How America is Killing Affordable Housing

Craig Donofrio

Finding affordable housing in this country is nearly impossible for those who need it most. Millions of Americans spend half or more of their income on rent. Only 1 in 4 eligible families receives public rental assistance nationwide, leaving 15.6 million low-income families to fend for themselves in increasingly tight rental markets, according to the Center on Budget and Policy Priorities. For those who land a spot on miles-long waiting lists, it can take years to get any help.

This doesn’t sound like the time to cut back on federal housing, but that seems to be where we’re headed. The Trump administration’s budget proposal, revealed in late May, would slash billions from the Department of Housing and Urban Development.

And that could be the fatal blow to our nation’s public housing infrastructure, which for years has been quietly privatizing without much to show for those efforts. If HUD truly dwindles into obscurity—the appointment of Ben Carson, who has no experience in housing policy or even running an organization, as secretary is not promising in that regard—our nation’s hard-won dip in homeless families could disappear.

Everyone’s feeling the pinch of a tight housing market

“If you want to talk about affordable housing, you have to talk about the fact that we’re in the worst affordable housing crisis in generations,” says Susan Popkin, senior fellow and program director at the Urban Institute, a public policy think tank headquartered in Washington, D.C.

First, housing supply is low nationally and demand is high, driving up the cost of homes. Wages are not keeping up with inflation or property values, which puts homeownership even farther out of reach for many, and keeps them in the rental market. Lingering financial effects from the Great Recession and the rise of investor-owned Airbnbs have exacerbated the housing shortage, leading to a swarm of renters and helping to spike rental prices by an average of 14 percent nationwide in recent years. Some cities have experienced even greater increases; rental prices in Portland, Oregon, rose 20.45 percent during that time

Nationwide, renters are feeling the squeeze. The financial rule of thumb is to spend 30 percent or less of your wages on housing. Yet in 2015, 48.3 percent of renters spent more than that percentage on housing, and 11.1 million spent at least half their income on housing, an increase of 3.7 million since 2001, according to Harvard University’s Joint Center for Housing Studies.

For lower-income renters, the situation is dire. As of 2017, there isn’t a state in the nation where a minimum wage worker can comfortably afford a two-bedroom apartment, according to a recent study by the National Low Income Housing Coalition. For renters who rely on federal and state subsidies, it’s much, much worse. Only 35 rental units are available for every 100 extremely low-income renters (those earning 30 percent or less of the area’s median income).

How did we get here?

Low-income housing’s supply-and-demand problem tracks at least back to the Great Depression. The Public Works Administration, enacted in 1933, was designed to stimulate the economy via the building of public facilities, including housing. But the PWA failed at housing; it only built 25,000 units nationwide, hampered by a funding shortage and a federal court ruling against the administration’s use of eminent domain.

In 1934 the Federal Housing Administration was born, primarily to deal with the Depression’s housing market collapse. This led to the creation of federal mortgage insurance and the 30-year low-interest mortgage, among other mechanisms designed to stimulate the American public to buy homes or refinance underwater mortgages. At least that’s how it worked for white Americans. In the ’40s and ’50s, the FHA set about prohibiting federally subsidized suburbs from selling homes to black Americans. By the late 1950s, less than 2 percent of homes financed by the FHA were sold to minorities, and only 1 percent of all FHA housing was built in minority subdivisions.

While their minority neighbors had little choice but to remain in urban areas, white Americans packed up their Norman Rockwell paintings and moved from cities to the attractively priced burbs, which gutted the inner city tax base and left public services—including subsidized apartments for the elderly, disabled, and very low income—to crumble. Rather than fix deteriorating public housing or build more projects, the government began encouraging affordable housing developments largely financed by the private sector.

In 1974, Congress enacted the “Section 8” Housing Choice Voucher Program to cover the balance between 30 percent of a very-low-income renter’s income and the cost of fair-market or public-housing rent. The voucher program was supposed to give low-income families a choice beyond public housing, but with a limited budget, there weren’t (and aren’t) enough vouchers for everyone. And even extremely-low income families must pay between $25 and $50 each month for rent and utilities, according to HUD.

By the ’80s, many of the old public housing projects were in squalid condition. The government took another stab at market-led affordable housing with the Low-Income Housing Tax Credit, meant to incentivize private investors to create affordable housing units by way of big tax breaks.

“It was the government’s way of shifting the primary business [of low-income housing] to the private sector,” says David Layfield, an affordable housing developer and owner of, which tracks local Section 8 wait lists and eligible apartments. Thirty years later, the tax credits have financed roughly 2.8 million apartments and generated over $100 billion in private investment.

“It’s become the biggest provider of affordable housing in the country,” says Layfield.

Meanwhile, the federal government has virtually stopped building public housing units since the early 1980s, and many projects have been lost to demolition or mixed-income conversion. It’s estimated that 10,000 units of public housing disappear each year.

How the low-income housing tax credit works

On paper, the tax-credit system is pretty easy to understand. A developer applies, via the state’s housing authority, for 10 years’ worth of tax credits. The developer then sells those tax credits to a bank or an investor, using the cash to finance the project. The financers make their money back through redeeming those tax credits, and the developer makes money by earning a state-designated percentage fee—HUD recommends no more than 15 percent—of the total project cost.

For a project to be eligible for a tax credit, the developer promises to keep a certain percentage of units below market-value rent and open to housing vouchers for at least 15 years. The developer also commits to keeping the property “affordable” for at least 30 years. If the developer doesn’t follow through in the first 15 years, the IRS can reclaim the tax credits. But here’s the rub: After the first 15 years, the IRS can’t take back any tax credits, and the owner can opt to convert all units to market rate. States can enforce their own penalties to safeguard against 30-year compliance requirements, but they’re a slap on the wrist compared to the threat of an IRS tax recapture A 2012 survey by HUD estimated that some 42 percent of tax-credit properties hike rents after year 15.

Furthermore, the developer or investor can sell at any time. As long as the property remains affordable for at least 15 years (no matter who owns it), there’s no problem for the initial investor or developer.

However, this can be a problem for tenants.

Merry Christmas! You’re evicted

A couple of weeks before Christmas last year, dozens of tenants living in the American Can apartments in the Mid-City neighborhood of New Orleans received a notice telling them to vacate by the end of the month.

The American Can complex was built in the early 2000s with $39 million in public subsidies, bonds, and grants. At the time, the builder agreed to keep at least 20 percent of its units (53 in total) at affordable rates for 15 years. The original developer sold it to the Georgia-based ACV VII LLC in 2013. As the end of 15-year compliance period approached, ACV VII LLC promptly filed eviction notices. According to The New Orleans Advocate, one of those affected was a 69-year-old disabled veteran who was paying $700 a month. He’d need to pay double his monthly rent at American Can or move out by the end of the year.

Eviction timelines for American Can’s low-income residents were later extended into 2017, but finding something affordable was still a struggle for the veteran and his neighbors. A 2017 study by Go Banking Rates reported an individual would need to make $62,003 a year to live comfortably in New Orleans, leaving low-income renters with few options.

Situations like American Can happen all over the country. “It’s common enough to be a problem, and it happens in those circumstances where the project and partnership is not being run by a nonprofit organization,” says Edward Goetz, author of the book New Deal Ruins: Race, Economic Justice, and Public Housing Policy and a professor specializing in housing policy at the University of Minnesota.

For the residents evicted from American Can, they faced the daunting prospect of spending the holidays combing a flooded rental market for residences that would accept their Section 8 vouchers. They had another reason to feel frantic: Those vouchers don’t last forever, and if they aren’t used by a certain date, they can go to someone else.

The trials of Section 8

Applying for, obtaining, and finally using a housing voucher in this country can rightly be called Kafkaesque. Needy families typically contact their local housing authority, often to no immediate avail. “They’ll say the wait list is closed, or they’ll put you on a list and you have to wait however many years until a spot opens up,” says Urban Institute’s Popkin. Many wait lists around the country are closed, and have been for years. New Orleans’ housing authority list opens up once every seven years. One 16-year-old single mom in San Diego waited 11 years before obtaining her voucher.

Then there’s the arduous process of finding a rental that takes Section 8 vouchers and checks other basic boxes like being close to work and located in a safe area. Most private-sector landlords whose properties can pass HUD inspections can get approved to accept Section 8 tenants. But for the tenants, finding those properties is a real struggle.

“In a hot or tight housing market, it’s quite difficult to do,” says Goetz. In Nashville, for instance, about 300 landlords dropped out of the program between 2010 and 2016.

Among landlords, HUD is known for being slow to pay Section 8 tenants’ first month of rent, failing to provide a security deposit, and low-balling fair market rent. For Los Angeles county in 2016, HUD estimated fair market rent for a two-bedroom apartment to be $1,490. An analysis by the website Zumper found average rent for a two-bedroom to be closer to $2,900 that year.

Voucher holders are also trying to beat the clock. Local housing authorities set the maximum time limit, and HUD requires a minimum of 60 days for voucher holders to find an apartment before losing their Section 8 status. If you go over the time limit, you can apply for an extension, but there’s no guarantee you’ll be approved. If you’re denied? Best case scenario, you get automatically added back to the wait list. Otherwise you have to start the process all over again.

Shrinking inventory, buildings in disrepair

A joint investigation by NPR and Frontline found that production of affordable units has slowed down over the last 20 years. Over 70,000 units were produced in 1997, compared with fewer than 59,000 in 2014.

“We’re losing housing units. They’re being torn down, they [HUD] don’t have the money to fix them,” says Goetz.

Currently, a $1.9 billion chunk of HUD’s budget is earmarked for things like repair and maintenance—not nearly enough to take on a backlog of over $26 billion in repairs for its public housing. The current budget proposal calls for a 68 percent cut to the maintenance fund, which is likely to exacerbate an already precarious situation.

“I remember the head of the D.C. housing authority told me at one point she had 22 developments, and she had $50,000 to do one major thing in each of them,” Popkin says.

In a familiar pattern, HUD established the Rental Assistance Demonstration Program in 2012, which allows decrepit public housing to be rehabilitated and converted into affordable housing with funds from private developers.

If it goes that route, “for all intents and purposes, it’s a privately owned, Section 8 deal,” explains Layfield. He notes that RAD developers depend on tax credits to make the deal go through. But there’s a finite number of tax credits to go around, and the existing credits “are already oversubscribed.”

So while it’s supposed to be a private-sector development that doesn’t even add more units to the available low-income housing stock, RAD still draws from that limited pool of tax credits. It also requires initial funding for Section 8 contracts, which are dependent on similarly limited local housing authority funds.

“HUD itself basically says they won’t have enough funding to do more RAD deals,” says Layfield.

The total number of properties that can be converted each year under the RAD program is capped at 185,000. Though Trump’s proposed budget cuts HUD’s funding by billions, it also increases the number of eligible units to 250,000. Effectively, HUD would end up with an even lower budget to cover more units.

“So when the administration, namely Ben Carson, advocates for RAD’s expansion, those words are hollow when accompanied by proposed cuts to Project Based Section 8 and Housing Choice Vouchers and no expansion of the LIHTC program,” says Layfield.

Trump’s cuts hurt private sector as well as the poor

The severe cuts that HUD faces have already had a negative effect on low-income renters seeking a place to live and developers who create mixed-income and affordable housing.

As Goetz notes, it’s already hard for mixed-income housing developers to find a location that can both provide housing for low-income renters while also making it attractive to the market-rate renters. “Hitting that sweet spot is difficult,” he says.

The NPR/Frontline report emphasizes this problem by showcasing the town of McKinney, Texas, an upscale area with a dearth of affordable housing units. When a commercial developer attempted to build an affordable housing project there with 13 units set aside for Section 8 voucher holders, angry residents denounced the project at a public hearing. The developer has since had a criminal trespass warning issued against it by the town’s police force, indefinitely delaying the project.

In addition to weighing whether the battle against the NIMBY crowd is worth it, according to Popkin developers are now even more skittish about affordable housing projects due to the proposed HUD budget cuts.

Layfield says he didn’t even have to wait for the budget proposal to start worrying. On Nov. 9, the day after the 2017 election, he knew investors could start getting cold feet. “You have to remember, it’s a private marked-based program.” With the possibility of major corporate tax reform—currently the proposal is a cut from 35 percent down to 15 percent—the credits may not have the same allure for many investors.

“Multiple investors have bailed on deals [since Trump was elected],” Layfield says.

For America’s poor, the future seems dark

More importantly, the people who really need housing don’t see a light at the end of the tunnel.

“Under Trump, there’s a great deal of cynicism from low-income people. They feel like they’ve been forgotten,” says Layfield, who even sees the pessimism via Facebook comments on his company pages.

The proposed budget cuts to HUD under the White House’s most recent plan total $6.2 billion. But Layfield says the actual amount, accounting for inflation and the amount required to maintain support for those who already receive housing assistance, is closer to $6.8 billion. To recoup some of that money, the proposed budget includes upping renter contributions for Section 8 vouchers from 30 percent to 35 percent and forcing subsidized tenants to pay a minimum $50, even if that exceeds 35 percent of their income. Additionally, some tenants would lose utility bill reimbursements.

“Carson keeps saying, ‘We’re not putting anyone out on the street.’ Yes they are,” says Layfield.

The blame for America’s lack of low-income housing can’t be placed entirely on Carson or Trump or the GOP, though. There has never been enough adequate public or affordable housing in this country, and cuts to those programs have already had disastrous effects for millions of low-income citizens. In an essay, Popkin compared the current budget proposal to the Reagan-era cuts on maintenance and repair, which led to “dangerous problems like broken elevators, malfunctioning incinerators, mold, and leaking pipes that spewed raw sewage” by the late ’80s. Yet even under Democrat administrations, HUD is often seen as a political hinterland, and its priorities given short shrift if not outright opposed by local politicians nervous about irate constituents who don’t want any public or affordable housing near their neighborhoods. Meanwhile, low-income Americans who rely on HUD to get by wait nervously for notice of a coveted apartment … or an eviction.