Affordable Housing Have we made a dent?

Presented by Heidi Aggeler, Managing Director BBC Research & Consulting December 4, 2015

What is affordable housing?

Federal definition of affordability: 1). Housing costs are “affordable” if they do not exceed 30% of household’s gross monthly income 2). “Costs” include basic utilities, mortgage insurance, HOA fees and property taxes

Households paying >30% for housing are “cost burdened”

>30% >50%

Households paying >50% for housing are “severely cost burdened”

Evolution of Affordable Housing Policies and Programs

1934

1937 Public

Housing

1938 Federal National Mortgage Association

National Housing Act and Federal Housing Administration

1949 Urban Renewal

1965 HUD

1968 Fair Housing Act

1974 Section 8

1974 Community Development Block Grant

1986

Low Income Housing Tax

Credit

1987

McKinney Homeless Act

1990 Housing Investment Partnerships Program

1992

Housing Opportunities for Persons with AIDS

2008 Neighborhood

Stabilization Program

2009 American Recovery and Reinvestment Act

2010

Dodd-Frank Consumer

Financial Reform

2013

Disparate Impact Rule

Primary Programs Rental Programs Homeownership Programs

Provide direct subsidies to renters:

Housing choice voucher/Section 8

Other types of tenant based rental assistance (TBRA)

Create affordable rental housing:

Low Income Housing Tax Credit (LIHTC)

Home Investment Partnerships

Private activity (tax exempt) bonds

Local revenue streams

Provide direct subsidies to owners:

Home mortgage interest tax deduction

Federally subsidized mortgage insurance

Downpayment/low interest rate purchase assistance

Create affordable ownership housing:

Inclusionary zoning

Home Investment Partnership

Private activity (tax exempt) bonds

Local revenue streams

80-85% Rental Units

95-98% Homes

It is critical that the private sector is part of affordable housing strategies Role of

the Private Sector in Providing Housing

Eligibility levels usually based on Median Family Income (MFI)

$79,900

$99,400

MFI for a family of 4 (Denver-Aurora-Broomfield)

Who is Eligible for Affordable Housing Programs?

MFI for a family of 4 (Boulder)

Income Thresholds & Target Housing

< 30% MFI “extremely” low income

=< $24,000 per year, poverty level

30-50% MFI “very” low income

$24,000-$40,000 per year

50-80% MFI “low” income

$40,000-$65,000 per year

80-120% MFI “median” to “moderate” income

$65,000-$95,000 per year

Public housing, Section 8, tenant-based rental assistance, transitional housing, other deeply subsidized rentals.

Public housing, Section 8, rental tax credit developments, other rental products. Shared equity and land trust for homeownership.

Generally live in privately provided rental housing. Ownership with shared equity, land trust, other deed-restricted products, attached homes, homes in affordable areas.

Privately provided rental housing. General target for homeownership programs, can buy without assistance in affordable areas.

1). Physical development of housing lags behind the factors that create demand (direct assistance more flexible)

2.) Inconsistent philosophies if/how the government should address housing needs and poverty

3). Housing initiatives often driven by other policy goals

4). Housing is very dynamic, closely tied to many aspects of the economy: interest rates, tax incentives, returns on capital, employment levels, demographic shifts, in-migration

Why do we have affordable housing needs?

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

1980 1990 2000 2010 2012

Denver Region Population Growth 1980–2012

Housing units developed to accommodate growth:

550,000 (or 48% of the region’s

housing units)

Number of New Residents by Decade (Denver Region)

230,798

576,378

377,081

1980s

1990s

2000s

1,184,257 new residents

Total

+

+

+

Why do we gain or lose residents? Because of net migration

-40,000

-20,000

0

20,000

40,000

60,000

80,000

Natural Increase

Net Migration

Creates challenges in addressing needs because needs, characteristics and preferences of in-migrants are unknown

Housing Affordability

Overall changes in costs v. changes in incomes

Homeownership affordability

Rental affordability

Changes in Values v. Incomes Nationally, largest price jumps occurred in the 1970s and 1990s (rents only)

Regionally, price jumps occurred in the late 1990s

The “purchasing power” of renters has declined more than that of owners

United States 1970 1980 1990 2000 2014 1990-2014

Change

Median Home Value $17,100 $51,300 $79,831 $123,887 $160,000 100%

Median Owner Income $9,700 $19,800 $35,589 $50,505 $60,000 69%

Median Rent $108 $241 $256 $646 $850 232%

Median Renter Income $6,300 $10,500 $20,295 $26,848 $30,000 48%

Denver Region 1990 2000 2014 1990-2014

Change

Median Home Value $86,800 $189,000 $259,000 198%

Median Rent $429 $750 $1,124 162%

Homeownership Affordability Recent increase in home prices is steeper than in the past

Percent who can buy median-priced homes on downward trend since 2012

$0$100$200$300$400

Q191

Q192

Q193

Q194

Q195

Q196

Q197

Q198

Q199

Q100

Q101

Q102

Q304

Q305

Q306

Q307

Q308

Q309

Q310

Q311

Q312

Q313

Q314

($ in

tho

usan

ds) Median Price

0%20%40%60%80%

100%

Q191

Q192

Q193

Q194

Q195

Q196

Q197

Q198

Q199

Q100

Q101

Q102

Q304

Q305

Q306

Q307

Q308

Q309

Q310

Q311

Q312

Q313

Q314

Percent of Buyers who can Afford Median Home

How Denver Region Ranks in Home Purchase Affordability

0

50

100

150

200

Q191

Q192

Q193

Q194

Q195

Q196

Q197

Q198

Q199

Q100

Q101

Q102

Q304

Q305

Q306

Q307

Q308

Q309

Q310

Q311

Q312

Q313

Q314

National Rank, 2015Regional Rank, 2015

Denver has never made “least” or “most” list produced by the National Association of Home Builders (NAHB)

Note: Lower numbers indicate higher levels of affordability

Homeownership Affordability Indicators are Confused by…

Influx of higher income (>$100,000) buyers into region

Low interest rates

‒ Played a bigger factor in keeping homes affordable than any other single policy

23% v. 40% now in 1999

Rental Affordability

$0$400$800

$1,200$1,600

Q198

Q498

Q399

Q200

Q101

Q401

Q302

Q203

Q104

Q404

Q305

Q206

Q107

Q407

Q308

Q209

Q110

Q410

Q311

Q212

Q113

Q413

Q314

Q215

Average Rents, Denver Region

Very low levels of post-recession development

rapid influx of renters

highest rents in history

+ =

02,0004,0006,0008,000

10,000

New Apartment Units Added in Metro Area by Year

Rental Affordability

89,000 renters earning

<$20,000

(28% of all renters)

1999 Now

110,000 renters earning

<$20,000

(26% of all renters)

57,000 units affordable to renters

earning <$20,000

(18% of all units)

26,000 units affordable to renters

earning <$20,000

(7% of all units)

We are Growing Quickly, Again

480,718

618,821

313,333

62,138

663,862

314,638

558,503

Adams County

Arapahoe County

Boulder County

Broomfield County

Denver County

Douglas County

Jefferson County

Population, 2014

3 million people Total

-4,000-2,000

02,0004,0006,0008,000

10,00012,00014,000

0 10 20 30 40 50 60 70 80Age in Years

Growth Today is Different from 1990–2000

Slower in pace

Similar in numbers

Different in housing preferences

Huge migration of 24-35 year olds

(their housing decisions will heavily influence growth)

Net Migration by Age, Denver Region, 2000-2010

Deeply Affordable Rental Housing Remains Concentrated in Denver

Units Affordable at <$25,000/year Units Affordable at <$50,000/year

Broomfield 1%

Douglas 1%

Boulder 6%

Jefferson 12%

Adams 13%

Arapahoe 16%

Denver 49%

Broomfield 1%

Douglas 3%

Boulder 10%

Adams 13%

Jefferson 16% Arapahoe

21%

Denver 35%

Denver is also the 2nd worst city behind New York for the percentage of low income households living in low income areas

AND has the 3rd largest increase in segregation between 1980 and 2010

Top Income Segregated Cities in the Nation

We are Very Income Segregated

Lower is better!

Residential Income Segregation Index (RISI) = 55 in 2010 v. 34 in 1980

New York City

San Antonio

Philadelphia

Denver

1st

2nd

3rd

4th

Homeownership Less Affordable

Out of 68 metro areas, Denver is the 34th most affordable region in the Western U.S. for home purchases v. Portland (41st), Santa Fe (43rd), and San Francisco (68th)

61% of homes affordable to median income buyer in 2015

60% in 1990

64% today

25% in 1990

31% today

Homeownership Cost Burden

31%

20,000 more poor renters than in 1999 v. 50,000 more rich renters (earning <$75,000)

New development priced to accommodate new high income renters. Low rent units moved up to accommodate middle income renters.

54% of renters today are cost burdened v. 39% in 1999

Shortage of 84,000 units renting at <$500/month

The region lacks reliable, effective means to address low income renters’ needs

City of Denver still disproportionate provider of region’s rentals, but:

‒ Now has some of the highest rents ‒ Lack of larger units + rising rents = families seeking units in

suburbs, where rental development remains very minimal.

Critical Needs: Low Income Renters

54%

Low Income Renters Grown dramatically in numbers

Number experiencing cost burden much higher

Few resources to address—no federal budget increases, few local solutions

Growth in suburban poverty has not been met with housing alternatives

Would-be Owners Benefitted from historically low interest rates

Lack of homes to buy in desirable areas, close to work a major challenge

Current Owners Region still affordable if coming from many Western metro areas

Long time residents have trouble “buying their home now”

Lack of diverse product types to accommodate aging residents

Transit, availability of services in suburban areas a challenge in future

SUMMARY: Have We Made a Dent?

Two largest age cohorts with economic power—Millennials and Baby Boomers—will determine housing demand

Short Term

Millennials will start families and move to…?

Their parents may relocate to…?

Long Term Increase of 1.22 million people by 2040 to 4 million

276,000 Adams County

277,000 Arapahoe County

192,000 Douglas County

256,000 Denver County 85% of

growth will occur in these 4 counties

More seniors

new homes

new homes

1980-2010 2010-2040

Long Term Home Construction

48%

100% By 2040, we will need:

400,000 more housing units

Long Term Services We will also need expanded social services and transit for:

Population of residents with disabilities, increase of 250,000 Persons living in poverty, increase of 140,000 Seniors, the vast majority of whom will age in place. Suburban

counties will age the fastest.

1 in 5 (or 800,000)

1 in 10 now

residents will be seniors v.

Equalize the geographic distribution of amenities Millennials and in-migrants demand

Distribute a variety of housing products to accommodate workers closer to areas of employment. Focus on micro-economies within region.

Continue to expand transit options

Reduce economic inequality

How Can We Grow Smarter?

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