Thursday, February 22, 2018

Do State Income Taxes Affect Home Values?

by David Luberoff
Deputy Director
State and local governments account for about 40 percent of all tax collections in the United States, but federal taxes command most of the attention in academic literature. In a new Joint Center working paper, Nathaniel Hipsman, a doctoral student in economics at Harvard who also is a Joint Center Meyer Doctoral Fellow, tries to fill this gap by investigating the effect of state income taxes on home prices.

To do so, he uses Zillow data on housing costs in over 11,000 ZIP Codes going back to the mid-1990s. While these data don't cover the entire country, they do cover more than half of the nation's residents. Hipsman focuses most closely on house prices in the more than 500 ZIP Codes that cover areas on the borders between two states. Using the TAXSIM model developed at NBER, Hipsman considers, for each tax year, the total income tax bill (federal plus state) that the same household would face were they to live in another state. Analyzing relative changes in these tax bills over time allows him to estimate whether and how changes in state tax burdens affected home values.



At first glance, the data seem to indicate that notable changes in state tax rates (or differences in bordering states' tax rates) could have dramatic impacts on home values. One of Hipsman's models, for example, indicates that a one percent drop in taxes might cause as much as a five percent increase in home values. However, Hipsman cautions against making too much of that finding. "Ultimately," he writes, "the evidence is inconclusive; standard errors are large, and different specifications lead to different conclusions."

This inconclusiveness, he adds, shows that while border-pair studies, such as his analyses, can offer important insights about policies governing taxes and spending, the results of those findings should be carefully tested before they are used for policymaking. "Obtaining a good estimate" of how changes in taxes affect home values, he concludes, "is important of further study."

Friday, February 16, 2018

How HOPE Creates Opportunity in Rural Areas

by Alan Branson
COO, HOPE
&
Jeremy Avins
MPA/MBA candidate,
HKS/Stanford
The papers from the third panel of the Joint Center’s symposium on A Shared Future: Fostering Communities of Inclusion in an Era of Inequality focus on policies that might increase access to opportunities in three major metropolitan areas (Chicago, Houston, and Washington, D.C.). But in many rural areas, as well as many non-major metros, the challenge is often less about developing policies to create equitable access to the opportunity that exists than it is about creating opportunity in the first place—and then ensuring more people can afford to access it.

We believe the experiences of HOPE, a family of development organizations dedicated to strengthening communities, building assets, and improving lives in economically distressed parts of Alabama, Arkansas, Louisiana, Mississippi, and Tennessee, show how a capital access strategy can help people in non-major metro and rural markets where, compared to high-growth markets, zoning and land-use policy tend to be less comprehensive, homeownership is more common, and gentrification is less of a concern. Even in rural markets where integration is difficult due to the physical isolation that has developed for many communities of color, homeownership strategies facilitated by access to affordable capital can help households acquire other benefits associated with homeownership, including the possibility that individuals will invest in “places” as way to create communities of opportunity.


Comprised of a regional credit union (Hope Credit Union), a loan fund (Hope Enterprise Corporation), and a policy center (Hope Policy Institute), HOPE has provided financial services, leveraged private and public resources, and shaped policies that have benefited more than a million residents in one of the nation’s most persistently poor regions. Much of HOPE’s work has focused on increasing access to homeownership, which has long been viewed as a key means of increasing wealth accumulation. In particular, HOPE provides a manually underwritten, high-LTV affordable mortgage product. The product allows HOPE to serve borrowers who have been underserved by conventional lenders such as minorities, women, and/or first-time homeowners (Figure 1).

Figure 1: HOPE Borrower Characteristics



Source: HOPE analysis of HOPE Mortgage Lending Portfolio for January 2011-June 2017; National Association of Realtors®, "First-time Homebuyers: Slightly Up at 32 Percent of Residential Sales in 2016."

HOPE’s experiences also shed light on efforts to increase access to “opportunity communities” – places with more resources, less crime, better-quality schools, etc. Recent research by Raj Chetty and Nathaniel Hendren suggests that growing up in such places “has significant causal effects” on a child’s “prospects for upward mobility.” In fact, since 2011, more than 50 percent of HOPE’s borrowers bought a house in a census tract other than the one in which they had previously been renting. Moreover, those tracts generally had higher household incomes, higher median home values, higher average educational attainment, and better schools than the tracts the buyers were leaving. Interestingly, while the “movers” tended to be younger and black (compared to borrowers who did not move from their census tract), there were few differences in the incomes or home values between the two groups (Figure 2).

Figure 2: HOPE Borrower and Community Characteristics
Related to Borrower Relocation


Source: HOPE analysis of HOPE Mortgage Lending Portfolio for January 2011-June 2017

Moreover, the focus on moving to opportunity areas should not obscure the significance of the many borrowers who stayed in the same census tract. Research suggests that homeownership is predictive of increased community participation and other positive social outcomes, a finding that is consistent with our experiences among borrowers who did not move to another census tract.

In addition, the large number of people making commitments to their existing communities reminds us that, as Chetty and Hendren note, efforts to increase opportunity should focus both on giving people a chance to move to opportunity and to finding “methods of improving neighborhood environments in areas that currently generate low levels of mobility.” This view is echoed and amplified by Houston Mayor Sylvester Turner who, as noted in Bill Fulton’s paper, has “argued forcefully that children in underserved neighborhoods should not have to move to high-opportunity areas in order to find a path to success in life.”

HOPE’s experience is that investing in people and investing in place are both necessary, and each is insufficient on its own. Moreover, HOPE’s efforts underscore the importance of creating and ensuring access to opportunities in rural and non-major metro areas that currently lack them. Creating these opportunities requires broader access to capital at least as much as it requires thoughtful land-use policies, and it requires meeting people where they are as much as it requires helping them move.

Monday, February 12, 2018

Fifty Years After the Fair Housing Act was Passed to Combat Segregation, We are Still Struggling to Find the Will to Implement It

by Moses Gates
 Regional Plan Association
In the third set of papers from the Joint Center’s A Shared Future symposium, published last week, researchers familiar with three cities were asked the question, “What would it take to make new and remake old neighborhoods so that regions move decisively toward integration?” Ultimately, the underlying answers—reducing income inequality, combating both institutional and individual racism—are social. But as land-use planning has been used as a main tool for both creating and maintaining segregation and housing discrimination, it seems evident that the implementation of solutions could go through this same route.

From this perspective, all respondents identified a similar problem that keeps their regions segregated: too much control of land-use on a local level and not enough on a regional or state level. Marisa Novara and Amy Khare, when talking about Chicago, write that, “If the goal is more integrated communities… land use decisions cannot be concentrated solely in the hands of local actors.” Willow Lung-Amam notes that the policies which directly encourage integration—such as fair share policies around subsidized housing—are “likely to face fierce opposition” on the local level. And William Fulton observes that while Houston is a bit different, with its lack of zoning, this does not necessarily shift the land-use control balance. Indeed, instead of zoning restrictions, local communities simply switch to restrictive deed covenants, historic district designations, and minimum lot coverages to limit development, while the lack of zoning means that Houston and surrounding jurisdictions cannot leverage the power of zoning via policies such as inclusionary housing requirements.


Apartments in Houston, Texas (Pixabay)

With the problem identified, it would seem that solutions proposed would seek to challenge it. But this is where the authors take a small fork in the road. Instead of answering the “
what would it take?”question, they all answer “what can we do?” After acknowledging the political infeasibility of anything that would seriously challenge the institution of local land-use controls, they all present a series of various granular technical fixes, such as adjustments to determining awards of Low-Income Housing Tax Credits, easier permitting for accessory dwelling units, enforcements of fair share allocations financing for vacant home rehabilitation, housing voucher portability, funding for anti-displacement programs, and using the various governmental points of leverage to require more affordable housing. Rolf Pendall, in his summary, notes that the targeting of these solutions reflects the political fragmentation of a particular region, with most emphasis on the places where these incremental changes would impact the largest number of people. He describes this underlying principle as a decision to “focus energy for political change where the payoff is greatest.”

But are we focusing our energy this way when we write off serious change at the metropolitan, state, or even federal level? All of the solutions proposed are essentially extensions of policies that exist, to one degree or another, in other places in the United States. Yet none—either in combination or individually—have been shown to move a region “decisively toward integration.” As Douglas S. Massey and his colleagues have documented, virtually every major metropolitan region in the country still suffers from unacceptably high levels of residential segregation, in most cases only seeing modest improvements since the passage of the Fair Housing Act. Neighborhoods—whether in places with or without these policies—stay segregated, and when they are integrated it’s generally just a waystation on the road from one type of segregated neighborhood to another. It’s clear that the way forward is something new and large (and likely disruptive and politically contentious) that would weaken local land-use control and enable larger entities like state governments or regional planning bodies to provide real housing choices and combat segregation.

Implicit in this is the idea that the interest in maintaining segregation lies with individual localities, but that the sum of the localities (in the form of metropolitan regions or states) are invested in combating it. While not discounting the fact that many people say they desire integrated neighborhoods in the abstract while opposing them in their own community (something anyone who has ever attended a local zoning meeting in an exclusionary area can attest to) the math is obvious. Opposition is concentrated in localities with a minority of the population, and this opposition is the roadblock to creating truly integrated regions.

This is a something that can be overcome. Surrendering to a powerful and vocal minority is the action of a weak and disinterested majority. And despite the benefits of neighborhood integration—such as better educational outcomes for all students—this unwillingness to seriously challenge residential segregation has persisted, especially among the white majority that has not borne the brunt of its negative effects.

But this may be starting to change. The idea that local land-use control is sacrosanct is coming under question. For instance, a serious challenge came earlier this year when California State Senator Scott Wiener, a San Francisco Democrat, introduced California Senate Bill 827, which would essentially override local zoning by requiring municipalities to put a floor on the size of developments permitted near transit. While unlikely to pass in its current form, the bill, which has two cosponsors, is already gathering significant political support around the state and interest across the country. This bill is far from a complete mechanism to combat residential segregation.  It does not directly address racial segregation (and there are even concerns that it will negatively impact historically minority neighborhoods neartransit) and is mainly lauded for its potential impact on housing supply and the environment, not segregation. But it would allow more housing in many exclusionary municipalities with the infrastructure to support it, and it does show the ability to use a tool—direct state overrides of exclusionary zoning practices—that we seem to purposefully leave in the toolshed.

Ultimately, and sadly, we do not yet have any real tool that will move any metropolitan region decisively toward integration—at least not any tool we’re willing to use to its full effect. But hopefully, we are at the place where that may start to change. In many ways, we are at a point similar to the beginnings of the civil rights movement, which succeeded in overcoming the unwillingness of a larger political entity (the federal government) to use its power to override the racist practices of smaller political entities. And recent tentative steps, geared at slightly pushing the envelope of the politically possible—such as the Obama-era HUD’s Affirmatively Furthering Fair Housing (AFFH) rule and the increasing willingness of at least a few states to explore overrides of municipal zoning control—in some ways mirror the early civil rights bills of the 1950s. In moving forward, we should look back on what moved us from these tentative steps in the 1950s toward the broad ones of the 1960s, mainly the organization, enfranchisement, and political power that the civil rights movement produced, and see how we can recreate it for modern times. Without this, “what will it take” and “what can we do” will stay questions with different answers.



Papers from the A Shared Future symposium are available on the JCHS website

Thursday, February 1, 2018

Is Rent Growth Finally Slowing?

by Elizabeth La Jeunesse
Research Analyst
Rents rose faster than inflation in almost three-quarters of the nation's major housing markets, according to analyses done for our latest America's Rental Housing report. However, there are multiple signs that while rents are still on the rise, the rate of increase is slowing in most areas, and the long-standing gap between the increases in rents and rise in the cost of other goods is shrinking.

In particular, as our new interactive chart (Figure 1) shows, according to the US Bureau of Labor Statistics’ (BLS) Consumer Price Index, contract rents for primary residences (which covers the broadest range of rental property types) rose by 3.8 percent annually in both November and December 2017. This not only was a tenth of a percentage point lower than the annual rate in September and October (3.9 percent), it was also the first sign of easing rent growth in the CPI measure in over seven years (since late 2010, when rent growth slowed to a near standstill).

Figure 1: Rent Growth Relative to Inflation




The chart also illustrates that, despite slowing somewhat, increases in rents still outpaced increases in the cost of non-housing goods nationally, regionally, and in all but one of the 25 metros tracked by the BLS (the exception was Anchorage). However, the national gap, which expanded from mid-2012 to mid-2016, has fallen from 4.9 percentage points in late 2016 to 2.3 percentage points in late 2017.  Moreover, the gap between increases in rents and inflation in non-housing goods narrowed in all four regions of the US, and in 22 of the 25 metros tracked by the BLS.  

Data on rents in professionally managed apartments in 100 markets, provided by RealPage through the third quarter of 2017, also indicate that nominal rent increases outpaced inflation in almost three quarters of the 100 markets tracked by that firm. However, as another of our interactive tools shows (Figure 2), the pace of growth slowed in most areas. Indeed, in 70 of these same 100 apartment markets, average annual rent growth as of the third quarter of 2017 was less than annual rent growth as of the third quarter of 2016. The differences were particularly notable in several markets in the West and South. In Nashville, for example, apartment rents, which grew by 7.0 percent annually through the fall of 2016, rose by only 1.1 percent through the fall of 2017. Similarly, in Portland, rents rose by only 2.1 percent through the fall of 2017, compared to 6.8 percent for the same period in 2016.

Figure 2: Rent Increases Moderated in Many But Not All Markets in 2017


These shifts are significant because changes in rent growth for professionally managed units tend to be a leading indicator of broader trends in rents and, as such, can help identify turning points in the national rental market. Therefore, looking forward, the critical question is whether (and how quickly) the slowdown that appears to be occurring in professionally-managed markets will broaden to the rental market’s other segments and, if it does, whether the gap between the pace of rent increases and non-housing inflation rate will close or even be reversed. 

Friday, January 26, 2018

What Would it Take to Overcome Exclusionary Barriers, and Promote More Affordable Options in All Neighborhoods?

by Katie Gourley, Graduate Research Assistant

What would it take to make new neighborhoods, and remake old ones, so that large, complex, metropolitan areas moved decisively toward racial and economic integration? What local and regional governance strategies could most effectively overcome barriers to these goals?

Today, we published four papers exploring these questions. The papers—an overview essay and case studies of Washington, DC, Houston, and Chicago—were presented at A Shared Future: Fostering Communities of Inclusion in an Era of Inequality, a symposium we hosted in April 2017. The four papers are:


Rolf Pendall,
Urban Institute
Pathways to Inclusion: Contexts for Neighborhood Integration in Chicago, Houston, and Washington, by Rolf Pendall, who moderated this panel at our symposium, offers an overview of the major demographic changes that are transforming US housing markets and describes two distinct patterns of political geography that will affect local and regional decisionmaking about neighborhood inclusion. He begins by reporting that the population of the United States – particularly its metropolitan areas – is both growing and becoming more diverse by age, race and ethnicity, household composition, and income. He then describes the two principal patterns of political geography that affect decisionmaking about neighborhood inclusion: fragmentation of local governments (particularly in the Northeast and Midwest where control of land use is in the hands of many local governments) and polycentricity (particularly in the South and the West, where larger county governments have much more control over land uses). Fostering inclusion in both types of places is challenging. In the former regions, he notes, it tends to require state-level action. In the latter, the efforts often focus on school districts as well as school assignment zones within particularly large school districts. He concludes by showing the interplay between the national demographic trends and political geographies of the three case study regions.


Willow Lung-Amam,
University of Maryland
An Equitable Future for the Washington, DC Region?: A "Regionalism Light" Approach to Building, by Willow Lung-Amam, begins by noting that while that DC region is racially and economically diverse, it also is highly segregated and has some of the nation's highest housing prices. Moreover, because it is politically fragmented, it has uneven patterns of development. Given this, Lung-Aman proposes a “regionalism-light” approach that focuses on the protection and production of affordable housing. In particular, she says four approaches should be the central part of any effort to break down barriers to housing inclusion in existing neighborhoods and build a strong platform for current and future residents to be a part of the region’s continued growth and prosperity: preserving existing affordable units through aggressive anti-displacement strategies; capturing land value to produce new affordable housing, especially near transit stations; increasing the density and diversity of suburban housing; and tackling the region’s stark east-west divide with fair-share policies.


William Fulton,
Rice University
Can a Market-Oriented City Also Be Inclusive?, by William Fulton, explains that while Houston has emerged in the last 30-plus years as one of the country's most ethnically diverse and affordable cities, these measures mask significant amounts of inequality and disparity that are at least as bad as, and perhaps worse than, those in other metro areas. At first glance, he notes, Houston seems unable to address these challenges, largely because it has a reputation for being one of the nation’s most market-oriented cities for real estate development. However, he contends, the city has a unique and important opportunity to address these issues because it also has abundant amounts of vacant land, limited zoning regulations that could block the development of affordable housing, regulatory tools that could encourage such development, and a potentially useful but currently uncoordinated set of financial incentives for economic development and real estate development. Accomplishing this task, he explains, would require both a comprehensive citywide approach and targeted efforts in underserved neighborhoods threatened by gentrification. In particular, the following strategies are especially promising: aligning both economic development incentives and regulations with inclusiveness goals; using government and institutional landholdings to strategically to pursue those goals; and creating a broad and comprehensive approach to inclusiveness that includes both underserved and high-opportunity areas. He notes that while Houston has taken some steps in this direction, it has fallen short in others, particularly in efforts to bring affordable housing to high-opportunity areas.

(Please note that Fulton's paper was completed before Hurricane Harvey caused extensive damage and displacement in Houston during August 2017.)


Marisa Novara &
Amy Khare,
Metropolitan Planning
Council
Two Extremes of Residential Segregation: Chicago's Separate Worlds & Policy Strategies for Integraion, by Marisa Novara and Amy Khare, argues that a movement is needed to rethink strategies for desgregation at the region's two poles: concentrated poverty and concentrated wealth. The Chicago region, they note, ranks in the top quarter of all metros with regard to economic segregation and is in danger of becoming even more segregated by race and class. In areas suffering from disinvestment, Novara and Khare argue that carefully revised lending criteria and improved appraisal processes, along with other complimentary policies, could lead to increased investment. This, in turn, might create more integrated communities. In contrast, they note that political realities make it unlikely that the state will step in to override local land-use restrictions that stymie the development of affordable housing (as Massachusetts has done via a law passed in 1969). Given this situation, they suggest that Illinois instead draw on a different Massachusetts law that offers incentives to more affluent communities that zone for dense, mixed-income residential developments, particularly in locations well-served by transit.




Additional papers from the A Shared Future symposium are available on the JCHS website. The papers will also be collected into an edited volume to be published later this year.