Why Affordable Housing Hasn’t Worked and How to Start Fixing It
July 5, 2017 Ricardo Álvarez-Díaz
affordable housing

There’s no quick fix for the affordable housing crisis, but we can begin to change that.

Housing affordability is one of the biggest problems affecting our society today, one that is difficult to define and even more difficult to solve—hence our current affordable housing crisis.

There is not enough affordable housing in the United States. For every 100 low-income households in need of affordable housing, there are 29 adequate, available units, according to Mapping America, a project by the Urban Land Institute’s Assisted Housing Initiative.

While demand for affordable housing continues to grow, federal, state and local government agencies often are at odds on how to tackle the problem and how to use the resources available. Without the help of government subsidies for acquiring land, building, operating and maintaining affordable housing, creating these units is extremely challenging, if not impossible.

Why It Doesn’t Work

Whether affordable housing is failing or not and the reasons for failure are highly controversial. Some industry experts claim the concept of affordable housing itself is flawed. Many maintain it has failed because of poor management. Others believe that government subsidies are ineffective and counterproductive.

For decades, the U.S. has tried numerous solutions: philanthropic projects, public housing, federally underwritten mortgages, housing vouchers and federal tax credits. All of them have helped and failed in one way or another.

The private market cannot afford to create new affordable housing. Most developers rely on loans to fund their projects, loans that are out of reach when the units cannot generate enough revenue to pay lenders. Affordable housing is not affordable when the cost of building the units exceeds what the people meant to live there can afford to pay.

Research by the Urban Land Institute and National Housing Conference found that even after making huge project cuts, building the units for free and spending nothing on maintenance, the projects were still millions of dollars short. The rent that extremely low-income households (whose income is 30 percent of area median income or less) can pay is not enough to cover the costs of operating and maintaining the buildings.

To fund affordable housing, developers also use tax credits or grants, but eligibility depends on the cost of creating the units and the rent to be charged relative to the average income in the area. This funding is not always available because the government has limited resources for tax credits and grants.

How We Can Help It Work

Since raising the rents for affordable housing makes it not affordable, and there is only so much developers can cut from the costs of creating these units, the only solution is through public-private partnerships, with the government devoting additional public resources to subsidies.

Politicians and other public officials need to get on the same page to strengthen public support for land contributions, local zoning decisions, rental assistance programs, tax credits and housing trust funds, among programs. Tackling this complex problem will require more than one type of subsidy to support both sides: developers and residents.

The following are recommendations from industry experts to help solve the problem of housing affordability:

  1. Reduce minimum lot sizes and relax density restrictions in single-family zones; expand guest zoning.
  2. Eliminate inclusionary zoning, which makes projects less profitable for developers, slowing affordable housing development.
  3. Reduce the cost of land through community land trusts or public-private partnerships
  4. Buy, renovate and preserve existing housing.

There is no quick fix or panacea. Given their limited budgets, state and local governments can only do so much. Developers’ pockets are not endless. Household income does not magically increase, nor rents conveniently drop. Only by combining our efforts can we hope to make a dent in this challenging problem.

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