Fannie Mae: Housing Finance Reform Ignores Plight Of Middle-Income Earners; Cities Step Up

Fannie Mae: Housing Finance Reform Ignores Plight Of Middle-Income Earners; Cities Step Up
Just a month ago, “A Strategy to Promote Affordable Housing for All Americans by Recapitalizing Fannie Mae and Freddie Mac” was released by the report’s co-authors, Dr. Robert Shapiro and Dr. Elaine Kamarck. Shapiro is a former Clinton administration official and current advisor to the Obama administration. Kamarck is a lecturer at the Harvard Kennedy School of Government and former advisor to Vice President Al Gore.

As we noted then, the plan isn’t really a plan for “All Americans” as the name suggests. In fact, there were few policy recommendations in the 43-page report targeted at ways to increase the availability of housing for middle-income Americans, a demographic that is increasingly burdened by the dearth of new construction, and for which new housing starts are overwhelmingly geared toward luxury or affordable buyers.

“In 2013, the median rent for units in new multi-family housing was $1,290 per month, a level that exceeds the standard measure of 30% of gross income for an estimated two-thirds of renting households,” the Shapiro and Kamarck report notes without offering any solutions.

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Given that housing finance reform remains afar, and that most policy conversations have largely ignored the plight of middle-income residents, cities are taking it upon themselves to find creative solutions for this demographic.

New York City, San Francisco, Cambridge MA, Jupiter FL, and Portland ME are among the municipalities moving to require and/or incentivize developers to set aside units for middle-income families, reports the Wall Street Journal.

When most people think of “middle-income” their minds jump to firefighters, teachers and the like. But as Cambridge’s experience shows, middle-income in America’s more expensive communities now includes families with six-figure incomes. In Cambridge, where world-class universities the nation’s strongest biotech cluster drives demand for local housing, a family of four with an income of up to $118,200 can qualify for below-market apartments set aside through the city’s housing lottery. In the most recent offering, 15 below-market units were available and the city received three times as many applications.

Median rents have climbed 36% in Cambridge since 2010, where the average rent tops out at $2,750 per month according to Zillow, an online real estate and rental marketplace that tracks housing data.

The most progressive cities typically employ a dual carrot and stick approach to achieve new middle-income housing production. Cities will usually allow developers to build taller projects with more units in exchange for increasing the number of below-market-rate housing in the development. Other cities, like Somerville MA, which is adjacent to Cambridge and faces similar affordability challenges, have considered increasing the inclusionary zoning requirement to 20% of all units in development projects of 6 or more units—an unprecedented percentage.

Nearby, officials in Boston are attempting a new approach: the city and state are working with developer Related Beal LLC to create “workforce housing” aimed at people who earn up to 165% of median income. In Boston, that means a two-person household can earn up to $78,000 to be eligible for one of the project’s workforce apartments. To make the 14-story downtown deal work, Related Beal has agreed to sell its small sliver of land to the state’s Department of Transportation, which owns the majority of the project’s site. The state would then aggregate the land and lease it back to Related Beal through a 99-year ground lease valued at $12.3 million. The workforce housing apartments would rent for an average $2.50 per square foot per month, compared to a market rate that hovers around $4.50 per square foot.

Joseph Kriesberg, executive director of the Massachusetts Association of Community Development Corporation, reflects on the Related Beal project: “It’s exciting. It would represent a much more balanced approach to development than what we’ve been seeing, which is a lot of very, very high-end luxury and a small number of affordable units. This could be a model.”

The importance of affordable housing for all consumers is not lost on HUD Secretary Julian Castro.

In a discussion on the future of housing last week, Castro acknowledged that although the country is in “a much better place nationally in terms of our housing market than we were a few years ago,” that we also “have a massive supply problem” and it is “a challenge we need to tackle”. Castro offered no specific recommendations for federal policies aimed at reducing the housing cost burden for middle-income Americans.

As Millennials and Baby-Boomers alike move back to the urban core, it will be all the more important to address affordable housing across the socioeconomic spectrum. Given the lack of political will to tackle housing finance at the federal level, it remains likely that cities will lead efforts in this regard.