Is Affordable Housing Possible?

Al Jacobs

One of the more comprehensive articles on America’s affordable housing crisis recently appeared in the New York Times. Its title: “As the affordable housing crisis grows, HUD does little.” Written by Glenn Thrush, an experienced journalist, pundit and author, as well as a former White House correspondent, it’s refreshing to read a well-researched report on this highly charged subject that’s neither a one-sided sales pitch nor a political diatribe.

The very first paragraph of the Thrush commentary, inserted below, presents a dismal picture of the circumstances facing this nation.

“The country is in the grips if an escalating housing affordability crisis. Millions of low-income Americans are paying 70 percent or more of their incomes for shelter, while rents continue to rise and construction of affordable rental apartments lags far behind the need.”

The details he next reveals provides evidence little if any remedial action is taken at the federal level. As for the reason, it seems to be a fundamental discord between the office of Housing and Urban Development, headed by Secretary Ben Carson, which considers federal aid as a temporary crutch for families moving from dependency to work, and the many officials who run housing programs across the nation who see federal assistance as a permanent hedge against evictions and homelessness.

The Secretary’s most significant policy change, designed to reduce the federal government’s long-term financial involvement in homelessness, is his proposal to increase the maximum rents paid by the poorest households in public housing. This change will effectively alter the provision that low-income tenants will spend no more than 30 percent of their net income on rent. You might note tying rents to income has been a central part of the federal subsidy system since 1981. A survey by the National Low Income Housing Coalition reports a worker earning the state minimum wage can afford a market-rate one-bedroom apartment in only 22 of the nation’s 3,000 counties.

What sort of federal programs are instituted to remedy these problems? During the 2008 presidential campaign, then-candidate Obama proposed creation of an affordable housing trust fund for construction of new units. Not instituted until 2017, it provides $200-million for the construction of 1,000 units each year. However, with 12 million Americans now spending more than half their earnings on housing, this token gesture is essentially meaningless.

A sister program, the Capital Magnet Fund, which leveraged private investment to create 17,000 new units, is targeted by President Trump’s budget director, Mick Mulvaney, for a $141.7 million cutback in funds. And in March of this year, an additional $425 million to the HOME Investment Partnerships Program, providing formula grants to states and localities that communities use – often in partnership with local nonprofit groups – to fund building, buying, and/or rehabilitating affordable housing, was rejected by Republican and Democratic negotiators.

Whatever the reasons for inaction, it’s fair to say, despite the hoopla and political posturing, little of consequence ever materializes.

Let’s briefly turn away from government and look more closely at what the private market is doing to remedy the shortage of affordable housing. Actually rental unit construction is not in the doldrums. In many large cities across the nation, new apartments are being aggressively added.

However, what is built does not qualify as affordable. From 2001 to 2013, the number of rental apartments for high-wage earners increased by 36 percent, while units for poor people shrank nearly 10 percent. There is, of course, a valid reason for this. It relates to two factors: the cost of construction and rental values. If, for example, it’s not possible to build an 800 square foot apartment for less than $200,000, and if to provide an adequate return for the investor the unit must rent for one percent of its cost monthly – or $2,000 – then a tenant must earn $8,000 per month if the rent is not to exceed the recommended 25 percent of the tenant’s monthly income.

Quite clearly, new apartments will become available only in areas where six-figure annual incomes are prevalent. Obviously no units will be built for the poor – unless some sort of rental subsidy makes up the difference.

With the brief look we’ve just taken at the private housing market, it’s clear there’ll not be many entrepreneurs eager to tackle the affordable housing crisis without some form of subsidy payments. For this reason, we’ll get back to government to see whether any of the methods, either proposed or currently in effect, actually make sense both socially and economically.

Specifically, might it be possible to fashion a program whereby a massive number of persons with little or no income or assets – and who will most likely remain this way indefinitely – can be housed in habitable conditions acceptable to the judiciary, in a fashion not disruptive to the occupants of the areas where they reside, and at a cost the taxpaying public will tolerate?

We’ve posed a complex question, further complicated by a factor not acknowledged by the bureaucrats and statisticians. It’s that, despite a constant reference to the nation’s growing prosperity and low unemployment rate, more and more persons are finding their incomes unable to keep up with an increasing cost of living. In reality, the official unemployment rate, established by the Labor Department of the federal government, is contrived to show a deceptively low percentage.

As for our rising economy, it stems from increased corporate profits, the result of reduced labor costs due to technology and the transfer of functions beyond our borders. I’m convinced there’ll be a continuing growth in the number of Americans unable to afford housing.

As for government’s approaches to the problem, they’re mostly nonsense. Billion dollar bond issues result in construction of quarter-million dollar residences to house the destitute. Judges issue rulings to remove the homeless from encampments with no plans for their relocation. County boards of supervisors instruct communities to fabricate tent cities in residential areas, incurring the wrath of local residents.

Of all the devices I’ve witnessed to provide for those with insufficient funds, one makes sense. It’s HUD’s Section 8 housing voucher program, currently enabling 2.1 million low-income families to rent private apartments they could not otherwise afford.

Let me describe one typical project together with actual numbers. It’s a 64-unit apartment complex in Indio, California – each 2-bedroom, with average rents in the $900 to $950 per month range. HUD supports six Section 8 tenancies, paying federal subsidies of $616, $747, $617, $719, $275 and $685. Thus, six families are properly housed at an average monthly cost to the taxpayer of $610 per family. No massive front-end costs are incurred; supervision is provided by the County of Riverside; and the property owner is receiving a fair market return on his investment.

If we, as a country, were required to assist 20 million families – or about one fourth of our total population – as we do on the same basis as those six families in Indio, the total annual cost to the taxpayer would be $146.4 billion. As immense as it sounds, it’s a figure well within our bounds, constituting only four percent of our total 2018 estimated federal revenue of $3.654 trillion. The point I’m emphasizing is that a practical solution to the affordable housing crisis exists, but only if the political will is present.

A final comment: Quite candidly, I don’t foresee our local, state or federal leaders taking the sort of steps necessary to remedy homelessness. As with most courses of action routinely taken by elected representatives at all levels, the matter will continue to fester out of control, as it has these past many years, while every involved party in the fracas devotes his or her time and energy to blaming others for whatever appears to be the cause of the problem.

Sorry, but this is how public service is normally conducted.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. You may view it on


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