Luxury Apartments and Housing Vouchers: Not Enough for the Nation’s Poorest Renters

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By Andrew Aurand

Emily Badger’s article in the Washington Post (“New housing in low-income areas yields less displacement”, February 16), based on a study by the California Legislative Analyst’s Office, leads readers to believe new market-rate apartments are the solution to the severe shortage of housing for the nation’s poor. The study Badger cites may make a compelling case for reducing barriers to housing in high cost areas with significant development constraints, but it does not support the assertion that building apartments for the rich is a better solution to meet the housing needs of the poor than building affordable housing.

As the theory goes, construction of market-rate apartments, even luxury ones, lowers prices for everyone. Households with sufficient income move into the new housing, making available their previous and older housing to other households, who in turn leave behind even older units, and so on. Eventually this results in increasing the availability of the oldest (and lowest cost) units to low income renters. However, this “trickle-down” approach fails to meet the needs of extremely low income renters, who earn no more than 30% of the area median income.

The California study pointed out that high-end housing produced in the early 1980s had dropped in relative price to the middle of the market today as evidence that older housing becomes more affordable over time. But this does not indicate an actual increase in the affordable housing supply for extremely low income renters (or even moderate income renters). A more important question is what has been the net gain in affordable housing units, taking into account the number of affordable units permanently lost during the same time period.

Older housing never becomes cheap enough for extremely low income renters. The national average of what a 4-person extremely low income household can afford in rent without experiencing a cost burden is $509. In the San Francisco region, where wages and also housing costs are higher, the most these renters can afford is $764. At these rents, owners are likely to redevelop the property for higher income renters. In weak housing markets, owners are likely to abandon the property when rent revenues do not cover the cost of adequately maintaining the property. The Joint Center for Housing Studies at Harvard found that the national gain in lowest cost, private-market rental units from 2003 to 2013 through filtering (older units becoming affordable) was matched by an almost equal number permanently lost.

Some argue that Housing Choice Vouchers combined with filtering are the solution to the housing needs of extremely low income renters. Voucher recipients contribute 30% of their income to the cost of their housing, and the voucher provides assistance for the rest, up to the local housing authority’s payment standard. At best, vouchers provide recipients with the means to afford quality housing in a location of their choice, making them an important component of affordable housing policy. Vouchers are the policy of choice in markets with excess housing supply, but unattainable prices to the poorest renters.

Vouchers are more difficult to utilize in tight, high demand housing markets. The payment standard for vouchers is approximately the Fair Market Rent, set at 40% to 50% of the region’s highest rent, constraining recipients to lower quality housing in neighborhoods and localities with lower housing costs. This assumes they are able to actually use the vouchers. News reports from California point out the difficulty voucher holders face in finding housing in tight markets where rents are higher than the payment standard. And low vacancy rates allow landlords to turn down voucher holders in favor of unassisted renters.

New construction of market-rate units may put downward pressure on prices in a tight market, but how soon does this new construction result in greater availability of moderately priced units for voucher holders?  The California study highlighted that it took 25 years for new high-end apartments to filter down to the middle of the market. The shortage of housing however is a problem today for millions of extremely low income renters and homeless individuals and families.

Housing production for extremely low income renters is a necessary third approach. The ‘balance’ we often hear in housing discussions gives too little attention to the challenges faced by these renters, for whom there is a national shortage of 7.2 million housing units. Filtering does little to address their needs. Vouchers are difficult to utilize in high demand markets. Housing production is needed. Many of our productive affordable housing programs today however allow rents that are far higher than what an extremely low income renter can afford to pay. For the first time, the National Housing Trust Fund will distribute funds to the States for extremely low income housing this coming summer, another piece to the puzzle in how to meet our nation’s housing needs. The Technical Assistance Collaborative and the National Low Income Housing Coalition, are identifying ways in which the money can be best used. And if we target more housing expenditures on housing for the households with the greatest need, the 7.2 million gap would likely decline.

Andrew Aurand, is Vice President Research at the National Low Income Housing Coalition. For feedback, follow him on Twitter @AGAurand or email him at  AAurand@nlihc.org

 

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