition to increasing housing affordability.

The board discussed how to tie our proposals to the current crisis in home mortgage foreclosures. Instead of getting into the question of how federal financial regulators failed to prevent the subprime mortgage fiasco, we are inclined to follow the suggestion of Conrad Egan, president and CEO of the National Housing Conference. He suggested asking the president to "focus on strengthening the pillars of the housing finance system" -- that is, Fannie Mae, Freddie Mac, FHA, and Federal Home Loan Banks.

Addressing FHA

The role of the FHA is a key issue to be addressed. "HUD and FHA, for a variety of reasons (both statutory and administrative) are not up to the task of providing stability or new ideas in the current market, both functions that are at the core of FHA's mission," said Cheryl Patton Malloy, senior vice president at the Mortgage Bankers Association.

"A number of the policy ideas outlined in your survey make sense, particularly restructuring FHA and providing the agency with much more flexibility in its programs, its personnel, and its ability to utilize the reserves to improve administration of its programs," Malloy said.

However, she questioned the idea in AFFORDABLE HOUSING FINANCE's March article on policy that FHA needs to work more collaboratively with nonprofits, public agencies, and the government-sponsored enterprises (GSEs). She noted that from the private lenders' perspective, "there already appears to be a bias toward nonprofits and state agencies and the risksharing programs."

At press time, we are still considering what if anything to recommend with regard to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. (We will endorse the GSE legislation that cleared the House of Representatives, which would reorganize oversight and broaden the affordable housing role of the GSEs.) Rural housing was not addressed in our original list of ideas. At the suggestion of Karl S. Pnazek, president and CEO of CAP Services, Inc., in Stevens Point, Wis., we have added an item to address that oversight.

Many people agree that a key obstacle to housing affordability is overly restrictive land-use regulations. In response, we recommend the president implement a series of incentives for cities to streamline their processes and set up a task force on rationalizing land-use planning processes.

As to the question of preservation of the existing stock of housing, our latest draft of the policy plan calls for new efforts that not only preserve housing but also make it more energy efficient. This would address housing needs while also reducing federal subsidy costs and cutting the carbon footprint of the built environment.

Another "green" idea is to direct HUD to review and modify all its regulations to encourage owners and developers to improve energy efficiency. Thom Cooley of CBRE Capital Markets suggested modifying the FHA Sec. 221(d)(4) program to cover the cost of repairs and replacements that result in increased energy efficiency.

Modernizing the tax credit and bond programs

Several commenters pointed out the need for changes to encourage more complete use of currently authorized levels of private-activity tax-exempt bond authority. Federal law sets a volume cap each year for each state. In some states, large portions of the cap go unused while in others, like New York City, the limits artificially constrain a very efficient program that leverages local resources to finance badly needed mixed-income housing. Right now, bond cap that goes unused in a given year disappears and cannot be used later or by another state. Since private-activity bonds carry with them the right to claim 4 percent LIHTCs without a competitive application process, that equity-raising potential is also lost when bond cap is unused. Our new set of proposals includes ideas for addressing these concerns.

One area that we have neglected is how to help moderate-income households become homeowners. While AFFORDABLE HOUSING FINANCE readers are primarily involved in developing rental housing, we think our final document should address this issue. We are considering ideas such as creating a new grant program to cities for acquisition of foreclosed homes to be converted to low-income housing, a new homeownership tax credit, or expansion of the mortgage revenue bond program in some fashion. Ideas are welcome.

For the moment, our revised list of ideas leaves out changes to the tax credit program that were pending in Congress as we went to press with this issue. We figure there's no point in restating the need for changes that are already in the works. However, our plan will list pending legislation that the next president should endorse. Likewise, the elimination of exit taxes for older assisted housing also received strong support from readers. However we have chosen to leave it out since it is unlikely that it could move forward independently of a major tax bill, and any tax legislation may involve substantial "reforms" that would supercede this issue.

The challenge that remains is to reduce this to a list of 10 items that form a coherent set of proposals that are realistic politically and feasible with the current constraints on the federal budget.

The list can also be found on AFFORDABLE HOUSING FINANCE's blog at www.housingfinance.com/blog, where you can also comment.

What's Next In Our Process?

We still need your feedback to help us refine our proposals and turn our ideas into a powerful set of 10 policy proposals for the next president. Once we do that, we need your help to get endorsements for our 10-point plan for housing from business, civic, media, and other opinion leaders.

You will notice some obvious omissions, such as support for the National Housing Trust Fund legislation. Our mission is to put forth ideas that are not already well along in the legislative process. However, we will list key housing bills that are pending in Congress and worthy of support from the next president.

You will also notice that we don't call for setting over-arching goals like ending homelessness. This is because we want to focus on specific and urgent steps the next president should take in his or her first 100 days in office.

This article does not discuss our effort to develop a list of 10 policy priorities for the next secretary of the Department of Housing and Urban Development. That material will be covered in a future issue. The results of the voting on our list of possible policy ideas are available online at www.housingfinance.com.

Policy Proposals

Proposals for inclusion in AFFORDABLE HOUSING FINANCE's 10-point plan for the next president:

• Increase federal funding for rent subsidies under the Sec. 8, voucher, and U.S. Department of Agriculture (USDA) Sec. 521 Rental Assistance programs, with the proviso that the incremental assistance be targeted to tenants of specific projects that are undergoing rehab, which creates jobs and improves energy efficiency, and for Department of Housing and Urban Development (HUD) vouchers, bonus allocations to public housing agencies that have effective job training and placement programs for their voucher recipients or are located in cities where there is active local government effort to facilitate development of new affordable housing.

• Recognize that HUD is a wasteful, dysfunctional agency that delays and blocks good housing projects at least as often as it facilitates them, and appoint highly qualified senior staff who are knowledgeable and accomplished in housing and community development and are strong managers. Direct them to reinvigorate HUD from the top down and hold them accountable for bringing HUD up to the standards of performance one would expect of an organization with a $38.5 billion-per-year budget.

• Propose legislation to deregulate and streamline HUD operations, including repeal of statutory provisions that impose regulatory costs and delays for which there is no important and measurable benefit, and including elimination, consolidation, or delegation of programs and functions that are not consistent with its mission or are not cost effective.

• Restructure the Federal Housing Administration (FHA) to let it run its multifamily and single-family insurance programs in a much more flexible and responsive way that would address urgent housing needs by implementing the recommendation of the Millennial Housing Commission to make it a wholly owned government corporation within HUD. Ensure that it can work on the same time frame as private real estate participants and has the flexibility to vary its loan terms and can have control of its own loan closings and rulemaking (as opposed to having to go through HUD).

• Acknowledge the cumulative damage done by consistent underfunding of operating costs for public housing and propose a fiscal 2010 budget for HUD with full funding under the public housing operating subsidy formula.

• Expand the Community Reinvestment Act to cover insurance companies and credit unions.

• Propose financial incentives to encourage states and localities to expand opportunities for new development of affordable homes, including allowing higher density around current or planned transit stops, provided that a share of new housing in those areas is affordable to families with low incomes; enacting inclusionary zoning; and reducing delays and costs for entitling land. Also, set up a task force on rationalizing land-use planning processes by studying the success of state laws that override local policies when they act to preclude affordable housing and by looking at ways to create incentives for coordination of land-use policies on a regional basis.

• Establish an "Affordable Green" program to coordinate aggressive efforts to bring existing federally assisted housing up to modern standards of functionality, habitability, and energy efficiency within your first four-year term, including public housing. Consider housing this effort in a new independent agency much like the Office Of Multifamily Housing Assistance Restructuring staffed by real estate professionals so that it can operate as free of HUD constraints and bureaucracy as possible. This is a very effective way to reduce federal subsidy costs and cut the carbon footprint of the built environment.

• Order the Department of Labor and HUD to work jointly to encourage recipients of federal housing aid and job training aid to collaborate at the local level to use housing rehab and construction to create training and job-placement opportunities for unemployed youths.

• Restore substantial funding for the USDA Sec. 515 rental housing assistance program and increase the amount of federal HOME community housing development organization funding for rental projects to provide deep subsidies to low-income housing tax credit (LIHTC) projects in counties with low median incomes.

• Allow recycling of repayments on taxexempt private-activity bonds, put unused annual bond cap in a national pool for reallocation to states that used all of their cap that year, and allow state allocators to exchange unused cap for bonds and the accompanying 4 percent tax credits for 9 percent tax credits.

• Recognize that housing that is built or rehabbed with LIHTCs is more than just shelter-it's a delivery system for education, job training, health care, and youth development services, and direct HUD, the Department of Health and Human Services, and the Treasury Department to work on ways to coordinate resources and policies to help finance provision of services at projects. Use as an example the Ways & Means program being implemented by The Community Builders in Boston. The Community Builders intends to enable working poor households to double their earned income in 10 years and enable 50 percent more young people to graduate high school and get successfully launched as young adults.

• Expand the LIHTC program with additional authority aimed at preservation of public housing and federally assisted housing.

Candidates for HUD secretary:
Three possible candidates for secretary of HUD received about the same number of votes in our online reader poll. They are Amy S. Anthony, Bart Harvey, and Shaun Donovan. However, several commenters suggested that the best choice for HUD secretary would be a politically savvy mayor of a major city, and one person suggested Joseph P. Riley Jr., mayor of Charleston, S.C. Our new short list of candidates is as follows:

• Amy S. Anthony: Anthony is president, founder, and executive director of Preservation of Affordable Housing, Inc., and president of Housing Investments, Inc., a Boston- based consulting firm that focuses on preserving existing assisted housing around the country. She served as secretary of the Massachusetts Executive Office of Communities and Development. She was on the HUD Transition Team in 1992 for President Bill Clinton.

• Shaun Donovan: Donovan was appointed commissioner of the New York City Department of Housing Preservation and Development (HPD) in March 2004 by Mayor Michael R. Bloomberg. HPD is the largest municipal developer of affordable housing in the nation. Since 1987, HPD has provided more than $6.3 billion to support the repair, rehabilitation, and new construction of hundreds of thousands of units of housing. Previously, he was at Prudential Mortgage Capital Co. as managing director of its FHA lending and affordable housing investments. Until March 2001, he was deputy assistant secretary for Multifamily Housing at HUD.

• Bart Harvey: Harvey was, until this winter, chairman of the Board of Trustees of Enterprise Community Partners as well as chairman of the board of Enterprise Community Investment. He took over leadership in 1993 from co-founder James W. Rouse after spending close to 10 years working with Rouse to further the organization's mission of providing decent, affordable housing and a path out of poverty for low-income families. Before joining Rouse at Enterprise in 1984, Harvey served in various domestic and international positions for the investment bank Dean Witter Reynolds, leaving as managing director of corporate finance.

• Jeanne Peterson: Peterson is with Reznick Group, P.C., in Sacramento, Calif. Previously, she was executive director of the California Tax Credit Allocation Committee and legal counsel for the Michigan State Housing Development Authority. ?Joseph P. Riley Jr.: Riley has been mayor of Charleston, S.C., since 1975. Riley has held numerous national leadership positions and received many awards and distinctions. He served as president of the U.S. Conference of Mayors in 1986-87 and serves on the Conference of Mayors' executive committee. He served as chairman of the Cities Task Force of the Southern Growth Policies Board and served as president of the National Association of Democratic Mayors from 1988 to 1992.

Editor's note: Publication of a person's name as a candidate for HUD secretary does not indicate that they are seeking the position or would accept it should it be offered. The editors of AFFORDABLE HOUSING FINANCE compiled this list with reader input in the belief that the housing industry must be proactive in suggesting good candidates to the next president.