The nation`s home builders, enjoying relative prosperity after six years of catering to move-up buyers, are beginning to sense the undercurrent of problems caused by the nation`s growing lack of affordable housing.
It was evident from the mood at the builders` recent national convention in Atlanta that the affordable-housing crisis has pricked their collective conscience.
”The affordable house continues to be endangered. Many people, especially new home buyers, are finding they can`t live as well as their parents did and this is becoming a chronic problem, not just a problem of 1988-89,” said Sam Herzog, a New Jersey builder.
”The problem is not an accident,” said Leon Weiner, a Wilmington, Del., builder and past president of the National Association of Home Builders.
”There is less homeownership today than in 1980 and if that doesn`t tell you a political story, I don`t know what does.”
The Department of Housing and Urban Development budget has been cut from nearly $38 billion in 1978 to around $15 billion this year, according to the home builders. In Illinois, only about $4 million of HUD funding was available for low-income programs other than public housing in 1987, an Urban League study showed.
”We manage 3,000 units of low-income housing (on the East Coast) and we have a waiting list of 3,500. I don`t need a study to show me there is a lack of affordable housing,” Weiner said.
The problem is apparently beginning to gnaw at the American public, too. In both the June primary and the November general election in California, voters approved funding plans for statewide affordable-housing programs totalling $450 million.
Although California is by no means the only state with skyrocketing housing costs, it makes the most extreme case. Median home prices-above $230,000 in Orange County, south of Los Angeles, and above $210,000 in San Francisco, for instance-have started to worry its own residents, polls show.
”It`s a very important phenomenon because the voters of California have a long history of turning down major initiatives for affordable housing,”
said Donald Terner, director of Bridge Housing Corp. in San Francisco.
The California money will fund affordable new construction projects, first-time buyer low-cost mortgages and low-cost rental rehabilitation. Nothing has been spent so far because the state is still setting up the specifics of the programs, Terner said.
Other states are also picking up the slack. Maryland has committed $56 million this year to affordable housing programs, $30 million of that in an unusual low-cost rental program where the state development agency has complete freedom to set loan terms to make projects work.
”We`re hitting people of quite low income, sometimes at 30 percent of the median or about $10,000 a year,” said Trudy McFall, executive director of Maryland Community Development Administration in Annapolis.
”In many cases, we`ve said there must be a local contribution to the project as well,” she said. ”It makes the process somewhat more arduous, but in the long term it has meant local governments growing more accustomed to giving land, waiving requirements and doing other things that aid affordable housing.”
Shirley McVay Wiseman, the new president of the National Association of Home Builders, has made affordability one of the hallmarks for her term. Wiseman, a Lexington, Ky., home builder, is also a former HUD official.
In one of her first acts as president, she called upon each of the organization`s standing committees to promote the concept of affordable housing in its work this year. That included making the request of the custom single-family committee, normally considered to deal with an upper-end market. ”The single most important thing to me will be affordability,” she said. ”This crisis has to be addressed.”
Wiseman has appointed a task force of home builders charged with
”identifying three or four critical issues that can be dealt with in 1989” in regard to making homes more affordable. She said she expected recommendations in areas such as regulatory reform or financing to come from the task force.
One idea she said she would push is the creation of a pilot Federal Housing Administration program to provide no-down-payment mortgages to first- time buyers in which the closing costs of the transaction can be financed. And she said Congress should boost tax incentives for the production of low-income housing.
”I firmly believe that this (Bush) administration will support some limited expansion of federal multifamily production programs,” Wiseman said. ”I think we`ve seen that you cannot move vacant apartments from Houston to Boston, so you will have to have a production program.”
The home builders have set up their own affordable housing network to share information among themselves, said Barbara Harwood, a Dallas builder who has been involved in several affordable housing demonstration projects, including Noah`s Landing, where buyers with incomes as low as $14,000 a year will be able to afford units.
”Every city that has not had to deal with affordable housing is afraid of it at first,” Harwood told builders at their recent convention in Atlanta. ”So if you run into that attitude out there, don`t think you`re alone.”
Builders around the country complain about many municipalities`
”drawbridge” mentality-their desire to keep out anything, or anyone, new and different by creating obstacles to additional development. They see smaller, more affordable homes as a detriment to current property values and lifestyles, for instance.
”The biggest impediment to affordable housing is the city council that says `No, we don`t want you to build it here.` They`ll all talk
philosophically about affordable housing, but where you propose it it`s just not going to get approved,” said Ira Norris, an Upland, Calif., builder who will chair the builders` task force.
A new index developed by the accounting firm of Kenneth Leventhal & Co. ranks the nation`s 32 leading metropolitan areas by housing affordability, based on the percentage of households able to qualify for the average price home in any given city.
The first survey, released at the builders` convention in Atlanta, found Rochester, N.Y., the most affordable city, followed by Louisville, Detroit, Milwaukee and St. Louis. The least affordable markets were San Diego, Los Angeles, San Francisco, Boston and New York City.
The Chicago area came in as the eighth most affordable market, with 51.4 percent of the households here able to qualify for a conventional mortgage on an average-priced house of about $133,000.
In the City of Chicago itself, a move to increase the amount of money available for low-income housing programs was rejected in late in December by the City Council. An amendment to the budget that would have added $8 million for housing programs was killed even after the request had been pared first from $15 million and then from $12 million.
The council had earlier approved Mayor Eugene Sawyer`s $2 million demonstration plan to build 350 units of affordable on vacant city-owned land. Home builders and HUD already have been involved in a Joint Venture for Affordable Housing, a series of demonstration projects across the country designed to show local governments what can be done with affordable housing if restrictions are relaxed.
Norris Robertson is one builder who participated in a Christian County, Kentucky, project. Through technical changes such as narrowing the streets, allowing all plastic plumbing and utilizing Robertson`s own floor system, the builder was able to deliver 73 houses for $28,000 to $37,400, saving just over $6,000 on the cost of each.
David Schwartz, a state assemblyman from Middlesex-Union, N.J., said that another way to provide more affordable housing would be for the federal government to provide tax incentives to private companies in high-cost areas that give a housing benefit to employees, either in the form of downpayment assistance or rental subsidy.
U.S. Sens. Alan Cranston (D., Calif.) and Alfonse D`Amato (R., N.Y.)
continue their work on a comprehensive housing bill that is scheduled to be introduced early this year. Portions of that bill are expected to address the affordability crisis, authorizing, for instance, the creation of tax-deferred individual housing accounts much like IRAs.
Rep. Raymond McGrath (R., N.Y.) said prospects were probably good for extension of mortgage revenue bond programs, which allow states to offer below-market-rate mortgage loans, beyond their scheduled year-end expiration. And he and Rep. Richard Schulze (R., Pa.) agreed that chances were high for passage of some kind of tax break for first-time home buyers trying to save for a down payment.
Schulze pointed out, however, that the break would mean a significant drain on the treasury. ”You`d better be willing to say you want to spend $7 billon of everybody`s money on that program,” he told the builders.
Builders are not naive enough to believe there will be a return to the days of large federal procurements for housing construction.
”We will never again see a time when we`ll support, or the country will support, a deep subsidy program,” said Dale Stuard, past president of the NAHB. ”What we would look for is more free enterprise programs than in the past, programs that would stimulate us as builders, along the lines of the enterprise zones.”
Enterprise zones are areas designated for economic development where investors and builders are offered tax and other incentives for new projects within the zone. Many states, including Illinois, have such programs, but a federal counterpart-which would provide much larger federal incentives-has not been established.
The Federal Home Loan Mortgage Corp. has moved on two fronts to provide more affordable housing nationwide.
Freddie Mac, as the company is known, will make available about 200 foreclosed homes its owns in the Houston area to first-time buyers and arrange special financing packages with low downpayments to accommodate lower-income buyers. The homes are priced around $50,000.
Douglas Whiteley, senior vice president for risk management at Freddie Mac, said the program is an experiment that could be carried nationwide if it proves successful in the Southwest. Freddie Mac owns about 5,200 homes across the country that have been foreclosed.
Freddie Mac also said it will commit $11 million to two low-income housing funds. The National Equity Fund, which invests in projects eligible for the federal low-income housing tax credit, will receive $6 million while the Enterprise Social Investment Corp., another low-income housing investment vehicle, will receive $5 million.
”This is just one more way for Freddie Mac to become involved in providing affordable housing,” said Charles Goetze, vice president for multifamily operations. ”We will be looking at additional funds for investment in the future.”
The Federal National Mortgage Association, known as Fannie Mae, also invests in low-income housing funds, including $60 million that it has committed to purchasing financing of tax-credit projects. Fannie Mae and Freddie Mac buy mortgages on the secondary market, thus making more funds available for lending at the local level.
