Wednesday, October 31, 2012

Crafting a New Rental Policy: Lessons from US Housing Policy History

by Alexander
von Hoffman
Senior Research Fellow
As the United States continues to recover from the worst economic downturn since the Great Depression, it is worthwhile to consider the ways Americans responded to similar predicaments in the past.  Four times in recent American history, housing-related crises led the US government to initiate large-scale housing programs for low-and moderate-income Americans. In my recent working paper, I explored the political processes that led to the successful adoption of these programs and discovered lessons in strategy that could help advocates of policy change today, particularly those seeking to craft a new rental housing policy.

During the economic crisis of the Great Depression, Franklin Roosevelt’s New Deal produced the public housing program. In response to the acute housing shortage at the end of World War II, the government found a winning formula in the housing component of the G. I. bill. To help solve the urban crisis of the late-1960s, the Johnson administration set a high goal for national housing production and enacted two large low-income housing production programs based on subsidizing private industry. When these programs careened into crisis in the 1970s, Richard Nixon inaugurated a new approach of vouchers, although it would take almost a generation before that policy was fully accepted.


Photo: Atlanta Housing Authority, Clark Howell Homes (Public Housing), circa 1945, photographer unknown, courtesy of the Library of Congress

While these programs offer insight into the content of housing policy, they also provide valuable lessons about successful strategies for winning adoption of new policy today. First, history teaches that new housing policy is more likely to be passed and to succeed if it involves a decentralized program (such as the US public housing program) to help build local institutional infrastructure and political support and to respond to local conditions. A politically successful policy will also make extensive use of the private and nonprofit sectors, as did the Veterans Administration housing program, mortgage subsidies for low-income rental housing, rental vouchers, and low-income housing tax credit. Using private sector agents to carry out a new housing policy creates stakeholders, spreads political support, and helps avoid criticism for increasing government bureaucracy.

A second key ingredient in a successful drive for a new federal housing policy may seem obvious: the higher the rank of government official who favors a policy, the better are the chances it will be enacted. The president’s direct interest in the passage of a new program lends the greatest weight, but lack of support from the president need not be fatal (in the case of public housing, Franklin Roosevelt disliked the program but his wife, Eleanor, lobbied him to support it). History also shows repeatedly that strong political support is essential from non-governmental national organizations with local affiliates, coalitions of grass-roots groups, or—as in the classic case of public housing—powerful interest groups (labor, for example) whose main constituency is not related to the housing industry. Outside political force is most effective when it is felt from local jurisdictions where members of Congress go looking for votes.

A third lesson is that special commissions and White House conferences can potentially generate helpful ideas from experts in the field and build outside political support of important interest groups, but they must be carefully composed and organized lest they wander off track, producing impractical or impolitic ideas. Agency officials should think through a short- to medium-term strategy that would include identifying an ideal program or range of programs, a public relations effort to heighten awareness and build enthusiasm for the program goals, and lining up of political support from interest groups, other federal agencies, and elected officials.

Fourth, while Americans can be sympathetic towards the poor, history shows they are most enthusiastic about helping working people. For this reason, government aid to members of sympathetic middle-class groups (e.g. veterans or the elderly) has usually been more popular than aid targeted strictly to lower-income groups (e.g. welfare programs). Of course, so-called middle-class groups may contain or can be defined to include low-income people, and reformers can succeed in helping the poor by including them in programs that target so-called “worthy” groups.  The public housing crusade of the 1930s, the housing component of the G. I. bill and, more recently, the “workforce housing” campaigns in Illinois and elsewhere demonstrate the appeal and the potential of programs with an ambiguous constituency. Some policymakers may still prefer to propose programs explicitly targeted to very low-income people; in order for these to succeed, however, proponents may have to argue that the program will inculcate or reward self sufficiency—conditions aimed at imposing middle-class values.

Today, these lessons can be applied to strategies for the development and adoption of a new rental housing policy. Such a policy should be accompanied by an education campaign that presents renting as a positive act, not a failure to own a home, and as something that Americans of all income levels choose to do. This is no easy task. More than a century’s worth of discourse about the virtues of homeownership, the falling incomes and status of renters in recent decades, and the declarations of recent presidents about the importance of raising the homeownership rate have all helped equate the idea of the “American dream” with owning a house. Yet the current political and economic climate offers many reasons that renting can be the right housing choice for Americans: it offers choices in location and building type, frees individuals from the maintenance burdens of homeownership, and may offer opportunities to live debt-free. As more Americans face the reality that they can only afford to rent—or would be better off doing so—they are more likely to welcome a government policy that helps them do so.

Wednesday, October 24, 2012

As Baby Boomers Age in Place, They Will Increase Their Influence in the Home Improvement Market

by Kermit Baker
Director, Remodeling
Futures Program
Over the coming decade, the home improvement market will increasingly rely on older homeowners to generate growth. A previous post pointed out that baby boomers will continue to control a large segment of the housing stock nationally, that they have low mobility rates, and that they have continued to improve their homes as they prepare to age in place. Going forward, baby boomers have significant motivation to spend on home improvements.

They also have the financial resources to do so. By staying in the workforce longer, baby boomers often have sufficient incomes to undertake these improvements. Moreover, because older households were able to benefit from the run-up in stock prices and home values more than younger households, they typically have seen greater gains in wealth. The net result is that home improvement expenditures by older owners have grown faster than for younger ones.

As their longevity has increased, coupled with their uncertainty over future economic conditions, seniors have been more inclined than comparable groups in prior decades to remain in the labor force. The labor force participation rate (the share of the population that is working or actively looking for work) for the age 55 plus population increased from 30.1% in 1990 to 40.2% in 2010 according to the U.S. Department of Labor. They project that it will continue to inch up for this group in coming years.

While incomes for older workers have held up better than those of their younger counterparts, the biggest difference has been in the wealth positions of these households. Older families, who were able to benefit from both the run-up in stock prices and home values, are generally in a much better financial position now than their younger counterparts. Between 1995 – when both the stock market and housing market began to accelerate – and 2010, median family net worth increased by almost 34%. However, it increased significantly more for older households, with families age 75 and older having a net worth 133% greater than their counterparts in 1995.

Source: Federal Reserve Board, Survey of Consumer Finances

Not only was the upside greater for older families over this period, but the recent downturn has been significantly milder. While median family net worth declined over 35% from 2007 – when both stock prices and home values were near their market peak – to 2010, it declined less than 30% for those aged 55 to 64, and even increased modestly for families aged 75+.

Though families aged 55 to 64, the leading edge of the baby boom generation and therefore a key demographic to watch, haven’t done as well as older families in recent years in holding onto their net worth, their situation still looks promising. Typically more highly leveraged during the growth years, this leverage often worked against the leading edge baby boomers during the downturn. Still, by 2010, the median net worth of this group had increased more than 55% from 1995 levels, compared to 34% for all families. Coupled with incomes that have held up better than their younger counterparts since 1995, this leading edge of the baby boom generation is entering its retirement years in a generally comfortable financial position.

Greater longevity and lower mobility have given older households the incentive to improve and modify their homes so that they are able to comfortably and safely age in place. Higher incomes and greater wealth have given them the ability to do so. Average spending by homeowners on home improvement projects has increased about 30% over the past decade. However, while gains have been more modest for owners under age 55, they have increased by over 50% for those over age 55.

Source: JCHS Tabulations of the 2001 and 2011 American Housing Surveys

The combination of greater numbers of baby boomers aging in place and greater per owner spending on home improvement projects has dramatically shifted the composition of the home improvement market. In 2001, owners age 55 or older accounted for less than 32% of home improvement spending in the owner-occupied residential market. By 2011, this had grown to 45%. So, while the influence of baby boomers on the new residential construction market may be waning, they are a growing force in home improvement activity.

Thursday, October 18, 2012

Home Remodeling Spending Set to Accelerate

by Abbe Will
Research Analyst
An improving housing market and record low interest rates are driving projections of strong gains in home improvement activity through the end of the year and into the first half of 2013, according to our latest Leading Indicator of Remodeling Activity (LIRA).  The LIRA suggests that the seeds for what appears to be a very robust remodeling recovery have been planted, with annual homeowner improvement spending expected to reach double-digit growth in the first half of 2013.

After a bump in home improvement activity during the mild winter, there was a bit of a pause this summer.  However, the LIRA is projecting an acceleration in market activity beginning this quarter, and strengthening as we move into the new year.  Strong growth in sales of existing homes and housing starts, coupled with historically low financing costs, have typically been associated with an upturn in home remodeling activity some months later.  While the housing market has faced some unique challenges in recent years, this combination is expected to produce a favorable outlook for home improvement spending over the coming months.  (Click chart to enlarge.)


For more information about the LIRA, including how it is calculated, visit the Joint Center website.

Monday, October 15, 2012

Strong Cities, Strong Communities

by Erika Poethig
Guest Blogger
From time to time, Housing Perspectives will feature posts by guest bloggers.  We are pleased that the first was written by Erika Poethig, Acting Assistant Secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development.  Her post reflects thoughts she shared at a Brown Bag Lecture delivered at the Harvard Kennedy School on September 25, 2012.  Her talk was entitled "Putting the 'UD Back in HUD."


Louisiana releases fifteen thousand inmates annually. But lacking rehabilitative services and reentry supports, approximately half of these former inmates commit another crime and find themselves back behind bars within five years.  That’s why Mayor Landrieu and his team at New Orleans City Hall have made reentry a key component of their anti-crime strategy. However, the City will not have to go at it alone.

Through the Obama Administration’s Strong Cities, StrongCommunities (SC2) initiative, the U.S. Departments of Housing and Urban Development (HUD), Health and Human Services (HHS), and Justice (DOJ) have partnered with the City and State to create a permanent supportive housing voucher preference for people returning from substance abuse treatment and people with disabilities (including mental illness and substance abuse challenges) reentering from incarceration to ensure these individuals have the housing and support services they need to successfully reintegrate into their communities and reduce the likelihood of recidivism. This federal-local partnership exemplifies President Obama’s new, more collaborative approach to urban policy and development—the focus of my recent Brown Bag Lecture for the Harvard Joint Center for Housing Studies.

Back in 2009, shortly after the inauguration, Administration leaders launched an urban policy listening tour. Top officials visited cities across the country to take stock of how we could better engage with communities. The overall lesson: the federal government needs to be a better partner. Rather than the top-down heavy-handed approach of the past, we need to be a flexible, locally responsive federal partner with the willingness to listen. We need to abandon the one-size-fits-all, cookie-cutter approaches of the past in favor of flexible programs easily tailored to municipal challenges while also providing technical assistance to build local capacity so communities can implement their own visions. We need to ”bust our silos”  to better align Federal initiatives and improve efficiency. We need to ensure all hands are on deck to address urban challenges by leveraging private and nonprofit assets and encouraging regional collaboration. While working to be a better partner, however, the federal government also needs to hold our partners and grantees accountable for results to ensure that federal resources foster integrated, diverse communities with access to opportunity.

Our new partnership approach and the principles it embodies inform each of this Administration’s signature place-based programs in which HUD is a leading member. Take the Neighborhood Revitalization Initiative (NRI) for instance, which brings together five agencies (ED, HHS, HUD, Treasury, and Justice) to help communities develop and obtain the tools they need to transform high-poverty neighborhoods into sustainable, mixed-income communities. Each of the NRI programs require significant community involvement, partnership with the nonprofit and private sectors, and regular evaluation based on performance metrics aligned across programs. Extra points are awarded to applications that align federal resources by harnessing multiple NRI grants. And whatever the particular grant’s focus (housing redevelopment, community health, cradle-to-college education, etc.), plans must be embedded in broader community development efforts sufficient to improve resident outcomes.

Recognizing that communities have varying needs and capacities, this Administration has structured its urban development programs along a capacity continuum. The Building Neighborhood Capacity program provides historically disadvantaged communities with hands-on technical assistance to begin comprehensive planning, driven by local priorities and community input, and to set the stage for rebuilding and revitalization. Strong Cities, Strong Communities (SC2) deploys teams of government experts, early-to-mid career fellows, and a national resource network to assist struggling cities in achieving their economic development goals while deepening municipal “bench capacity.” The Partnership for Sustainable Communities enables cross-sector engagement and coordination of federal investment to support regions and communities nationwide in achieving multi-jurisdictional goals: improving access to affordable housing, increasing transportation options, and lowering transportation costs while protecting the environment.

Stay tuned as these initiatives continue. In collaboration with our local, state, and private partners, we can together achieve our shared goal of stronger local and regional economies that create access to opportunity for all Americans.

Tuesday, October 9, 2012

Bridge to Recovery: Senator Mel Martinez Frames a Vision for Housing


by Pamela Baldwin
Deputy Director
October in Cambridge means the Head of the Charles, fall foliage, students settling in, and the Joint Center’s annual John T. Dunlop Lecture.

Last week at the Harvard Graduate School of Design, former U.S. Senator and HUD Secretary Mel Martinez delivered an address entitled America’s Housing Policy: Charting a Course for Recovery.  In an auditorium filled with students and faculty, members of the Joint Center’s Policy Advisory Board, and the general public, Senator Martinez outlined why bipartisanship and bridging ideological differences will be the critical components of any policy agenda that seeks recovery, both for the U.S. economy in general and housing markets in particular.  Speaking from his current perspective as Co-Chair of the Bipartisan Policy Center Housing Commission and Chairman of the Southeast and Latin America at JPMorgan Chase, Senator Martinez called on federal policymakers to make housing and reform of the nation’s housing finance system a central priority, regardless of the outcome of the November election.  He set out a broad vision of housing at the center of national economic policy discussions and offered recommendations for addressing four of the deepest challenges affecting homeowners, renters, lenders, and communities: homeownership and access to credit, foreclosure mitigation, overhauling the housing finance system, and the future of multifamily and rental housing.

That the path to recovery is truly a bridge is a welcome theme for a lecture that honors the life and work of the late Professor Dunlop.  His career as a labor economist, emeritus professor, dean, and advisor to every president from Franklin Delano Roosevelt to George W. Bush was characterized by his dedication to bridging the worlds of business and government, and leveraging academic research to provide knowledge that informs effective decision-making in both spheres.  As an embodiment of his legacy, the lecture delivered by Senator Martinez was a fitting tribute, evoking Professor Dunlop’s vision of bringing balance and civility to national policy discussions, and calling on both political parties to be mindful of the “shared destiny” implicit in repairing and recovering the American dream of safe and affordable housing for all. 



We thank the National Housing Endowment for supporting the Dunlop Lecture.  Click the video below to watch Senator Martinez’s speech. We welcome your comments and responses.



Photo by Jared Charney