Special Report Contents

The Drive to End Chronic Homelessness Reconstructing the "Projects" Affordable Rental Housing: The Sometimes Unwanted Neighbor "Top Down" vs. "Bottom-Up" Community Revitalization Casualties in the Drive for Homeownership The Federal Housing and Community Development Budget Key Organizations

Private sector involvement in public housing is relatively new. But it has long been the mode for providing rental housing for those families with incomes not at poverty level yet too low to afford decent market-rate housing. The goal has been to give working families some needed stability and help strengthen struggling neighborhoods (see "Investing in Underserved Communities" below). The government enlists for-profit and nonprofit developers to provide low-income rental housing faster and more flexibly than government agencies can. The federal government has provided developer subsidies through a changing set of programs, some of which are administered at the state and local level, and others that involve a direct contractual relationship between HUD and private property owners. In exchange for the subsidy, the developer agrees to rent units to households making up to certain income thresholds for a set number of years. 

Today, low-income housing production is driven largely by the Low Income Housing Tax Credit (LIHTC), a tool the federal government created in 1986 to generate capital for affordable housing development. Property owners who wish to build or renovate apartment buildings can apply for the tax credits if they promise to set aside a certain percentage of units for low-income households making up to 50 or 60 percent of the area median income. The developers sell the credits to investors (who receive a reduction in their federal income taxes) and use the equity to fund the project. States get the initial tax credit allocations and decide what projects receive credits. State and local governments also often add other funds (such as bond financing or other federal funds "passed through" at the local level) to fill the gap in financing tax credit developments.

Though the recent economic downturn has dampened investor demand for the tax credits, the program is considered very successful. According to the NLIHC's 2008 Advocates' Guide, the program had created 1.38 million units as of 2005. The housing relief bill signed into law by President Bush in late July increases the federal allocation of LIHTCs and makes the credits more appealing to investors and easier to use with other federal programs.  But experts say that production still falls well short of the need. According to HUD, rising rents have pushed the number of unsubsidized low-income renter households -- those who either pay too much of their income for rent or live in substandard or overcrowded conditions -- to 12.4 million. Compounding the shortage is the ongoing loss of older, affordable rental units, identified as a "significant public policy concern" in the 2008 "State of the Nation's Housing" report from Harvard University's Joint Center for Housing Studies. The units are being lost due to deterioration and demolition, conversion to condominiums, and rent inflation.

Further, development resources are slim for financing new housing for households who make too much to qualify for LIHTC units, but still below 80 percent of area median income, where the unsubsidized private market kicks in. According to the NLIHC's latest "Out of Reach" report, the widening gap between the wages of low-income Americans and their housing costs means that teachers, police officers, health care workers, child care providers and other in the service industry are having a harder time finding housing that doesn't deplete their funds for other basic necessities.  In some markets, households must earn five times the current federal minimum wage to afford the fair market rent on a modest apartment. Although much attention is going to the hardships of homeowners with subprime mortgages, a Center for Housing Policy study found that 2.1 million working family renters were paying more than half their income for housing in 2005, more than twice as many as in 1997. (It is generally presumed that families have too little to cover basic needs and rainy day savings if they are paying more than 30 percent of income for housing.) The market-by-market breakdown of where working families are struggling the most with housing costs can be accessed here. According to the research, more working families with critical housing needs live in the suburbs (43 percent) than in central cities (40 percent).

The federal preference for LIHTC projects in higher-poverty census tracts means low-income rental housing isn't being built in more affluent communities with access to better schools and job opportunities. But a lack of developable sites is an even greater barrier to getting affordable rental housing in communities where it is most needed. Many suburban communities have zoning rules that either outright prevent such housing from being built or make it too costly to do so. Underutilized sites could be rezoned but some neighborhoods actively oppose it. Although today's affordable housing is generally well-designed and of high quality, the general public still tends to associate it with the institutional-looking subsidized housing projects of old. Lower-cost rental housing is presumed to bring down property values and overburden schools, although studies have shown otherwise. On the flip side, local leaders who want housing in their communities for critical but low-wage workers are seeking ways around such barriers. Some are pushing "inclusionary zoning" ordinances. Such ordinances require or reward developers for including a certain percentage of low-cost units in their projects. Inclusionary zoning has been a hotly debated topic in many communities, including Madison, Wis., Palm Beach County, Fla., and Santa Fe.

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