Barbara Harvey lives in her car, driving to a parking lot each evening to spend the night and then leaving shortly after the sun rises.

A 66-year-old mother of three grown children, she has been homeless since March, not long after she lost her job and then the three-bedroom condominium that she rented.

“I expected to live there for the rest of my days,” Harvey says, recalling afternoons spent tending her garden. “I thought that was where I would be happy to live for the rest of my life.”

A notary, Harvey was a contract employee for several companies, but when the work dried up, she could no longer pay her rent. “I've never earned enough to save a lot of money,” she says.

She was forced to move into the back of her Honda CR-V with her two golden retrievers. Four months later, Harvey still hasn't been able to find a place to live in Santa Barbara, Calif., a coastal community that has been her home for 26 years. How hard has the search been? “There isn't any affordable housing,” she says. “That's the answer right there.”

On some nights, she will stay with a friend, but most of the time she sleeps in the back of her car. Many cities ban camping in vehicles, but several churches, nonprofit organizations, and the local government in Santa Barbara have made parking lots available at night for people living in their vehicles.

The program, which began a few years ago with a dozen people staying in three lots, has grown to serve 55 people in 12 lots, with a waiting list, says Gary Linker, executive director of the nonprofit New Beginnings Counseling Center. Although counseling and education is the group's focus, it helped place 40 people in housing last year. The parking program is one of the group's outreach efforts.

The participants drive to one of the parking lots around 7 p.m. and leave at 7 a.m. Many have physical or psychological disabilities, and about half hold jobs, debunking a stereotype that the homeless choose not to work. “Many of them do work but just can't afford a place,” Linker says.

With the economy tanking and foreclosures rising, expect more Barbara Harveys across the country. That prospect is alarming considering the already wide gap between the number of needy families and the supply of low-cost housing.

The impact of the affordable housing shortage is vast because affordable housing is like an iceberg. Below the surface, its expansive reach touches upon health, education, and the other foundations of a community.

If the demand continues to dwarf supply, more people will live in overcrowded and poor housing conditions, warns Nicolas Retsinas, director of the Joint Center for Housing Studies (JCHS) at Harvard University. “That will have a contagion effect on education and public health,” he says. “And we'll see housing being built further and further out, with sprawl being a consequence.”

Growing need

There are way more needy families than there are affordable homes. The deficit of affordable housing is in the millions.

In 2005, there were 9 million extremely low income renter households, those earning no more than 30 percent of the area median income (AMI), and only 6.2 million units affordable to them, an absolute shortage of 2.8 million, according to Danilo Pelletiere, research director at the National Low Income Housing Coalition in Washington, D.C.

But when the availability of a unit gets taken into account along with affordability, the shortfall is more like 6 million units, he says. This means there are only 38 affordable and available units for every 100 extremely low income households—meaning three out of five in need are shut out.

The situation is not much better for those earning up to 50 percent of the AMI. For this group, the deficit is still a staggering 5 million affordable and available units.

In another sign of the growing gap between affordable housing and needy families, the number of households with “worstcase” housing needs has increased significantly, reaching 5.99 million in 2005. That's a nearly 20 percent jump from 5.01 million in 2001, according to the latest Affordable Housing Needs 2005: Report to Congress prepared by the Department of Housing and Urban Development. Households with worst-case needs are defined as unassisted renters with very low incomes who are either paying more than half of their incomes for housing or living in severely substandard housing.

“The need for affordable housing for low-income people is only going to get greater,” says Sister Lillian Murphy, CEO of Mercy Housing, one of the nation's largest affordable housing owners and developers, citing the growth in immigrants and the elderly. In its 26 years, Mercy Housing has either built, preserved, or helped finance 34,000 affordable units. The urgency of the times is motivating Murphy to think even bigger. She wants to get to 100,000 units in the next five years. It's a lofty goal but still a drop in the bucket.

“We haven't seen the high point of foreclosures yet,” notes Murphy. One in every 171 U.S. households received a foreclosure notice in the second quarter of 2008, according to RealtyTrac, Inc., which reported that filings were up 121 percent from the same period a year ago.

In projecting the future need, Mercy Housing estimates that the demand for affordable housing will soar to around 19 million by 2015, while the inventory will be about 7 million. It's a rough estimate, and the organization hopes to work with the JCHS to see if its early projections are correct, and to get a handle on the scope of the challenge.

The numbers help frame the crisis, but low-income families and affordable housing developers don't need studies to tell them there is a problem. They see it every day on the streets and in the seemingly endless waiting lists.

When Paseo Senter at Coyote Creek opened in San Jose, Calif., this year, more than 3,000 people applied for the affordable apartments at the 218-unit community developed by Charities Housing Development Corp. and The Core Cos.

Other examples are just as striking.

“Of the 20 properties we manage, the average wait for a one-bedroom apartment in the Berkeley- Oakland, Calif., area is seven years,” says Ryan Chao, executive director of Satellite Housing, a nonprofit affordable housing developer. The average annual income of its residents is $12,000, and most of the group's residents are seniors.

Chao and other affordable housing developers have closed some of their waiting lists because they were getting so long.

Declining production

While demand grows, the supply is shrinking.

The last major federal production program standing is the low-income housing tax credit (LIHTC), says Retsinas.

Created in 1986, the program has spurred the development of more than 2 million affordable housing units across the country. Developers compete for the credits, which they can then sell to banks or other investors to raise equity for their affordable housing projects. The investors use the credits to reduce their federal tax liability.

Unfortunately, the number of LIHTC units being produced has been falling. In 2006, credits were reserved for 131,704 units—71,171 units from the state ceiling allocations and 60,433 units in developments financed by tax-exempt bonds. This is a drop from the 132,449 units that were reserved credits in 2005 and the 140,000 units in 2004, according to figures compiled by the National Council of State Housing Agencies (NCSHA).

Higher construction costs are often blamed for the slipping numbers, but other issues are at play as well.

There is concern that the decline in LIHTC production will continue this year and possibly beyond because of recent financial market turmoil, coupled with the economic downturn. “The disruption in the broader capital markets has had the effect of bringing to almost a standstill the raising of new capital for new LIHTC properties,” says David Smith, CEO of Boston-based Recap Advisors, LLC. “Some of that may be attributable to it being the summer, but more of it is attributable to the withdrawal of over 60 percent of last year's buying volume.”

Several longtime investors, including Fannie Mae, Freddie Mac, and several major banks, have had little or no appetite for credits this year because of their own financial troubles or issues. Their absence from the market has led to higher yields for remaining investors and lower prices going to developers.

Because the LIHTC program is the country's only significant production tool, it is also looked at as the answer to many of the nation's housing problems. The program can serve residents earning up to 60 percent of the AMI, but many developments target poorer residents and those with special needs.

Deeper income targeting often requires more credits per unit, so fewer units can be developed. “It's not bad, but it is an indication there is demand on the resource,” Smith says.

NCSHA is concerned about housing tax credit production levels and is watching the situation to see if states can use all their credits this year, says Barbara Thompson, executive director of the NCSHA.

NCSHA and others pushed for the recent passage of H.R. 3221, Housing and Economic Recovery Act, which includes several moves aimed at strengthening the LIHTC program.

“We think the legislation is the most important [proposal] that has happened to the credit since the 2000 cap increase,” Thompson says. “No question about it.”

Experts note that support for other housing programs has been evaporating. “From 1997 to 2007, housing assistance programs fell from 10 percent to 8 percent of the nation's dwindling domestic discretionary outlays,” according to the JCHS in its latest The State of the Nation's Housing report.

What could be worse than not building enough new homes? Losing existing affordable housing. In a recent 10-year period, the supply of rental units affordable to households earning less than $16,000 shrank by 17 percent, estimated the JCHS.

That's a growing danger as low-cost units lose their affordability to redevelopment and rent hikes or deteriorate so extensively that they can no longer be used.

Why housing matters

Developers and advocates have long believed that affordable housing is more than shelter. Connecting all the dots has been difficult, but the lines are getting clearer and more important as housing needs grow.

Affordable housing can provide significant economic benefits to a community, including creating construction jobs, generating taxes, and increasing activity at local businesses. Oregon Housing and Community Services, the state housing finance agency, reports that each $1 it invests in affordable housing leverages additional investments and spurs a total economic benefit of as much as $10 to $15 across the state.

Research also suggests that good affordable housing can reduce health problems and increase residential stability. It points out that families living in affordable housing are likely to have more money to spend on nutritious food and health care.

Studies have also found that children in low-income families receiving housing subsidies are less likely to suffer from iron deficiencies and malnutrition.

The Center for Housing Policy and Enterprise Community Partners last year identified nine promising hypotheses regarding the positive contribution of affordable housing to health.

“Our sense in general is there is not enough understanding of the social benefits of housing,” says Jeffrey Lubell, executive director of the Center for Housing Policy. The recent analysis is a step toward piecing together the puzzle.

One of the surprises in doing the recent analysis was the large number of hypotheses that emerged, he says.

A dramatic example of the real-life benefits can be seen in Seattle at 1811 Eastlake, a bold development for 75 formerly homeless men and women with chronic alcohol addiction, many of whom were among the city's biggest users of public services. The development follows the Housing First approach, which calls for providing homeless people with housing quickly and then offering services.

In its first year, residents were using about $2.5 million less in crisis and emergency health-care services. Medical expenses were down 41 percent, and jail bookings declined 45 percent, according to findings from a preliminary study.

1811 Eastlake, which is operated by the Downtown Emergency Service Center (DESC), is also making a difference in the community. The number of alcohol-related incidents reported by the Downtown Seattle Association was down 48 percent.

“It means for the broader community that it is much cheaper on taxpayers to invest in and create permanent supportive housing for people who are living with behavioral health disabilities, to build permanent supportive housing than to leave them on the street,” says Bill Hobson, DESC executive director.

The results seen in Seattle are not a fluke. Similar findings were reported in Maine, where a recent cost analysis found that putting homeless people into housing cut the average cost of services they consume in half. Permanent supportive housing reduced emergency room costs alone by 62 percent, according to the study by the Corporation for Supportive Housing, MaineHousing, and the Maine Department of Health and Human Services.

The average annual cost-of-care savings produced in the first year of living in permanent supportive housing was $944 per person, or $94,000 a year for all 99 people studied. Those numbers suggest that housing just 1,000 homeless people would produce close to $1 million in savings per year.

Housing and education

There were 679,724 homeless students enrolled in local school districts in the 2006- 2007 school year. The number is less than the year before, with the difference being attributed to the high numbers from the hurricanes that hit in 2005-2006. Still, the latest number is significant.

Studies suggest that stable and affordable housing provides children with increased opportunities for educational success. The Center for Housing Policy and Enterprise, which looked at the health benefits, also analyzed existing research related to affordable housing and education and came up with seven promising hypotheses.

The first is that good housing reduces the frequency of unwanted moves that lead to children changing schools and having their education disrupted. Studies point out that children who change schools frequently experience drops in their educational achievement. “Helping families afford the costs of owning or renting a stable, affordable home improves their stability and reduces the likelihood they will have to move as a result of eviction, rent increases, or other financial struggles,” notes the research analysis.

Affordable housing is also a way to alleviate overcrowding and health hazards such as lead paint in older homes, which can contribute to poor school performance or missing school.

The Center further points out that affordable housing often provides a platform for residential-based after-school programs. Many LIHTC developments provide afterschool programs and tutoring.

The services available in some affordable communities can make a big difference. Computer classes were important for Anna Montano's son while growing up at La Puente Park Apartments, an affordable housing development owned and operated by Jamboree Housing Corp. in La Puente, Calif. Jamboree's social services division also awarded him a scholarship.

“If I didn't have this place and affordable rent, I don't know where I would be,” says Montano, who drives a van that transports seniors and disabled individuals to appointments. Like Montano, many of the other residents at her development are single mothers. “It's a place to raise your children and feel comfortable,” she says.

The big picture

Understanding the collateral benefits of affordable housing, including providing construction and other jobs, is critical for the industry, especially in raising support from policymakers.

“If we want to succeed on raising housing on the national agenda, we need to do more than assert that housing matters in achieving these outcomes,” Lubell said. “We have to prove it.”

Others agree that a big-picture view is needed. “Policymakers need to put on a wider lens when it comes to seeing what affordable housing means for families' health, for child development, and creating healthy communities,” says Mary Cunningham, director of the Homeless Research Institute at the National Alliance to End Homelessness.

The primary driver of homelessness, she says, is the lack of affordable housing.

That's something Barbara Harvey knows all too well. In Santa Barbara, she stays hopeful that she will find a job and a home.

“I am extremely grateful that people have helped,” she says. “This shows me this country cares about one another. Because of the economy and wretched state of affairs, we are going to have to get together.”


For more about affordable housing's impact, check out September's web extra article Businesses Feel the Housing Pinch.

Increasing Need

The demand for affordable housing continues to grow across the nation, with no signs of easing.

Ӣ In 2006, 39 million households were at least moderately cost burdened (paying more than 30 percent of income on housing), and nearly 18 million were severely cost burdened (paying more than 50 percent). From 2001 to 2006, the number of severely burdened households alone swelled by almost 4 million.

”¢ The number of households with “worst-case housing” needs in 2005 was 5.99 million, comprising 13.4 million individuals. This is an increase of 817,000, or 16 percent, from 5.18 million in 2003. Households with worst-case needs are defined as unassisted renters with very low incomes who are either paying more than half of their incomes for housing or living in severely substandard housing. The group with the largest increase in worst-case needs from 2003 to 2005 was families with children—475,000 households.

Ӣ The proportion of American households that had worst-case needs in 2005 was 5.5 percent, up from 4.9 percent in 2003.

Ӣ All regions of the country shared in worst-case needs, and all regions experienced increases: 208,000 households in the Northeast; 143,000 in the Midwest; 338,000 in the South; and 129,000 in the West in 2005.

Sources: Department of Housing and Urban Development and Joint Center for Housing Studies at Harvard University

Decreasing Supply

Affordable housing production and the number of available affordable units are falling further behind the nation's demand.

”¢ The number of affordable housing units being produced with 9 percent and 4 percent low-income housing tax credits (LIHTCs) has fallen in recent years. In 2004, credits were allocated for 140,000 units—76,326 apartments from the state ceiling and 63,674 in bond-financed developments. That fell to 132,449 units in 2005 and then to 131,704 in 2006. That's a 6 percent drop between 2004 and 2006.

Ӣ Over the 10-year period from 1993 to 2003, the number of units that were affordable to renters in the bottom third of the renter income distribution ($400 per month or less) fell by 13 percent, or 1.2 million units.

Ӣ About 14 percent of the low-cost rental apartments built before 1940 and 10 percent of the low-cost units built between 1940 and 1970 were permanently removed from the nation's stock of affordable housing between 1995 and 2005.

Ӣ Mortgage restrictions and rental assistance contracts covering more than 1 million units of subsidized housing will expire by 2013, and many small, unassisted low-rent buildings are at risk of being lost through demolition, abandonment, or gentrification.

Sources: Joint Center for Housing Studies at Harvard University and National Council of State Housing Agencies