Meeting the Affordable Housing Challenge

We need to promote innovative plans, frameworks and policies to help people afford to live in key markets – and we need to be doing it now, says housing scholar Carol Galante

So Amazon selected Arlington, VA, and New York City as sites for their new headquarters, expecting to bring 50,000 jobs to these new hubs.

Terrific — but where are all those workers going to live?

The problem: There are areas of the country — key areas, with significant job opportunities, like San Francisco or New York or the D.C. region — where it’s nearly impossible for workers to afford a home. To buy or rent. Not just for folks on the lower-income end of the scale, but for the middle class as well.

Carol Galante need look only to her children for confirmation. They grew up in the Bay Area, but are unlikely to settle there, noted the former Assistant Secretary for Housing at the U.S. Department of Housing and Urban Development (HUD).

“Unless they go work for one of the tech giants, they don’t see the ability to ever own a home here,” Galante said. “… We cannot lose that middle-class homeowner in this country. I think we’ve got to focus on it.”

Galante has, in fact, made that her focus — at HUD and then at UC Berkeley, where she is the I. Donald Terner Distinguished Professor of Affordable Housing and Urban Policy and the faculty director of the Terner Center for Housing Innovation. At the Terner Center, she oversees and supervises projects to develop innovative solutions in housing policy, with the basic goal of helping make sure people can afford homes in the area they work. She created the center to do both research and policy development, and to promote innovation in the private sector – all keyed to influencing how to create more affordability in the housing sector.

“I say that meaning broad affordability for all walks of life — not ‘Capital A’ affordable housing, but really how do we get housing to more people in more places that meets a good quality of life in terms of opportunities, and is affordable to them,” she said.

Among other ideas, Galante and the Terner Center have advocated for what they call a FAIR Credit proposal for rent affordability and reduction. It would provide low-income families with a credit keyed to their income (specifically the difference between 30 percent of income and either the gross rent or the Small Area Fair Market Rent, whichever is less. It would provide a smaller credit to pay 12 to 33 percent of the family’s rent (or the SAFMR), adjusted to family income. That’s just one of the ideas they’re putting out there,

Galante is one of 13 thought leaders who shared with Mortgage Media’s Dave Stevens their thoughts on what the new year holds — or should hold — as it relates to housing.

Galante is hopeful that there is some momentum being build up, albeit gradually, among industry, policymakers and think tanks (such as the Urban Institute) to address affordable housing. Her Terner Center co-sponsored a conference with Fannie Mae on “Innovate Housing,” and she noted that other significant lenders such as Wells Fargo are supportive of the center’s goals. Senators such as California’s Kamala Harris and New Jersey’s Cory Booker have talked about the issues. A time of transition with a new Congress is the ideal time to put some of the ideas into circulation, with the hopes of seeing resulting policy.

“I think you’ve got the makings of some bipartisan legislation between Republicans and Democrats,” she said. “You had (Massachusetts Senator) Elizabeth Warren talking about breaking down barriers to new construction, and you’ve got (HUD Secretary) Ben Carson talking about it. Again, call me an optimist, but I think this housing affordability issue is finally getting some attention from policymakers. Now, do I think anything’s going to happen tomorrow? No, but I think some of those ideas are laying the groundwork for future efforts as we can get a Congress that can pay attention to that — as opposed to some of the other things they’re paying attention to right now.” She noted it may take lots of time and compromise, “but I think now is absolutely an important time to do it.”

What’s needed now, she said, is for the trade organizations of lenders to have symposiums and forums to get feedback on what ideas might work from the lenders’ perspective, and then weave together proposals to bring forth collectively to policymakers.

Apartment owners and developers are largely on board, she noted: “What’s happening in the absence of taking some proactive steps as an industry is the politics of other things are going to overtake these good ideas. We just went through an ugly, ugly debate here in California on statewide rent control. I will say it’s motivating. The apartment owners and developers say, ‘No, we need to be part of a solution with the ideas that we think make sense. Otherwise we’re going to have stuff done to us that we don’t like.’”

Among the ideas she’d like to see gain traction is the renter’s credit described above — and not just for the poorest of the poor. “Really take up the slack, because we just haven’t had the amount of construction in these places that we need. We have an emergency of people being literally displaced because of rent increases,” she said. “There’s nowhere for them to go.”

Entities such as the FHA have, or should have, a significant role to play as well. Which makes Galante concerned about the current time of transition — not just the new leadership at FHA, and Fannie Mae and Freddie Mac, but the departures this month of Michael Bright as president of the Government National Mortgage Association (Ginnie Mae) and Pam Patenaude as HUD deputy secretary. Galante characterized Bright and Patenaude as strong leaders, and expressed concern that their departures will mean innovative ideas on affordable housing lending may not have the opportunity to get much traction in FHA.

“Brian Montgomery (HUD assistant secretary and FHA commissioner) is terrific, but I feel like he’s one of the few left standing, and simply can’t do it all,” Galante said. “I’m afraid that we’ll frankly take some of his attention away from the important work that needs to be done at FHA, in terms of getting the funding that they need, and getting the system and processes and policy changes that they need. … I just don’t see how we’ll get attention on all that (affordable-housing initiatives) without the right leadership.” And the first-time home buyer “strike zone” as she puts it — “the bottom-tier price points” — that’s FHA’s fundamental market. “This just adds additional pressure,” she said.

Some startup companies are looking at things like shared co-ownership, or an affordable-housing-scaled form of fractional ownership, or other ideas. A San Francisco company, Landed, works with teachers on the West Coast, using private capital investment to fund up to half a home’s down payment. (The company shares in the appreciation when the home eventually is sold, as well.) A Portland company, Dweller, helps homeowners add on to the back of their homes for a rental product, and Galante noted Fannie Mae has made progress in underwriting those types of loans. But it needs to be looked at broader, industry-wide, and the mortgage industry needs to be poised to deal with such innovations.

“It may sound boutique, but this whole idea of doing infill home ownership on existing single-family lots and adding to the stock in these single-family neighborhoods is a huge push in places like Oregon and Washington state, and California — to get more entry-level home ownership to be more affordable, and to also serve the renter population, which is another big issue,” she said. “We need our financial products to be able to match some of these kinds of innovations. … I think there’s a way of showing that these products will turnover and create modeling to show that you could package loans like this and put them in a security and have them backed by the secondary market system in a way that really just can’t happen right now.”