Affordable homeownership is a lottery system in Boston
In a Boston Globe blog piece, Megan Johnson writes about the experience of the affordable homeownership lottery process in Greater Boston. She writes of her own experience trying to purchase a condo as a single self-employed person as well as that of Youssef Haijjia, a married father trying to find a place large enough for his family.There is a finite number of affordable ownership units in the Boston area - some are mixed in with market rate condos and some are all-affordable developments. The demand for these units is so high that there is a lottery system in place. Applicants have to repeatedly apply and submit documentation to show that they still qualify. A raise can put the applicant over the income limit and a cut in hours can put them under the income range. Unlike income-restricted apartments, however, the owners are not then evaluated for income-eligibility, meaning that as long as the applicants qualify at the time of the loan funding, they can go on to earn market-rate incomes.Not addressed in Johnson's piece is that although the owners get all the burdens of homeownership - like the broken washing machine that flooded her and a neighbor's unit in the first few weeks of her condo owning journey - they don't enjoy one of the great benefits - normal accrual of equity as the home increases in value.Affordable ownership units come with an agreement that maintains permanent affordability and any equity that the same unit would accrue on the open market is shared between the non-profit developer/manager of the unit and the owner. Owners in affordable programs can see a profit when they sell their home, but it is far less than a non-restricted unit. The wealth-building aspect of shared equity programs tends to come more from paying down the mortgage rather than from gaining from the house's increase in market value. Of course, the owners don't have to sell it; they can live in the home for their lives and may will it to their heirs upon death.
Public housing has surprisingly high eviction rates
MassLive analyzed a recent report by Eviction Lab, a group that analyzes eviction and housing issues nationwide.Many think that once a household gets into public housing, they can stay there for life. That's not true, as if the household income increases, it may become ineligible for the apartment.Many also think that there's no way to evict a family from public housing. Equally untrue, and while public and private landlords have roughly the same eviction rates overall, public housing has a higher rate of repeated eviction filings (not necessarily resulting in actual eviction) against the same household at the same address.Most of the eviction filings result from non-payment of rent, rather than lease infractions. Public housing rent (which includes heat and water) is capped at 30% of the household's income and the Eviction Lab article states that the average household income nationally for a family (it doesn't say the size of the family) in public housing is $16,398. Thirty percent of that is $4,914 a year or $410 per month.The report states that housing agencies that operate public housing are evaluated on their rent collection, which leads to higher eviction rates.In Massachusetts, according to the report, 35% of public housing residents who received eviction notices received them repeatedly as opposed to 25% of private landlords. Malden and Lowell had the highest repeat eviction rates in the state with Springfield, Lawrence, Worcester and Boston filing repeat eviction notices at rates below the state's average.
Housing Authorities Combine Financing to Build More Public Housing
Many public housing projects were in bad shape in the late 20th century. Crime was often rampant and the dense concentration of very poor people brought many social ills. Many municipalities felt they couldn't absorb more housing projects and in 1999, a federal law, the Faircloth Amendment, went into effect capping the number of public housing units in any city or town at the number of units that existed that year.For a deep dive into affordable housing vocabulary, see our previous blog here. Affordable housing continued to be built, as the Faircloth Amendment covered public housing projects - all-affordable developments that are operated by local housing authorities and that continue to sometimes have a bad reputation. These are technically known as Section 9 housing. The funding for construction of these units comes exclusively from the Federal Government (HUD) and per-unit funding is low, which is why they are shoddily constructed and frequently fall into disrepair.Section 8 housing, however, is more flexible and allows developers building such units to access bank financing (not exclusively HUD funding) for capital projects.Activists have tried to repeal the Faircloth Amendment and unit cap to no avail, but as the years have gone on, the number of very-low-income units has decreased due to demolition and redevelopment into market-rate units. Federally financed affordable units must be guaranteed to be income-restricted for 30 years, but after that they can come out of the affordable pool.So even though cities could have built more public housing to get back up to 1999 levels, the available funding from HUD (the required, exclusive funding source) was scarce and wasn't enough to build really good housing.In 2017, HUD itself created a workaround to allow Section 9 units to be converted into Section 8 units, which don't have a cap in numbers and which can be built using private financing, and which reimburse housing authorities at a higher rate.For an excellent and detailed overview of how the Section 9 to Section 8 process works, see this 2017 article from the Fulton County (NY) Daily Gazette. Cambridge and Holyoke's housing authorities are two communities that are taking this route to put together multi-faceted financing using the Section 8 vouchers to build more units. Holyoke is now 189 units under the 1999 level and is about to build 30 units to get closer to that upper limit, after adding 9 public units to an innovative development in South Holyoke that contains public (Section 8) units, 3 moderate-income units (up to 50% of the AMI) and that will contain 19 shared-equity townhouses, where the resident owns the building and the housing authority owns the land and the house is preserved as permanently affordable.Cambridge is about 1,500 units shy of the 1999 cap on public housing. Unlike Holyoke, residential real estate is in high demand in Cambridge, so more units that reached their 30 year affordability cap were turned into market rate units.Cambridge is currently in the process of building 124 new public housing units using the Section 8 conversion process. Cambridge's housing authority is also talking to neighboring Medford to build units there, according to the Boston Globe. Local housing authorities are allowed to operate anywhere in Massachusetts, so if the Cambridge-Medford deal goes through, Cambridge public housing tenants may live in Medford, where construction costs are lower.Boston is 2,900 units below the 1999 cap, but has not yet devised a plan to rebuild the units, per the Globe article.
Old hospital gets new life as affordable housing
The Olmsted Green neighborhood in Mattapan is home to about 1,500 people living in single-family homes. The neighborhood also boasts two charter schools, a community center, and large swaths of open green space. 80 more single-families are about to be built and most will be sold to those earning up to 80% of the area median income, according to The BostonGlobe.The land where this development sits was once the Boston State Hospital. The state sought developers for the 38.5 acre parcel and found the New Boston Fund (headed by Jerry Rappaport, Jr., pictured below) and the Lena Park CDC.The mixed-income development already has 298 apartments, 59 senior apartments and 60 single-families. Income restricted units form the majority of these places to live. Giving working-class people the opportunity to own a home and build capital is intrinsic to the project. Boston Communities, a real estate development company that is working on the final 80 units, specializes in affordable and mixed-income housing.F. Marie Morisset, a principal at Boston Communities and pictured below, said she is especially happy to help "create generational wealth" through homeownership.
Worcester Tries to Keep and Grow Affordable Housing
Eric Batista, the City Manager for Worcester, wants the city to create a Housing Production Plan (HPP) and Affordable Housing Preservation Program (AHPP), according to a story on MassLive.While not a requirement, a Housing Projection Plan is something most Mass cities have. The HPP sets forth the community’s goals for housing in general and affordable housing in particular. If the state’s Housing and Community Development Department (DHCD) approves a municipality’s HPP, then any decision by that municipality’s Zoning Board of Appeals to deny a comprehensive permit application will be upheld under chapter 40B. Without this, developers can override zoning regs to put in 40B housing.Worcester is well above the requirement of 10% housing stock affordability, but a HPP is still a useful tool to create a plan for development and it helps city officials make development decisions. In 2022, Worcester passed an inclusionary zoning policy that requires all developments with 12 or more units to reserve 10-15% of their housing as “affordable.” Affordable housing means a variety of things, and most broadly means that people earning up to 80% of the AMI can live in those units. As median incomes grow, those “affordable” rents also increase.Some in Worcester are pushing for 60% of the AMI to be the cutoff for housing deemed affordable, rather than 80%.Batista’s Affordable Housing Preservation Program would use $1 million to help preserve currently affordable units that don’t have deed restrictions requiring them to be affordable. The program would give landlords a one-time payment of $15,000 per unit in exchange for a 15 year deed restriction to maintain affordability.
Mayor Wu's Rent Control Plan Modeled on Portland, OR
Rent Control is a government program that limits annual increases on rents, with an aim on keeping costs reasonable for tenants. Almost all rent control programs are municipality-based and exist in cities and towns in New York, New Jersey, California, Maryland and Washington, DC. In 2019, Oregon instituted a statewide rent control law, limiting annual rent increases to 7% + the consumer price index. Now that the CPI is high, that means rents can be raised by 14%, which is unaffordable to many tenants, particularly in the urban areas of the state, where rents are already higher than in suburban and rural areas. Portland, OR in particular has a significant homeless population and the increased rents are driving people to live in tents and their cars when they can’t afford the increases.The Boston Globe recently ran an article about the Oregon situation and interviewed a 70 year old woman who works and receives Social Security. Her rent for a basic, rent-stabilized, two-bedroom apartment in Portland is about to be raised to $1,400 and she can’t afford it. She is contemplating moving into her car.When the Oregon law was passed in 2019, the CPI was nowhere near the 7% it is today, and housing advocates didn’t foresee the increases getting so high. Landlords did, however, and warned that initial bill was a foot in the door for even stricter rent caps. This year, the Oregon Legislature is considering a lower cap: 3% plus CPI or no more than 8% annual increase, whichever is lower.Opponents to rent control say that what’s needed is simply more housing and that if there was more supply, demand would be sated and there would be price points for people all along the market. Landlords and developers say that limiting rents limits their profits, which limits what they have to invest in new housing.Median home prices in Portland Or have tripled since 2000 and there are now at least 5,200 people who are homeless, many sleeping rough in tents. It’s a scale of housing crisis that has not been seen in the Greater Boston area, perhaps because the median rents are so much higher in metro Boston. Many of those who can afford to live in Boston can afford the rental increases and those who can’t are still earning more than low and middle-income renters in Oregon. Perhaps some of the 100,000 people who left Boston moved West, where apartments are relatively affordable. The chart below shows the rent increases in the two cities over time, including when the rent control measure came into effect in Oregon. The Oregon housing bill that contained the rent restrictions also loosened zoning laws, allowing multi-families to be built on what were single-family lots and also allowing ADUs, which permit the owners of single-families to create rentable units in their backyards. Developers can also fit more units on one lot, even if they feel the rents they get can’t be raised as much as they’d like.Boston’s Mayor Wu is attempting to institute rent control in the city. Her plan would limit annual rent increases to 6% plus the CPI, but with a maximum hike of 10%. The first 15 years after construction would be exempt from the rent controls, just like in Oregon and small, owner-occupied apartments would be exempt. There are no zoning changes built in to the law she proposes. Boston housing advocates mostly support Wu’s proposal (some say it doesn’t go far enough), but the business community unsurprisingly does not, for all the same reasons given in Oregon: it will stifle growth, landlords and developers won’t be able to build, and the free market should set the rent. Developers and housing advocates agree that building more will naturally stabilize rents down-market. Some apartments are subject to bidding wars and there are certainly tenants out there who can and will pay top dollar for those pricey Boston apartments. But nearly every day there are news stories about working people leaving Boston because they can’t find a place to live that they can afford. The median per capita income in Metro Boston was $92,900 in 2022, according to the US Bureau of Economic Analysis, whereas in Metro Portland it was $68,374.The graph below shows what an annual increase on a $2,000 apartment would look like under various models of rent control: Rents in Boston and Cambridge are the highest in the state, with a median asking price in the Back Bay/South End hitting $3,940 in the last quarter of 2021 (the most recent data available). Prices have undoubtedly risen since then, meaning many median rents are topping $4,000. But with a median per capita income of over $90,000, those rents are easily affordable for some.Pro-affordable housing critics of rent control say that because there are no income restrictions on rent controls, more affluent people will “scoop up” lower-cost units in order to benefit from limited rent increases. Economists warn, however, that rent controls can fuel gentrification “by driving up rents in uncontrolled units or pushing landlords to convert apartments into condos” Rent control in and of itself doesn’t seem to have an impact on production, according to experts. The lag in new development in Greater Boston is due to high interest rates, and rent controls probably won’t further depress production. But it also doesn’t create production. As quoted in the Globe, rent control “doesn’t create an incentive to build, or make it easier to build,” said Jenny Schuetz, a senior fellow in urban economics at Brookings Metro. Building more housing is “the only solution” to the housing crisis, she said.
Pitfalls of Affordable Housing Plague Workers
One of the curious features of affordable housing is that units designated as "affordable" are often beyond the means of working people to afford.Boston Globe reporter Miles Howard detailed his saga of trying to stay in Boston by finding an apartment he can afford. He's lucky enough to be living in a below-market rate unit, but is worried his landlord might raise the rent. So he set out to see what his options were.His article details his attempts to get into affordable housing. He didn't earn enough to qualify for the apartments set aside for those earning 60% of the AMI (the Boston AMI for a single person is $98,000, so we can assume he is earning less than $58,000 as a reporter).And if he actually got into affordable housing, he'd have to recertify his eligibility annually, not just by providing paystubs or tax returns, but also by having his bank statements audited, transaction by transaction.So what will this reporter do? He's staying put for now, but isn't ruling out the idea that he'll be one of the hundreds of thousands of people leaving Boston (145,000 between 2010 and 2020), because he can't afford to live in the city.
Boston Globe Editorial Suggests State Needs to Take Control of Housing Regs
The Boston Globe published an editorial on April 10, 2023 that detailed the long-reaching consequences of an important early twentieth-century law. In 1920, the state gave zoning and planning authority to cities and towns, which, the Globe says, resulted in many municipalities suppressing housing growth in an attempt to keep out renters and the lower classes, particularly in the Greater Boston area.As a result, the cost of housing in Massachusetts increased at a greater rate than the national growth. In Q4 of 2022, the median single family home in Boston cost $707,250, compared to $378,700 in the United States as a whole.In Boston proper, 46% of renters are considered rent-burdened (meaning they pay more than 50% of their monthly income on housing costs) and 110,000 people have left MA since the start of the pandemic. The Globe attributes this loss of population to the high cost of housing.What can be done? The Globe endorses more government intervention at the state level to encourage municipalities to dramatically loosen zoning restrictions - even when local officials argue against it. The Globe suggests that the Governor and AG should levy legal consequences on towns that don't comply.Read the article here: Boston Globe editorial 4.11.2023
Will Building More Market Rate Apartments Increase the Affordable Housing Stock?
Banker & Tradesman published an article on March 26, 2023 asking "Can Massachusetts Build Its Way to Affordability?". In short, they believe the answer is yes and that more market-rate housing will actually by itself create more affordable housing.It's a commonly-held belief that the construction of market-rate apartments increases the rent in the area where they are built. Existing landlords, it is thought, see how much new units are going for and hike their rental rates, which results in higher rents for older, possibly less well-maintained, units. Another commonly-held belief is that the construction of affordable housing depresses value in the area where it is built, as there is a conception that affordable housing brings with it poverty-related issues such as crime, drugs and violence.This may be a twentieth-century perspective. Low-income public housing was historically built in already economically depressed areas or in otherwise-unoccupied areas of vacant land. Low-income housing also used to be built as large tower blocks (the Cabrini Green project in Chicago springs to mind), where only very low-income people lived in high density with no support services on-site and poor transit infrastructure.In the twenty-first century, many large "projects" of low-income housing (including Cabrini Green) were demolished and new construction tended to be less-dense and less confined only to those considered low or very-low-income; i.e. those earning less than 60% of the Area Median Income are considered low income and those earning less than 30% of the Area Median Income are considered "very low income" and are usually not working for that income. Many states such as Massachusetts encouraged mixed-rate housing development. That meant that in a new housing development (be that a blocky apartment building or more dispersed townhouses), some percentage of the units would be reserved for people earning below the AMI and the rest would be market rate. Developers got preferential treatment and lower-interest loans if they included affordable units in their new builds.And what happened in the neighborhoods? Several studies published since 2000 have shown that building market-rate units actually helps with the demand for affordable (but not subsidized) rents in their neighborhood.The Upjohn Institute in 2019 and the Hudson Institute in 2017 both found that increased availability of market-rate or luxury units actually has a "filtering up" effect that results in more affordable units becoming available as local renters who can afford to do so upgrade their apartments by moving into the newer, more expensive units, leaving their old and now less-desirable units available for renters with a tighter budget.Similarly, a 2021 study by Redfin found that low-income housing developments had either no effect or a positive effect on housing resale values in the immediate area of the development. Living in a socio-economically diverse neighborhood (or "economically integrated" neighborhoods as they are sometimes known) is beneficial for everyone along the income spectrum. Lower-income children in economically-diverse neighborhoods have better physical and mental health and are more upwardly mobile economically.For the people earning more, it can change their perceptions of poor people - unless the spread of incomes is too great, according to an interesting Urban Institute panel. Their recommendation was to build more middle-income market rate units, rather than so many "luxury" units. However, as the Urban Institute notes, the return for developers is on luxury units. UI asks, what cangovernment do to incentivize new building that contains units that are market-rate but affordable to middle-income earners?
What Does "Affordable Housing" Actually Mean?
According to the Office on Housing and Urban Development (HUD), housing is considered affordable if it costs 30% or less of what the renter/homeowner earns, utilities included. Many people pay 50% or more of their income to housing costs, which makes them fall into the "housing burdened" category, and means they have little discretionary income to use on savings, retirement, or entertainment, which helps support the economy.Affordable housing may bring up images of public housing "projects", but more often "affordable housing" refers to rental units that are part of a privately-owned apartment building or multi-family. There are also some homeownership models that have deed restrictions to preserve permanent affordability. In this model, the income restriction applies at time of purchase, but the owner may later exceed the income limits with no penalty.Because the most common model of affordable housing is one or more rental units restricted to affordable levels, that is what we’ll look at here.There are tax credits and lower interest loans available to developers who create affordable units within a housing development and some towns may require that some percentage of units (often 10% - 20%) be made "affordable." The rules and regulations about zoning and tax credits are extremely complex and not what we are covering here, but anyone interested in Massachusetts' rules can find information about the Low Income Tax Credit (for developers creating units reserved for those earning up to 40% of the AMI) here and about affordable housing development here. So nestled into a large apartment building may be several apartments that go for a far lower rent than the others.The rent considered affordable is based on the Area Median Income (AMI), which is defined annually by HUD (in mid-April). Generally, “affordable housing” is available to people/households that earn up to 80% of the AMI. Some affordable housing is restricted to those earning up to 60% of the AMI. The median income varies a lot by region in Massachusetts. Some cities have their own AMI and others are regional (by county or by Census area)For example, the FY22 Boston/Cambridge/Quincy area was $140,200 per household.
So for the many, many towns in the greater Boston area, a family of four earning $111,850 is eligible for affordable housing. And the “affordable” rent for that family of four earning 80% of the AMI would be $2,908 per month for a fully privately owned/developed unit. Development that used 40B funding is slightly different and the cap on the rent for a 40B-funded three bedroom unit would be $2,552 per month.
Wellesley, one of the towns in the Boston/Cambridge/Quincy market has a median rental cost of $4,500 for a three-bedroom, so the $2,908 “affordable” rent is certainly less than market rate, but still not what many would think of as “affordable”. For Boston itself, the median rent for a 3 bedroom is $3,222, and in Quincy, it is $2,600 – less than the rent set for those earning 80% of the AMI.So "affordable housing" really means housing costs that are 30% or less of a household's income. Many in Massachusetts wish that there was more of it, so that MA residents could spend their income in other areas besides just shelter.Several current projects include a percentage of affordable units (due to either a shortage of such units in a municipality or the advantageous financing of projects that contain affordable units, even if the municipality has "enough" affordable units). One such project is the new mixed-use development underway at the former Court Square Hotel in Springfield. The once grand hotel and opera house has been vacant for decades. It is being redeveloped to contain 59 market-rate apartments and 12 "workforce apartments" that will be restricted to those earning up to 80% of the AMI, or $73,300 for a family of four, as of the FY22 HUD AMI limits: The favorable financing that comes with the affordable units helps the developers' bottom line. The full cost of the project is budgeted at $49 million and includes financing from the city and state.The architectural rendering shows what the completed facade with apartments on upper levels and storefront retail, including a restaurant that will be run by the prominent Lee family of restauranteurs.