South Burlington, VT – Dozens of Chittenden County leaders in the fields of housing, business, local and state government, and social services announced this morning a new campaign to increase the production of housing and setting a target of 3,500 new homes created in the next five years.
“Working together we will accomplish this goal,” said Brenda Torpy, CEO of Champlain Housing Trust. “For the sake of our communities, our workers and local economy, we will educate and advocate together for more housing.”
“The housing shortage in Chittenden County has been well noted with unhealthy vacancy rates and high rents,” added Charlie Baker, Executive Director of the Chittenden County Regional Planning Commission. “Employers can’t find workers, and workers themselves spend more time in commutes and with a higher percentage of their paychecks on housing costs.”
Twenty percent of the 3,500 goal are targeted to be developed by nonprofit housing organizations. The remainder by private developers.
“This step-up in production will not just provide new homes and infrastructure for communities, it’ll be a boost to the economy and contribute to the tax base. Building homes together is a big win for all of us in Chittenden County,” said Nancy Owens, President of Housing Vermont.
The campaign will provide up-to-date data to the community on the need for and benefits of new housing, build cross-sector and public support for housing development, increasing access to capital, and supporting municipalities.
Beryl Satter knew something like this was bound to happen. Or, rather, to happen again.
The Rutgers historian wrote the book on an obscure form of predatory lending from the mid-20th century that victimized black home buyers when banks would not lend them mortgages. Her book, “Family Properties,” came out in 2009, on the heels of the housing crash. And as she traveled the country talking about it — about families defrauded from the homes they thought they owned, about sellers who promised home ownership but collected deposits and evictions instead — people kept approaching her.
“Pretty much everywhere I go, people say ‘I’ve been hearing about this,'” Satter says. “Contract” lending is making a comeback.
In this model, buyers shut out from conventional lending are offered an alternative: They can make monthly payments on a home directly to the seller, instead of a bank, with the promise of receiving the deed only once the property is entirely paid off, 20 or 30 years down the road. In the meantime, they have few of the legal protections of a typical home buyer but all of the responsibilities of one. They don’t build equity with time. They can be easily evicted. And if that happens, they lose all of their investment.
According to the Detroit Free Press, more homes were bought in Detroit last year using such “land contracts” or “contracts for deeds” than conventional mortgages. In a series of recent stories, the New York Times has reported that Wall Street is now betting on this market, with investors buying foreclosed homes by the thousands and selling them on contract. Earlier this week, the Times reported that the Consumer Financial Protection Bureau is now investigating the practice’s resurgence, although it is not by definition illegal.
What is particularly alarming about the trend, though, is that we’ve seen it before. In its earlier incarnation, it was an explicitly racist form of exploitation. And now it is victimizing the same groups again: mostly lower income and minority home buyers who can’t access traditional credit.
“There’s nothing new here in the slightest,” Satter says. “This is just a continuation of the same old game. That’s what’s so disturbing.”
In the earlier era when this was common, between the 1930s and 1960s, contract lending was in some cities the primary means middle-class blacks had to buy homes. Real estate agents and speculators jacked up the price of properties two- or threefold. Then when families fell behind on a month’s payment or on repairs, they were swiftly evicted. The sellers kept their deposits and found the next family.
Satter’s father, Chicago lawyer Mark Satter, helped organize black Chicagoans to fight the practice in the 1950s. He estimated then that about 85 percent of homes bought by black in Chicago were bought on contract. “It was the way you bought,” Beryl Satter says. “There was no other way.”Many of those families then struggled to keep their homes in a system that was not sustainable by design.
Atlanticwriter Ta-Nehisi Coates based his blockbuster 2014 article “The Case for Reparations”around the story of Chicago blacks who suffered under this system, the outgrowth, as he put it, of a segregated city with “two housing markets — one legitimate and backed by the government, the other lawless and patrolled by predators.”
The Times reports of what’s happening today sound eerily similar. Writers Matthew Goldstein and Alexandra Stevenson report that an estimated 3 million people have bought homes through contracts, although the numbers are hard to track given that the deals are regulated differently in each state and are not subject to the same disclosures as mortgages.
The practice is particularly common, they report, in distressed Midwestern communities like Akron and Detroit, where the government offered hundreds of foreclosed properties to investors in bulk sales. Those same investors, the Times reports, have turned around and sold the properties on contract to moderate-income buyers for sometimes four times as much.
Why now?
But why, though, would a financial scheme created in an era of sanctioned racial discrimination be making a resurgence today? Since Satter’s father tried to sue over the tactic a half-century ago, the Fair Housing Act and Home Mortgage Disclosure Act were passed. And the end of legal discrimination opened up legitimate lending to more blacks who were no longer forced into the housing market’s rapacious underworld.
But a crucial similarity between the two eras exists: Many people still can’t get loans today.
Now, this is the case because lenders have tightened their credit standards since the crash, overcorrecting for the bubble’s exuberance with historic stinginess. The Urban Institute has counted more than 5 million loans currently “missing” from the housing market — mortgages that would have been made between 2009 and 2014 if lenders used the kind of credit standards that were common back in 2001, a benchmark for more reasonable lending prior to the housing bubble.
Millions of Americans over this same time have had their credit ruined by foreclosures — in many cases because of predatory subprime lending that has now put them in the crosshairs of predatory land contracts. Minorities who were disproportionately targeted for the former are not surprisingly concentrated among those caught up in the latter.
“When the banks close down, people still need to buy,” Satter says. And so they find a way. Just as creative investors find a way to meet their demand. Land contracts are to housing whatpayday loans are to banking and Rent-A-Centers are to furniture. What people in need can’t access through credit someone is always willing to provide — for a price.
A lawyer for Harbour Portfolio Advisors in Dallas, one of the larger players in the new wave of contract lending, told the Times that the firm’s business model is “to purchase unproductive residential properties and sell them to other people who will make them productive again.” But Satter frames this differently.
“Choices that black Americans have had for housing loans have been predatory loans, or no loans,” she says. And when banks choose not to loan, she adds, this is who they choose not to loan to.“The result,” Satter says, “is a complete revival of redlining in a slightly different guise.”
This is why she wasn’t surprised to see the practice she’d studied as a historian (and lived through with her family in the 1950s) re-emerge as front-page news.
One other factor, though, helps explain why contract selling is back again. The demand among buyers who can’t get mortgages is deep. But so is the supply of houses that might accommodate buyers at the moderate end of the market. The foreclosure crisis created a vast stock of vacant homes, many of which have deteriorated through neglect. Steven Brown, an affiliated scholar at the Urban Institute, has shown that the number of homes worth less than $50,000 has been growing:
Urban Institute
And this has happened as the number of small loans has dwindled:
Urban Institute
So an investor who has bought up thousands of distressed foreclosures for $10,000-$20,000 a piece has to get creative. These properties need expensive repairs, meaning there likely isn’t much profit in repairing and renting them. They aren’t likely to appreciate much over time in stagnant markets like Detroit or Akron, so an investor can’t simply sit on them waiting for a recovery. And these homes can’t easily be sold at a profit to buyers — even with some modest flipping — because buyers in this market can’t get mortgages.
Contract lending, in other words, is just about the most profitable thing an investor could do with these homes. And that opportunity is colliding right now with a time of desperation for would-be buyers.
One way to look at this situation — today or in the 1950s — is that a market failure exists. Something is not working right in the world of legitimate home lending that’s causing families to reach for dubious alternatives, and that’s prompting dangerous models to proliferate. Satter, though, doesn’t see it this way.
“It’s a market success,” she says, viewed from the standpoint of the investors. “They figured out a great way to make a huge amount of money in this situation.”
As for market failures, she says, maybe we should rethink the term. “If you’re looking at how a market works, this is how it works – people saw an opportunity, they came in and grabbed it,” she says. “The market doesn’t care about fair housing for people, or that families need a place to live.”
And that is the other lesson of history that is repeating itself.
The insufficient supply of housing at a range of affordable prices, especially for rental housing, has important negative impacts on local economic development. Housing costs and availability impacts adequate workforce availability. The causes of high housing costs are multiple but a few factors are controllable by local municipalities, counties and regions with the understanding and political will. Exclusionary housing development zoning regulations for example fall into that category. Housing supply constraints affect local employment opportunities and wage dynamics especially in areas where the degree of zoning regulation barriers are more severe.
It’s getting much tougher to find good jobs in areas with adequate affordable housing opportunities. Even when job markets improve, the absence of strong sustained real income growth means that for more and more communities, the relative cost of housing will continue to climb at the same time the availability of adequately affordable housing is decreasing.
The excellent study referenced above provides a clear discussion of this issue. The primary thesis of the study is that developing more affordable housing in communities creates jobs — both during construction and through new consumer spending after the homes have been occupied. The positive impacts of building affordable rental housing are on par with and in many respects exceed the impacts of developing comparable market-rate units.
The take away from this is that housing affordability, inclusive communities and vibrant economic development, are intertwined in substantial ways. Communities can positively change the dynamics with various policies including favoring appropriate density in zoning laws.
A higher percentage of people are renting their homes in the U.S. than has been the case for many decades. The market is responding with more rental housing development – but there is a big glitch – too much of that new rental housing now being developed is on the high end of the affordability spectrum.
“…the housing affordability crisis has shown little signs of abating in recent years, as renter incomes continue to lag behind rising housing costs. Though there has been a ramp-up in rental housing construction, much of this new housing is intended for renters at the upper end of the income spectrum…”
Note: Data includes vacant for-rent units and those that are rented but not yet occupied. Excludes no-cash rentals and other rentals where rent is not paid monthly. Source: JCHS tabulations of US Department of Housing and Urban Development, 2013 American Housing Survey.
The 2016 Homelessness Awareness Day and Vigil was held at the Vermont State House in Montpelier on January 7th. Two House committees Housing, General and Military Affairs and Human Services had a joint hearing on homelessness, taking testimony on housing and homelessness issues. A number of other hearings regarding homelessness happened in the building during the course of the day.
Opening the hearing was nationally recognized pediatrician Dr. Megan Sandel (principal investigator on Children’s Health Watch, Associate professor at Boston University’s School of Medicine, and Medical director, at the National Center for Medical-Legal Partnership at Boston Medical Center), who has done path-breaking work on the effects of housing insecurity and homelessness on children. She gave a brilliant presentation on “Housing as a Vaccine: A Prescription for Child Health.”
At that hearing, Representatives and attending members of the public also heard from Vermont homeless service providers Linda Ryan (Director of Samaritan House) and Sara Kobylenski (Executive Director of Upper Valley Haven) on the latest trends and some recommended solutions to end or decrease homelessness in Vermont.
At Noon, community members, legislative leaders, administration officials, and advocates took the State House steps for a vigil to remember our friends and neighbors who died without homes, and to bring awareness of the struggles of those still searching for safe and secure housing. U.S. Senator Patrick Leahy and other legislative representatives and advocates joined and spoke at the vigil.
How can Housing be a Vaccine?
Dr. Megan presented data to support her thesis that housing can be protective for health. The quality, stability and affordability are important determinants to heath of all people. That means improving housing can provide multiple benefits. According to Dr. Megan, timing and duration of housing insecurity matter greatly to a child’s health. By increasing availability, affordability, and quality of housing, the health effect of housing insecurity can be decreased. Dr. Megan also provided specific evidence regarding housing quality and children’s health. For example, developmental issues, worsening asthma and other conditions have been tied to specific housing conditions such as pests, mold, tobacco smoke, lead exposure and so forth, and tied to long term effect with poor health outcomes.
According to Children’s Health Watch, “unstable housing, hunger and health are linked” because evidence shows that being behind on rent is strongly associated with negative health outcomes such as high risk of child food insecurity, children and mothers who are more likely in fair or poor health, children who are more likely at risk for development delay, mothers who are more likely experiencing depressive symptoms. Research conducted by the National Housing Conference from Children’s Healthwatch illustrates that there is no safe level of homelessness. The timing (pre-natal, post-natal) and duration of homelessness (more or less than six month) compound the risk of harmful childhood health outcomes. The younger and longer a child experiences homelessness, the greater the cumulative toll of negative health outcomes, which can have lifelong effects on the child, the family, and the community.
Several community representatives spoke in support of increasing housing affordability by targeting more public funding to support housing affordability and housing stability and adding to state housing directed funds with a $2 per night fee on hotel, motel and inn stays.
A key goal of affirmatively furthering fair housing (AFFH), as it’s envisioned playing out around the country, is to break up concentrations of poverty and to promote socioeconomic and racial integration. That means ensuring opportunities for lower-income people and racial minorities to live in wealthier, “high opportunity” neighborhoods with access to jobs, goods schools and public services.
Two ways to facilitate those opportunities:
Promote regional mobility among people with Section 8 vouchers, enabling them to leave high-poverty areas and move into more well-to-do communities. This can require increasing their housing allowance so that they can afford higher suburban rents.
Build affordable, multifamily rental housing in those same, heretofor exclusive neighborhoods.
Both of these approaches deserve consideration around here, as Vermonters contemplate how to make their communities more socioeconomically inclusive. Meanwhile, it’s interesting to see how they’ve played out in an entirely different environment: metropolitan Baltimore.
First, some background: Baltimore has a long history of racial segregation (click here for a trenchant account), and in the mid-1990s, the Department of Housing and Urban Development was sued by city residents (Thompson vs. HUD) for its failure to eliminate segregation in public housing. In 2005, a federal judge found that HUD had violated the Fair Housing Act by maintaining existing patterns of impoverishment and segregation in the city and by failing to achieve “significant desegregation” in the Baltimore region.
Seven years later, a court-approved settlement resolved the case in a way that anticipated the AFFH rule that HUD issued this past summer.
The settlement called on HUD to continue the Baltimore Mobility Program, begun in 2003 in an earlier settlement phase. The program has provided housing vouchers to more than 2,600 families to move out of poor, segregated neighborhoods and into areas with populations that are less than 10 percent impoverished and less than 30 percent black. The program provides counseling before and after the move and has received high marks from evaluators who cite improved educational and employment outcomes for beneficiaries. A similar regional program is underway in Chicago.
The settlement also called for affordable-housing development in these “high-opportunity” suburban communities – 300 units a year through 2020. To make this happen, HUD was to provide new financial incentives for developers.
Here is where the story takes a dispiriting turn. Three years later, not a single developer has applied for the incentives. No affordable housing projects are even in the pipeline. That’s according to an eye-opening story the other day in the Baltimore Sun.
So, what happened? Why haven’t developers shown any interest? HUD had no explanation, according to the story, which suggested that perhaps the program hadn’t been well-enough publicized: a prominent builder of affordable housing admitted he didn’t even know about the incentives. Could it be that they weren’t generous enough?
Whatever the reason, the Baltimore experience reflects how difficult it can be to introduce affordable housing to privileged enclaves. No one should underestimate the AFFH challenge.
Here’s an intriguing strategy for revitalizing moribund downtowns that doesn’t cost anything and bypasses political machinations: It’s called “Renew,” and it was first employed in the decaying Australian city of Newcastle several years ago — with notable success.
The basic idea is to install artists or craftspeople in vacant storefronts and let them work, market, or exhibit in exchange for their paying the utility bills. In other words, let them dress the places up and draw people in… until the spaces are commercially leased, at which point the artisans have 30 days to vacate. A nonprofit organization facilitates these pop-ups.
Renew Newcastle spread to other cities, gave rise to Renew Australia, and was the subject of an article in The New Republic earlier this month, “Hacking the City: A New Model for Urban Renewal.” There’s no reason, the article suggests, why “Renew” couldn’t work in American cities, and not just big ones. Renew’s creator, Marcus Westbury, offers an aphorism – “Activity creates activity, and decay creates decay” — that would seem to apply anywhere. Even in small-town Vermont, where vacant storefronts are a common sight in many municipal centers — St. Johnsbury or Barre, Springfield or Rutland. Eastern Avenue in St. Johnsbury, for example, has a stretch of empty, eye-averting properties that could theoretically — with a Renew-style makeover — become a destination.
What does any of this have to do with housing? A downtown commercial/cultural revival might produce a hub of burgeoning activity where all sorts of people might want to live, thus drawing housing developers to a municipality they might otherwise be inclined to avoid.
How does an affordable housing development affect surrounding property values?
There’s no simple answer to this question, in part because of the many variables that come into play– the siting, for example, and the nature of the neighborhood (blighted? well-to-do?), the scale of the development, the design, and so on.
Not surprisingly, though, the question has spawned a large literature. A rather dated survey of the research, from the Furman Center at NYU, found that “the vast majority of studies have found that affordable housing does not depress neighboring property values, and may even raise them in some cases.” A “Field Guide to Effects of Low-Income Housing on Property Values,” put out by the National Association of Realtors and citing numerous references, updated last year, agrees: “Most studies indicate that affordable housing has no long term negative impact on surrounding home values.”
Indeed, that’s the standard pitch that affordable-housing advocates make in the face of NIMBY opposition: The notion that affordable housing drives down property values is a “myth.”
Then, along comes a study with an inconvenient conclusion, seemingly muddying the water. That would be “Who Wants Affordable Housing in their Backyard? An Equilibrium Analysis of Low Income Property Development,” by Stanford economists Rebecca Diamond and Tim McQuade. Their finding is that, within a 0.1-mile radius, Low Income Housing Tax Credit-financed developments raise property values over the long run in low-income neighborhoods but lower them in higher-income neighborhoods. They conclude: “Given the goals of many affordable housing polices is to decrease income and racial segregation in housing markets, these goals might be better achieved by investing in affordable housing in low income and high minority areas, which will then spark in-migration of high income and a more racially diverse set of residents.”
This conclusion runs contrary to the spirit of affirmatively furthering fair housing, which advocates a balanced approach for affordable housing investment: revitalizing blighted areas, on one hand, and desegregating higher-income areas, on the other. This dual approach also has the imprimatur of the U.S. Supreme Court, which effectively endorsed it in its ruling this summer upholding the disparate impact doctrine. (For our previous post on this, click here.) The court’s ruling favored a Texas plaintiff who argued that affordable housing projects should NOT be disproportionately sited in low-income minority neighborhoods.
While we await critiques of the Stanford study from the affordable-housing commentariat, we take note of various examples where affordable housing has not depressed property values in higher-income communities: Places such as Mount Laurel, N.J., epicenter of New Jersey’s fair/affordable housing movement, where a Princeton study found that values in surrounding neighborhoods were unaffected (for the New York Times account, click here). Or Weston or Wellesley, two of Massachusetts’ wealthiest communities, where a Tufts study found that mixed-income developments had no effect on surrounding property values, as reported via Shelterforce.
One factor that might well have a bearing, and that would not show up in the Census-tract-type data used by the Stanford researchers, is design. Affordable housing doesn’t have to look cheap or barracks-y. In fact, if the design is done well, affordable units can be hard to distinguish from market-rate units.
Planning consultant Julie Campoli demonstrates this in her “Thriving Communities” webinar/seminar presentation. She shows each of the following two slides of four photos each and asks viewers to guess which is affordable and which market-rate. We’re giving the answer away by showing the labeled versions here, but her point should be obvious.
This country’s shortage of affordable rental units runs into the millions, and Vermont’s is in the thousands. Where’s the money going to come from to build or rehab our way out of this hole? Government spending falls chronically and abysmally short, but there’s a glimmer of hope that a growing fraction of the massive need can come from an unlikely source: private investors.
But first, consider the scale of the need. According to the recent Harvard report on rental housing, 11.4 million renter households are “severely burdened,” paying more than 50 percent of their income for housing. (An additional 9.9 million are simply “burdened,” paying more than 30 percent.)
In Vermont, 26 percent of the 75,000 renter households are severely burdened — that’s 19,500 households living in places that are far beyond their means. And in Burlington, 35 percent of the 9,500 renter households are in that position – about 3,300 households.
The federal government’s primary subsidy for affordable housing development is the Low Income Housing Tax Credit, which produces in about 100,000 affordable rental units a year. Then of course there’s the challenge of maintaining affordability for units whose tax credits expire, a challenge that Vermont’s housing nonprofits and state agencies contend with annually as they marshal limited public resources to preserve the affordability of what’s here. And even though they’ve been largely successful, what’s here isn’t anywhere near enough. Yes, the private market is turning out new rental housing to meet the growing population of renters, but the great majority of those new units are high-end.
A new report from the Urban Land Institute and NeighborWorks America, “Preserving Multifamily Workforce and Affordable Housing,” describes a range of new financing vehicles that seek to create or preserve affordable housing. Sixteen partnerships o investment companies – some new, some well-established — are profiled. One thing they have in common is that they offer returns to their investors– who include philanthropies, university endowments, pension funds and private individuals in the single digits, below what the typical real-estate investor might expect to receive. These entities include private equity funds and two real estate investment trusts (REITs) that focus on affordable multifamily developments.
The hook is that this investment sustains a social good: affordable housing. If “socially responsible investing” is popular among Vermont’s progressive monied class, why can’t affordable housing be one of their fiduciary causes? A creative financier might even find some way to enlist the UVM endowment or the state pension fund in support of affordable housing development.
The report also mentions another possible funding source for affordable housing — the EB-5 program, which pulls in big investments from foreigners (typically from East Asia) in exchange for green cards, and which we’ve harped on before. Yes, EB-5 is supposed to be a job-creation program, but it turns out that real estate development developments are among the most popular EB-5 projects, in part because the construction jobs count. (Check out this article, “Real Estate: Still the Darling of EB-5.”) True, affordable housing isn’t the typical EB-5 project, but it has been done – in San Francisco’s Hunter’s Point Shipyard, and in Seattle, near the Seahawks’ stadium. Next up, Miami.
Rising income inequality has become a major public concern over the last few years. What some of us may not realize, though, is that zoning is one of the likely culprits.
Yes, zoning and other land-use restrictions can contribute to housing unaffordability, but also — by extension — to income inequality and diminishing productivity.
That’s the argument that Jason Furman, chairman of the president’s Council of Economic Advisors, brought to the Urban Institute in an address last month. His remarks had scholarly underpinnings, in the form of charts and footnotes.
Here’s a compressed version of what he said: Income inequality has increased over the last several decades, as have land-use restrictions in the more productive metropolitan areas. Meanwhile, labor mobility has declined — workers are less likely to switch jobs and move around the country for higher pay — and so have annual increases in productivity. The drop in mobility ( or “fluidity”) is not well understood, but one cause appears to be the high cost of housing in high-wage, productive cities (such as Boston or San Francisco) that many would-be employees can’t afford to move to.
“Zoning and other land-use restrictions, by restricting the supply of housing and so increasing its cost, may make it difficult for individuals to move to areas with better-paying jobs and higher-quality schools,” he said. (He acknowledged that some land-use restrictions can be beneficial, but that some can be harmfully excessive, in such forms as minimum lot sizes, off-street parking requirements, height limits, prohibitions on multifamily housing, and lengthy permitting processes.)
Hampered mobility diminishes economic growth, he said, citing the same recent study we referred to in a recent post.
Generally speaking, Furman said, zoning restrictions tend to favor well-to-do property owners, who defend these restrictions so as to safeguard their assets. Stringent zoning reduces housing supply, maintains high prices, reinforces wealthy enclaves, and effectively repels people of moderate or low income. The restrictiveness of land-use regulations correlates with the gap between construction costs and house prices — the bigger the gap, the more land costs figure into the those higher prices.
“The timing of tighter land use regulations may not have been a coincidence,” Furman said. “After a turbulent decade of the 1960s in the United States that saw racial tensions flare, with rioting in many urban areas around the country that damaged or destroyed both residential and commercial structures, thousands of high income, predominantly white families moved out of many cities, spurring the continued rise of racially and socioeconomically homogeneous communities. These communities were also strictly zoned, a choice which may very well have been a part of a conscious or unconscious attempt to maintain this homogeneity through the affordability channel.”
Nowadays, there’s an increased demand for multi-family housing, but this form of housing tends to be heavily regulated, he said, and one of the nation’s challenges is to reduce regulatory barriers to increasing the supply of this housing option. In fact, the Obama administration is promoting an initiative (the Multi-family Risk Sharing Mortgage) to shore up the “limited supply of credit” for multifamily developments.
What’s more, Obama’s FY16 budget includes $300 million for Local Housing Policy Grants — a competitive program, he said, designed to provide funds “to those localities and regional coalitions” that support “new zoning and land use regulations to create an expanded, more flexible and diverse housing supply.”
