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HOUSING AFFORDABILITY ISSUES
TUESDAY, MAY 22, 2001
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to call, at 9:30 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.
Present: Chairwoman Roukema; Representatives Bereuter, Ney, Kelly, Miller, Cantor, Grucci, Tiberi, Frank, Velazquez, Lee, Schakowsky, Jones, Capuano, Waters, Watt, Clay, and Israel.
Chairwoman ROUKEMA. I am Congresswoman Marge Roukema. We will call the hearing to order and open. I don't know whether or not you heard my comment to Mr. Frank as he came in. I said ''Good morning,'' although then I facetiously said ''I don't know what is good about it.'' But the rain is good about it, right? We need it, and I certainly hope it is raining in New Jersey. We desperately need that.
But it is a good morning to have you all here today, and I appreciate your being here. It is important issues that we are dealing with, and we are so pleased that these panelists are willing to be here and share their time with us and their intelligence and experience with us.
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This is the second hearing planned by this subcommittee on the issue of affordable housing. Certainly the country is facing a growing affordable housing crisis for low- and moderate-income families, which I believe is recognized on a bipartisan basis. Despite the fact that more and more people are sharing the American dream of home ownership, many working families are finding it more difficult to find affordable housing, whether rental or personal ownership.
Through these hearings, I hope to better define the problems faced by many of our families and find solutions that we may use in addressing the crisis. That may not be an easy goal to accomplish, but we are going to try, and hopefully be able to resolve it on a bipartisan basis.
The growing economy has created a major dilemma for an increasing number of working class and low-income Americans. In many areas, our better economy means higher rents and these hard working Americans are suddenly finding they can't afford housing and they can't even afford housing available that is geared supposedly to their income levels.
The problem certainly is a complex one, and since the causes may vary, depending upon the peculiarities of the particular real estate market, local markets are highly individualized, which we have learned recently, differing very dramatically from Houston, Texas, to Manhattan, to Portland, Oregon, or Detroit, Michigan. We will not belabor the issue there.
But I can give you a specific example that relates directly to Federal housing policy. In some areas, existing Federal programs such as the use of Section 8 vouchers may be working very well, but in other areas voucher utilization rates are very low, because, as we are all becoming convinced, in order to address the problem successfully we will need to consider a variety of approaches and explore why not even vouchers are helping.
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We don't know whether we should develop a production program to encourage the production, the manufacture, of the supply of housing, whether we need to change existing Federal programs that will help to foster production and improve the delivery, and provide other forms of, and I hate to use the word subsidy, but other forms of support or subsidy for housing rental systems.
The high cost of construction and the shortage of land force many builders to focus only on the high end of the market, and we must look for ways to remove these barriers. I say that with great caution, because I come from a State, the State of New Jersey, where local zoning is of paramount importance. But the local zoning has a lot to do with the high cost of building because of the zoning questions.
Last week, Congressman Frank and I, the ranking Democrat on this subcommittee, asked the Administration to release the $40 million in credit subsidy for the FHA Multifamily Housing Program. Releasing these funds will allow us to resume lending under the FHA Multihousing Loan Guarantee Program, while providing Congress with the time necessary to determine the best way to proceed in funding this important program through to the end of this fiscal year and hopefully over the immediate years to come.
I would like to also ask my colleagues to co-sponsor the legislation that Congressman Frank and I have introduced, H.R. 1629, which would raise by 25 percent the existing FHA multifamily loan limits. It is extremely expensive and difficult to build multifamily projects that produce moderately priced units, and the resulting rents are often higher than many families can afford, so in the current situation it is not really applicable and there is no reality there to the FHA loans.
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Without the assistance of FHA, builders are building fewer and fewer multifamily projects, exacerbating the grave shortage of affordable rental housing.
Since 1992, construction and other costs have increased significantly and the preliminary survey by the National Association of Homebuilders shows that land costs increased by an average of 25 percent over the recent past 9 years. That is pretty significant. In areas such as New York City, Philadelphia, Boston, San Francisco, it costs more, just to name a few, to construct or rehabilitate moderate cost housing units than the current mortgage limits.
The FHA loan limits were never intended to exclude certain regions of the country. We would hope that H.R. 1629 will fix that problem, and I urge my colleagues to take it under consideration and co-sponsor this legislation.
Finally, last year Congress passed legislation to increase the cap in both Low Income Housing Tax Credit and private activity bonds. Congressman Houghton and Congressman Neal have introduced legislation to finish the modernization of these important programs. H.R. 951, the Housing Credit and Bond Modernization and Fairness Act, is their bill. I think we should look at it very positively, but, unfortunately, even with the increases outlined in this legislation, and the increases that were enacted last year, many qualified to reach housing help under these programs are not getting it because of a few obsolete program provisions enacted 20 years ago.
So, that is what H.R. 951 makes, three simple low-cost non-controversial tax changes. I will not go into that now, but except to note that the National Governors' Association has recognized the importance of this legislation by endorsing its enactment, and I urge my colleagues to add their names as co-sponsors to this important legislation.
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Getting to our hearing today on the contributions that will be made before us today, we are fortunate to have a number of distinguished experts in the field of housing as witnesses, and there are many organizations working together through public-private partnerships. It is more than terminology here, it is actual operations, public-private partnerships, which I would like to see expanded, to provide affordable housing throughout this country.
Today we have several of those organizations who will share with us their experience and recommendations for addressing the growing crisis. I am particularly interested in hearing the ways that we can reform current programs. So I welcome you here today. Thank you for being here.
With that, I seek the comments and observations of our Ranking Member, Mr. Frank.
Mr. FRANK. Thank you, Madam Chairwoman. I am very pleased to note that I am in very substantial agreement with the substantive points in your opening statement. Indeed, I think probably the only difference in how we would have said that is the New Jersey accent. I have one and you don't, even though I moved away. You managed to avoid it.
Chairwoman ROUKEMA. The accent, is that what you are talking about?
Mr. FRANK. I have a New Jersey accent and you don't.
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Chairwoman ROUKEMA. That is true. I am a true New Jerseyite.
Mr. FRANK. But we are blessed in this country with the best economy that the world has ever seen. The United States economy, private sector, has performed in this last decade at a pace that really people had not thought possible. We had lower unemployment with virtually no inflation, great productivity, and that is a good thing.
The problem is that some people think that that is all we need to do, and as the Chair pointed out, for some people, the good economy is not only not good news, it can be bad news. Because if you happen to live in an area where a large number of people are benefiting from the new economy, if you are one of those people for whom the world is a new market and you are in those areas where the United States has dominated the world in biotechnology, in software, in the provision of medical services and a whole range of other areas, you are doing very well.
You are doing well enough so that you can bid up real property to the disadvantage, not that you intended to be that way, but nonetheless to the disadvantage of teachers and firefighters, factory workers, hospital workers, others, who are not directly participating in this new economy.
So we have the problem of people being worse off as the economy gets better. Now, that is an easily solvable problem, because here we have a situation where the very cause of the problem, the increased economy, provides us the resources if we have the sense to use them to resolve it.
Precisely because this economy has performed so well, this society has the money to deal with the housing problems that are faced by people who have been disadvantaged by the prosperity. So what we have here is a failure of will, plain and simple. We have a decision to make as a society, will we turn our backs on people who need housing?
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Twenty years ago there would have been an argument that said: ''Well, whenever the Government tries to help housing, it messes it up.'' I think it is important to deal with that, because there is this cultural lag that interferes with our reference. People still see Pruitt-Igoe and Cabrini Green and the Old Columbia Point in Boston, people see a hundred towers being imploded. Yes, 40 years ago this society built housing badly for very poor people, apparently out of a desire to do it very cheaply.
We know now without dispute how to build housing, how to help the private sector build housing, get the public sector get better housing, with variety, with a great deal of intelligence. The proof of that, by the way, is the waiting lists that we all know about for much of the existing subsidized housing for the elderly, for people who are disabled.
One of the things society did years ago was to end, to some extent, the process of automatically institutionalizing people with mental illness. We have been trying hard to treat people with mental illness better. The Chair has been a leader in the effort to make sure health insurance is fair to people with mental illness. One of the things we haven't done is to provide the housing stock that is necessary to make the deinstitutionalization process work humanely, because you have a disproportionate number of people with mental illness among the homeless, because we have shut down some of these institutions and have not done enough to find replacement institutions.
As I said, we know how to do this. There is a whole range of programs. There a need for flexibility. As the Chair points out, in some areas of the country a voucher program will work well. In others areas, it will not work well. We have a mix of tax credits, of public housing. There is a whole range of need and there is a range of programs, and in area after area in this country, we know how desirable that is.
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I wanted to stress one point on the desirability, because again we run into this myth. We know we have a need for housing. We know we have the resources to help with it. We also know, by the way, when you help anybody with housing, you are helping everybody to some extent, because there is a chain here. So as you increase the stock, you help everybody some. Obviously you help primarily those for whom the stock is directly aimed, but you help everybody some.
But, one of the things that the Government did in the 1960s in particular was to do a couple of programs, Section 221(d)(3) and Section 236s they were called, which were public-private collaborations, whereby the public sector subsidized the cost of multifamily rentals, and a large number of people moved into those. For those who think the Government can't do housing well, look at what we have been preoccupied with in the last few years.
We have been preoccupied with meeting the demand of the residents of those federally-subsidized housing developments to preserve them as their homes. In other words, by the best possible test, consumer satisfaction, this country has learned that the housing programs of the 1960s and 1970s, while I think the financing mechanisms were not as good as they could have been, were, as physical and social facts, overwhelmingly popular.
Even at a time when this Congress was cutting back on housing funds elsewhere, we had virtual unanimity out of this subcommittee, the committee and the floor of the House and Senate, in preserving the housing developments built with public funds years ago. Having done that in the 1960s and 1970s, having had the people who live in those units tell us by their insistence that we protect and preserve the units, that they were successful, we have the model for going forward.
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So I appreciate what the Chair said, and I also particularly want to reiterate in closing, our agreement on getting more out of the FHA.
I do want to point out to people again, we had a very good hearing, the Chair convened a good hearing, our first hearing in this year, with the Office of Management and Budget, with the Congressional Budget Office and the General Accounting Office. There were more accountants in this room than most people could keep track of.
The unanimous conclusion was that the FHA fund is at this point in very solid financial shape and that it is hard to think of an economic calamity that would call it into question. In other words, without being reckless, being totally actuarially sound, we can go forward and make better use of the FHA. We ought to begin with that right away and get back to some housing being built and go on from there.
Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you, Mr. Frank. I appreciate the fact you underscored the point that I believe I neglected in my opening comment about the first hearing, that the FHA is actuarially sound, and the point was made over and over again by both the GAO as well as other accountants in the field. I appreciate that.
For all our Members here, I want to remind you of the rules, and the rules are that we will hope that—well, everyone will have to keep their opening statements to 3 minutes, and I am going to have to enforce that, considering the number of people we have here and how we will be going into some voting sessions in the near future, and we do want to hear this panel this morning. So I am going to adhere to the 3-minute limitation. For those of you who want to simply ask unanimous consent to have your statement included in the record, that will be done.
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Now we will hear Mr. Miller. Do you have an opening statement?
Mr. MILLER. Thank you, Madam Chairwoman.
Many things that Mr. Frank says I totally agree with. He talked about people not participating in the economic boom and we have the money to deal with the housing problem. The only problem I have with that is we are dealing strictly from a Government perspective and dealing with taxpayer funds.
He talked about the history of housing, how there used to be affordable housing. In post-World War II there absolutely was a boom in housing, housing was affordable, but the problem between today and then is at that point in time, Government was not causing the housing boom.
When I first went into the building industry a little over 30 years ago, you could submit a tentative tract map, and by law we respected the principles of property rights, and in 58 days the Government had to say yes or no to a tentative tract map application, and if they didn't respond in 58 days, 59 days later it was approved by law.
But then we started the EIR (Environmental Impact Report) process and CEQA (California Environmental Quality Act) and other processes that Government has created for the benefit of people. And I give you an example, I had a specific plan in a community I started in 1989 that the local agency finally approved in 2000; 11 years later. It has no endangered species, has no flora, fauna and habitat that supports endangered species. Because of the EIR process and the changes in the concept of property rights, Government agencies can protract the process to such a degree that unless a property owner owns the property, a banker knows that they will foreclose 5 or 6 or 7 times on that piece of property and nothing will ever occur.
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As much as I enjoy what Mr. Frank says, and I do agree with most of it, I disagree that Government is not the resolution to the problem. Government is the problem, and if Government would get out of the way of the housing industry as they did in post-World War II, we would not have a housing shortage today, we would not have an affordable housing shortage today, in fact, we would have a boom in move-up housing, and affordable housing would be available, and poor people wouldn't be looking for houses that they can't afford. In post-World War II, an individual bought a $100,000 home, and $35,000 of it would not be in fees to Government as it is today; then that individual could simply buy that home for $65,000, instead of paying $100,000.
Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Mr. Israel. By the way, I am acknowledging and recognizing—excuse me, excuse me, I would hope that the Members would listen and give courtesy to our other colleagues.
I am recognizing people in the order in which they have arrived.
Mr. Israel.
Mr. FRANK. Madam Chairwoman, I would just like to note Mr. Israel gives his statement happily in the presence of his Chairman, whom we are happy to welcome.
Mr. ISRAEL. Thank you, Mr. Frank, and thank you, Madam Chairwoman.
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I represent an area where affordable housing has truly become a crisis. A significant percentage of my constituents are now paying over half of their incomes on housing costs. The median price of a home in my area is now near $200,000, home prices increased 16 percent last year alone by one estimate, and affordable rentals are all but absent on Long Island.
Yesterday our colleague, Congressman Earl Blumenauer and I toured areas of my district to talk about how we can make housing more accessible, more affordable and more livable. I look forward to hearing today how we can create more partnerships, how we can use tax policies to encourage more housing, and how we can solve this problem on Long Island and throughout the country.
I thank the Chairwoman and yield back.
Chairwoman ROUKEMA. Thank you.
With that we will recognize Mrs. Kelly from New York.
Mrs. KELLY. Thank you, Madam Chairwoman. I really want to thank you very much for agreeing to hold the hearing on affordable housing. It is a problem facing our Nation and it is the lack of affordable housing that is not really, I think, solely the matter of importance to the working poor, it is an issue that affects every single level of the communities.
In my home county of Westchester County, the median price of a house is $412,000. That is the median price of a house. HUD has declared that a fair market rent for a 2-bedroom apartment is $1,144 a month. That is higher than in New York City. As of February 8, there are 13,207 people on the Section 8 waiting list, and there is simply no product available to those people that is affordable to them to get into.
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The county and the communities really are not able, unfortunately, to use all of their Section 8 vouchers, because of a combination of a lack of these housing units and the inability of Section 8 vouchers to cover the fair market rent for the area. One of the things I hope we are going to be looking at is a regionalization of some of these applications. But in looking for remedies for this situation, I don't think we can solely look to the Government. As this is an issue of real importance to the entire community, we have to look to private community groups and institutions for a combination of public-private efforts.
It has been from these initiatives that I have witnessed some of the best work in my region that goes toward long-term solutions. In my opinion, any legislation looking to make serious progress toward a solution has to include public-private partnerships. But the need to engage multiple entities is certainly a drag on the housing market.
In addition, one of my foci is to hear what you think that Congress might be able to do to strengthen existing programs that are having positive results in addressing this need for affordable housing. With most legislation, a balanced approach is necessary. We should continue to work together to ensure that effective programs are going to receive all the support they possibly can get and deserve.
I want to thank the distinguished panel of witnesses for taking time out of their busy schedules to be here to discuss these issues with us. I look forward to working with my colleagues on both sides of the aisle, and I yield back the balance of my time.
Chairwoman ROUKEMA. I thank Mrs. Kelly.
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Now we have Mr. Watt of North Carolina.
Mr. WATT. Thank you, Madam Chairwoman. I doubt that it would be an effective use of the subcommittee's time to find a different way to express what the Chair and the Ranking Member and Mrs. Kelly have adequately described as real problems that exist in my congressional district. I am looking forward to hearing the suggestions of these witnesses and witnesses on the second panel about how to innovatively address these problems.
With that, I will yield back the balance of my time.
Chairwoman ROUKEMA. I appreciate your consideration.
Now we have Mr. Ney of Ohio.
Mr. NEY. I will pass.
Chairwoman ROUKEMA. Thank you.
Ms. Lee of California.
Ms. LEE. Thank you, Madam Chairwoman. I thank you for holding these hearings and for a real focus on housing affordability on this subcommittee.
I mentioned this a couple of times with regard to my district and the Bay Area as being one of the most least-affordable areas to live in the country. The Congressional Black Caucus, along with the Congressional Black Caucus Foundation, has sponsored three housing summits, one in North Carolina, another one in Oakland, California, last year, and very recently in New York. One of the issues, of course, that keeps coming up is the gap in terms of home ownership rates between minority families, African American families, and the general population at large. So we are looking at how to try to close that gap while at the same time ensuring that minority families who want to purchase homes do not have to worry about the predatory lenders that are out there in terms of utilizing financing mechanisms to be able to purchase their homes.
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Of course, equity in one's home has been the basis upon which African American families have been able to send their kids to college, start small businesses. This has been the primary means of accumulation of wealth. So it is very important for us to look at how the affordability issue can be really addressed in areas where we have large numbers of minority families.
Finally, let me just say in terms of gentrification, one of the concerns I have always had and continue to have and see as being very prevalent right now is gentrification. As the economy gets better, in many areas absentee landlords own homes and apartment buildings which now are becoming unaffordable for tenants. I know that one of the solutions is to increase production, but until we increase production, I would like to hear from the panels how we mitigate against the huge numbers of families now that are being run out of our urban areas as a result of the ability now to make huge profits out of real estate.
So, thank you, Madam Chairwoman, for this hearing. Rental assistance and homelessness assistance strategies, I think, are very important also, not only home ownership, that we need to look at.
Thank you.
Chairwoman ROUKEMA. I thank you.
Mr. Tiberi is the next to be recognized.
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Mr. TIBERI. I yield back the balance of my time.
Chairwoman ROUKEMA. Is there anyone else on this side who has an opening statement?
Mr. Grucci.
Mr. GRUCCI. Thank you, Madam Chairwoman. Affordable housing is a very big issue for all of us. As you heard my colleague from Long Island, Steve Israel, talk about the high cost of housing, it is indeed a real problem as we watch as housing prices go higher and higher, and the affordability of being able to own a home or being able to rent a home all but escapes those young families that are just starting out in life.
There are plenty of opportunities for these folks to stay with us. The job market is fairly strong, but not strong enough to allow them the down payment or being able to carry the carrying cost of a $200,000 to $225,000 home. I am hoping to hear from the panel today for ways we might be able to figure out in areas of our country where there is a higher cost of living than in other areas, how do we go about setting the levels of affordability? I guess affordability is kind of like artwork, it is in the eye of the beholder. What is affordable in one section of our country may certainly not be affordable in another section of our country, but yet the need for that home is very real.
We have young families earning $25,000, $30,000 a year, but can't afford to find a home. We need to be able to place them into those homes. I am hoping to be able to hear from you today on ways that this panel and this Congress might be able to figure out ways to make that happen.
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Lastly, before I yield back my time, I have a couple of ideas that I would like to run by you, and obviously this is not the time for questions, but I hope you might be able to address this in your presentations, if there are ways to incentivize the process by which developers and owners are able to make more of their properties available for affordable housing. The market is strong, they can get better rates on the outside, there are more burdens that Government places on them, such as regulations, paperwork, the whole issue of lead removal, which obviously is something we have to do and it is very important we do. But there might be ways you might think of that would help to defer the costs on these so that the rents do become affordable and those properties do become available to the people who truly, truly need them, which is our young folks and people who are living on less than $50,000 or $60,000 a year.
I thank you for that. I hope you can incorporate some of those thoughts into your responses today, and I yield back the remainder of my time.
Chairwoman ROUKEMA. Thank you.
Ms. Schakowsky of Illinois, do you have any opening statement?
Ms. SCHAKOWSKY. Very briefly, Madam Chairwoman. Thank you.
I represent Chicago and some of the northern suburbs. We have a crisis as well. Between 1990 and 1999 we lost about 53,000 rental units. Right now we are about 153,000 rental units short. That was as of 1999. It is getting worse. Owners of project-based Section 8 are opting out. We have the problem, and I associate myself with the remarks of Ms. Lee, gentrification is a problem in many of our communities.
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I know the number one barrier to production really is funding. I believe in public-private partnerships, but I believe that public subsidy is needed to fill the gap between what families can afford and the cost of development and maintenance of housing.
I am a very strong supporter of a national housing trust fund and look forward to hearing the panel. Thank you.
Chairwoman ROUKEMA. Thank you. Others on this side, on the Republican side?
Others on this side? If there are, Stephanie Tubbs Jones is the next to be recognized.
Mrs. JONES. Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Please restrict your comments to 3 minutes.
Mrs. JONES. OK. It will be less than that. I just want to thank you for your leadership on the issue. I am glad we are having the hearing on this. I would like to welcome Mr. Hinga from Ohio to our hearing. I want to welcome all of you, but I am from Ohio, so I am directing my welcome to him as well.
In Cleveland, we have had a great success with community development corporations building and developing affordable housing, but we still have a gap in the City of Cleveland as well. I am looking forward to hearing from each one of you with regard to ideas that you have with regard to housing affordability, and the next Congressional Black Caucus Summit on Housing is in Cleveland. I look forward to you having input there.
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Thank you.
Chairwoman ROUKEMA. Mr. Capuano, do you have an opening statement?
Mr. CAPUANO. Just briefly, Madam Chairwoman. Again, I would like to add my voice to thanking you for holding these hearings. I hope the final result of all these hearings is actually doing something, as opposed to hearing the problems, because many of us already know the problems.
I also want to welcome Mr. Flatley. He has done fantastic work in the greater Boston area. He is living proof that the public and the private entities can get together. He is well respected on both sides, and I would heed each and every member of this panel to listen to his wise and effective counsel.
Chairwoman ROUKEMA. All right, thank you.
Ms. Waters.
Ms. WATERS. Thank you very much, Madam Chairwoman.
I am appreciative for these hearings today. We have a housing crisis. The economic expansion of the last years has been accompanied by skyrocketing home prices and rents, and there is a severe shortage of affordable housing and in many areas any type of housing.
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I just have to put on the record that in my home State of California, about half of renter households pay more than the recommended 30 percent of their income toward shelter. However, 91 percent of low-income renter households with annual incomes under $15,000 spend more than 30 percent of their income toward rent. These low-income households outnumber low-cost rental units by a ratio of more than 2-to-1, both statewide and in Los Angeles County. Statewide, there is a shortfall of almost 600,000 affordable units. I have a lot more information about what is happening in California, but what I will do is place my complete statement in the record and discontinue my comments at this point.
Chairwoman ROUKEMA. I thank the gentlewoman.
Now last is Ms. Velazquez from New York.
Ms. VELAZQUEZ. Thank you, Madam Chairwoman. I am very appreciative that you are paying so much attention to this issue. I come from New York City. I remember 10 years ago it was crime that was driving people out of New York. Now it is the shortage of affordable housing. We are facing a crisis in New York when it comes to affordable housing, especially low-income communities. I am very pleased that we are having this hearing today, and I look forward to the presentation from our panelists.
Chairwoman ROUKEMA. Thank you. I thank all the Members here, and certainly Mr. Frank.
I will say to our panelists that you should understand that the representation here, the attendance here, I should say, is exceptional for a subcommittee hearing, and it is a visual demonstration of the intensity of this subject and the interest on both sides of the aisle on this subject.
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With that, I do want just for the record unanimous consent that the two letters that Mr. Frank and I have sent on this subject, both of May 17, regarding the FHA multifamily housing and H.R. 1629, be included in the record.
So, we welcome you here today. Our panelists, William Hinga from Bank One Community Development Corporation. By the way, all of you have the same background and experience, years of experience in the field, so you are not just speaking from theory, you are speaking from your practical experience. Certainly Mr. Hinga has 20 years of experience with commercial real estate, lending and investment banking. He has been with Bank One since 1990. Certainly Bank One's Community Development Corporation has a national reputation. So we are very eager to hear from you, Mr. Hinga, please.
STATEMENT OF WILLIAM T. HINGA, PRESIDENT, BANK ONE COMMUNITY DEVELOPMENT CORPORATION, COLUMBUS, OH
Mr. HINGA. Good morning, Chairwoman Roukema, and Members of the subcommittee. I am Bill Hinga, President of the Bank One Community Development Corporation, and I appreciate this opportunity to appear before you and share Bank One's involvement with affordable housing.
Bank One Corporation, headquartered in Chicago, is the Nation's fifth largest bankholding company and has a domestic retail banking presence in 15 States.
Our Community Development Corporation, which I run, is based in Columbus, Ohio. It is comprised of a team of 38 professionals strategically located in seven offices across Bank One's footprint. Our sole mission is to provide debt financing and equity investments for affordable housing and community development. Bank One Community Development Corporation alone has provided over $850 million in investments and community development loans across our markets, financing over 15,000 units of affordable housing.
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I am also here as a board member of the National Association of Affordable Housing Lenders, or NAAHL, as we are more commonly known. It is the association devoted to increasing private capital investment in low- and moderate-income communities.
The past 10 years have seen a major transformation in the formation and delivery of capital for affordable housing. Some history may be helpful here. As Federal subsidies declined and FHA's share of its multifamily housing market has dwindled, private sector organizations have had to become creative in finding solutions. Over time, plain vanilla debt financings, such as straight mortgages, were no longer enough to fill the Nation's affordable housing needs. Other financing vehicles were needed. So were other partners. What were once pioneering partnerships among insured depository institutions, like Bank One, and non-profit providers of affordable housing, often involving State, Federal and local subsidies to make the housing units economically viable, are now really the norm in the way we do business.
Perhaps at this point several examples of the partnerships needed and the multiple financing layers required would help illustrate this point. I think my two examples really point out what the Chairwoman's opening comments were about—the need for public and private partnerships, and also the multiple layers of financing needed today to address our needs.
My first example is a project we are doing in Steubenville, Ohio. We are partnering with the Ohio Capital Corporation for Housing to provide $3.7 million in equity capital for a 77-unit low-income housing tax credit development in that market. The balance of the capital for this project will come from other bank financing which is utilizing the Rural Housing 538 program, and $600,000 in HOME funds through the State of Ohio.
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The development entity here is a partnership of a non-profit social service provider in the market and a for-profit developer. There are several unique features to this development. There has been no affordable housing in this market for over 5 years. Everything that is already there and is affordable is 100 percent leased. Twenty percent of the units here will be set aside to single mothers with children. Thirty-nine of the units at the end of the tax credit compliance period will be offered for home ownership opportunities at prices that will be very attractive to the renters. So this will offer a rental option and then at the end potential home ownership.
Another example is in Chicago, where we are partnering with the Enterprise Social Investment Corporation in providing $4.2 million in equity capital for new construction of a 107-unit mixed income development. This is an interesting point here, because in this project, we are going to address this a bit with Congressman Frank, what he was saying earlier, is this development is going to have—25 percent of the units are going to be public housing replacement units. The balance of the financing of this is really multilayered. There is FHA-insured tax exempt bonds, tax increment financing, Chicago Housing Authority HOPE VI funds, and City of Chicago HOME and Empowerment Zone funds. Bank One is not alone in working with partners. Loan consortia, non-profit lenders, community-based development corporations, secondary market players and others are all a vital part of the affordable housing field today.
Banks finance affordable housing in a variety of ways, depending on their geographies and the bank's own business strategy. Many bring their underwriting expertise to the construction lending. Some offer permanent mortgages. Others, like Bank One, are major low-income housing tax credit equity investors. Although data is hard to come by, bank participation appears to have increased significantly in each of these areas.
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Today, financing affordable housing and community development requires an intricate array of financial instruments and players. Subsidy providers like to spread their finance resources around and obtain the greatest possible leverage in each transaction. With a variety of subsidies involved in any one project and the varied requirements of each subsidy provider, the cost and fees of underwriting, understanding and complying often reduces the actual funds available to build units.
A streamlining of results and paperwork requirements in all Federal and State housing programs would help put more dollars into the housing and less into professional fees.
It is clear that if the Nation is to move forward with providing decent affordable housing for our communities, Congress must look at ways to increase the Federal Government's subsidy for affordable housing. There are a range of possibilities, such as: proposals for an affordable housing trust fund, for increasing the FHA multifamily mortgage loan limits, and the FHA credit subsidy, increasing HOME and other grant programs, and for a new single family housing tax credit program. We ask you to look at all of them.
I thank you for your time and attention today.
Chairwoman ROUKEMA. I thank you, Mr. Hinga. I neglected to identify you as the President of Bank One Community Development Corporation.
I will say for all of you there is a 5-minute rule. However, understanding the importance of your testimony, I will try to be a little relaxed about it. We will be watching the clock. Until I use the gavel, you won't have to worry about your time commitment, all right?
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Ms. Kaiser is President of the California Community Reinvestment Corporation. I understand you have a 25-year banking executive experience, and you are experienced in delivering financial services for especially affordable housing. You are a board member of the National Association of Affordable Housing Lenders and President of the Board of Trustees of the United Way of Ventura County.
I would fully expect that you have a contribution to make, not only in private funding, but also public-private partnership.
Mr. FRANK. We have to say when you think they have a contribution to make in private funding in this room.
Chairwoman ROUKEMA. No, I don't apologize for that, not at all. Do you? No, they are all shaking their heads. No.
Thank you. You see the bipartisanship here. You understand that.
Ms. Kaiser.
STATEMENT OF MARY F. KAISER, PRESIDENT, CALIFORNIA COMMUNITY REINVESTMENT CORPORATION, GLENDALE, CA
Ms. KAISER. I understand that.
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Thank you, Madam Chairwoman, and good morning. My name is Mary Kaiser. As Madam Chairwoman just indicated, I am President of the California Community Reinvestment Corporation (CCRC).
Chairwoman ROUKEMA. Excuse me, could you pull the microphone a little closer?
Ms. KAISER. I am also short, so this is kind of tough.
I am also a certified community development financial institution, which is a CDFI, and we have been doing this for the last 11 years in the State of California.
I want to thank the Financial Services Committee this morning for the opportunity to speak about some of the successes we have had in meeting affordable housing challenges and needs in the State of California, but to also make you aware, which apparently you are very much aware, of the challenges that lie ahead and how Congress might address those challenges along with us. We are certainly all in agreement on the magnitude of the problem.
By way of background, CCRC is a multi-bank funded non-profit lending consortium. We were formed actually by the Federal Reserve Bank of San Francisco and some senior banking executives of California-based banks back in 1989 to address the lack of mortgages for affordable housing developers.
The Federal Government had just created the Low Income Housing Tax Credit Program, and permanent long-term mortgages to finance those units subsidized by that program were all but absent in our State. The perception of high risk in this type of lending led to the formation of this mitigated risk pool concept where all member banks would participate in each loan originated by CCRC.
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At the time when CCRC was launched, the world of affordable housing was quite different than today. Eleven years ago I think the perception of the risk of this community development type lending was excessive. The system for financing affordable housing in California, and I suspect elsewhere in the country, was generally fragmented. The pooling concept that our organization offered seemed to be a great innovation, allowing banks to meet their CRA (Community Reinvestment Act) requirements, and provided a much needed private capital financing vehicle for affordable housing. CCRC's member institutions have committed in excess of $250 million to this cause through today.
Since 1989, at least 10 other consortia have been created similar to the CCRC concept. In our particular business, which is underwriting tax credit, multifamily rental units, we pioneered ways of underwriting and developing effective partnerships with non-profit and for-profit developers, local municipalities and State agencies to increase the production and rehabilitation of rental housing for low-income families. Our deals look very much like the ones Bill just described, multiple layers of financing, lots of different rules, lots of different documents.
In the last 11 years, we have originated over $300 million in mortgages secured by projects containing over 15,000 units of affordable housing. While 100 percent of our portfolio represents units affordable to people making 80 percent of those around them, simply more than half of our portfolio represents affordable housing units to those making only half of what people around them make.
Through our willingness to create innovative loan structures tailored to each project's needs, we succeeded in doing what I described as the cutting edge, hard to do deals that have helped increase the supply of affordable housing in California, and we have proven it is not as risky as people thought 11 years ago. Since inception, our losses have been extremely low, less than 0.32 percent, or only $622,000 of all loans originated.
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This is comparable to the performance of a good portfolio of investment grade bonds. I might say our member banks have taken no losses on loans originated by this consortium.
We are proud of our contributions to affordable housing. In fact, we recently received the Financial Supporter of the Year Award from the Southern California Association of Nonprofit Housing Developers. This is a group that is always keeping banks on their toes in terms of their commitments to affordable housing. So we have become a part of a very strong infrastructure in which lenders, non-profit organizations, commercial investors and State and local governments work together.
Our experience in multifamily housing has also allowed us to meet community needs in other ways. Ms. Lee was talking about her concerns about low-income tenants being driven out of communities where nobody really wanted to be 10 years ago. One of the projects that we have developed is an acquisition rehab lending program to inner city investors, much like the Chicago model, where individual owners and rehabilitators are given equity private capital to rehab and continue to provide these units to low-income tenants at affordable rents.
We have also developed a tax exempt bond program whereby our investors buy directly tax exempt bonds for their private holding. This allows rural projects to have access to tax exempt bond financing at a lower cost.
We have also done direct investments in affordable housing projects. Mr. Frank was talking about and others were talking about the issue of preserving what we have. I mean, let alone what we need to build. But the preservation of expiring use projects is a big issue in California. So CCRC has also provided equity to preserve those expiring use Section 8 projects.
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But despite this and everything else we are doing, we simply don't have the resources to keep up with the soaring demand for affordable rental housing. The 1999 American Housing Study conducted for HUD, just released this month, noted that of the 112 million year-round housing units, 30 percent are renters. The overall vacancy rate of rental units nationwide is 8 percent, and in California it is less than 5 percent.
California accounts for seven of the eight least affordable rental housing markets in the country, and my numbers are even higher than Ms. Waters in the sense that I show that rental units available to low-income, there are more than four low-income housing renters for every one unit of housing in California. That, coupled with the housing wage in California——
Chairwoman ROUKEMA. Ms. Kaiser, excuse me, can you sum up now, please?
Ms. KAISER. We are only adding one housing unit for every five jobs in California. We have got to put public and private partnerships together. It takes your money and ours. At $12,000 a year for people earning only 30 percent of the area median income, it is going to take a deep subsidy to make units affordable to all in California.
Chairwoman ROUKEMA. I thank you.
Mr. Joseph Reilly is the Senior Vice President at JP Morgan and Chase Community Development Organization and has been with them since 1989. I believe that you manage an extensive staff of professionals that deal with the Community Development Corporation Real Estate Lending Group, and you can contribute now to our understanding of how these programs work and how effective they are.
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Thank you.
STATEMENT OF JOSEPH F. REILLY, SENIOR VICE PRESIDENT, JP MORGAN CHASE COMMUNITY DEVELOPMENT CORPORATION, NEW YORK, NY
Mr. REILLY. Thank you. Good morning. My name is Joseph Reilly, and I am a Senior Vice President in the Community Development Group at JP Morgan Chase. I am responsible for managing a staff of 40 people who provide financing for affordable housing and commercial real estate projects in areas that are served by JP Morgan Chase.
JP Morgan Chase has been a leader in providing financing for affordable housing and other community development projects for many years. Over the past 5 years, JP Morgan Chase has provided over $2.6 billion in community development financing. We continue to seek new and innovative ways to provide financing which will strengthen the communities we serve.
In 1988, JP Morgan Chase was one of the founding members of NAAHL (National Association of Affordable Housing Lenders), in an effort to accelerate the growth of a sustainable flow of private capital to housing, small business and other community development activities in low- and moderate-income communities.
I have been fortunate to see the issues surrounding affordable housing development from a variety of perspectives, as I have worked in the field of community development and affordable housing finance for over 23 years. For the past 12 years, I have worked at JP Morgan Chase and its predecessor institutions.
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Prior to my experience with JP Morgan Chase, I worked for the New York City Department of Housing Preservation and Development for 6 years, where I worked on providing subsidized financing for affordable housing development. Prior to that, I spent 6 years working as a community organizer for the Northwest Bronx Community and Clergy Coalition.
I am sure you have already seen the considerable data documenting the problems American families are facing in finding decent, affordable housing. While much has been done to meet these needs, there remains much to be done.
Many high-cost areas like New York suffer from a profound shortage of both rental housing and home ownership opportunities, not only for very low-income families, but also for low-income and moderate-income families. We have a growing crisis that requires ongoing attention of policymakers and both short-term and long-term measures to achieve our national goal of a decent home in a suitable living environment for all Americans.
Over the past 10 years what our industry has experienced is a dramatic strengthening of the system for financing affordable housing. We know what it takes to provide affordable housing. We have come to work together cooperatively in new types of partnerships. We have developed creative new tools and techniques for financing and producing affordable housing for low-income families and communities. We have coped with the often conflicting requirements of Federal, State and local programs we need to do our work. We have built the infrastructure necessary to have a major impact on housing needs.
''We'' includes government at all levels, for-profit and not-for-profit developers, lenders, investors and community leaders. The result is that we are building affordable housing that is sustainable, that is financed with the resources of the private market and leverages public resources effectively. Our success has ensured that private capital is readily available to leverage public subsidies. In addition, last year the U.S. Treasury reported that from 1993 to 1998, the amount of mortgage lending to low- and moderate-income communities and borrowers by CRA-covered lenders rose 80 percent. In 1998 alone, Treasury reported at least $135 billion in mortgages to these borrowers made by insured depository institutions.
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As good as these solutions are, they come nowhere near to meeting the need. The public non-profit and for-profit organizations that have mobilized and partnered to provide affordable housing face three major constraints in our ability to deliver more decent affordable units. First, Federal funds are often encumbered by well-meant legislative and regulatory constraints that often limit needed flexibility to community needs. Sometimes something gets lost in the translation of housing policy when it is regulated into practice. For example, Congress last year enacted legislation to encourage project-based Section 8 rental assistance vouchers to promote mixed-income housing. However, HUD prohibits the use of this tool in neighborhoods with at least 20 percent poverty when local community development strategies often call for mixed-income housing in these neighborhoods. And inevitably the more tightly the subsidies are targeted to the most in need, the greater the financing gap and the harder it is to make the deal economically viable.
Second, we could finance more affordable housing if we had more resources. The past decade has confirmed that there is no magic to the provision of affordable rental housing. Additional housing can only be built if public subsidies fill the gap that exists between what families can afford to pay and the cost associated with the construction and maintenance of decent affordable housing. Federal programs such as HOME, CDBG (Community Development Block Grant) and the low-income housing tax credit have played valuable roles in helping to fill the gap, but rarely do it alone. For example, many housing credit deals and low-income communities require additional subsidies to fill financing gaps, but funding levels for all Federal programs have failed to keep pace with the rapidly growing need, and these programs come with complex requirements that slow or even discourage the development of new units.
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Third, in some States there is a scarcity of permanent financing for multifamily affordable housing. These projects often involve subordinated debt and low-income tax credits that make these loans ''non-conforming'' for sale to the secondary market.
In the short term, the more we can simplify the regulations, processes and paperwork of Federal assistance, the more we will increase the efficiency of the programs and private sector participation. Simple, flexible funding sources that have real impact with maximum efficiency include the old Nehemiah Program, the Affordable Housing Program of the Federal Home Loan Banks, and the Community Development Financial Institutions Fund.
Chairwoman ROUKEMA. Mr. Reilly, you will have to sum up, please.
Mr. REILLY. OK. I think in the short term what we need to do is simplify the regulation and in the long term look for additional subsidies, consistent, sustainable subsidies, and perhaps some sort of a housing trust fund, something that is there, is available on a readily available basis to encourage the development of a pipeline so that projects can be developed.
Chairwoman ROUKEMA. I thank you. I am trying to be fair about this, so each person that goes over time, I am letting them go over time equally. Thank you.
I believe now that Mr. Frank will take the opportunity to introduce Mr. Joseph Flatley of Boston, Massachusetts.
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Mr. FRANK. Thank you, Madam Chairwoman. I have had the privilege of working with Joe Flatley for more than 20 years on housing. He is one of the real leaders in getting housing built. He is someone to whom I turn when we are talking about how we can improve public policy, and I am delighted that he is now going to share really the great wealth of knowledge and experience he has accumulated in this field with the rest of this committee.
Chairwoman ROUKEMA. Mr. Flatley.
STATEMENT OF JOSEPH L. FLATLEY, PRESIDENT AND CEO, MASSACHUSETTS HOUSING INVESTMENT CORPORATION, BOSTON, MA
Mr. FLATLEY. Thank you, Madam Chairwoman and Congressman Frank. My name is Joe Flatley. I am the President and CEO of the Massachusetts Housing Investment Corporation (MHIC). It is a private organization that finances affordable housing and community development in Massachusetts. MHIC was created in 1990, about 11 years ago, as a collaboration between the State's banking industry and community leaders. Today we have 25 corporate investors including banks, insurance companies and the Government Sponsored Enterprises. We are a Section 501(c)(3) and a certified CDFI.
I also serve as Chairman of the National Association of Affordable Housing Lenders, from which our board members are well represented on your panel today. We have over 200 member organizations, and NAAHL is the premiere association devoted to increasing private investment in low- and moderate-income communities.
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I would like to commend you, Madam Chairwoman, and the House Financial Services Committee for holding hearings on the Nation's affordable housing needs, and thank you for the opportunity to give you my perspective on this issue. I have worked in the field of affordable housing and community development for more than 30 years. The organization I now head, the Massachusetts Housing Investment Corporation, last year provided over $100 million in private capital to finance the development of 45 affordable housing projects in Massachusetts.
Over the span of my career, I have seen both the good and the bad in affordable housing. The good news, as Congressman Frank noted, is that we have learned a lot. The affordable housing industry has evolved and matured in learning how to produce decent affordable housing for low- and moderate-income families and communities. We have learned how to do it right, how to build affordable housing—rental housing and home ownership—that creates a mix of incomes, that is built with the discipline of the private market, that uses resources responsibly, that is of high quality and lasting value, that consumers wants to live in, that stays affordable over the long return, and that people are proud to call home.
It is important to make this point about the fact that the programs work, because it is not widely recognized. The problems and difficulties are very visible when affordable housing doesn't work. It is an eyesore and a problem. The eyesores of many years ago are well known. When we do it right, it is, by definition, invisible. If you do affordable housing to be successful, and you want it to be successful, you don't want anybody to know that it is an affordable housing project.
Unfortunately, most of our great successes are not visible. We have achieved these successes because in large measure we have been able to attract substantial private capital. My organization has raised over $500 million in private capital. We have had zero loan losses in our 10-year history. We have never had a loan loss, knock on wood. And we have earned a respectable return for our investors.
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In the face of all we have achieved, we have to recognize a central and indisputable fact. The need for affordable housing has never been greater. As has already been discussed by Members of the subcommittee, the need for affordable housing and the problems created by the lack of affordable housing are enormous, so I won't go into much more detail on that, but I would say that it effects all segments of our economy. It effects not only the very lowest income families, but also working families and businesses trying to attract workers in Massachusetts.
We have learned that different solutions work in different places. In some places like Chicago, affordable units are produced each year by small private ''Ma and Pa'' owners, and they can find financing from consortiums like my own and like Mary's, a bank, or perhaps an NHS with little or no subsidy. But in high-cost areas like Boston, the cost of new construction and renovation remains high, and the number of units remains low. The underlying problem is a result of a mismatch between demand and supply. We need to recognize that fact. That results in escalating rents and housing prices. Demand-side subsidies, such as Section 8 certificates, will not solve the problem on their own. Clearly we need to add to the supply.
Even with a lot of support and with an experienced non-profit developer, and a mortgage lender all working together, additional units can only be provided if there are subsidies available to fill the gap. Unfortunately, over the last decade, funding levels for Federal housing programs have fallen short of what is really truly needed. If we are to make progress, we need to add new sources of subsidy to expand the supply of available units. With only modest levels of new public investment, you will leverage enormous investment by the private sector and by State and local governments.
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As Congress considers solutions to this affordability crisis, the most effective long-term measure would be to develop a new Federal financing resource with the capacity and flexibility to at the very least double the production of affordable rental housing if we are to have a real impact. Such a resource should provide a stable, predictable source of capital, ideally free from the uncertainties of the Federal appropriation process, that would ensure providers a dependable stream of revenue for leveraging the substantial sums of private capital today available for lending and investing in affordable housing.
Dependable, predictable funding is critical if we are going to create solutions to the housing affordability crisis that really work for the long run. These solutions depend on hard work over many years, on community outreach and planning, and entrepreneurs who are willing to devote themselves to a multi-year effort with some reasonable expectation of ultimate success in the end. This cannot be accomplished with on-again, off-again public programs. Programs such as the proposed National Housing Trust Fund with a dedicated revenue stream will leverage private resources many times over. Most importantly these programs will rekindle a sense of community throughout America.
Similarly, expanding home ownership is a critical element of most communities' revitalization strategies. The President's budget this year proposes a major new single-family housing tax credit. The ''Renewing the Dream'' tax credit would make a huge difference for low-income families and low-income communities by attracting nearly $2 billion of private investment annually for the construction and rehabilitation of homes in low-income communities. We strongly support this tax credit and urge you to include it in any tax package enacted this year.
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Thank you for the opportunity to testify and for your interest in exploring solutions to the Nation's affordable housing problem.
Chairwoman ROUKEMA. Thank you. You stayed right in my time limit.
Mr. FLATLEY. Thank you. I tried hard to do that.
Chairwoman ROUKEMA. I will call on Mr. Miller for our first line of questions.
Mr. MILLER. Thank you very much, Madam Chairwoman.
Ms. Kaiser, you talked about rental units and multifamily rentals. Do you do any multifamily for sale?
Ms. KAISER. No, we do not.
Mr. MILLER. Why is that?
Ms. KAISER. I think primarily what we have tried to do is niche our products where there were not other products available, sort of go somewhere no one wants to go. And the for-sale market seemed to be heavily supported by either the mortgage or the banking industry, so ours is primarily the rental units, which require deep operating subsidies.
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Mr. MILLER. Do you know of any multiattached products for sale even being built in your area?
Ms. KAISER. Being built? No. We are doing rehab on a lot of those. The economics of getting them at a per-unit cost, at a reasonable cost to be able to put rehabilitation dollars in is a challenge in California.
Mr. MILLER. The problem with that is today not a builder in California can get liability insurance to build an attached product, because I don't know of one attached product in the last 10 years built in California that has not ended up in litigation, which is really having a dramatic impact on the marketplace.
And also you said that we are only building one unit for every five jobs being created out there, and you are exactly right on that.
Mr. Reilly, you said first Federal funds are often encumbered by well-meant legislation and regulatory constraints that often limit needed flexibility to meet community needs. What would you propose to do to solve that?
Mr. REILLY. I think that certainly on a local basis, decisions can be made as to what the best needs, what the best use of the funds could be. I think that sometimes the restrictions that go along with the funds just sort of come down, and those are the rules. And there is not enough local involvement in making a decision as to how best to use those funds locally.
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Mr. MILLER. And you talked about the scarcity of funds for permanent financing or multifamily housing projects. Why is that?
Mr. REILLY. I think in some instances, not all, but in some instances and some locations the availability of permanent financing is quite limited, and it is partly because affordable housing projects typically are not what I would call cookie-cutter deals. There are a number of subsidies. There may be Low Income Housing Tax Credits. They may actually be better loans. They may actually be better and more secure loans and investments. However, since they don't fit in a particular conduit or secondary market model, they do not necessarily end up in those pools of loans that are sold into the secondary market.
So, I think that is something that should be considered, and perhaps there is a role for FHA to play in that arena going forward.
Mr. MILLER. Mr. Flatley, you said that demand-side subsidies, such as Section 8 certificates, are not workable solutions because certificate holders cannot find units with rents that qualify, and that leads me to a question. I had a project in a city called Rialto, California. I had about 2,600 units. I sold the last 50 of those last year, and I tried to sell them to a non-profit that does mainly HUD repos, foreclosures, and goes in and provides buyers assistance programs, thinking that this would be a great opportunity to be able to provide buyer assistance to the new housing market. Yet when we figured the fees that they had to pay to the Government, the fees were greater than the land and improvement costs associated with building the home.
What do you see as a solution to this problem if, in fact, you say Section 8 certificates are not a workable solution?
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Mr. FLATLEY. I think the fundamental problem is an imbalance between supply and demand. I think we need to add new units. I think you have identified some obstacles to adding new units. I think the perspective I would add is we have been most successful when we have worked in strong partnership with communities, with neighborhood governments, local governments in getting housing built. Frequently that does take a lot of time in negotiating with local governments. But, I think that most of the issues, those restricting development, that you raise really are with local government. It is not the Federal Government, it is not the State government, it is the local governments who get most involved in permitting development.
I think the only real solution to that is working effectively to create partnerships at a local level to demonstrate that these projects are successful, can be successful, and getting the community's support. I think it is only through winning their support that we are ultimately going to achieve success.
Mr. MILLER. The only thing I disagree with is that you said it is mostly local government. I believe predominantly local government, but as an example, and as you are familiar, in California the Fish and Wildlife Department last October slated 2,900,000 acres just in southern California for possible habitat for three listed endangered species, which takes 2,900,000 acres off the playing field for housing, plus the properties next to it are thereby categorized as associate habitat, which also takes those areas off the playing field. But if we could get Government somehow out of the process of inflating the prices artificially, do you believe as a panel that the affordable housing crisis might be resolved in the near future?
Mr. FLATLEY. I do not think that would work by itself. We get free sites already zoned in cities that we work in. The costs are still way beyond what any even median-income family could afford. So the cost of just constructing a new unit on a permitted free site is greater than what somebody at 100 percent of median-income could afford.
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Mr. MILLER. But you are strictly associating that with just inner-city parcels dealing with specific low-income groups in those communities. As we know, in California that is not necessarily applicable because of the huge State and the way it grows. Would you agree, Mary? And I thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Yes. If any of the members of the panel would like to submit for the record, as well as to personally to submit to Mr. Miller, Congressman Miller, here, feel free to do that and submit your statement for the record in response to his final question there.
Mr. Frank.
Mr. FRANK. I would like to continue that line. I gather the gentleman was agreeing that with regard to inner cities, there would still be that problem. Of course, as I said, the worst housing problem does come from the poorest people in the inner cities.
Let me ask all of the witnesses as well to answer the question that Mr. Miller asked Mr. Flatley. What would you think of the solution in which the Federal Government simply got out of everything that had to do with housing? Of course, we have no control over local zoning, and I don't assume there was a proposal here to deal with local zoning, but do you think we would be better off in the building of affordable housing if the Federal Government simply withdrew from the arena as has been suggested?
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We will start with Mr. Reilly.
Mr. REILLY. I would say no. On the Federal level I think there needs to be a readily available, sustainable source of subsidy to bridge the gap in between construction costs and what people can afford to pay. That will vary from location to location. The fact of the matter is it costs more to build a unit than people can afford to either pay to buy it or to rent it, and there needs to be some readily available sustainable source or subsidy in order to encourage that development.
I think it is important to keep in mind that the gestation period for an affordable housing project can be 2, 3, 4 years. You need to build a pipeline of these projects in order to encourage that development to happen.
Mr. FRANK. Ms. Kaiser.
Ms. KAISER. I feel the same way as Joe. Two things. One, you just need to do the math to know that to acquire, build and operate the real estate for affordable housing costs the same as market rate and sometimes higher, because of income certifications of low-income people to comply with tax credits. So there is obviously a gap right there. The lower the income is, the lower the rents are.
Mr. FRANK. Let me add here, we tried to avoid that. This is how we get into problems. Originally Federal housing, we said these are poor people. Let's build them poor housing in effect. We tried to significantly save per unit on what we built. And when you do that, you get real problems.
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Ms. KAISER. You get what you pay for.
And the second issue about incenting developers. We do need to incent more developers to do these deals, which are not the easiest deals to do, and I think incentivizing developers has to do with streamlining programs, not only access to subsidy, but streamlining local municipality issues with regard to zoning requirements that keeps them out of the affordable housing.
Mr. FRANK. At the Federal level—and, Mr. Reilly, I think you say this, too. I think we agree. We should make these programs more easily interoperable, the tax credit and other Federal subsidies. We should reduce some of the restrictions.
Mr. Hinga.
Mr. HINGA. Congressman, I would agree with the comments of my fellow panelists. Without the Federal participation many of these projects would not get done. Even the simplest project that we might even say is plain vanilla any more may be a new construction project targeting 60 percent of area median income, the high end of the tax credit. It is virtually impossible to get that done without at least some HOME dollars or something involved, because if you don't you can't make those numbers work. Or there is so little developer fee left that the developer says it is not worth it, they will do something else.
Mr. FRANK. The figure $150,000 was mentioned, that these homes were homes available for $150,000. Let me ask particularly the two private lenders, what are the income—somebody comes in to get a loan to buy a $150,000 house, what income does he have to show?
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Ms. KAISER. I don't do single families.
Mr. HINGA. We are really multifamily folks. I cannot give you an example at this time.
Mr. FRANK. Joe, would you have a sense——
Mr. REILLY. I am trying to do the math in my head here.
Mr. FRANK. For unsubsidized regular loan.
Mr. REILLY. It depends on what the interest rate is. Let's say you can get a 95 percent mortgage. You get a $140,000 a loan. It is about $1,200 per month.
Mr. FRANK. And to pay $1,200 per month you would have to have an income of?
Mr. REILLY. Multiply that by 40. About $50,000.
Mr. FRANK. I think that is the problem. Even if we have these $150,000 homes without restriction, you need $40,000 or $50,000 to pay for them and we have people who obviously make less than that. So I believe in this and I think the suggestion that getting the Federal Government out of it is the answer is simply wrong. We have local zoning problems. There is nothing we can do about them.
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But, Madam Chairwoman, and I appreciate the witness list you have put together here. We have four witnesses in the housing business. Two of them are from non-profit so maybe they are a little suspect. But there are two certified, very non-socialist witnesses here, one from Bank One and one from JP Morgan. When we have Bank One and JP Morgan telling us we need Federal funds to get affordable housing, I think the marxist element and the communitarian element has certainly been minimized. So I am glad to be here in recognizing the importance of a public role with Bank One and JP Morgan, and I salute his specter, Mr. Morgan, wherever he is.
Chairwoman ROUKEMA. Is that a demonstration of how far we have declined in private enterprise?
Mr. FRANK. They are your witnesses, Madam Chairwoman.
Chairwoman ROUKEMA. Now, Mrs. Kelly. Congresswoman Kelly, please.
Mrs. KELLY. Thank you. I am glad the Ranking Member recognizes the new tone in Washington.
I want to ask Mr. Flatley, you said something about the fact that it takes 2 to 3, 3 to 4 years to get approvals through. Do you want to go on record and talk about that? Why?
Mr. FLATLEY. Part of it is building the partnerships and the relationships in the community. Part of it is getting through a local approval process. Part of it is dealing with the neighbors and abutters to a site. If you were living in your community and someone was proposing a 100-unit project next to you, you would want to have some discussions with them about the design of that project. They typically are real construction issues. Part of what has happened in many of the communities we work in, these are communities where the easy sites have all been developed over time. We are now to a point where you are either redeveloping a site that was developed before where there is maybe some real environmental issues, or you are developing a site which is hard to develop. Then there is the process of applying for funding, and part of the problem is created by the lack of Federal resources. What happens in terms of tax credits, for example, is typically people apply two or three times and have to go through several rounds of tax credit applications before the tax credits are approved, because there is kind of a queue of projects waiting for resources.
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So it is all of these issues, and I think some of the time you could take out by having more resources available, but some of the time is inevitably there, because you have both substantive site issues you need to deal with, as well as you have legitimate neighborhood concerns which you can't rush through. You have to deal with it in a deliberative way. You have to have the discussions with the community. It makes for a better project in the long run to have the community on board.
The groundbreakings we go to where projects are completed—the neighbors are there, the community is there in support. That has a very positive impact on the long-term success of the project.
Mrs. KELLY. Thank you. I think it is good to clarify that. Certainly we do not want the Federal Government going in and subsidizing housing in neighborhoods where it is not wanted. On the other hand, I certainly also believe that there must be ways we can work together with localities to try to speed the process and I appreciate your putting that on record.
Mr. Reilly, I want to next go to you and first of all I want to complement you for the quality of your testimony. It is one of the most concise, precisely presented ones I have seen in a long time, and I appreciate it, because we have a lot to read and going through it was very quick and easy and I really do thank you very much for doing that.
I wanted to ask you, you talked about the fact that things like Section 8 vouchers can't be used in some neighborhoods and of three constrictions that are on the Federal monies that are available. Can you describe some of the other problems that we have at the Federal level that are by definition at the Federal level preventing some of these projects from coming out of the local level?
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Mr. REILLY. I think there are certainly some. I am trying to think of others. That particular example is one where if you look at the challenges in New York City, certainly there are a lot of areas where we need to work on preservation as well as the development of new housing. It is not just how much more we can build, how many units of for-sale housing we can build, or rental housing we can build, but in preserving housing. And those types of subsidies that are mentioned in testimony would be extremely helpful in areas where we need to work on preservation, to restrict the outside use of those to certain neighborhoods and basically exclude them from many of the neighborhoods where we need to work on preservation as opposed to development.
Mrs. KELLY. Preservation and rehabilitating other units, I see, Mary, you are nodding your head. Do you want to talk about that also?
Ms. KAISER. Well, certainly while we appreciate the increase in the cap for Low Income Housing Tax Credits and tax exempt bonds, you cannot build it fast enough when the back door is open and we are losing to market existing low-income rental units. So the preservation issue is huge. And having worked with a few of those with developers, the issues working with HUD and prepaying mortgages and all the red tape and the notification period, it really is no wonder why some of these folks do not want to stick with the program any more. So it really is easier to go to market and just obliterate those.
So, I think the preservation issues and the restrictions put on getting out of the RDA is another program. There is some expiring use RDA programs and it requires some very interesting financing that I don't think private capital is going to want to be attracted to. So the more we can think about these partnerships when we build the programs up front, knowing that private capital can come in, I think the better chance we have of not only getting them built, but preserving them for the long run.
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Mrs. KELLY. Thank you very much. I yield back the balance of my time.
Mr. MILLER. [Presiding.] Thank you, Mrs. Kelly.
Mr. Watt.
Mr. WATT. Thank you, Mr. Chairman.
Mr. Flatley, I am trying to determine whether I have some organizational enterprise that is comparable to yours in North Carolina since you seem to have been so successful.
Mr. FLATLEY. No, but we would love to help you start one.
Mr. WATT. You have in Massachusetts also a housing finance agency?
Mr. FLATLEY. There is. Massachusetts is rich with a history of organizations. It is sometimes confusing. There is a State Housing Finance Agency.
Mr. WATT. That is connected to the State. You are not connected to the State or a local government?
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Mr. FLATLEY. That is correct. We are totally private.
Mr. WATT. OK. You say that you are a Section 501(c)(3) non-profit, yet you also talk about a respectable return to your investors. Those two things seem inconsistent with each other. Can you elaborate a little bit on how you are structured?
Mr. FLATLEY. We manage pools of investments. We are a Section 501(c)(3), but we have subsidiary for-profit funds which we manage for the investors in those funds and it is both tax credit funds and what is essentially a mortgage company where we manage those funds and businesses for the investors in each.
Mr. WATT. So most of your investments have been into those subsidiary funds that are profit funds and return an investment, a return to the investors?
Mr. FLATLEY. That is correct, and that is how we raise money. We would find it hard to raise money if we could not provide a return to our investors.
Mr. WATT. And the bulk of your $500 million over the 10-year period has been from what sources?
Mr. FLATLEY. It is primarily banks. It was really started through a collaborative effort between the State Banking Association and community leaders in Boston. That is how we got started in 1990, but there are two pooled insurance company initiatives which are also investing and also Fannie and Freddie have been investors. Those are the primary investors.
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Mr. WATT. Investors in the sense that they are looking for a return also; this is not just putting money there that they are not expecting a financial return on?
Mr. FLATLEY. Correct. We do not seek any philanthropic funds. Even though we are a Section 501(c)(3) non-profit, we have never raised funds from philanthropic sources. Our whole philosophy is to try to attract private capital back into these communities and show that it can be done profitably so that additional capital will flow into these communities.
Mr. WATT. What kind of return would you normally be talking about when you refer in your last sentence on the first page to a respectable return? I am not trying to put your business in the street. I am just trying to figure out how to replicate this.
Mr. FLATLEY. The returns have varied over times as financial markets have changed. On tax credit investments which we do, the returns probably right now are in the 7.5 percent range. The return on our lending program is right now probably around 5.25 percent. So those are respectable returns given that we manage the businesses for them. And that includes all of our costs in managing those businesses for those investors.
Mr. WATT. What are you talking about when you talk about lending?
Mr. FLATLEY. We lend money to developers to develop affordable housing, and we provide the loans. We also provide tax credit equity capital.
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Mr. WATT. Are you also a developer?
Mr. FLATLEY. No.
Mr. WATT. So you are not developing; you are just kind of facilitating all of these people coming together and providing ongoing expertise from project to project to project so that people do not make the same mistakes over again?
Mr. FLATLEY. Correct, and we help people assemble the resources and figure out how to make a project successful and put the resources in to get a project done.
Mr. WATT. All right. I think I would like to, if I could, get some more information about how you all are set up. That would be very helpful to me.
Mr. FLATLEY. I would be glad to do that. We were started, I would note, with help from other consortiums. New York and Chicago came to Boston to help us get established, so I think it is the tradition of the industry to help other places start similar organizations. So we would love to help you.
Mr. WATT. We have plenty of resources. They say in my part of the country, we have plenty of banks and things. But this sounds like something maybe we could get jump started in North Carolina. We certainly need it. Are you statewide?
Mr. FLATLEY. Yes, we are.
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Mr. WATT. The bulk of your activity is in Boston?
Mr. FLATLEY. I would say about 60 percent is outside of Boston. About 40 percent is in Boston.
Mr. MILLER. Your time is concluded.
Mr. WATT. I have done as much as I can do. Thank you, Mr. Chairman.
Mr. MILLER. Mr. Grucci.
Mr. GRUCCI. Thank you, Mr. Chairman.
Mr. Reilly, coming from New York City and having a great, long and rich history in that great city, and you probably know very well the economy not only in the city, but in the surrounding area, in order to capture more of the folks that are in the metropolitan area that are in dire need of affordable housing, what do you think that the eligibility level should be as a percentage of median income?
Mr. REILLY. That is a good question. I think that I think it is important to keep in mind that there are shortages of what I will call affordable housing at various income points: very-low-income, low-income, moderate-income and also in middle-income categories, as well. I think that right now there is a need for affordable housing for very poor people, as well as working families. So to say at what particular points, I am not sure that there is a particular point.
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Mr. GRUCCI. Let's concentrate on the working families for a moment. In that bracket that you have identified as working families, what do you believe would be a good number to work with? Do you think it is 50 percent of median income, 100 percent, 150 percent of median income is eligible for the affordable housing programs?
Mr. REILLY. Now I would have to qualify this by saying I think it varies from location to location, based on construction costs and maintenance and operating costs, as well. But with that in mind, if you look at some of the middle-income housing that is being developed in New York City and probably in some of the surrounding areas you might have a two-wage-earner family earning somewhere in say the $50,000 to $70,000 range. Finding decent affordable housing for people in that income range, it can be difficult, and that is in excess of median income. That is $100,000 to say $120,000. That is not to say that is the only need, but that is, in fact, a need.
Mr. GRUCCI. Would you think that number would hold true for out in Long Island? I am sure you know the Long Island market as well as the New York City market.
Mr. REILLY. My recollection is the median income is about the same on Long Island, but my guess is that the cost of housing is a little bit less. So there might be some reduction there.
Mr. GRUCCI. Second, how do you think, and I guess I could open this up to the panel as well if we have time for responses, what do you think this level of Government can do to assist in making affordable housing truly affordable? And that would cover a wide range of thought process, whether it is paperwork reduction, whether it is incentives, whether it is working with local municipalities. I mean as a former supervisor I remember 30 people would walk into a town hall meeting and drop the town board to their knees in fear of losing an election, because the people came out and ranted over affordable housing complexes, feeling that it was going to degradate their community.
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So I would be interested in your thoughts on how this level of Government can facilitate affordable housing.
Mr. HINGA. Well, I think some of that, Congressman, is as you address, that maybe the fears or anxieties is—you know, there is quite an emphasis throughout the States really on mixed income. I think generally when the community sees what is going to be built, if you build a high quality project and have a variety of income levels in that property, I think sometimes that puts aside some of those fears. It is also good for the project, because you do have an economic strata in there that is good.
My example in Chicago, which I raised, is that 107 units near the South Side of Chicago, will have 25 percent of the units for public housing tenants. You are also going to have what we would call tax credit tenants, and they are at 50 and 60 percent of area median income, and then you are also going to have a portion of the project that is going to be market rate tenants. Now this does not work in every locale. I understand that. Particularly in metro areas it works better, where affordable housing options are just not available at all. But I think blending does help, versus putting all the low-income tenants together, which we have done in the past. It doesn't always work. I think the HOPE VI model is a good example of how you are blending home ownership plus rental in one revamped community and you are getting a lot of income stratas in there. That program I think has been very good. We have participated in that program.
Mr. GRUCCI. Thank you, Mr. Chairman.
Mr. MILLER. Thank you.
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Ms. Lee.
Ms. LEE. Thank you, Mr. Chairman. Let me ask two questions. One is let me reference my city, Oakland, California. There is a program right now to bring 10,000 new residents to downtown Oakland. One of the issues of course is at what income level and how can people afford to live now in downtown Oakland because of the cost of housing. One of our strategies of course has been to look at a percentage of affordable units in each development. However, the developers with whom I have talked with have indicated that, you know, 30 percent of affordable units in the development would be cost prohibitive. They cannot get the financing for it.
What percentage do you think makes sense to, I guess short of insisting on suggesting, developers do for affordable units in any new development where affordable housing is an issue and how can the financial institutions work with the developers to make the percentage, whether it is 25, 30 or 40 percent affordable?
That is the first question. The second question I want to just ask any of you in terms of the role of non-profits, they seem to be able to provide more sustainable long-term affordable housing stock in certain parts of the country, I know certainly within my own community, and I wanted to see what you think are—what makes that possible in terms of non-profits versus the profit making developers. Why are non-profits more successful in terms of the production of affordable housing?
Ms. KAISER. I would like to address that, Congresswoman Lee, because I think your first and second question in your marketplace are very related. I think some of the more successful programs where we have seen the housing element addressed in the low-income component is when for-profit developers partner with non-profits and allocate a certain percentage of the project to affordable housing and let them work together to determine what percentage based on the size of the project, whether it is seniors or families, unit mix, that kind of thing. So you are right. You have a lot of strong non-profit developers up there who have worked very closely with market rate developers in building mixed income communities.
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I think one of reasons non-profits are probably very successful with this type of product is they can hold their breath this long. A lot of the market rate developers may not wait the long process that both Joes accurately explained. But we have a lot of for-profit developers who are also motivated to develop affordable housing. So I don't know that it is always the non-profit versus the for-profit mission. They are both motivated by profit. One just has a stronger mission and perhaps knows the infrastructure of multiple layered financing better than a market rate developer who may not put up with it.
Ms. LEE. Let me ask what percentage of affordable units is reasonable for a for-profit developer, and I know it depends on a lot of factors, regional factors, the income level, the community ordinances. What seems to be standard nationwide? Is 25 percent, 30 percent, is that too much to ask?
Mr. FLATLEY. Are you talking about doing that without subsidy; in other words, internally subsidized within the project?
Ms. LEE. Right.
Mr. FLATLEY. I think I have seen that sort of inclusionary zoning that was in the 10 to 20 percent range, which was pretty broadly acceptable. I think when you go beyond that it is really going to depend on the economics of a project. So I think 30 percent is probably aggressive; 15, 20 percent would probably be more standard. I guess that is my sense.
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Mr. REILLY. An 80/20 split seems to work pretty well in New York, but they work because there is a tax abatement associated with it and that is an important part of the subsidy to the project. That is an encouragement, an enticement for the developer to move forward with that structure. They want the tax abatement.
Ms. LEE. Is there anything we can do to increase from 20 to 30 percent? I think that that 10 to 15 percentage points would help in many communities increase the availability.
Mr. REILLY. I would go back to my earlier comments. I think you need more subsidy in order to do that.
Ms. LEE. Federal subsidy.
Mr. REILLY. Wherever it comes from. You need some cash to offset the reduction in revenue. I mean if it is an 80/20 rental and you want to make it a 70/30 rental, somehow you have to come up with the cash to offset the reduction in revenue, whether it is Federal or local subsidy, or maybe the tax abatement is sufficient to do it. Whatever it is, you need something to bridge that gap.
Ms. LEE. Now, if a non-profit——
Mr. MILLER. Ten seconds, Ms. Jones.
Ms. LEE. Thank you, Mr. Chairman. How does a non-profit, however, bridge that gap because non-profits seem to get to 30 percent more easily than a profit making developer?
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Mr. HINGA. I think many of these subsidy funds are available to the non-profits and aren't available to the for-profits. So they are very successful in seeking out and getting those funds for the property.
Ms. LEE. OK. Thank you, Mr. Chairman.
Mr. MILLER. I apologize for calling you Ms. Jones, Ms. Lee, but Mrs. Jones was next. But she is no longer here. So Ms. Waters.
Ms. WATERS. Prior to any question I may have I just simply say I came this morning because I wanted to hear us say over and over again how bad it is and how we need Government help. There is nothing in this budget that will help this situation, and I don't know what the Chairlady anticipates, as the Chair of this subcommittee. I don't know what she will do about this. Again we are putting on the record and we are documenting how bad it is.
I just want to perhaps find out what has happened to the HUD subsidized units where the owners prepaid the mortgages at the end of the expiring use period so it opted out of the programs. I thought there was some attempt to keep some of those units on the market, and I thought something was being worked out so that non-profits, I guess, could manage them or gain access to them. What has happened to those units? Do any of you have any idea? Are any of you involved in trying to acquire some of those units and keep them on the market for low-income, moderate-income?
Maybe you can answer, Ms. Mary Kaiser from California.
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Ms. KAISER. I do think there are many efforts afoot, certainly more on the non-profit or the private sector side, to capture those. Number one, it is hard to find and identify who owns them and who you talk to and who the decisionmakers are in terms of prepaying the mortgage and keeping them at affordable levels. The market issues in some markets in California or elsewhere in the country are just too tempting not to take them to market. The non-profits are having to find multiple layers of subsidy to rehabilitate the projects. And so to be able to move quickly on those projects sometimes is difficult when you need a lot of different subsidies to make them work.
Ms. WATERS. I think someone mentioned to me that some properties were in great need of repair and rehabilitation, but I don't think there was any Government assistance to do that. Do you know anything about that?
Ms. KAISER. You can certainly reapply for tax credits. That is one of the issues of needing to make the pie bigger, not just cut it differently. Some of these projects are going in for tax credit financing, either tax exempt bond or 9 percent tax credit financing, to provide the injection of capital equity to allow for the projects to work, underwriting that rehabilitation cost. On their own it is really hard to take them, prepay the mortgage and keep them affordable. You have to apply for either local subsidy, State subsidy or some sort of tax credit program to provide that gap financing.
Ms. WATERS. Just in case I missed something I would like to hear from any or all of the panelists, do you have any magical answers, do you have any formulas, do you have anything other than testimony that basically concludes that we need some help in helping to develop units for low- and moderate-income people and that the Government could be very helpful, Federal Government could be very helpful in doing this? Do you have any other answers?
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Mr. REILLY. I think it is important to keep in mind that we have built an infrastructure, and the infrastructure is there to build housing, to finance housing. The developers are there. The lenders are there. There are many instances where we just can't make the numbers work. So we are back to the original thought, which is you need some sort of funding to bridge that gap. But the infrastructure is there. I think that the capacity is there to build the affordable housing that is needed. But sometimes the numbers just don't work.
Ms. WATERS. You need money?
Mr. FLATLEY. I just wanted to comment on one program that is working pretty well, which is the Section 8 mark-to-market program, and that program actually is being very effectively utilized to preserve a lot of this housing where the market rents are much higher than the rents that they are originally underwritten at. And HUD is allowing those rents to rise up to the current market rent. And in Massachusetts that is helping to support either the continued ownership by a for-profit owner or sale to a non-profit and the housing remaining affordable.
Ms. WATERS. That doesn't expand much.
Mr. FLATLEY. I thought you were raising the question of preserving the units that were done. You are right. Additional expansion, as we have all said, I think you have partners ready to work with the Federal Government as additional resources are made available, and I think the scale of the problem demands not just a small increase, but a very major increase in resources.
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Mr. MILLER. Your time has expired, Ms. Waters.
Ms. WATERS. Thank you very much.
Mr. MILLER. The next would be Mrs. Jones.
Mrs. JONES. Good morning, still, I guess. I kind of missed some of the testimony coming and going. Of all the programs that you have worked with or programs that the Federal Government has done with regard to affordable housing, would you assess for us the best practices, for lack of a better term, and I ask that to all four of you and we have 4 minutes. So you get a minute apiece.
Mr. HINGA. I think the Low Income Housing Tax Credit has worked very, very well. You have seen from the testimony billions of dollars of private capital flow in and to be managed by professionals like Joseph Flatley's group, and those investments also made directly by banks. I think, you know, knock on wood, there haven't been any major problems with that program.
Mrs. JONES. Let me ask you this question, and this will cut off on some of our time, that Low Income Housing Tax Credit program, for what period of time does it last?
Mr. HINGA. The project has to stay, at a minimum, affordable for at least 15 years, and then almost every State in their allocation process makes you commit to another 15 years. So, typically it is at least 30 years of affordability.
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Mrs. JONES. So I guess in 1999, that was when I first came to Congress, there was a real dilemma about a number of those 30-year properties coming to the end of their 30 years and going now back into market rates that gave us part of the dilemma we have with the lack of affordable housing across the country?
Mr. HINGA. What you are describing there is a lot of HUD programs where the contracts are expiring and then that leads to what are you doing with housing now? Does it go to market or can you restructure it and keep it affordable?
Mrs. JONES. Would you suggest then that perhaps what we need to do with the Low Income Housing Tax Credit is to have an option for us to extend it another 10 years at the end of 30 or not?
Mr. HINGA. You almost have that now, Congresswoman. Almost every State is going to make you do that anyway, because it is so competitive to get the dollars awarded to you that in their allocation plans they are almost across the board making you keep it another 15 years anyway.
Ms. KAISER. In California it is 55 years of affordability. So I think we will see a long time before those are at risk. I think the answer really is if we increase the ability to build new projects by increasing the cap of both of those programs you will see more and they will have long-term affordability with them.
Mrs. JONES. Mr. Reilly, what program for you?
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Mr. REILLY. I would say the Low Income Housing Tax Credit program has worked very well. We are a very large investor in the program. We like it from an investment standpoint, and I think that the quality of the housing has been generally very good. So I think that we are meeting the need for or at least some of the need for affordable housing and we are also involving the corporate sector as investors and investors seem to be interested in the returns. I think the returns are a little bit low right now, but I think that given the increased supply over the next couple of years they will probably go back up.
Mrs. JONES. Mr. Flatley, let's step outside the box a little bit. Is there something else we might do to enhance affordable housing?
Mr. FLATLEY. I think the home ownership tax credit idea in the President's budget is not a bad idea. I think that would, in fact, expand the supply of units. I don't think there is any magic bullet other than money.
Mrs. JONES. Or incentives.
Mr. FLATLEY. I think the incentives have to be fundamentally financial if you are going to bridge the gap. When you look to other things you are really avoiding the fundamental responsibility, which is a financial one.
Mrs. JONES. I have a constituent, and this is my last question, Mr. Chairman, who called me and said I have a daughter who is 30 years old and disabled. She is finally out and working on her own. Her dilemma is that once she leaves the job as an established disabled person where she is working for some minimum amount of wage and she comes past that, then she needs to go to—if she goes to regular minimum wage that kicks her out of the ability to have housing under housing disability programs.
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Are any of you familiar with any of those programs, and what suggestions do you have with regard to—well, my suggestion is they raise the dollars that they are able to make in order to be able to stay in the facility. Do any of you have experience with housing for the disabled in the course of affordable housing?
Ms. KAISER. There are a lot of non-profits who deal specifically with special needs housing, and Shelter Plus Care, for instance, is a program that provides operating and rental subsidy to special needs tenants. One of the difficulties for the private sector to deal with those kinds of fundings is they are typically on annual contracts and you need long-term mortgages to make this work. And so to the extent that we can count on those programs year-in and year-out and what the rules and requirements are I think it will make it easier for the private sector to underwrite those federally-funded——
Mrs. JONES. To the special needs program. Thank you, Mr. Chairman.
Mr. MILLER. Ms. Velazquez.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
I want to thank all of you for being here today. This is important, especially coming from New York City. I represent a district in Brooklyn that is so far from Manhattan it was like a foreign territory 10 years ago. Well, now when the market in New York went up in New York City, so people are discovering Brooklyn, Williamsburg Bridge, they are getting there, gentrification is taking place.
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Mr. Reilly, you spoke about the need for lawmakers to develop a new Federal financing resource, funding—I'm sorry, Mr. Flatley—and have you thought about how much money we need to finance such a funding?
Mr. FLATLEY. Well, what I suggested in my testimony is that with the scale of the problem, to have a real impact would require effectively doubling the level of resources presently available. I think I mean the problem outstrips what we are doing by so much that if we increase only by 10 or 15 percent what we are doing, the problem is getting worse at a rate faster than what we are building. We are losing more units, and we are losing more families in terms of their ability to afford units at a rate much faster than we can respond.
Ms. VELAZQUEZ. And you spoke to such funding to be separate from the application process.
Mr. FLATLEY. It would be best if it could be done outside that process.
Ms. VELAZQUEZ. And I agree with you.
Mr. FLATLEY. I think the issue is dependability and getting people motivated to spend the 2 or 3 years in order to actually create a pipeline. And it will also create more efficiency for the Federal Government. You will get more for your money if you do it in a way that is dependable, so that it is not sort of on again, off again.
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Ms. VELAZQUEZ. So how would you finance such a trust fund?
Mr. FLATLEY. I don't think I am in a position to recommend where the resources come from. There was a proposal last year by Senator Kerry to create a housing trust fund financed out of the FHA surplus and an FHA insurance fund. I think the testimony since then has been that there really isn't much of a surplus or maybe it should go to other purposes. I think the question is: is there a way to provide a trust fund which provides predictability so that people like ourselves and developers can look at it and say, yes, the resources are going to be there on an ongoing basis.
Ms. VELAZQUEZ. How do you feel about using the surplus from FHA?
Mr. FLATLEY. That would be great if it is available. I don't really know that much about the availability. I am not an actuary and I don't really know whether there is, in fact, a real surplus there, or whether people think that money should go back as rebates to the policy holders. I think that is a legitimate argument. I don't want to set it up as sort of robbing Peter to pay Paul. I think you are really going to need to find resources and inevitably it is likely to be new resources. I think to try to somehow try to pull it out of the little bits of money that may be in different hiding places in the Federal Government is probably not going to be on a scale to really address the problem.
Ms. VELAZQUEZ. Thank you.
Mr. FRANK. If the gentlelady would yield, let me say, as the Chair, Mrs. Roukema, indicated, we had a very good hearing at her initiative in which the Congressional Budget Office, the General Accounting Office and the Office of Management and Budget testified specifically on the FHA fund and the unanimous conclusion was that there is a surplus, that it is, in fact, enough so that no foreseeable economic downturn could call it into question. And the use to which it is being put now is to not give a rebate to home buyers or anybody else, but to go into the general revenue so it is available for tax cutting.
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So the answer is yes, there is an FHA surplus. That does not answer the question of whether that should or should not be used for this, but I wanted to be clear we have a significant FHA surplus and right now it is counted on as part of the general governmental surplus. Thank you.
Mr. MILLER. [Presiding.] Mr. Clay.
Mr. CLAY. Thank you.
Let me preface my remarks by first stating that I represent the City of St. Louis, which is an older urban center with a housing stock somewhere between 80 and 100 years old on average. I live in a home that is about 80 years old.
Do you see that there are quite a few problems in historic preservation? Any of you can tackle this question. Do you see a real need for historic rehab tax credits? Has anyone addressed that yet?
Mr. HINGA. I can tell you, Congressman, that our direct investment strategy, where we are doing tax credit deals directly and not through funds, we really look and seek out historic tax credits. Most of the time you are going to see those in one of two fashions: They are going to be combined with the housing component, or they are going to be a commercial retail component. We look to make sure it is in a designated targeted area, that it is going to really be economic redevelopment, and so forth.
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Frankly, it is a great program. The yields from an investment standpoint are actually better than just the Low Income Housing Tax Credit. It is really something that is out there that is not probably utilized as much as it could be by the investment community, and I think it has picked up lately because it is a very attractive product, and it really can make something, again, happen in certain areas, because it does provide a little bit higher level of equity coming into the deal and it is typically a 5-year compliance period.
So from an investment standpoint, it is pretty attractive.
Mr. CLAY. Do you think more emphasis should be put on helping people who are renters transition into home ownership? Do you think that would help as far as availability of housing units?
Mr. HINGA. Through the historic?
Mr. CLAY. No, just in general, to help people transition from rental units to owning their own homes?
Mr. HINGA. I think across the board there are always exceptions, but generally I think that is absolutely great, because home ownership strengthens the community; it also provides equity buildup for that owner to eventually be able to use that equity in their house to build private wealth for their family, finance college. I think it is a great.
That is why Mr. Flatley mentioned earlier the proposed tax credit for single-family housing, I think, is an interesting opportunity. If it could end up being as successful as the Low Income Housing Tax Credit for rental units, it may be a real home run-type project.
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Mr. FLATLEY. One thing I would add, quickly, is that one of the best ways to increase home ownership is to relieve some of the excessive affordability burdens on renters. One of the obstacles to renters becoming homeowners is if they are paying more than 50 percent of their income for rent, they are not going to be able to save for a down payment. So many times you get caught in this debate between rental versus home ownership. Well, one of the best ways of getting more people into home ownership is by creating programs, rental programs, which create the mobility, so people can, in fact, save the down payment and move on and become homeowners.
Mr. CLAY. Thank you.
Let me also ask anyone on the panel about successful models. In St. Louis, we rely a little bit on Habitat for Humanity and another program called Youth Build, mostly sweat equity programs.
Have you seen any models that may be worthwhile and worth shopping around the country for? Anyone on the panel can attempt to address that.
Mr. REILLY. I think those are two very good examples. But I think they are part of the strategy. I think that you need to use all of the different resources that are available to meet the need.
I think that requires employing the private sector as it relates to the private development community as well, to build housing. It can't just be on a volunteer basis. I think that is one strategy. I think it is a good strategy, but I think that we need more than that right now.
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In terms of models, I think that in New York we have the New York City Housing Partnership, which has built thousands of units of affordable for-sale housing, and I think that that is one that certainly requires subsidy and certainly is replicable if subsidy is available in other locations.
Mr. CLAY. Thank you very much.
Thank you, Madam Chairwoman.
Chairwoman ROUKEMA. Thank you. I do apologize. I believe this now has concluded the questioning of this panel. You have given us a lot to think about. By the way, I do apologize for having to leave. There was an important debate on my other committee on the floor with historic legislation, and I had to be over there for a few minutes.
But you have been an excellent panel. You have contributed a lot of information to us. Of course, you haven't told us how we are going to be able to pay for these things, but we will take that under consideration.
First we have to get our priorities straight. But I do appreciate it, and the fact that I didn't have questions does not reflect negatively on you, it reflects positively on you, because I think all four of you explained yourselves very well and gave us a lot to think about and to take under consideration as we move toward legislation. Thank you very much.
The next panel, if Panel II will take their positions. I think we are in very good position to be able to hear your testimony and question this panel without any interruptions from voting on the floor. At least I hope we have planned that well.
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Panel II, I want to welcome you. The Honorable John DeStefano, Mayor of New Haven, Connecticut. And Mayor DeStefano is here on behalf of the National League of Cities, representing them. Welcome, Mr. DeStefano.
Mr. Raymond A. Skinner is Secretary of the Maryland Department of Housing and Community Development and is here representing the Council of State Community Development Agencies. We certainly welcome you.
Mr. Randy Patterson. Mr. Patterson is Executive Director of the Lancaster County, Pennsylvania, Housing and Redevelopment Authority.
Obviously, all three of you have considerable experience in the field and can give us the benefit of your practical and pragmatic understandings of the problem and what the potential alleviation of those problems is.
I thank you, and we begin with the Honorable John DeStefano.
STATEMENT OF HON. JOHN DeSTEFANO JR., MAYOR OF NEW HAVEN, CT; ON BEHALF OF THE NATIONAL LEAGUE OF CITIES
Mr. DESTEFANO. Thank you, Madam Chairwoman. It is good to be here with you and Members as you have patiently sat through all of this. I have enjoyed listening to it as well.
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I am the Mayor of New Haven, Connecticut. I also am Second Vice President of the National League of Cities (NLC). The League represents 1,700 cities and towns across America and is the largest and oldest organization of American communities.
I want to make a distinction about how you are having this discussion about affordable housing. I think it exists on two levels. One is the issue of access, which is the issue of access of anybody at low- and moderate-income levels to housing of their choosing.
However, I think there is a second part of affordable housing that speaks to a greater need, which is those populations which not only do not have access to housing, but are also characterized by joblessness, low educational attainment, single-parent head of households, the sum of which those characteristics create neighborhoods that have cultures and problems that are far deeper than just housing.
Having said that, the problem that we have today in America around affordable housing is to my point of view one that we have chosen to have. I say we have chosen to have it, because I believe in large measure the private sector has, for reasons that have to do with where profit margins exist, chosen not to go there, and Government, for reason of where there are other priorities that exist, has chosen not to go there as well.
You all represent districts that have, to some varying degree, these problems. I would make some specific suggestions.
First, do no harm. Do nothing to weaken CRA lending in America. I would urge, suggest to you strongly, that if you did, whatever private-sector investment goes into this problem will disappear.
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Second, do not walk away from public housing in America. The budget that has been submitted to the Congress has a $700 million cut in the capital fund, which is the major modernization fund for public housing. It is incredible to me that this older housing stock would be subjected to further disinvestment by our partners in Washington who encouraged us to build this housing in localities.
Third, I would speak to flexibility. As the prior speakers have said, this a funding issue, not a regulatory issue. However, rules that limit placement of Section 8 certificates in high-impact, high-poverty neighborhoods, frankly works against rehabilitation of some of these units.
Fourth, support programs that work. CDBG and HOME are wonderful programs that every speaker that was up here in this last panel will tell you were part of any deal they did to do affordable housing in their communities, and they speak directly to the gaps in these projects that anyone who has tried to put any of these together faces. Support what works: HOME and CDBG.
I want to say a word about local zoning. I do not expect the subcommittee to engage in local zoning. I would tell you, though, as of right now, zoning on an acre of land in New Haven is 22 units per acre. I am surrounded by communities that have minimum building lots of 2- and 2 1/2 acres. Often times, local zoning is no longer used just to prevent affordable housing, but to prevent any kind of multifamily housing. At its root it is often caused by prejudices and ignorances. However, seeing some of the ways we have maintained public housing, I certainly understand some of the fears about it. The best way to overcome those fears is to build housing that works, and we do that by investing in it.
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Finally, I would just say to you, this is a larger issue than building decent housing. I come from a community that tried to rebuild itself in the 1960s by massive slum clearance. When we did slum clearance, we tore apart the fabric of neighborhoods, relationships among neighbors and among institutions of neighborhoods like churches and businesses. What you are investing here as well is not just access to decent housing, but to the strength of our neighborhoods.
Everyone who has spoken to you has spoken to you about the need to invest. That means add money. Governance is about making choices. Congress is about to make a choice about a tax cut. When it makes a choice, it will also be making a choice about affordable housing.
Thank you for listening to me.
Chairwoman ROUKEMA. Thank you. You really adhered to the 5-minute rule. We appreciate that.
Mr. Skinner.
STATEMENT OF RAYMOND A. SKINNER, SECRETARY, MARYLAND DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT, ON BEHALF OF THE COUNCIL OF STATE COMMUNITY DEVELOPMENT AGENCIES (COSCDA)
Mr. SKINNER. Good morning, Chairwoman Roukema, Representative Frank, and Members of the subcommittee. My name is Raymond Skinner. I am the Secretary of the Maryland Department of Housing and Community Development. I am delighted to be here this morning.
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I am here today in my capacity as President of the Council of State Community Development Agencies, or COSCDA. COSCDA supports the common interests and goals of States with a major emphasis on community development, affordable housing, local economic development and State-local relations. COSCDA's members administer a wide range of Federal and State programs focused on housing and community development, many of which you have heard about this morning, including the Low Income Housing Tax Credit program, mortgage revenue bonds, the HOME program, CDBG, and so forth.
Before I begin, I want to thank you for holding this hearing and for recognizing the need to address the dramatic problem of affordable housing in America. COSCDA's members very much appreciate this subcommittee's efforts to expand housing opportunities for low-income people. I am here today to discuss with you the tremendous need for affordable housing and to discuss our ideas for solving the affordable housing crisis as it has already been characterized.
First, the need for affordable housing in Maryland and around the country has been documented in newspaper articles and many reports around the Nation. One of the most notable such is HUD's report on Worst Case Housing Needs. HUD's Worst Case Housing Needs study shows that the number of rental units available for very-low-income households fell by more than 1 million units from 1997 to 1999. Even more alarming, the study noted that the number of units available to extremely-low-income households, households earning less than 30 percent of the area median income, dropped by 750,000 units.
The loss of these units, coupled with the dramatic increase in the cost of housing, has created an affordable housing crisis throughout the country.
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Although the need for affordable housing is staggering, there is some good news, and that is that we know what works. As you have heard from a number of witnesses this morning, there are currently a number of programs that address the housing needs of some American families, but we need additional resources to more adequately address the problem.
I would like to mention just a few of the successful programs that my agency and others like it around the country currently administer.
First, the HOME Investment Partnership Program. The HOME program provides a proven, successful model for the development of affordable housing for low-income people. HOME provides State and local governments with the flexibility to meet the unique needs of local communities.
Nationally, the program has assisted in the development of more than 580,000 units of affordable housing, with a substantial number of rental units produced serving extremely-low-income people where there is the greatest need.
Additionally, the HOME program has a proven record of fostering successful community partnerships—again you have heard about that this morning—leading to community support and the leveraging of funds. In fact, for every dollar of HOME money invested in a project, more than $3.50 of additional financing is leveraged. This program works well, and we ask Congress to increase appropriations for it.
In Maryland, we use 65 percent of our allocation of HOME funds for rental housing. Forty-five percent of the tenants in the rental developments we have financed using HOME funds earn less than 30 percent of the median income, and all earn less than 50 percent.
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Second, the Low Income Housing Tax Credit is a tremendously successful tool, again as you have heard from previous witnesses this morning. The tax credit is administered by States, and the program has made possible the development of more than 1 million units of affordable housing. Frequently used in conjunction with other programs, including HOME, the tax credit serves as a major source of funds for the development of affordable housing.
While we appreciate the increase in the tax credit passed last year, it is still not enough to address the need or demand for affordable housing. For example, in our latest tax credit competitive round in Maryland, requests for funds outnumbered funds available by 4-to-1.
Another tool generally not associated with housing, but in fact, States and local governments are using for housing, is the Community Development Block Grant program. CDBG has served as a flexible resource of housing funding and housing-related activities for low-income people for more than 25 years. While the program provides resources for a variety of projects, States in general spend about 20 percent of their CDBG funds directly on housing. In Maryland, that figure is about 30 percent.
CDBG has aided in the production of hundreds of thousands of affordable housing units and remains a vital tool for the development of affordable housing.
Lastly I will mention the McKinney-Vento Homes Assistance Programs, which includes two programs, Shelter Plus Care and the Supportive Housing program, which provide for permanent housing. These programs are effective tools for housing homeless people; but, again, the resources are not sufficient for meeting the need. We strongly support efforts to shift the renewals of Shelter Plus Care program and the Supportive Housing program into the Housing Certificate Fund.
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While all of these programs are very effective and have proven track records, we believe that there is a real need for a new rental housing production program which focuses on extremely-low-income households, meaning people earning less than 30 percent of the median income.
COSCDA supports the creation of a new rental housing production program administered by State agencies and modeled after the highly successful HOME program. A new rental housing production program is greatly needed to support the production of more affordable housing.
Nationwide, production levels are far below what they have been historically. Production in the late 1990s was less than half of what it was in the early 1990s, despite our extremely strong economy. The case for new production is strengthened further by the fact that while housing vouchers are vitally important, there are many areas around the country, including some areas in the State of Maryland, where there simply are not units available for people with vouchers to rent.
We believe that any new production program should primarily serve people at 30 percent or less of the median income.
Chairwoman ROUKEMA. Excuse me, can you conclude, Mr. Skinner? Thank you.
Mr. SKINNER. Additionally, COSCDA believes the new programs should be compatible with existing programs, including HOME and the Low Income Housing Tax Credit, and eligible uses for the new program should include new construction, substantial rehabilitation, and preservation.
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In closing, the argument for more affordable housing in this country is clear and convincing, as you have heard from many witnesses today. The programs and policies required to effectively and efficiently meet the needs are largely in place. At this point, State and local governments need additional resources to partner with housing developers and community organizations to increase the supply of affordable housing for extremely-low-income American families.
I appreciate the opportunity to share our views with you, and I would be happy to answer any questions you have.
Chairwoman ROUKEMA. Thank you.
Mr. Patterson.
STATEMENT OF RANDY S. PATTERSON, EXECUTIVE DIRECTOR, LANCASTER COUNTY, PENNSYLVANIA HOUSING AND REDEVELOPMENT AUTHORITIES
Mr. PATTERSON. Thank you, Madam Chairwoman and Members of the subcommittee.
I am appearing before you today on behalf of five national associations which represent local elected and appointed officials. We appreciate the opportunity to share our views with you and our recommendations on the issue of housing affordability and the role that Federal programs may play in addressing this issue.
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I have prepared a written statement for the record, and that statement highlights some of the national affordability issues. I would like to describe a little bit the experience in Lancaster County, a more rural community rather than an urbanized area, with a central city of 55,000.
In Lancaster County, housing affordability is also a serious issue. In order to afford a 1-bedroom rental unit renting at fair market rents in Lancaster County of $466, a person making just over the minimum wage of $7 an hour must work 51 hours a week to afford that rental unit. For a 3-bedroom unit, that same person would have to work 83 hours a week, or earn a minimum of $14.83 an hour.
As a further illustration, we have run into issues with the Low Income Housing Tax Credit and the affordability. The average 3-bedroom unit in Lancaster County has a 3.5 person occupancy. The Low Income Housing Tax Credit rent is $666 a month, but the average family residing in these units only earns 36 percent of the Lancaster County median income, and they are therefore paying 45.5 percent of their income for rent. The same lack of affordability falls to 1- and 2-bedroom units.
In Lancaster County, a family of four earning 50 percent of the area median could afford to purchase an $85,000 home, but the average price of a single-family home is $127,000.
We have been asked to comment on the effectiveness of several Federal programs to address some of these issues, including HOME and the Community Development Block Grant Program, to expand affordable housing opportunities and to undertake neighborhood revitalization efforts.
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The HOME program has been a catalyst in spurring new affordable housing development since 1992. It is useful when providing funding for housing production, particularly as gap financing for rental projects.
The flexibility of the program allows local participating jurisdictions to use the program funds in combination with other funds. According to cumulative HUD data, as of the end of March 2001, HOME has helped to develop or rehabilitate over 583,000 affordable homes for low- and very-low-income families, including 252,000 for rental and 331,000 for ownership units.
Targeting in the program is deep. More than 82 percent of HOME assisted rental housing was benefiting families at or below 50 percent of area median income, while 41 percent was helping families with incomes at or below 30 percent of median income. For each HOME dollar, $3.87 of private and other funds is currently being leveraged. In Lancaster County, our leverage rate exceeds $5 per $1 of HOME money. Clearly this demonstrates the efficient and effective use of HOME dollars by local governments.
The Bush Administration is proposing a $200 million set-aside within HOME for a down payment assistance program to be administered by State housing finance agencies. We are opposed to this set-aside. HOME funds may already be used for down payment and/or closing cost assistance, as may Community Development Block Grant dollars. Since 1992, $1.06 billion in HOME dollars have been used for this purpose.
We do not believe there is a need to create a separate program for this purpose, for it would result in a $200 million cut in formula grants. During the 106th Congress, there were a couple of proposals to create a new housing production program primarily targeted to households at or below 30 percent of area median income. Rather than this approach, local officials proposed a housing production element be incorporated within HOME, because the infrastructure is already in place.
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Our proposal would provide grants for new construction, substantial rehabilitation, and preservation of multifamily housing. Mixed-income projects would be encouraged. All of the resources made available under a proposal must benefit households at or below 80 percent of median income, with at least 25 percent benefiting those at or below 30 percent of median.
Funds would be apportioned 60 percent to local participating jurisdictions, and 40 percent to States, using the formula that measures inadequate housing supply. We would be pleased to work with the subcommittee on crafting a production program.
The Community Development Block Grant program is another Federal domestic program which is quite successful at the local level, primarily because of its maximum flexibility to address our local needs. Legislation has been introduced, H.R. 1191, that we believe would fundamentally change the nature of the program and destroy the program's current flexibility at the local level and effectively eliminate area benefit activities. Instead of being a program or a tool for expanding affordable housing opportunities and encouraging neighborhood revitalization, we believe it would be turning the program into an anti-poverty program, something Congress never intended.
There are several refinements to both the HOME program and the CDBG program that we have included in our statement, which we submit for the subcommittee's consideration.
We also seek a funding level of $5 billion for the Community Development Block Grant program and a funding level of $2.25 billion for the basic HOME program and an additional appropriation of $2 billion for the rental production program.
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Thank you for the opportunity to address this issue.
Chairwoman ROUKEMA. I thank you.
Let me first observe, as Congressman Frank commented to me and I should have made specific reference, particularly when Mr. Skinner mentioned the McKinney-Vento Homeless Assistance Act, Mr. Frank and I both served on this Congress and this subcommittee with both Mr. McKinney and Mr. Vento. They were magnificent leaders on a bipartisan basis, and unfortunately they died prematurely, but having left this in their memory for all those and left a standard of accountability for us, a standard whereby we should be reaching.
I appreciate the fact that Congressman Frank mentioned that.
Mr. FRANK. Thank you.
Chairwoman ROUKEMA. I would say, first I have got to make a statement here about local zoning. You are speaking favorably about overriding local zoning, and I have just got to tell you, not on my watch. Not only New Jersey, but I just happen to believe that the Federal Government should not be involved in local zoning. There are incentives there that we may want to establish, but that should not in any way have any command over local zoning.
Mr. DESTEFANO. You misunderstand me, Madam Chairwoman. I would make an observation about local zoning, that it is often driven by ignorance and fear, and the best way to overcome that is to build affordable housing that anyone would welcome as a neighbor.
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Chairwoman ROUKEMA. With the local people making that case for either approval or disapproval at the State and local level.
Mr. DESTEFANO. Right. I think at some point we have to figure the larger issues do apply here about acting reasonable. However, I think that people will give up their pocketbooks before their prejudice. So I consider this as a pocketbook discussion.
Chairwoman ROUKEMA. I think you have to understand New Jersey and me in order to know how absolutely opposed we are to that. But more importantly, more directly, I did want you to expand a little bit more on the HOME program. Perhaps it was inferred and implied and essential to your statements on the HOME program, but I don't understand quite why it is not providing the necessary production that we originally thought. Is it a deficiency in the program or is it a missed perception about what we thought was the housing production capacity that it embodied?
Mr. Skinner, or whoever?
Mr. SKINNER. I think, first of all, I don't think the HOME program was necessarily intended as a production program per se. For example, there are a number of other uses for the HOME program, some of which you heard about today.
For example, many States and local governments use HOME for down payment assistance. They use it for single-family rehabilitation, for direct tenant assistance and for special-needs housing and so forth. So that really dilutes the HOME program in terms of its availability for present rental housing production programs.
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Chairwoman ROUKEMA. Are you finished, Mr. Skinner?
Mr. DESTEFANO. There is not a problem with the program. I would just tell you in my community, and I think many of the communities we represent at NLC, I could double-program what we get.
Chairwoman ROUKEMA. I am sorry, I didn't understand you.
Mr. DESTEFANO. If we had twice the money, we could commit that level of funding to development of affordable housing. So it is not a program issue, it is a resources issue.
Chairwoman ROUKEMA. Well, we will have to go over this, and I will study your comments. If you can, aside from the funding question, if you can help us in any way to improve the program, if necessary, beyond the funding question.
Mr. Patterson, did you have a comment?
Mr. PATTERSON. I agree. The issue is not the program itself. In Lancaster County, we use the HOME program primarily as a financial tool for housing production of new housing or the conversion of vacant and underutilized facilities to housing. But, because of the funding levels, we are still only permitted to fund approximately one 60-unit project per year. Our needs far outstrip that availability of funding.
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That is why the project includes Low Income Housing Tax Credits, the Federal Home Loan Bank Board, and local housing funds from a trust fund that we have developed.
[Mr. Randy Patterson submitted this additional information at a later date:
[Lancaster County, PA, has used 68 percent of the $10,233,000 in HOME dollars received since 1993 to produce 355 units of rental housing. Of these 355 units, 259 units were for family housing and 96 were reserved for elderly housing. An additional 10 percent of the HOME dollars were used to provide downpayment and closing cost assistance for first-time homebuyers. Remaining HOME dollars were used to renovate single family homes and provide short-term rental assistance for families. The HOME subsidy required to produce housing at a reasonably affordable rent requires the county to provide an average subsidy of $1,200,000 to construct a 56-unit multi-family rental project with a total development cost of more than $5,700,000. In addition to the HOME dollars, an average project such as this often requires a mortgage provided by a local bank using Federal Home Loan Bank funds, a subordinate mortgage through the county's housing trust fund and Federal Low Income Housing Tax Credit.]
Chairwoman ROUKEMA. Thank you. I appreciate your comments and I will look into this in more detail myself. But if you mentioned anything about faith-based groups and the partnerships there, I didn't hear it. Now, I happen to be one who has had a lot of experience with faith-based groups. I do not believe that there is any problem with separation of church and State. In the State of New Jersey, we have had some exceptional housing programs that have been partnershiped with faith-based groups.
Have any of you had experience or can you give us some insights or understanding, or do you have any recommendations to make?
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Mr. PATTERSON. We have worked with several faith-based organizations in Lancaster County, not only from the housing production side, but also from the provision of services to very-low- and extremely-low-income persons, to help them save for that down payment that they need, or for closing costs, to help them go through the process of pre-purchase counseling and post-purchase counseling. We have worked with a local housing partnership that includes bankers, developers, builders, municipal officials, and faith-based institutions in a local partnership to provide down payment and closing cost assistance and the new construction of housing.
[Mr. Randy Patterson submitted this additional information at a later date:
[Although Lancaster County has not provided HOME dollars to faith-based organizations to rehabilitate or produce affordable housing, the county has provided local housing trust fund dollars to faith-based organizations to renovate and resell properties, build new single-family townhouses, and create transitional housing for female heads-of-household who have been through drug rehablitation programs.]
Chairwoman ROUKEMA. I am glad to hear that. Any further comments?
Mr. SKINNER. Likewise in Maryland, we have worked throughout the State with a number of faith-based organizations, non-profit organizations, in the development of affordable housing, both rental and for home ownership, using both the Federal resources as well as State appropriated dollars that we have available, and it has worked very well.
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Chairwoman ROUKEMA. Thank you.
Mr. DESTEFANO. CDBG and HOME funds have been used that way for years. The faith-based organizations do just that; they provide a level of support for these families that recognizes this is not just a housing transaction, it is moving people into a different kind of housing than they are used to, and helps provide them support in becoming a member of the community.
Chairwoman ROUKEMA. If you can provide and submit for the record and for me personally any recommendations you could make as to how we can expand and improve on this kind of a partnership based on your own experiences, I would greatly appreciate it.
I appeared at a housing panel that was part of a program on faith-based initiatives, what, last month—within a few weeks. And it was amazing how many people were there from both the private sector as well as the faith-based sector that were endorsing it based on their own experiences, and also assuring that in a very simple way we can keep the separation of church and State and not be evangelized or promoting religious factors, but actually producing housing.
I thank you.
Congressman Frank.
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Mr. FRANK. Thank you, Madam Chairwoman. I apologize for being on the phone to everybody but Mayor DeStefano, because I was talking to Rose DeLauro.
As far as faith-based groups are concerned, I think the point is very important. I worked closely with the archdiocese in Massachusetts, Father Mike Groden. We built some housing there. My nominee to be the co-chair of this new commission we have on elderly housing is Ellen Feingold, who runs Jewish Community Housing for the Elderly.
I think the point is very clear. Under existing law, there is no obstacle whatsoever to faith-based groups doing this. We don't need to change the law. It does mean if they are prepared to do this like anyone else, they can do it. We get the benefit of that. Obviously they don't discriminate in who they let in, and they don't proselytize. What they need, I think, is just an expansion of the program.
But, yes, we already have this, and I think that makes the point; there is no need to change the law to allow faith-based groups to give us the benefit of their commitment and expertise if they do it in the same way others do, and we have benefited from that very much.
I appreciated all the testimony. I particularly appreciated your reference to CRA, because if you want to have the private sector participate, then Community Reinvestment Act strictures are very, very helpful.
I was especially pleased to see in all three that you are speaking, I gather, not just personally, but for the organizations you represent. I think what we see is an overwhelming consensus among people who are concerned with housing availability, whether they are consumer groups, whether they are the lenders, whether they are the municipal officials, whether they are the people in the business, the mortgage bankers, the homebuilders, the realtors, we need a larger Federal role. There simply has to be if we are going to deal with this, not all by itself, but among other things, Federal help.
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But I also appreciate having three officials who work at the actual State and local level who administer these programs, acknowledging, if I get it correctly, that we have achieved the kind of flexibility on the whole we need. We can make some improvements.
But the old image people have of inflexible programs that you can't use, you don't believe that is true of CDBG and you don't believe it is true of HOME. We have made progress with the tax credit. So I do think, and I was pleased to hear this, that the single biggest thing we need is additional resources.
I have a particular question to Mr. Skinner on this, because we did have a legitimate dispute with Secretary Martinez. He maintained, when he testified, that the lack of utilization of Section 8 reflects on poor housing authority management and that good housing authorities are able, in fact, to utilize them.
Let me start with Mr. Skinner; and then, from the expression on his face, I am going to go to Mr. Patterson.
Mr. Skinner.
Mr. SKINNER. I think it really depends on the area of the country. I can only speak very directly and specifically about my experience in Maryland. But just in talking with my colleagues around the country, I think it really depends. Part of the problem we have in many areas of Maryland is just the availability of rental units.
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Mr. FRANK. No matter how good the housing authority would be in some places, you just couldn't use the Section 8's at the current level.
Mr. SKINNER. I don't think the housing authority is the issue. Thanks.
Mr. FRANK. That is a specific point, and that is important, because the argument for a production program in part has to be that the voucher program with the best efforts in the world won't work.
Mr. Patterson, you looked like you had something?
Mr. PATTERSON. As the executive director of a local housing authority, I take great exception to the statement it is the administrative issues. Our housing authority has always been above the 95 percent lease-up rate until the last year-and-a-half.
There were several issues that created that, in our opinion. One is the lack of affordable rental housing outside of the city of Lancaster, in the county, that people can afford when they are limited to paying 40 percent of their income and going out and trying to find a unit that is affordable to them. Those units simply are at a shortage in Lancaster County.
The second issue is that we have really created with the targeting to persons with incomes 30 percent of the median income, we have restricted the usage of vouchers. We have a significant number of people now on our waiting list between 30 and 50 percent of median that we cannot serve because of the targeting rule of 75 percent for those 30 percent and below.
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Mr. FRANK. What you said is you went from a 95 percent rate to a lower rate?
Mr. PATTERSON. Our rate is currently 85 percent.
Mr. FRANK. That is about in a year-and-a-half.
Mr. DESTEFANO. Oftentimes the problem is inflexibility imposed by the Federal Government. We can't place Section 8 certificates in poverty high-impact neighborhoods. Well, try to find a census tract that has multifamily housing. It doesn't.
Mr. FRANK. I just want to ask all of you, and I gather you are saying implicitly—let me make it explicit—it is not that there has been in the past year-and-a-half a deterioration in the quality of the work of your housing authority; that if we are going to look for a reason it dropped, it must be something else.
Mr. PATTERSON. My staff would be extremely disappointed if I would stand here and say that it was.
Mr. FRANK. I will ask all of you, because this is a very critical question, and we had this discussion with Secretary Martinez, and he quite explicitly said that it is up to the housing authority and ruled out the notion that it was the kind of problem I think you gentleman are mentioning.
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If you choose to elaborate on that, I think that would be very helpful. Again, the Section 8 voucher program in some parts of the country is a good one, and it ought to be part of the program wherever we do it. But the notion that it is sufficient and you don't need a production program is really central to the debate we are having, and I would appreciate anything you have to say on that.
Thank you all.
Chairwoman ROUKEMA. I believe Congressman Watt has some questions.
Mr. WATT. Thank you, Madam Chairwoman.
I want to applaud these witnesses for coming and being forthright in their assessment of the problem, and to help us reinforce something we have said over and over and over again, that even the most committed of the Members on our subcommittee sometimes lose sight, such as the Chairman and Mrs. Kelly, for example. You can't just authorize a program and have that solve the problem. If you don't commit the resources to carry out that authorization, it does not work.
I know we don't commit resources in this subcommittee. We think once we have authorized a HOME program, the concept is fine, that solves the problem. But when the appropriators or the policymakers or the President chooses to use the funds in some other way and not make the financial commitment to it, then the problem still exists.
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In fact, some of the programs that we authorize can be counterproductive to housing, and HOPE VI in particular in my community has resulted because of decrease in concentration. I support the program, a great program. But when you decrease concentrations, unless you rebuild low-income housing somewhere else, what you have is a net loss of housing units. When you have the problems that you have, as I do in parts of my congressional district, not in other parts, with Section 8 vouchers, then you can't transfer those people over and allow them to use Section 8 vouchers to solve the problem.
So some of our own authorized programs sometimes have unintended consequences.
Let me try to reconcile, since we are trying to get information that will help us authorize programs that work, there seems to be a difference of opinion between Mr. Patterson and Mr. Skinner, and maybe it is just I am reading into it.
Mr. Patterson, on page 3 of his prepared comments says: ''We note that the Bush Administration proposes a $200 million set-aside within HOME for a down payment assistance program to be administered by State housing finance agencies. We are opposed to this set-aside.''
Mr. Skinner says: ''COSCDA supports the creation of a new rental housing production program administered by State agencies chosen by the Governor and modeled after the highly successful HOME program.''
Are you all in conflict with each other, or can you help me reconcile what you all are saying, so as we start to write legislation we are clear on what it is you are saying?
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Mr. SKINNER. No, I don't think there is any disagreement. What I was saying, two things: One is that we, COSCDA, believe that we need a new housing production program. But, second, the HOME program has been a very effective program, and I actually agree with Mr. Patterson's view that there should not be a set-aside within HOME. As he indicated, HOME currently can be used for down payment assistance, and both State and local governments do that now. I don't think there is any dispute at all.
Mr. WATT. We are talking about authorizing a program here that the President—or the possibility of authorizing a program that might have an unintended consequence, if I understand what Mr. Patterson is saying.
If you set aside $200 million of HOME money for down payment assistance, and you don't replace that $200 million for production of new units, am I missing something here?
Mr. PATTERSON. You are correct.
Mr. WATT. That is your problem with it.
Mr. FRANK. You are missing $200 million.
Mr. WATT. That is right. And that is your problem with it, Mr. Patterson. And you agree with that, Mr. Skinner?
Mr. SKINNER. I agree.
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Mr. WATT. You agree with it, Mr. DeStefano?
Mr. DESTEFANO. Why you wouldn't let us make those decisions locally is beyond me. Let us make them locally about allocation of HOME funds and CDBG funds.
Mr. WATT. All right. But if you are interested in production of new low-income house——
Mr. DESTEFANO. Put more money into it.
Mr. WATT. That is my primary concern, and I am not always happy with the decisions that get made on the local basis because they think it is great, the greatest thing since sliced bread, to do down-payment assistance and do other things. I keep saying we have got to produce more housing, otherwise this is not going to work.
Mr. DESTEFANO. But if you are paying for it by taking resources away from, let's say, modernization from public housing, or from our ability to rehab other units, it ends up netting the same. I think it just comes down to a resource allocation issue.
If you feel that strongly, then do create a new $200 billion dollar program for housing production.
Mr. WATT. I like that B as opposed to an M.
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Chairwoman ROUKEMA. Mr. Watt, have you concluded?
Mr. WATT. I am finished.
Chairwoman ROUKEMA. OK. So, in other words, it is ''show me the money.''
Mr. WATT. Show me the money. That is part of the problem.
Chairwoman ROUKEMA. All right.
Now we have Congresswoman Jones from Ohio.
Mrs. JONES. Thank you, Madam Chairwoman. Again I want to compliment you on hosting these hearings on affordable housing.
Good afternoon, gentleman. I want to go first to the mayor. You spoke about not walking away from public housing. At a prior hearing with our Secretary of Housing, I raised the question of the reduction of the drug elimination program. What impact will that have on public housing in your communities?
Mr. DESTEFANO. It diminishes the quality of life. It provides less security in these developments, makes them less attractive for people to live in, and it writes down the value.
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Again, I would think a cornerstone of any affordable housing program in America would be support of our public housing developments.
Mrs. JONES. I agree wholeheartedly with you, but I wanted somebody else to be on the record saying the same thing I was accused of saying.
Mr. DESTEFANO. I speak for 3,000 families back in New Haven. Absolutely.
Mrs. JONES. I hope I can frame this question. I want each of you to respond to this. Is changing the percentage of median income that qualifies a family for some of these programs enough to provide for greater affordable housing in our communities? Solely changing; I guess that is the question I wanted to ask.
Mr. PATTERSON. Are you speaking short of additional appropriations?
Mr. JONES. Short of additional appropriations.
Mr. PATTERSON. In my opinion, simply changing the level of median income would not resolve the basic issue. A perfect example, quite honestly, is the Section 8 home ownership initiative. We really are having a difficult time finding banks to participate, because you are really talking about a subsidized mortgage with a Section 8 home ownership program based on an annual appropriation, and you are looking at putting people in homes with very varied median-income levels. So the issue of simply raising the median income would not resolve the issue of lack of dollars to provide additional units.
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Mrs. JONES. Hold on one second. I want to follow up. You were saying the banks are having a problem with the subsidized mortgages. What are they saying they need to be supportive of a program?
Mr. PATTERSON. The Section 8 program is based on an annual appropriation. You are asking a bank to commit to a 30- or 20-year mortgage with an annual appropriation. They are having a difficult time reconciling those two issues.
Mrs. JONES. Section 8 is supposed to be solely for down payment assistance.
Mr. PATTERSON. Actually, the Section 8 rental assistance can be used as a mortgage payment. The current proposal is to also permit the use for down payment. But the existing legislation permits you to use Section 8 for a mortgage payment.
Mrs. JONES. OK.
Mr. Skinner.
Mr. SKINNER. I agree. If I understand the question correctly, it is changing the median income requirement really doesn't help on the production side, as Mr. Patterson just said.
Mrs. JONES. Speak to the whole problem of lack of affordable housing for very-low-income people, just again for the record for me, would you please? What suggestions, other than the programs that you have, other than your statement, do you have?
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Mr. SKINNER. I think all of the studies that have been done throughout the country, including what we have seen in Maryland, indicates that the greatest need is in families at 30 percent of median or less. Many of those families pay an exorbitant percentage of their income, 50 percent or more, for housing, and in many cases live in conditions that are not up to standards. So I think that is where the need is, and that can be met either through a new production program or expansion of some of the existing programs that can be targeted to the extremely-low-income.
Mrs. JONES. Lastly, Mr. Mayor, you made a statement that the issue is a larger issue than solely building more housing. Do you want to elaborate on that for a little bit?
Mr. DESTEFANO. Did you ever walk through a neighborhood where people are poor, but they are working, and then walk through a neighborhood where people are poor and they are not working? There is a difference.
When you walk through a neighborhood that is characterized by not just poor housing, but also lack of employment, lack of ready access to retraining, lack of access to, frankly, what we would consider middle-class role models is the only way I could put it, you get a different kind of neighborhood and you get a different set of expectations in that neighborhood. It just is not a housing problem at that point.
At some level, particularly in those kinds of neighborhoods—you mentioned drug elimination grants. Well, you know, it doesn't take a rocket scientist to figure out what makes for a good neighborhood, you know? It has got to be safe, it has got to be clean, it has got to be orderly, it has to have some social fabric, businesses and churches. That is why I am sure we have all cut ribbons in our political careers on housing and then come back 5 or 10 years later and say, something misfired here.
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Mrs. JONES. In the course of my work in my congressional district, one of the things that I have said, I am for community economic development, which is more than just housing. When I was a kid, I could walk to the corner and there were 25 businesses on the main street from my house, and therefore I saw people who were at business and people had little jobs doing different things. It doesn't exist anymore. We need to develop communities. I agree with you and I thank you very much, Madam Chairwoman. I am on time. OK.
Chairwoman ROUKEMA. Thank you. Will we bring those communities back? I don't know. That is a good goal and a good picture, vision, a vision for us.
I would like to thank all of you for being here today. I think this has been a very productive hearing. It is the second hearing of our subcommittee, and I truly believe, as you have heard or as you saw originally, there was more representation here of Members than we have had on different subjects before the full committee and other subcommittees, which shows the intensity of interest in this subject.
So I fully expect we are going to be able to work toward some sort of bipartisan agreement with legislation, hopefully in this Congress, if not this year. I would like to think it would be this year, but it may be delayed until next.
But in any case, you have made a valuable contribution to this, and I do want you to know that you have, I believe, 15 days to submit for the record any additional information, after-thoughts or expansion, because of the time limitations, that you have not been able to expand on some of your answers and some of the data that you presented to us. So there are 15 days open to you to submit for the permanent record so that it will be available to each Member of the subcommittee, and it will be part of the permanent record.
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With that, I thank you, and the hearing is adjourned.
[Whereupon, at 12:25 p.m., the hearing was adjourned.]
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