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Meeting Our Nation’s Housing Challenges. Report of the Bipartisan Millennial Housing Commission Appointed by the Congress of the United States. A Congressional Commission. Authorized in October 1999 (P.L. 106-74)

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Meeting Our Nation’sHousing Challenges

Report of the BipartisanMillennial Housing Commission

Appointed by theCongress of the United States


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A Congressional Commission

  • Authorized in October 1999 (P.L. 106-74)

  • Members (22) appointed in December 2000 by chairs and ranking minority members of

    • House and Senate Appropriations Committees and Subcommittees for VA, HUD and Independent Agencies

    • Senate Banking, Housing and Urban Affairs Committee and Housing and Transportation Subcommittee

    • House Financial Services Committee and Housing and Community Opportunity Subcommittee


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Legislative Mandate

  • To examine, analyze, and explore

    • the importance of housing, particularly affordable housing, to the infrastructure of the United States;

    • the various possible methods for increasing the role of the private sector in providing affordable housing, including the effectiveness and efficiency of such methods;

    • whether the existing programs of HUD work to provide better housing opportunities for families, neighborhoods, and communities, and how such programs can be improved.


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Overview of Report

  • Thirteen Principal Recommendations

  • Fifteen Supporting Recommendations

  • Sections on

    • Why housing matters

    • America’s housing challenges

    • The federal role in housing

  • Released May 30, 2002


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The MHC Vision

To produce and preserve more sustainable, affordable housing in healthy communities to help American families progress up the ladder of economic opportunity


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WHY HOUSING MATTERS

  • Family stability and childhood outcomes

  • Neighborhood quality and access to opportunity

  • Neighborhood revitalization

  • Household wealth

  • Contribution to economic growth and stability


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Family Stability andChildhood Outcomes

  • Disruptive moves affect school, job performance

  • For welfare-to-work recipients, housing plus job assistance results in better employment outcomes than job assistance alone

  • Homeownership has especially positive effects for children in terms of school success and social behavior

  • Better-quality housing is related to lower levels of psychological distress and improved educational and economic achievement


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Neighborhood Quality andAccess to Opportunity

  • Unemployment, crime, high-school dropout, and teen pregnancy rates higher in high-poverty urban, rural areas than elsewhere

  • Incidence of depression and anxiety higher among inner-city youth

  • Relocating families to better neighborhoods can improve educational, mental health, and behavioral outcomes


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Neighborhood Revitalization

  • Relocating families can improve outcomes; so can revitalizing distressed neighborhoods

  • Important to strengthen schools, provide access to services, connect residents to jobs

  • Rundown and abandoned structures can have a contagious effect

  • Concentrated public investment in housing can be first step in reclaiming neighborhoods


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Household Wealth

  • Homeownership

    • Insulates households from rising rental costs, home prices

    • Enables households to build equity, wealth

  • Refinancing can be source of cash for other spending, investment

  • Capital gains on home sales add liquidity to the economy, stimulate consumer spending


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Contribution to Economic Growth and Stability

  • Housing makes up more than one-third of the nation’s tangible assets

Source:Bureau of Economic Analysis, Survey of Current Business, September 2001


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The Housing Sector

  • In 2000, home building and remodeling accounted for about 4 percent of GDP

  • In 2001, new residential construction was associated with roughly 3.5 million jobs nationally and $166 billion in local income

  • In 2001, home building was the source of about $65 billion in combined taxes and fees


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The Housing Finance System

  • Serves as a critical stabilizing force

    • Manages risk

    • Provides expanded, continuous access to mortgage credit

  • Benefits derive largely from

    • Evolution of a strong secondary market

    • Role of the Federal Housing Administration and the Government National Mortgage Association

    • The Federal Home Loan Banks


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AMERICA’S HOUSING CHALLENGES

  • Affordability is the single greatest housing challenge facing the nation

    • Extremely-low income households face the greatest problems, but…

    • Affordability problems reach across all but the highest income groups

  • The burden on working families

  • The shrinking rental supply

  • Constraints on production and preservation

  • Persistent homeownership gaps


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Income Group Definitions

  • Extremely low income (ELI) = below 30% of area median income (AMI)

  • Very low income (VLI) = 30.1 to 50% AMI

  • Low income (LI) = 50.1 to 80% AMI

  • Lower income = less than 80% AMI

  • Moderate income (MI) = 80.1 to 120% AMI

  • High income (HI) = above 120% AMI


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Measures of Affordability

  • Most federal programs measure affordability by the relationship of income to housing costs.

    • Spending 30 to 50% of income on housing is considered a “moderate” affordability problem.

    • Spending more than 50% of income on housing is considered a “severe” affordability problem.


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Owners and Renters Face Affordability Problems

Source: HUD tabulations of the 1999 American Housing Survey (AHS) prepared for the MHC.


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Cost-Burdened Households

  • May have incomes too low to cover even modest rental costs

  • May live in high-cost markets where even a moderate income is insufficient

  • May be unable to earn adequate wages to manage housing plus basic needs due to age, disability, or difficulty finding full-time work

  • May need to trade off neighborhood quality in order to lower housing costs


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Burden on Working Families

  • Of the 11.3 million LI households with severe housing affordability problems in 1999, nearly one-quarter had earnings at least equivalent to full-time work at the minimum wage ($10,712 per year).

  • Many families with significantly higher earnings face moderate and severe housing affordability problems.


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The Shrinking Rental Supply

  • The supply-demand gap affects ELI households and those earning between 60 and 120% of AMI.

  • Affordability is a problem primarily for ELI households.

Source: HUD tabulations of the 1999 AHS prepared for the MHC.


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Constraints on Production

  • Inadequate financing for multifamily housing in particular

    • Insufficient federal subsidy

    • Lack of secondary markets for development and construction loans, and loans on small multifamily properties

  • Development controls such as local zoning and subdivision regulations


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Impediments to Preservation

  • Federal programs that under-budget for operations, maintenance, and renovations

  • Federal tax policies

  • Codes oriented toward new construction rather than moderate rehabilitation

  • Inadequacy of federal subsidy needed to cover the gap between affordable rents and operating costs


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Persistent Homeownership Gaps

  • Despite recent gains, minority and low-income homeownership rates still lag.

Source: U.S. Bureau of the Census, Current Population Survey, 1993 and 1999.


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Barriers to Homeownership

  • The high cost of housing generally

  • Costs associated with buying a home

  • Underwriting standards applied by mortgage lenders

  • Cost and availability of mortgage credit

  • The largest single constraint on lower-income households is lack of savings.

    Recent research indicates that face-to-face pre-purchase education and counseling reduces loan delinquencies by as much as 34 percent.


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THE FEDERAL ROLE IN HOUSING

  • Historical overview

  • Programs active today

    • Appendix 3 of the Commission report provides a description of past and current federal housing programs.

  • Lessons learned

    • These lessons informed the Commission’s recommendations.


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Lessons Learned: 1 and 2

  • Affordable housing developments cannot be isolated from the broader community in which they are located and must provide access to decent schools, job opportunities, and transportation.

  • Decisions about the location and management of affordable housing are best made by state or local governments, rather than the federal government.


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Lessons Learned: 3 and 4

  • The private sector needs the proper incentives to be an effective partner in the federal government’s efforts to address the nation’s housing challenges.

  • When resources are limited, there are difficult tradeoffs between making rents affordable to the poorest tenants and ensuring that enough income flows into a property to cover the repairs necessary to sustain the structure’s useful life.


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PRINCIPAL RECOMMENDATIONS

  • New tools (5)

    • Administered by states working with localities

    • Targeted to unmet need

    • Involve the private sector as appropriate

  • Major reforms to existing programs (4)

    • Realignment with the programs’ stated missions

  • Streamlining of existing programs (4)

    • Work well but could benefit from some improvement


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NEW TOOLS:Single-Family Tax Credit

  • State could use for two purposes:

    • to promote the production or rehabilitation of units in eligible census tracts where production/rehabilitation costs exceed the market value of the completed properties; and/or

    • to achieve affordability for low-income buyers by applying the credit against the borrower’s mortgage in the form of prepaid points, below-market interest rates, or other subsidized mortgage terms.


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NEW TOOLS:Preservation Tax Incentive

  • Within appropriate federal guidelines and under state oversight, sellers who transfer ownership to a “preservation entity” would qualify for tax relief.

  • The “preservation entity” must commit to long-term affordability and comply with criteria established by the state.


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NEW TOOLS:100 Percent Capital Subsidy

  • On units earmarked for ELI households

  • Rents paid by tenants and would cover operating expenses, including an adequate reserve

  • Eligible uses would include new construction, preservation, and acquisition with or without rehabilitation


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NEW TOOLS: Financing for Mixed-Income Rental Housing

  • Remove the limits on states’ ability to issue tax-exempt debt for specific multifamily properties.

  • To be eligible for financing, properties must reserve at least 20 percent of units for families earning no more than 80 percent of AMI.

  • Congress should consider requiring states to develop a qualified allocation plan for the use of this resource.


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NEW TOOLS: Community Development Waivers

  • Allow governors to reserve up to 15 percent of federal block grant funds to support comprehensive, geographically defined redevelopment projects sponsored by local governments.

  • Governors would have limited waiver authority to facilitate the blended use of funds, which would have to be consistent with the purposes of the respective block grant programs.


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MAJOR REFORMS TO EXISTING PROGRAMS:Public Housing

  • Apply private real estate principles

  • Provide for an orderly transition at severely distressed properties

  • Allow debt financing of capital needs

  • Simply the rating of public housing agencies (PHAs)

  • Test new rent-setting mechanisms

  • Exempt small PHAs from unnecessary and burdensome reporting requirements


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MAJOR REFORMS TO EXISTING PROGRAMS: FHA

  • Restructure the Federal Housing Administration (FHA) as a wholly owned government corporation within HUD.

    • Combine FHA and Ginnie Mae into a single entity based on the model laid out in the Government Corporation Control Act.

  • Provide for more flexible multifamily and single-family operations.


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MAJOR REFORMS TO EXISTING PROGRAMS:End Homelessness

  • Address transitional homelessness by increasing the supply of units affordable to ELI households using tools such as the 100 percent capital subsidy.

  • End chronic homelessness by providing an additional 15,000 units of permanent supportive housing over each of the next 10 years.


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MAJOR REFORMS TO EXISTING PROGRAMS:Work Requirement

  • Fund the services and supports needed to enable families who receive housing assistance to find and maintain employment.

  • Fund financial incentives (e.g., income disregards, savings accounts exempt from resource limitations) to enable families to keep more of their earnings.

  • Continue to experiment with stepped and flat rents.


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STREAMLINE EXISTING PROGRAMS:Housing Choice Vouchers

  • Improve utilization and success rates

  • Increase landlord participation

  • Link vouchers to housing production programs

  • Link vouchers to work opportunity and self-sufficiency initiatives

  • Link vouchers to non-housing programs

  • Allow for the flexible use of Section 8 project-based units


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STREAMLINE EXISTING PROGRAMS:HOME and the LIHTC

  • Improve the HOME Investment Partnerships Program (HOME)

    • Increase funding for HOME

  • Improve the Low Income Housing Tax Credit (LIHTC) program

  • Eliminate barriers to combining the LIHTC with HOME and other programs


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STREAMLINE EXISTING PROGRAMS:Mortgage Revenue Bond

  • Repeal the 10-year rule

    • Allow housing finance agencies 18 months to issue new mortgages using prepayment funds

  • Given the enforcement of Mortgage Revenue Bong income limits:

    • Remove purchase price limits

    • Repeal the first-time homebuyer eligibility requirement

    • Remove eligibility restrictions on Veterans

    • Increase the limits on home improvement loans to the FHA Title I loan level


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STREAMLINE EXISTING PROGRAMS:Federal Budget Laws

  • Shift appropriations risk away from property owners, lenders, and tenants by

    • moving project-based, Section 8 Housing Assistance Payment contract funding from the discretionary to the mandatory part of the federal budget; and/or

    • offering some form of insurance to owners/lenders to minimize the appropriations risk in their pricing.


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SUPPORTING RECOMMENDATIONS:1 through 3

  • Increase funding for housing assistance in rural areas.

  • Increase funding for Native American and Native Hawaiian housing.

  • Establish Individual Homeownership Development Accounts to help more low-income households buy homes.


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SUPPORTING RECOMMENDATIONS:4 through 6

  • Allow housing finance agencies to earn arbitrage.

  • Exempt housing bond purchasers from the Alternative Minimum Tax.

  • Undertake a study of the Davis-Bacon Act requirements.


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SUPPORTING RECOMMENDATIONS:7 through 9

  • Address regulatory barriers that either add to the cost of or effectively discourage housing production.

  • Streamline state planning requirements for community development programs.

  • Expand the financing options for small multifamily properties.


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SUPPORTING RECOMMENDATIONS:10 through 12

  • Foster a secondary market for development and construction lending.

  • Launch a demonstration project for comprehensive community-based work.

  • Improve consumer education about home mortgage lending.


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SUPPORTING RECOMMENDATIONS:13 through 15

  • Improve manufactured homebuyer and owner access to capital markets.

  • Affirm the importance of the Community Reinvestment Act.

  • Affirm the importance of the government-sponsored enterprises.


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To Obtain a Copyof the Report

  • Download a copy of the report from the Commission site at http://www.mhc.gov. Both PDF and Word formats are available.

  • The Commission Web site also provides instructions on how to obtain a report from the Government Printing Office.


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CD-ROMs

  • The report comes with a CD-ROM that includes a PDF version of the report, a description of the Commission’s methodology, testimony submitted during hearings, and documents submitted during focus meetings.

  • A separate CD-ROM, available through the National Housing Conference, contains products prepared by MHC consultants and others. To request a copy of this CD-ROM, send an email message to [email protected]


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