Subcommittee on Housing and Transportation

Hearing to Examine Proposals to Promote Affordable Housing

Prepared Statement of
Ann B. Schnare

Center for Housing Policy
A nonprofit research affiliate of the National Housing Conference

June 20, 2000

Mr. Chairman and members of the Housing and Transportation Subcommittee, I wish to thank you for the opportunity to appear before you today on the challenge of preserving and increasing the supply of affordable housing in this nation. I represent the Center for Housing Policy (CHP), which is the research affiliate of the National Housing Conference (NHC). NHC is the nation's oldest and most broad based advocate of affordable housing. Its member corporations, organizations and individuals represent all elements of those who produce and preserve affordable housing.

I would like to do two things today --- present the findings of CHP's recent report, Housing America's Working Families and propose some recommendations for preserving and increasing affordable housing.


CHP's report was prepared by Mike Stegman and several of his colleagues at the University of North Carolina at Chapel Hill. The report tests a simple premise: namely, that working families should have access to decent, affordable housing. For most of the last 20 years, federal housing policy has implicitly or explicitly linked the housing problems of American families to issues of poverty and welfare dependency. We wanted to know the extent to which moderate income, working families were experiencing pressing housing needs.

We found that, in 1997, almost 14 million families had a critical housing need --- either they spent more than 50 percent of their incomes on housing or they lived in a seriously substandard unit. Twenty-seven percent of these families were elderly. Another 30 percent were on welfare. And another 21 percent had only a marginal attachment to the labor force.

But, despite the current unprecedented economic prosperity, the remaining 22 percent --- about 3 million households --- were "working families" earning between $10,700 a year (the equivalent of a full time job at the minimum wage) and 120 percent of the area median income (which is over $75,000 in Los Angeles). Most of the housing needs of these working families are related to affordability. About 76 percent paid more than half of their incomes on housing, while 24 percent lived in seriously substandard housing.

Working families with critical housing needs defy the stereotypes that too often surround discussions of housing policy. Over half are homeowners. The number in the suburbs is greater than the number in the cities. And they include teachers, police officers and firefighters, as well as service workers.

The housing needs of working families are growing rapidly as relatively modest income growth fails to keep pace with rapidly rising housing costs usually caused by significant shortages in modest priced housing. Between 1995 and 1997, for example, the number of working families with critical housing needs increased by 440,000 --- a 17 percent jump in just two years. And, it is very likely that the most recent rate of increase has been even greater. Nationally, about one in ten working families has a critical housing need. However, the figures are considerably higher in many parts of the country. For example, in 1998, the percent of working families with a critical housing need was 25 percent in the San Francisco Bay Area, 20 percent in Tampa and Boston, and 16 percent in Washington, DC.

The reasons for these problems vary from place to place. However, it is clear that housing policy needs to be broadened to better address the needs of America's working families. Government, business, and the broader community all have a clear interest in improving access to housing for these vital workers. And, all have a role to play. The solutions will vary, but the challenge is the same. Healthy communities must offer their working families access to decent and affordable housing.

The lack of decent, affordable housing is increasingly seen as a significant impediment to local economic growth. In Los Angeles and Orange counties, for example, more than 278,000 new jobs have been created since 1994, but only 78,000 new homes have been built.


Now, Mr. Chairman, I would like to turn to recommendations for meeting the challenge faced by this nation of producing and preserving affordable housing. Before I do that; however, I would like to propose four principles that should underpin any specific policy recommendations. The first principle is to expand public policy related to the allocation of resources for affordable housing to include the rapidly increasing number of moderate-income working families who have critical housing needs. We must continue to meet the needs of lower income families who have historically had the greatest difficulty finding decent, affordable housing; however, we also must face the fact that working families of moderate means are finding it increasingly difficult to find and maintain a home or locate an affordable rental unit. In our opinion, this is not an "either or" proposition. Both needs are real and must be recognized and addressed. The second principle is that we must strengthen and broaden the awareness and support of the broadest possible constituency for meeting this challenge. America's government, business and community leaders and its citizens must better understand how important "decent and sanitary" housing in a suitable living environment for all Americans (as stated in the 1949 Housing Act) is to the continued vitality of this country's communities and neighborhoods and its economy and quality of life. The third principle is that the federal government and the state and local providers of affordable housing must get their roles straight. The federal government should provide a portion of the resources and guide the performance of those providers. The federal role is not to force or dictate solutions. The corresponding role of the state and local housing providers, along with their allies, is to devise specific solutions and to gather additional resources. The fourth principle, which relates to the third, is that solutions for meeting this nation's affordable housing needs will vary from place to place. Programs designed and implemented at the federal level must provide resources and guidance that encourage and support that diversity.

With those principles in mind, let me suggest the following recommendations:

1. First and foremost, those programs that have proven records for producing and preserving affordable housing must be strengthened and provided with significant additional resources. Such programs as Low Income Housing Tax Credits (LIHTCs), Private Activity Bonds (PABs), and HOME have demonstrated how high quality, mixed income affordable housing can be developed at the local level with strong support by the neighbors of those developments. An unprecedented bipartisan coalition of sponsors for increasing funding for the LIHTCs and PABs exists in both the House and the Senate. Approval of those increases, which don't even match inflation since their initial enactment, must occur before this Congress adjourns. Another broad-based coalition supports increasing the HOME program. That too must occur during this Congress.

2. Additional proven tools, which often work in conjunction with LIHTCs, PABs, and HOME, must also be strengthened. New Section 8 units are badly needed including those that are project based.

3. FHA must immediately improve its multi-family programs. Further, FHA should be encouraged to reengineer its business plan so it becomes more of a partner and enabler of others delivering financing through such initiatives as risk sharing, reinsurance, and top loss protection in both the single and multifamily areas. Its efforts to do more business on a wholesale basis should be expanded. And, its excess proceeds should be made available for supporting more affordable housing.

4. The power of this nation's financial institutions must be more strongly pointed towards supporting affordable housing. The Community Reinvestment Act must be preserved and appropriately strengthened. The Government Sponsored Enterprises (GSEs) must be encouraged to play stronger roles. The affordable housing goals for Fannie Mae and Freddie Mac are currently being revised upward, and Congress should ensure that both institutions are encouraged to do the most affordable housing business possible within their agency mandates and investor responsibilities. The Federal Home Loan Bank system has established grant, debt and secondary market mechanisms that support affordable housing. More such activities should be encouraged while preserving the creativity of the regional banks. And, additional participation in affordable housing by non-covered institutions should be rewarded by providing broader markets and good returns for such products.

5. Many states and local jurisdictions have established Housing Trust Funds to capture revenue from many sources for affordable housing. An analogous trust fund should be established at the federal level. Such a trust fund could become the channel for capturing and distributing such resources as excess FHA proceeds. It could also further encourage and strengthen affordable housing efforts at the state and local levels by providing incentives and developing partnerships with various entities.

6. Oftimes a little additional funding goes a long way, especially when preserving affordable housing that already exists. Thus, support for the matching and nonprofit preservation grants contained in S2733 and HR202 is important. Both these programs are modest in size but are designed to generate significant additional funding at the state and local levels.

7. As described in the our report, Housing America's Working Families, many families facing critical housing situations are homeowners. Therefore, additional policy emphasis should be placed in this area. We recommend better use of the tax code for lower income homeowners through such devices as a direct tax credit for borrowers who don't get the benefit of the mortgage interest deduction because they don't itemize their tax returns. Such a credit would provide the badly needed cash for home repairs and improvements by those cash-strapped borrowers. An additional innovation would encourage lower cost homeownership by enabling investors to receive tax credits in return for purchasing soft down payment loans or providing lower cost home construction.

8. Finally, and probably most importantly Mr. Chairman, we must encourage and reward local and state efforts to produce and preserve affordable housing. We can't forget that it is local taxing, planning, and zoning decisions that really determine what is done or not done about affordable housing. And, it is precisely in those communities where affordable housing for working families is most needed that the most opposition to such housing exists. The challenge is, therefore, to fashion the right kind of incentives that will encourage those communities to recognize and support the production and preservation of affordable housing. Proven tools exist --- inclusionary zoning, tax sharing plans, local trust funds, regional strategies, employer support, and others that I'm sure will be created. The challenge facing this Committee is how to reward and support those absolutely necessary activities while recognizing the importance of local diversity and creativity. Such tools as challenge grants, incentive funding formulae, Consolidated Plan improvements, and tax benefits are among the tools we would suggest you consider.


In closing, Mr. Chairman, let me emphasize two things. First, this nation faces unprecedented affordable housing challenges. Some would contend that current conditions rival those faced by this Nation's leaders over 50 years ago when the landmark 1949 Housing Act was enacted. Second, we have learned much about what works to produce lasting, high quality affordable housing that serves the needs and aspirations of this Nation's housing-needy citizens. We have developed many proven tools at the Federal level and many analogous tools at the state and local level. We know how to solve this problem. To paraphrase, "It ain't rocket science." We are not lacking in programs or expertise. What we need are more resources. The few additional refinements on the existing system as proposed above will sharpen and enhance those tools, but what we currently lack is the will to meet this challenge head on. This lack of will is based on a lack of understanding among our leaders, at all levels, and its citizens, to recognize how important good, affordable housing is to all those things we cherish --- strong families, safe neighborhoods, good education, and vital economies. The National Housing Conference and the Center for Housing Policy pledge themselves to change that current lack of understanding into strong support for the effort shown by this Subcommittee to renew the pledge of "decent and sanitary housing in a suitable living environment for all Americans." We thank you and the members of the Subcommittee for the opportunity to reaffirm that pledge and to emphasize the importance of these issues.


The Center for Housing Policy (CHP) the research affiliate of the National Housing Conference (NHC), presented a summary of its recent report, Housing America's Working Families and recommended a range of policy proposals for producing and preserving affordable housing.

Housing America's Working Families highlighted the housing challenges faced by America's working families who are faced with critical housing needs. Almost 14 million of this nation's families face critical housing needs, even in this time of unprecedented economic prosperity. Three million of those are working families, who are paying more than 50 percent of their income for housing. More than half of these families are homeowners and a greater number live in the suburbs than in the cities. Many are public and private service workers. Local situations vary. But the report makes clear that government, business and the broader community have an important interest in improving access to housing for these vital working families.

The recommendations advanced by the CHP and the NHC are based on four principles: (1) Broadening the public policy dialogue concerning affordable housing to include the growing number of moderate-income working families; (2) Strengthening and broadening the constituency which supports meeting this challenge; (3) Clarifying federal, state and local roles so that the federal resources guide and support state and local initiatives; and (4) Encouraging and supporting diverse solutions to the challenge.

Specific recommendations advanced are:
1. Expand funding for such proven programs as Low Income Housing Tax Credits, Private Activity Bonds and HOME.
2. Fund additional Section 8 vouchers and improve project basing.
3. Make FHA multifamily and single family programs work better.
4. Encourage GSEs (Fannie, Freddie, and FHLBs) to continue to do more.
5. Establish a National Housing Trust Fund.
6. Capture excess FHA proceeds for affordable housing.
7. Authorize and appropriate funds for preservation and nonprofit matching grants.
8. Help lower income homeowners by using innovative tax code enhancements.
9. Maintain and strengthen CRA.
10. Reward local jurisdictions that support affordable housing through taxing, zoning, and planning decisions, particularly those that encourage site availability.

The CHP/NHC statement concluded with a pledge to help this nation's leaders to strengthen their will to meet and surmount this challenge.

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