The following is a summary of a white paper on federal housing policy developed by the editors of AFFORDABLE HOUSING FINANCE in conjunction with the magazine's Editorial Advisory Board. AFFORDABLE HOUSING FINANCE and Andre F. Shashaty, founder and former editor-inchief of the magazine, will present this white paper to presidential candidates and key U.S. officials in the coming months.
Why housing must be a presidential priority
The recent rise in defaults and foreclosures is only one manifestation of deeprooted problems that have been building for decades. These underlying problems extend far beyond cyclical excesses in home values and mortgage lending and were not addressed by emergency housing legislation passed in 2008. Likewise, the current shortterm decline in property values does nothing to mitigate the long-term dysfunctions in our housing markets and programs.
Millions of people pay far too much of their income for rent, commute many miles on clogged highways to find an affordable home, or cram into overcrowded apartments in dangerous neighborhoods.
The Housing and Economic Recovery Act of 2008 signed into law in July addresses some of the most urgent challenges of the current crisis, but it does not go far enough to address the fundamental mismatch between the supply of and demand for affordable housing.
While Congress has created new programs, the government has failed to operate existing programs effectively. For example, the Federal Housing Administration (FHA) did little to head off the current foreclosure crisis despite many warning signs, because it was badly managed and burdened with archaic rules and regulations.
The federal government has failed to maintain and preserve the affordable apartments financed with taxpayer money over the last several decades, resulting in the loss of hundreds of thousands of units that are probably impossible to replace. The Department of Housing and Urban Development (HUD) lacks a comprehensive strategy for revitalizing the nation's portfolio of public housing.
We respectfully suggest that the following action steps offer a good starting point for the next administration's policy deliberations.
Give HUD an "extreme makeover"
The next president must take a direct, personal interest in choosing a HUD secretary who can inspire and motivate a demoralized workforce while attracting talented new staff; improve the performance of a bureaucracy that is hamstrung by excessive regulations, staffing shortages, overzealous legal staff, and complex work rules; and change a negative and obstructionist culture into one that collaborates with state and local governments as well as private developers to meet pressing housing needs.
The new secretary should dramatically shift the agency's decision-making structure to rely much more heavily on HUD field offices, giving each more authority as justified by its performance. In recent years, all but the most routine program decisions have required approval by headquarters, creating absurdly long delays and preventing progress on pressing housing needs. High functioning offices should be able to make most decisions without consulting headquarters.
High-level jobs must be filled quickly with highly capable managers, including experienced housing professionals from state and local government, nonprofit housing groups, and the private sector. The president must take a personal interest in who fills critical subcabinet roles including assistant secretary for housing, general counsel, and inspector general.
The president must make it clear that HUD, not the Federal Emergency Management Agency, is the lead agency for "permanent" replacement housing-not emergency shelter-for Americans displaced by floods, hurricanes, and other disasters. HUD had the programs in place to deliver housing assistance to those left homeless by Hurricane Katrina but was not given the lead role until many months after the disaster, a policy blunder of huge proportions.
The 2008 legislation provides nearly $4 billion to deal with concentrations of home foreclosures, but the HUD secretary will need to take a hands-on role. HUD must work much faster than usual and show more willingness to delegate authority to state and local governments to make the desired impact, while simultaneously ensuring all its programs are being used to help deal with foreclosures and their communitywide impact before they cause the decline of what are now marginally healthy neighborhoods.
Nearly 20 percent of HUD's current budget ($5 billion annually) is just to pay for utilities in properties it owns or subsidizes. All regulations should be reviewed with the goal of improved energy efficiency in mind. For example, HUD should change the FHA Sec. 221(d)(4) program to allow loans to include the cost of repairs and replacements that result in increased energy efficiency and challenge Community Development Financial Institutions to channel muchneeded loans to the "greening" of the HUD portfolio.
HUD should also be directed to embrace public-private partnerships. Centralized control of federal housing resources in rigid compliance with categorical and proscriptive statutes and program rules is an ineffective relic. Concerted effort is needed to make HUD staff recognize that housing resources yield better results more efficiently by relying on local and state governments as well as private market real estate principals and players. The lowincome housing tax credit (LIHTC) is a great example; for more than 20 years, it has depended on states and private-sector participants to ensure delivery of quality housing and compliance with federal rules.
Build a better budget
To stop the loss of affordable housing, the president should ask Congress to eliminate the "exit" tax on investors in existing federally subsidized rental housing if they agree to sell to buyers who permanently preserve the units as affordable; increase the federal housing tax credit from 4 percent to 9 percent for a preservation project's acquisition; enact a preservation program for HUD, the U.S. Department of Agriculture (USDA), and LIHTC projects that would offer grants or soft loans to improve energy efficiency and allow them to compete against buyers who would convert them to market-rate rental units; direct the HUD secretary to expedite decision-making on all matters related to preservation; and expand the LIHTC program with additional authority specifically earmarked for preservation of public and federally assisted housing.
The president should seek legislation to make FHA a wholly owned government corporation within HUD, modeled after the Government National Mortgage Association. To encourage production of low-cost homes intended for first-time buyers, a new homeownership tax credit should be aimed at builders not buyers, addressing the need to increase the supply of low-cost housing. The Housing and Economic Recovery Act of 2008 included only a very short-lived credit for homebuyers, failing to address the long-term problem of inadequate production of affordable homes.
To reverse years of neglect of rural America's housing problems, the president should 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 LIHTC projects in counties with low median incomes.
Directing the dialogue
The president should convene a "national conversation" that would include public hearings in all U.S. regions covering critical housing and development issues such as examining policies at all levels of government that promote homeownership while ignoring or curtailing development of rental housing, cooperatives, and other forms of housing tenure; coordinating federal policy on housing and mass transit to address the household trade-off between saving on housing costs and spending on transportation; financing an aging urban infrastructure; and integrating housing and health care for an aging population and other vulnerable groups, including veterans, which could yield substantial budgetary savings.
The increase in home mortgage foreclosures, the decline in home equity, and the weak economy create a fertile climate for policy change. However, unless the new president takes a personal interest in fixing the terrible flaws in current federal housing policy and programs, new programs enacted in 2008 will be of limited value. Unless the president thinks boldly about new ways to address fundamental problems with housing markets, the long-term mismatch between price increases and wage increases will continue, and there will be new crises each time the gap between the cost of housing and the ability to pay for it peaks and markets adjust. Likewise, unless decisive steps are taken to bridge the affordability gap, millions of Americans will continue to pay a high personal price, and many communities will suffer.