Thursday, February 25, 2016

HUD Funding in the Presidential Budget Prioritizes Economic Mobility and Rental Assistance

Irene Lew
Research Analyst
Several weeks ago, President Obama released his final budget proposal to Congress. In it, the President requests $48.9 billion in gross discretionary funding for HUD—a $1.6 billion increase over the amount that Congress appropriated in FY 2016. With the exception of the Community Development Block Grant (CDBG) and the public housing capital fund, HUD’s FY 2017 budget maintains or requests increases for key programs over the levels that lawmakers approved in FY 2016 (Figure 1).

Source: US Department of Housing and Urban Development, FY 2017 Congressional Justifications; White House Office of Management and Budget FY 2017 President’s Budget 

Funding for Rental Housing Assistance

More than three-quarters (78 percent) of the funding request would support 4.5 million low-income households through HUD’s three largest rental housing assistance programs: housing choice vouchers, project-based rental assistance, and public housing (through its capital and operating funds) (Figure 2).

Source: US Department of Housing and Urban Development, FY 2017 Congressional Justifications.

After several years of uncertainty in the wake of sequestration in 2013, the request of $20.8 billion for the housing choice voucher program would fully fund all voucher renewals in calendar year 2016. The request includes a 26-percent boost in administrative fees to cover public housing agencies’ (PHAs) costs to administer the voucher program under a new formula based on the recommendations of a HUD-commissioned study released last year that highlighted the underfunding of PHAs.

Meanwhile, the budget would provide a full 12 months of funding for all contracts under the project-based rental assistance program, including public housing units and privately-owned units that were converted to long-term project-based Section 8 contracts under the Rental Assistance Demonstration (RAD) program. For the second straight year, HUD is seeking $50 million to expand the RAD program and remove the 185,000 unit cap on the number of public housing conversions under the first phase of RAD. Since it received Congressional authorization in 2012, RAD has been a key part of HUD’s strategy to access private capital to rehabilitate and preserve the aging public housing inventory, which has experienced a net loss of 139,000 units since 2000. Until RAD’s authorization, HUD’s public housing program was largely prohibited from accessing non-federal funding sources for making critical repairs to the stock. As of December 2015, HUD estimates that PHAs and their partners have raised over $1.7 billion through RAD to convert more than 26,000 public housing units.

With an increased emphasis on public housing RAD conversions, the request for the public housing program in FY 2016 was a marginal increase—less than 1 percent—over the FY 2016 enacted level. The budget proposes a 2 percent reduction for the public housing capital fund, which is troubling given that the public housing stock has an estimated capital needs backlog of about $26 billion, and that adequacy issues among public housing units are much more common than among other types of federally assisted and unassisted units. While RAD will help address adequacy issues in the public housing inventory, there is no guarantee that RAD funding will continue, and the ongoing disinvestment in the public housing capital repairs fund may offset gains made under RAD.

Meanwhile, the President’s budget also requests funding increases for key multifamily rental housing assistance programs administered by the US Department of Agriculture (USDA) that serve roughly 403,000 low-income households annually in rural communities, including $33 million for the Section 515 Rural Rental Housing Loans program, up 18 percent from $28 million enacted in FY 2016, and $1.4 billion for the Section 521 Rural Rental Assistance program, a modest increase (1 percent) from the FY 2016 enacted level.

Commitment to Ending Homelessness

Funding for homelessness prevention remains a priority in the President’s budget, which includes an 18 percent increase in discretionary funding over the FY 2016 enacted level for Homeless Assistance Grants. The increase will fund $25 million in new projects for homeless youth in coordination with the Department of Health and Human Services (HHS), an additional 25,500 new units of permanent supportive housing targeted at the chronically homeless, and 8,000 new rapid rehousing units for homeless families. Overall, in contrast to many other HUD programs whose funding levels have declined sharply over the past decade in real terms, funding for homeless assistance grants is now 43 percent higher in FY 2016 than in FY 2006 (Figure 3).

Note: Percent change is based on dollar values that have been adjusted for inflation using the CPI-U for All Items.
Source: White House Office of Management and Budget; US Department of Housing and Urban Development FY 2017 Congressional Justifications.

Building on the findings in HUD’s recent Family Options report highlighting the effectiveness of vouchers in improving the housing stability of homeless families, the budget is seeking $88 million in discretionary funding for 10,000 new vouchers for this population. In addition to this request, the budget has also proposed $11 billion in mandatory funding for an ambitious new 10-year initiative to end homelessness among families with children. This initiative, which would be exempt from the annual Congressional appropriations process, aims to assist 555,000 families over the coming decade through a significant expansion of housing choice vouchers and rapid rehousing assistance. As I noted in a blog post last year, the reduction in family homelessness has been much smaller than among veterans and chronically homeless individuals. In fact, as of the 2015 Point-in-Time count, which estimates both the sheltered and unsheltered homeless populations on a single night every January, the number of homeless persons in families in shelter is actually 4 percent higher than in 2007.

Emphasis on Economic Mobility and Fostering Inclusive Communities

With increasing evidence that neighborhood quality matters for child development and economic prospects, including a 2015 analysis of HUD’s Moving to Opportunity demonstration program, the President’s budget has requested a $75-million funding increase for Choice Neighborhoods, and has proposed a new three-year $15 million Housing Choice Voucher Mobility Counseling Demonstration program to help HUD-assisted families move and stay in higher-opportunity neighborhoods. In a similar vein, the budget has proposed the Upward Mobility Project, a new place-based initiative that will allow states and localities to blend funding across four existing block grant programs—HHS Social Services Block Grant and Community Services Block Grant, as well as HUD's HOME and CDBG programs—to implement evidence-based policies focused on poverty reduction and neighborhood revitalization. The budget maintains HOME funding at the FY 2016 enacted level of $950 million, which is an encouraging sign for many advocates who had rallied against FY 2016 Congressional proposals calling for severe cutbacks to the program, an important source of gap financing for tax credit projects and other local affordable housing initiatives. The budget also includes a request of $300 million in mandatory funding for a Local Housing Policy Grants program to help localities and regional coalitions fund policies and programs that minimize barriers to housing development and expand housing supply and affordability.

Reflecting the impact of the Supreme Court’s decision regarding low income housing tax credit (LIHTC) allocations in Texas Department of Housing and Community Affairs vs. Inclusive Communities Project and HUD’s Affirmatively Furthering Fair Housing ruling last summer, the President’s FY 2017 budget has also proposed that Qualified Allocation Plans (QAPs) for state housing finance agencies be required to include Affirmatively Furthering Fair Housing (AFFH) as an explicit preference for awarding tax credits. Additionally, part of the $69 million increase requested for the public housing operating fund in FY 2017 would go toward supporting increased PHA administrative expenses associated with implementation of the new AFFH regulations.

Serving the Lowest-Income Households

According to HUD’s 2015 Worst Case Housing Needs report, just 39 affordable units are available for every 100 extremely low-income renter households (those with income no higher than 30 percent of AMI). To incentivize developers seeking tax credits to provide deeper affordability for the lowest-income households—those who often cannot afford to live in LIHTC units without additional rental assistance—the President’s budget has once again proposed an income-averaging rule for LIHTC eligibility in which the average income for a minimum 40 percent of the units in a project does not exceed 60 percent of AMI.

The National Housing Trust Fund would also help address the shortfall in units that are affordable to the lowest-income households. Originally authorized in 2008 under the Housing and Economic Recovery Act, the Housing Trust Fund is a mandatory program funded by GSE contributions that will allocate funding to states and state-designated entities for the development, rehabilitation, and preservation of housing targeted at extremely low-income households. HUD predicts that it will collect $170 million in fee assessments from Fannie Mae and Freddie Mac for the fund in 2016, and an additional $136 million from the GSEs in 2017.

Preserving the Affordable Rental Stock

Despite an expansion of the voucher program, the budget included a $20 million reduction in tenant protection vouchers, which provide critical protection to residents at risk of displacement because they live in HUD-assisted units with expiring or terminating contracts. HUD notes that it will need to provide partial funding to approximately 33,500 vouchers in FY 2017 because the proposed amount of $117 million is insufficient to fund them for a full 12 months. Although HUD plans to request the full amount necessary for these voucher renewals in 2018, there is no guarantee that HUD will receive the funding it needs, putting families living in HUD-assisted units with expiring affordability contracts at risk for rent increases, eviction, or homelessness.

In addition to a requested expansion of the RAD program in order to preserve affordable stock, the President’s budget has also proposed that Section 202 Project Rental Assistance Contracts (PRACs), providing affordable rental housing to adults aged 62 and over, should also be eligible for conversion. While not part of the FY 2017 discretionary funding request, the budget has also recommended adding the preservation of federally assisted affordable housing to the other 10 criteria that state housing finance agencies are required to include in their QAPs for awarding LIHTC allocations.


What happens from here? As the Center on Budget and Policy Priorities (CBPP) notes in a recent memo, the House and Senate will likely begin working on their own budget resolutions earlier than usual this year because an agreement is already in place on overall Congressional funding limits for fiscal year 2017. However, final decisions on FY 2017 appropriations will likely occur after the November elections. 

Thursday, February 18, 2016

Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust

Senior Research
The housing crisis and ensuing Great Recession of the late 2000s resulted in millions of homeowners losing their homes to foreclosure and millions more losing substantial amounts of housing wealth as home prices plummeted. These substantial financial losses have raised important questions about the appropriateness of policies to encourage homeownership as a wealth building strategy for low-income and minority households. To study this issue, in 2013 the Joint Center published a paper entitled “Is Homeownership Still an Effective Means of Building Wealth for Low-income and Minority Households? (Was it Ever?)” as part of a 2013 symposium held to reexamine the goals of homeownership and explore lessons learned from the housing crisis.

Since the original paper was completed, additional years of PSID data have become available that allow us to extend the original analysis through 2013, which we have now done in a new JCHS working paper.

The original paper looked specifically at the question of whether homeownership, particularly for low-income and minority families, was an effective means of building wealth during the most tumultuous housing market in recent memory. Studying the 1999-2009 time period, the paper found that even during a time of excessive risk taking in the mortgage market and extreme volatility in house prices, large shares of owners successfully sustained homeownership and created substantial wealth in the process; that renters who became homeowners and sustained it through the period had some of the largest gains in wealth; and that renters who transitioned to ownership but failed to sustain it ended the study period with no less wealth than when they started. Yet while the results were positive in supporting the benefits of sustained homeownership, the study only covered the time period through 2009, which was the latest year of data available at the time, and therefore did not capture the entirety of the housing downturn and related fallout. Indeed, according to the CoreLogic National Home Price Index, house prices did not reach bottom until March of 2011 and much of the foreclosures and distressed exits from homeownership resulting from the downturn occurred well after 2009.

In this new 2016 paper, Update on Homeownership Wealth Trajectories Through the Housing Boom and Bust, with the extended timeframe through 2013 more thoroughly capturing the extent of the housing downturn and its accompanying effects on families’ wealth accumulation, our updated analysis upholds the bottom-line result from the earlier paper: that homeownership was associated with significant gains in household wealth, even when viewed across the tumultuous housing crisis period of 1999-2013. However to sustain gains in household wealth from homeownership, we found it is critically important to sustain homeownership itself. 

Despite the continued declines in home values and continued high levels of foreclosure beyond 2009, the extended analysis found that homeownership was still associated with sizeable gains in household wealth in 1999-2013 for those who sustained homeownership through 2013, just as the original analysis found for those who owned through 2009. Among those who bought a home after 1999 but had returned to renting by 2013, the net wealth of the typical household in 2013 was back to what it was for these households in 1999, which was similar to the median net wealth of households among those who rented the entire time. As in the earlier study, households who began the study period as homeowners but ended as renters experienced the most significant declines in wealth. The key differences in the updated analysis was that the annual gains in wealth associated with owning a home declined in magnitude and the share of both Hispanic and low-income households that were able to sustain homeownership declined to 60-61 percent.

Note: Values shown are modeled marginal effects in constant 2013 dollars.

But while those who maintained homeownership experienced meaningful gains in wealth, the relatively high shares among some groups that failed to sustain owning does raise the question of whether homeownership is a risk worth taking. On the other hand, the fact that renters accrued little wealth over the same period points to the limited opportunities that low-income households have outside of homeownership for building a nest egg. Taken together the study’s findings of both the remarkably and persistently low wealth levels of the typical renter and the potential for wealth accumulation when homeownership is maintained underscore the need for policies both to support sustained homeownership as well as to help renters find ways to build wealth outside of homeownership.

Wednesday, February 10, 2016

Five-Year Failure Rates for Remodeling Contractors Exceeded 50% During Downturn

Abbe Will
Research Analyst
Newly available data from the U.S Census Bureau confirms that the severe drop in home improvement spending that accompanied the housing market crash and Great Recession put a great many remodeling contractors out of business. Although remodeling businesses of all sizes experienced very large failure rates, smaller-scale businesses, which are most typical of the industry, were considerably more likely to fail during the downturn.

Utilizing the longitudinal nature of the Census Bureau’s Business Information Tracking Series (BITS), it is possible to calculate failure and survivorship rates of construction businesses with payrolls during the last economic downturn from 2007-2012. According to custom tabulations commissioned by the Remodeling Futures Program, fully half (51.0%) of general residential remodeling businesses in 2007 were no longer operating by 2012. New housing construction businesses suffered similar exoduses: 52.6% for single-family builders and 52.2% for multifamily builders. Specialty contractors, however, such as roofing, electrical, and plumbing and HVAC specialists experienced much lower five-year failure rates ranging from 33.1% for plumbing/HVAC specialists to 39.1% for roofing companies. These lower failure rates are not surprising since the specialty trades also include contractors that serve the non-residential construction sector, which did not suffer the same steep declines as the residential market.

Business size is a significant indicator of failure or survival. An astounding seven in ten residential remodeler establishments with $100,000 or less in business receipts in 2007 were no longer in operation by 2012 (Figure 1). The failure rate, while still high, drops sharply to one in four for the largest remodelers in 2007 with $5 million or more in receipts. Businesses surviving the industry downturn were in fact larger: 61.1% had receipts of $250,000 or more in 2007, while almost the exact same share of remodelers that did not survive (62.1%) had revenues of less than $250,000.
Source: US Census Bureau, 1989-2012 Business Information Tracking Series.

Interestingly, of the general remodelers that were able to remain in business during the steep industry slump, over 45% did so even as their business receipts dropped by 25% or more (Figure 2). Another 16% experienced lesser declines in revenue from 2007-2012, but declines nonetheless. Surely, the relatively larger scale of surviving remodeling companies provided important cushions for riding out the cycle. The rest of remodelers that remained in business over this period, about 40%, were able to successfully scale back, restructure, or otherwise take advantage of reduced competition to actually increase their revenues during the worst industry downturn on record. The vast majority of these remodeling contracting businesses saw receipts increase by 5% or more from 2007-2012.
Source: US Census Bureau, 1989-2012 Business Information Tracking Series.

These multi-year failure and survivorship rates mask the full dynamics of business openings and closings, however. In 2003, heading into the housing and home improvement boom years, about 18% of residential remodeling establishments were new businesses. In 2007, at the peak of the market, this share stood at 16%. During the trough years of this past business cycle, the share of remodeling businesses that were start-ups barely budged at 15-16% in 2008, 2009, and 2011. One-year failure rates during the same periods have ranged from a low of 12.9% in 2004 to 19.8% in 2009 and 14.4% at last measure in 2012. Indeed, in any given year and at all points in the business cycle, the remodeling industry experiences substantial churn of business entrances and exits.

It is important to note that the BITS database is of payroll businesses only and as such does not track movement from payroll to non-payroll, or self-employed, businesses, which is likely a common occurrence for many smaller contracting companies serving the remodeling industry. According to Joint Center tabulations of the 2007 Economic Census of the construction industry, nearly a quarter of general residential remodelers had less than $100,000 in receipts and the average business of this size had 0.93 payroll employees, indicating that some of these firms were without employees for at least a portion of the survey year. Another 27% of general remodelers had revenues of $100,000-$249,000 in 2007 and only 1.64 employees on average.

Certainly, some part of the calculated “failure” rates cited above is due to payroll businesses moving to self-employed status rather than actually going out of business. Indeed, the term “failure” is used only as shorthand to mean the establishment ceases to exist in the BITS database and not necessarily that the business failed to generate enough revenue to cover expenses. In addition to conversion to self-employment, other non-failure reasons for a business to cease to exist in the BITS file could include retirement of the proprietor or sale of the business to another entity.

Wednesday, February 3, 2016

The Future of Renting Among Older Adults

Jennifer Molinsky
Senior Research Associate
Since 2005, the number of renter households aged 50 and over has increased dramatically, jumping from 10 to nearly 15 million, and accounting for more than half of all renter growth over the past decade, as my colleague Dan McCue pointed out in a recent post. This is not just a result of the large baby boom cohort passing age 50, but is also a distinct increase in the rate at which older adults are renting. As these trends are likely to continue, it’s concerning that the nation’s current supply of rental housing suitable to the needs and preferences of older renters is insufficient, particularly in relation to affordability and physical accessibility.

The baby boom cohort, now aged 50-69, is responsible for most of the increase in older renters. In the last decade, the boomer generation fully passed into the 50+ category, and going forward, this cohort will continue to drive up the number of renters in their 70s and beyond (Figure 1).
Notes: Projected renter growth assumes constant homeownership rates by age, race, and household type.  Constant rates are the average of rates from 2014 and 2015. Historical growth uses 3-year trailing annual averages to reduce volatility.
Sources: JCHS tabulations of US Census Bureau, Current Population Surveys and 2013 JCHS household growth projections.

However a growing older population is only part of the story: more than half the growth in older renters stems from a decline in homeownership and subsequent increase in the share of those 50 and over who rent, a legacy of the foreclosure crisis and recession. As our 2014 report on housing for older adults noted, the homeownership rate for 50-64 year olds slipped 5 percentage points between 2005 and 2013—a larger drop than in the nation’s overall homeownership rate over that period. For these owners-turned-renters, transitioning back to homeownership can be especially difficult as retirement approaches: the imperative to save for retirement may take precedence over saving for a downpayment, while weak credit may make it difficult to obtain a mortgage. Though some may make their way back to homeownership despite these challenges, it is likely that the higher rentership rates among the boomer cohort will persist as the group ages.

While the recession pushed many into renting, other older homeowners are transitioning to renting as a choice. For these owners, rentals may offer a smaller, more cost-effective option that demands less time, physical effort, and money to maintain. As mobility limitations increase with age, older owners also turn to renting to obtain more accessible housing, with features like single-floor living, no-step entries into the unit, walk-in showers, and other universal design elements. As the large baby boom population enters the 70-plus age range in the next decade, we can expect a swell in the number of older renters seeking accessibility features that can enhance safety in the home, independence, and quality of life.

It remains to be seen whether baby boomers will elect to make these moves earlier than their predecessors. With growing interest in walkable communities, proximity to transit, and back-to-the-cities living, we may see earlier turns to renting as a choice. But even if not, the sheer growth in older households and the falloff in owning compared to previous generations at the same age indicates strong growth in older renter households going forward, even absent further declines in homeownership.

The question then is whether the nation’s supply of rental units is suited to the needs and preferences of older renters. Like renters in general, older renters have lower median incomes than their home-owning counterparts. But since incomes decline in retirement, older renters also have lower median incomes than renters in general (Figure 2). Lower incomes leave a significant share of older renters vulnerable to housing cost burdens. Indeed, 55 percent of renters aged 65 and over are cost burdened, spending more than 30 percent of their income on housing, including 30 percent who spend more than half their income on housing. Older cost-burdened renters typically spend less on food, healthcare, and transportation – and for those in their 50s and early 60s, save less for retirement, threatening financial security down the road.

Notes: Real Median Incomes are as of 2014 and have been adjusted for inflation using the CPI-U for all items.
Source: JCHS tabulations of US Census Bureau, 2015 Current Population Survey.

As noted below, older renters are more likely to have disabilities than younger renters, as well as homeowners of the same age (Figure 3). Yet the supply of accessible units is limited; less than 1 percent of US rentals include five basic universal design features (a no-step entry, single-floor living, wide hallways and doors, electrical controls reachable from wheelchair height, and lever-style handles on doors and faucets). Units in newer, larger buildings are apt to offer more, yet still, just 6 percent of units in buildings constructed 2003 and later, and 11 percent of units in larger apartment buildings with 20 or more units, offer all five of these features. And newer rentals tend to command higher rents, leaving them out of reach to lower-income households with disabilities.

Notes: For individuals age 15 and older, a disability is defined as a hearing, vision, cognitive, ambulatory, self-care, or independent living difficulty. White households are non-Hispanic. Includes non-group quarters population only.
Source: JCHS tabulations of US Census Bureau, 2012 American Community Survey.

Indeed, older adults seeking housing that is both affordable and accessible face particular challenges. The current affordable stock tends to be older and located in smaller multifamily buildings that are the least likely of any rentals to offer accessibility features. Two-fifths of renter households in their 50s and 60s live in apartments in small buildings with 2-9 units (Figure 4), which are among the oldest and least accessible units in the entire rental stock. Meanwhile, over a third live in single-family rentals whose accessibility varies widely by region, with renters in the Northeast and Midwest at particular disadvantage for single-floor living.

Source: JCHS tabulations of 2013 American Housing Survey, US Department of Housing and Urban Development

In addition to lower-cost and more accessible rentals, we will likely see an increase in demand for rentals with services that enhance older adults’ quality of life. Many older adults are not in need of assisted living or skilled nursing care, but could benefit from services such as transportation, laundry, or housekeeping that can support independent living into older ages. For lower-income adults, service-enhanced housing, where services are provided onsite, or service networks that support older renters scattered in multiple locations, can fill a role that their higher income peers can obtain through “village” membership organizations or the more independent portions of continuing care retirement communities.

With renters 50 and over now comprising a third of the renter population – and renters 40 and over representing fully half – now is the time to consider the suitability of the nation’s rental stock for older renters and begin to address its shortfalls in accessibility and affordability. There is an urgent need to create more accessible units, through new construction or retrofit, suitable and affordable to older adults. This is particularly true for the oldest cohort, which has both the lowest median income of all renters and the highest rate of disability, and which will grow in size as the baby boomer generation ages into their 70s. Meanwhile, service-enhanced rental housing can play a critical role in extending independence and quality of life for those lower-income renters who do not need skilled nursing care or assisted living, but who could benefit from services that support independent living.