Chapter 3: Policy Implications

A wide variety of market forces and other factors have contributed to this crisis of housing affordability through the 1990s. Among these forces are continued suburbanization of population and employment, regulatory barriers to development of multifamily housing, underinvestment in affordable housing by local communities, continuing discriminatory barriers, and the simple economics of supply and demand in which rising incomes for higher income families drive up rents faster than the poorest families can afford. The continuing loss of rental units affordable to the poorest families, especially the faster losses in suburban areas, is particularly disturbing.

In part, the growth in the crisis during the 1990s can also be attributed to the elimination of Federal appropriations for additional rental vouchers between 1995 and 1998. In the past, Congress has responded to findings of serious housing affordability problems by providing for new rental assistance. In particular, during the economic expansion of the 1980s, the number of families with worst case needs dropped significantly between 1985 and 1987 as incremental rental assistance grew by 80,000 to 100,000 families each year. In addition, during the same period new housing developments were becoming available for occupancy by the poorest households as the result of production programs that had been funded in earlier years.²⁸ In fact, from 1977 to 1994, the number of HUD-assisted households grew by 2.6 million—an average of 204,000 additional households each year from 1977 to 1983 and an increase of 107,000 per year from 1984 to 1994. Exhibit 28 shows recent trends in Federal appropriations for new units of deeply targeted rental housing assistance, including housing for the elderly and disabled under Sections 202 and 811. After the 4-year hiatus in funding for vouchers between 1995 and 1998, Congress resumed the fight against worst case needs by appropriating 50,000 vouchers for fiscal year 1999 and 60,000 vouchers for fiscal year 2000.

An effective response to this crisis must combine a number of approaches to overcome different aspects of these problems. Further expansion of the Section 8 voucher program must be an essential component of the Federal response to this growing crisis. The President's Budget for Fiscal Year 2001, which includes funding for 120,000 incremental Section 8 vouchers, is a bold step forward to overcome this affordable housing crisis and begin to reduce the number of families suffering worst case housing problems. While the Section 8 tenant-based program is not a panacea for all of the varied housing affordability problems of the Nation, it is particularly well-designed to meeting the vast majority of problems identified as worst case needs. Section 8 vouchers help low-income families by paying the difference between 30 percent of the family's income and the HUD-established local fair market rent for an appropriately sized unit. The renewed modest growth in rental housing units that are affordable to households with incomes up to 50 percent of median income shown in this report suggests improved availability of decent housing that would be affordable to extremely-low-income households if they received Section 8 assistance.

Moreover, as this report shows, severe rent burden is the only housing problem facing 77 percent of all families with worst case needs. Since these families already live in adequate and uncrowded housing, Section 8 assistance by itself could alleviate the excessive rent burdens facing these families, with no need for additional housing units to increase the supply of affordable housing. By providing 120,000 vouchers per year, it should be possible within less than 28 years to serve all of the worst case households that have only a severe rent burden and are actually likely to use vouchers.²⁹

The Section 8 program continues to be particularly well-targeted to the extremely-low-income families who most often have worst case needs. Under the Quality Housing and Work Responsibility Act, at least 75 percent of all vouchers that become available in any given year (either through new appropriations or through "turnover" of existing vouchers) must be provided to extremely-low-income families.

In particular, the fact that working families are more and more likely to have worst case needs highlights the importance of continuing to utilize Section 8 vouchers to enhance and support State and local welfare-to-work efforts. Typically, housing represents the number one cost burden for families making the transition to self-sufficiency. Because vouchers can be used in any location, they are well suited to assist families seeking better jobs to find and afford housing near their place of work. By providing 32,000 Section 8 vouchers for use in conjunction with local welfare-to-work efforts, the President's FY2001 Budget will help families find permanent employment and locate decent, affordable housing.

Although families and individuals without homes are unfortunately not counted by the AHS and are therefore not included in these estimates of worst case needs, the homeless in a very real sense have the most pressing worst case needs. For this reason, the President's FY2001 Budget provides a $180-million increase in funding for HUD's homelessness assistance program, including $105 million that will provide 18,000 homeless families with Section 8 vouchers to allow them access to affordable permanent housing.

Other tools are needed as well to effectively reduce the pressures on housing markets that exacerbate worst case housing needs. The continuing erosion of the affordable housing supply must be countered with more affordable housing production. FHA Multifamily Insurance, including the FHA Risk Sharing program, which draws on the capacity of the State Housing Finance Agencies, is an important source of financing for the production of affordable rental housing. And programs such as light rehabilitation can help families living in severely inadequate housing or facing multiple problems.

Indeed, available evidence regarding the LIHTC suggests that the recent rise in units affordable to families below 50 percent of median income may in part result from this important program. Not coincidentally, this program most effectively serves extremely-low-income families when it is combined with rental assistance such as Section 8 tenant-based vouchers. The President's FY2001 Budget recognizes this reality by providing 10,000 incremental Section 8 vouchers specifically targeted for use in conjunction with the LIHTC and FHA Multifamily Insurance. The HOME program is also a vital tool for effective local responses to the worst case needs crisis. Designed as a flexible block grant program capable of meeting local needs, the HOME program can address worst case needs in a variety of ways. HOME funding can be used to rehabilitate inadequate housing occupied by worst case needs families, to expand supplies of affordable rental housing, to provide tenant-based rental assistance, and to provide homeownership assistance for low-income working families.

Public housing operating and capital subsidies and the HOPE VI program help to preserve good quality existing housing and to tear down distressed public housing and revitalize neighborhoods. HUD's homeless assistance programs and the Housing for People With AIDS (HOPWA) program provide badly needed support for vulnerable populations. The Section 202 Supportive Housing for the Elderly and the Section 811 Supportive Housing for Persons With Disabilities Programs are also important vehicles for providing affordable housing and supportive services for these needy groups.

Last, the Federal response to the housing affordability crisis must also include effective programs to maximize investment in distressed areas to provide economic opportunities for struggling American families. In this regard, core HUD programs such as Community Development Block Grants (CDBG), the Section 108 Loan Guarantee Program, and the Economic Development Initiative will play a strong role. In addition, new economic development resources available to HUD, including funding for a second round of Empowerment Zones and for the America's Private Investment Companies (APIC) initiative, will help reinvigorate communities and provide new job opportunities where they are needed most.

Federal housing programs must be supported and complemented by continued State and local efforts if the attempt to reduce worst case needs is to be successful. Such efforts should include careful consideration of worst case needs and local market conditions in the consolidated planning process and recognition of pressing needs for affordable housing by State tax credit allocation agencies. State and local agencies responsible for administering the CDBG and HOME block grant programs can address worst case needs by appropriately targeting assistance to needy families and to specific needs within their local jurisdictions (such as local shortages of apartments suitable for families with children, the elderly or the disabled) or pressing needs for rehabilitating inadequate housing. In deciding among competing demands, State and local agencies administering the CDBG and HOME programs should seriously consider the relative needs for rental assistance and affordable rental housing in their jurisdictions. Local public housing authorities can aid these efforts by developing appropriate local admission preferences and by setting the Section 8 payment standard at levels that allow effective use of vouchers in local rental markets.

Finally, additional resources to further address the affordable housing crisis may be available from surplus funds generated by the improved performance of the Federal Housing Administration and its Mutual Mortgage Insurance (MMI) Fund. In FY99 the FHA MMI Fund had a surplus of $16 billion—more than $5 billion above the total value reported for FY98. These surplus funds can be an important source of additional funds to enhance HUD's affordable housing efforts. In fact, on March 7, 2000, President Clinton directed HUD and OMB to prepare recommendations for how best to use newly available funds to further strengthen Federal housing programs and enhance comprehensive affordable housing opportunities. HUD will develop recommendations for the use of these funds to further strengthen Federal housing programs and enhance comprehensive affordable housing opportunities.

America is currently experiencing a period of unprecedented prosperity and economic expansion. Building on the success of the President's historic 1993 budget, and through the bipartisan efforts of the Administration and Congress working together, the Federal Government is experiencing a budget surplus for the first time in 30 years. However, too many Americans have not shared in these triumphs of American productivity and fiscal prudence. A bold expansion in Federal assistance for affordable housing is needed to help fulfill the Nation's commitment to its neediest citizens for a decent and affordable home in a suitable living environment.