On the Home Front

By Dan Emmanuel, Research Analyst at NLIHC

Our recent report, The Gap 2016, revealed a shortage of more than seven million rental units affordable and available to extremely low income (ELI) renter households, those earning less than 30% of the area median income (AMI). Seventy-five percent of ELI renter households were severely cost-burdened, paying more than 50% of their income on rent and utilities (Figure 1). Our report clearly demonstrates that ELI renters face the most severe housing challenges compared to other income groups.

Yet, our primary federal rental housing production programs do not adequately reflect this reality. The Low Income Housing Tax Credit (LIHTC), the HOME Investment Partnerships Program (HOME), and the Federal Home Loan Bank’s Affordable Housing Program (AHP) all permit rents higher than ELI households can afford without additional rental assistance. Fewer than 44% of HOME rental units have served ELI households at initial occupancy. Thirty-six percent of LIHTC units in a recent NLIHC analysis of projects in five states served ELI households, many of whom relied on vouchers to afford their unit. Fewer than 25% of new rental units receiving money from the Federal Home Loan Banks’ Affordable Housing Program (AHP) in the last two years were affordable to ELI renters. What if federal housing policies were realigned to address the most critical housing needs among the nation’s poorest households?

Of the 10.4 million ELI renter households in the United States, 7.6 million occupy housing that is unaffordable to them, but affordable to higher income groups. What would happen if an adequate supply of affordable rental housing were produced to allow these ELI renters to move from unaffordable units to affordable ones? Figure 2 shows that approximately 2.7 million ELI renter households live in units that are not affordable to them, but are affordable to very low income (VLI) households, 3.7 million ELI renter households live in units affordable to low income (LI) households, and 1 million ELI renter households live in rental housing affordable to moderate income households. Producing an adequate supply of rental housing affordable to ELI renters would provide them the opportunity to move, freeing up the rental homes they currently occupy for renters who could better afford them.

Allocating resources for housing production programs explicitly targeted to ELI renters, such as through the national Housing Trust Fund (HTF), could contribute to addressing broader affordability challenges across the income distribution. LIHTC reform could also provide more resources for ELI housing. NLIHC supports an income averaging option in the LIHTC program that would allow at least 40% of the units in a project to be occupied by residents with incomes that average no more than 60% of AMI. Under NLIHC’s proposal, some rent-restricted units in a LIHTC project could be occupied by households with incomes up to 80% of AMI as long as 30% of rent-restricted units are provided to ELI households. Any unit with an income limit less than 20% of AMI would be treated as having a 20% limit for the purpose of averaging. A basis boost would be provided to properties that choose this income averaging option. Senator Maria Cantwell’s (D-WA) legislation to expand and reform LIHTC contains a somewhat similar income averaging provision, but does not currently include a set-aside requirement for units targeted to ELI households or a basis boost.

While federal housing production programs insufficiently target ELI renters, the private housing market also fails ELI households. The rents that ELI households can afford to pay often do not cover the operating costs of new housing, making it nearly impossible for developers to produce new housing affordable for them without a subsidy. Meanwhile, older housing of adequate quality rarely becomes cheap enough for ELI renters to afford. The Urban Institute recently found that over 80% of adequate quality rental units affordable and available to ELI households are subsidized by HUD programs, predominantly Public Housing, Section 8, and Housing Choice Vouchers (HCV).

In addition to production programs, tenant-based vouchers are an important tool in our nation’s efforts to address the housing needs of ELI renters. Ideally, vouchers allow recipients the opportunity to afford modest, private-market rental housing in communities of their choice. Research however indicates that voucher holders’ choices are constrained by market forces and elements of the voucher program itself. For example, in tight rental markets with strong housing demand, vouchers can be difficult to use. Also, unlike housing production programs, vouchers don’t add directly to the supply of rental housing.

While we often hear about the potential impact of new market-rate rental construction on housing for low income renters as older units become available to them, less attention is paid to the impact of new ELI rental units on housing availability for moderate income households. The latter is an important area for research. New market-rate development is not affordable for the lowest income renters; older housing does not become affordable for many of them; and vouchers present numerous challenges, particularly in hot markets. Public subsidies for ELI housing development, such as those provided through the recently funded HTF or those that LIHTC may provide if sufficiently reformed, can both meet the needs of the lowest income renters and address broader affordability challenges.