Affordable Housing Fact vs. Fiction

Myths and Realities Outlined in American Dream Come True

By Tony Bertoldi, Co-President of CREA, LLC and author of American Dream Come True: Why Affordable Housing Is Good Policy, Good Business, and Good for America

American Dream Come True is written with the purpose of debunking common misconceptions and myths about affordable housing. In doing so, it becomes clear what affordable housing really is and the impact it has on policy, business, and all Americans.

---

MYTH: All Affordable Housing Programs Are Made Equal

REALITY: There Are a Variety of Housing Programs

To accurately understand affordable housing and debunk the myth that they are all basically the same, it’s important to distinguish the different types of affordable housing programs.

• Public Housing: Public housing includes government-owned and managed properties by local Public Housing Authorities (PHAs). While initially formed to address housing for low-income families, seniors, and people with disabilities, public housing has gained a poor reputation and is often referred to as “the projects.”

• Rent Control: Rent control is a program that limits the amount a landlord can charge for rent. While that may sound beneficial, it’s one of the worst ways to achieve affordable housing. Why? Rent control also limits supply—which ultimately is bad for the market. If there’s one takeaway from American Dream Come True, it is this: restrictions on the supply of all housing is the root cause of rising housing costs.

• Section 8: Section 8 is part of the Department of Housing and Urban Development (HUD), but it’s a rent subsidy program administered through local PHAs. One key difference of Section 8 is that some voucher recipients can choose any housing that meets the program requirements. In other cases, the contract is directly with the property.

• LIHTC: Finally, we’ve arrived at the affordable housing holy grail. Low-Income Housing Tax Credit (LIHTC) is a private-public program authorized by the US government but managed and operated by private developers, investors, and syndication companies. These partnerships are then managed and overseen by syndicators and the state’s allocating agencies. We’ll get into some of the nuts and bolts of this, but syndicators like CREA essentially serve as a conduit between the developer and investment side of the equation.

Since HUD and PHAs are more administrative, they don’t have the same level of resources - especially funding – for proper asset management. LIHTC, on the other hand, enables fund and investment entity resources to build and support properties where residents actually want to live. You’ve likely driven past a LIHTC property and not even realized it. The difference between a LIHTC and a market-rate property is often not a visible one.

Further, one advantage of LIHTC is local economic impact through job creation. A study performed by the National Association of Home Builders (NAHB) found that “for every 1,000 rental apartments developed approximately 1,130 jobs are supported for a year.” One could consider LIHTC as Impact Capitalism: capitalist real estate ventures designed to improve American lives. In turn, these “ventures” improve their community—and economy—as a whole.

MYTH: Affordable Housing and Public Housing Are Synonymous

REALITY: Affordable Housing is NOT Public Housing

Public housing looks different today than when it was enacted in 1937. Today, public housing residents pay basically nothing for rent. The typical three-to-four-story, flat-roof buildings in urban locations are often overpopulated and inevitably susceptible to interpersonal conflict and poor health conditions.

On its own, public housing is not a great program, not great real estate, and generally not great for larger communities. However, the LIHTC program can be used alongside older public housing to make improvements. Unfortunately, resources are limited to make this happen on a larger scale.

MYTH: Affordable Housing is a Government Handout

REALITY: Affordable Housing is Housing Paid at an Affordable Rent

Okay, this is a huge one: affordable housing is NOT “a government handout.” This misconception is far from accurate! LIHTC communities are inhabited by average Americans who pay rent. The distinction is found within the LIHTC program where rent is limited to 30% of the resident’s income. This gives them the financial leverage to adequately pay for necessities outside of housing and can also allow to attain aspirations like homeownership and post-secondary education.

Still think affordable housing is a “handout”? Let’s challenge this thinking a bit:

Ever since income tax was created in 1913, anyone owning property can deduct mortgage interest on their taxes. Under the Trump Tax Plan, this deduction is limited to primary home mortgages at or below $750K. This deduction is essentially a form of government subsidy allowing homeowners to reduce their taxable income by the amount of mortgage interest paid, thereby reducing their overall tax liability. Since two-thirds of Americans are homeowners—of which the majority have a mortgage under $750K—most of the population can enjoy this tax deduction/subsidy benefit.

If we call affordable housing a government handout, we must also consider the mortgage interest deduction that the vast majority of Americans take advantage of as a form of government subsidy, thus calling it a government handout as well.

MYTH: Affordable Housing Will Devalue Your Community

REALITY: Affordable Housing Creates Harmony within Communities

This misconception is so rampant that many adopt “Not in My Back Yard” (NIMBY) attitudes. Speaking plainly, affordable housing is quickly associated with high crime, unattractive properties, congestion, and traffic issues. Local residents, especially affluent community members, are then quick to deny the suggestion of affordable housing before seeking an understanding of it.

These assumptions ignore the fact that all real estate must abide by the law and zoning rules. For instance, the addition of a LIHTC property wouldn’t be any more taxing on traffic and parking than a high-end condominium. But by attaching “affordable housing” to the property, perspectives quickly shift.

The fear that affordable housing will devalue a community is rooted in the failure to understand how the system works. In many cases, the development of LIHTC housing takes place in outdated or sub-standard areas, such as old industrial sites. LIHTC Developers focus on revitalizing these areas by converting unused sites into attractive real estate which leads to the opposite effect of the assumptions above. Affordable housing often increases community value by replacing underdeveloped areas or real estate with a contributing part of the neighborhood.

___________________________________________________________________________

These myths and realities are just the first chapter in understanding affordable housing and its wide impact – and are literally the outline for the first chapter of American Dream Come True. To dig in deeper, the book is available here.