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89–139 PDF 2003

S. HRG. 107–981

AFFORDABLE HOUSING PRODUCTION AND

WORKING FAMILIES

HEARING

BEFORE THE

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

OF THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

ON

THE AFFORDABLE HOUSING NEEDS OF WORKING FAMILIES AND THE

STATE OF THE NATION’S HOUSING SUPPLY FOR BOTH RENTERS AND

PROSPECTIVE HOMEBUYERS

MAY 15 AND SEPTEMBER 25, 2002

Printed for the use of the Committee on Banking, Housing, and Urban Affairs

(

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

DANIEL K. AKAKA, Hawaii

PHIL GRAMM, Texas

RICHARD C. SHELBY, Alabama

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN ENSIGN, Nevada

STEVEN B. HARRIS, Staff Director and Chief Counsel

WAYNE A. ABERNATHY, Republican Staff Director

MARTIN J. GRUENBERG, Senior Counsel

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

SUBCOMMITTEE ON HOUSING AND TRANSPORTATION

JACK REED, Rhode Island, Chairman

WAYNE ALLARD, Colorado, Ranking Member

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

CHRISTOPHER J. DODD, Connecticut

CHARLES E. SCHUMER, New York

DANIEL K. AKAKA, Hawaii

RICK SANTORUM, Pennsylvania

JOHN ENSIGN, Nevada

RICHARD C. SHELBY, Alabama

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

KARA M. STEIN, Staff Director

TEWANA WILKERSON, Republican Staff Director

SHERRY E. LITTLE, Republican Legislative Assistant

MARK A. CALABRIA, Republican Economist

(II)

(III)

CONTENTS

MAY 15, 2002

Page

Opening statement of Senator Reed ...................................................................... 1

Prepared statement .......................................................................................... 28

Opening statements, comments, or prepared statements of:

Senator Sarbanes .............................................................................................. 3

Senator Allard ................................................................................................... 7

Senator Corzine ................................................................................................ 7

Prepared statement ................................................................................... 28

Senator Carper ................................................................................................. 21

WITNESSES

John F. Kerry, a U.S. Senator from the State of Massachusetts ........................ 4

Prepared statement .......................................................................................... 29

Robert J. Reid, Executive Director, National Housing Conference ..................... 9

Prepared statement .......................................................................................... 31

JoAnn Kane, President and Chief Executive Officer, McAuley Institute ........... 11

Prepared statement .......................................................................................... 37

David W. Curtis, Chairman, Housing Finance Committee, National Association of Home Builders; Executive Vice President, Leon N. Weiner & Associates, Inc. ................................................................................................................ 13

Prepared statement .......................................................................................... 42

Sheila Crowley, President, National Low Income Housing Coalition ................. 14

Prepared statement .......................................................................................... 48

Emmanuel Lane, A Working Parent—Resident of Sharing and Caring Hands,

Minneapolis, Minnesota ....................................................................................... 51

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

National Housing Trust Fund List of Endorsements, submitted by Sheila

Crowley, President, National Low Income Housing Coalition ......................... 53

Letter from Theodore Cardinal McCarrick, U.S. Conference of Catholic

Bishops, dated April 18, 2002, submitted by Sheila Crowley, President,

National Low Income Housing Coalition ........................................................... 91

Actuarial Review of MMI Fund as of Fiscal Year 2001, by Deloitte & Touche,

submitted by Sheila Crowley, President, National Low Income Housing

Coalition ................................................................................................................ 93

SEPTEMBER 25, 2002

Opening statement of Senator Reed ...................................................................... 103

Opening statement of Senator Sarbanes ............................................................... 104

WITNESSES

Christopher S. Bond, a U.S. Senator from the State of Missouri ........................ 105

Prepared statement .......................................................................................... 123

John Edwards, a U.S. Senator from the State of North Carolina ....................... 108

Prepared statement .......................................................................................... 126

Thomas M. Menino, Mayor, City of Boston, Massachusetts; President, U.S.

Conference of Mayors ........................................................................................... 111

Page

IV

Thomas M. Menino, Mayor, City of Boston, Massachusetts; President, U.S.

Conference of Mayors—Continued

Prepared statement .......................................................................................... 128

Richard H. Godfrey, Jr., Executive Director, Rhode Island Housing and Mortgage Finance Corporation; Secretary & Member, Board of Directors, National Council of State Housing Agencies .......................................................... 114

Prepared statement .......................................................................................... 130

William (Bill) Picotte, President, Housing Assistance Council; Executive Director, Oti Kaga, Inc., Cheyenne River Sioux Reservation ............................... 116

Prepared statement .......................................................................................... 134

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

The U.S. Conference of Mayors, Recommendations from the Mayors National

Housing Forum, dated May 20–22, 2002, submitted by Thomas M. Menino,

Mayor, Boston, Massachusetts; President, U.S. Conference of Mayors ........... 138

Testimony of Saul N. Ramirez, Jr., Executive Director, National Association

of Housing and Redevelopment Officials ............................................................ 142

Testimony of Robert A. Rapoza, Executive Secretary, National Rural Housing

Coalition ................................................................................................................ 144

Letter to Senator Jack Reed from Robert J. Reid, Executive Director, National

Housing Conference, dated September 25, 2002 ............................................... 150

(1)

AFFORDABLE HOUSING PRODUCTION AND

WORKING FAMILIES

WEDNESDAY, MAY 15, 2002

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, SUBCOMMITTEE ON HOUSING AND TRANSPORTATION, Washington, DC.

The Subcommittee met at 2:30 p.m. in room SD–538 of the Dirksen Senate Office Building, Senator Jack Reed (Chairman of the

Subcommittee) presiding.

OPENING STATEMENT OF SENATOR JACK REED

Senator REED. The Subcommittee will come to order.

Good afternoon. I would like to welcome everyone to today’s Subcommittee hearing on affordable housing production and working

families.

One out of every seven American families spends more than half

of their total income on housing, or lives in a severely inadequate

unit. Although the number of families with critical housing needs

held more or less steady between 1997 and 1999, the number of

working families with critical housing needs grew from 3 million to

3.9 million. About 80 percent of these 3.9 million families paid

more than half of their income for housing. The other 20 percent

lived in severely inadequate housing.

The Center for Housing Policy has found that when it comes to

rental housing, a janitor can only rent a one-bedroom apartment on

30 percent of his income in six out of 60 metropolitan areas, while

retail salespeople can afford a one-bedroom apartment in only three

out of 60 metropolitan areas. For two-bedroom apartments, the situation is even worse. The same problem exists for teachers, police

officers, and licensed practical nurses in too many high-cost metropolitan areas.

Recently, in an article in The Washington Post, reporter Peter

Whoriskey pointed out that the rapid escalation of housing prices

in the Washington area has largely been caused by a huge increase

in employment opportunities without a similar increase in the

number of new dwellings. For example, the number of jobs in Fairfax County during the 1990’s increased three times as fast as the

supply of homes—roughly 166,000 new jobs compared with 56,000

new units of housing.

Simply put, in too many places across America, there aren’t

enough homes for the number of families who need them.

In preparing for this hearing, we heard about a family that has

been living in a Fairfax County homeless shelter. The family has

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a mom and dad and two children, a boy and a girl. The mom has

worked for the Department of Veteran’s Affairs for 9 years and

makes over twice the minimum wage. The dad held a seasonal job

with Fairfax County until the job ended. They were living in a

townhouse in Alexandria, Virginia, that cost $950 a month, until

the dad lost his job. He now has found work at a local military installation as a chef and the family is trying to find a new home.

However, because of the age of their children, they are being told

that, in Virginia, this means that they have to rent a three-bedroom apartment. This family is playing by the rules, but they still

haven’t been able to find housing and have been looking since early

January.

However, critical housing needs are not just concentrated in

urban areas. Only 1.6 million of those with critical housing needs

live in central cities. Another 1.5 million live in the suburbs and

about 660,000 families live in non-metropolitan areas.

In many cases, working families have the worst of both worlds.

They have too much income to qualify for the limited housing assistance available, but too little to benefit from the favorable tax

treatment given to homeowners. For too many, a job does not guarantee a family a decent place to live at an affordable cost.

Thus, it is our hope today that by holding this hearing of the

Senate Banking Committee’s Subcommittee on Housing and Transportation that we can learn more about the affordable housing crisis that is affecting many working families in and around the country and come up with some solutions that might help mitigate

these problems.

Let me give a brief overview of the hearing before I recognize the

Chairman of the Committee, Senator Sarbanes.

Today, we will hear from three panels. The first panel will consist of my colleague, Senator John Kerry, the former Chairman of

this Subcommittee and one of the great advocates for housing policy in the United States and a great champion on these issues.

In our second panel, we will hear from Mr. Emmanuel Lane, a

resident of Sharing and Caring Hands in Minneapolis, Minnesota.

Mr. Lane participated in our hearing in Minneapolis with Senator

Wellstone and he too has a story of working hard, but still not

being able to find appropriate housing for his family.

Finally, on panel three, we will be hearing from: Mr. Robert J.

Reid, Executive Director, National Housing Conference; Ms. Sheila

Crowley, President of the National Low Income Housing Coalition;

Ms. JoAnn Kane, President and Chief Executive Officer of McAuley

Institute; and Mr. David Curtis, Chairman, Housing Finance Committee of the National Association of Home Builders.

Each of our witnesses has been asked to comment on the affordable housing needs of working families; the State of the Nation’s

housing supply for both renters and prospective low-income homebuyers; and to highlight any proposals that should be considered as

part of the legislation to increase the production of affordable housing for working families.

Before we begin, I would also like to thank each of the witnesses

for their written testimony, which will be shared with all Members

of the Committee, and ask that our witnesses try to adhere to a

5-minute limit.

3

Let me recognize the Chairman of the Banking Committee, Senator Sarbanes.

Mr. Chairman.

STATEMENT OF SENATOR PAUL S. SARBANES

Senator SARBANES. Thank you very much, Chairman Reed. I

apologize at the outset to the witnesses because I am, regrettably,

not going to be able to stay. But, obviously, I will read the testimony with great care.

Mr. Chairman, I wanted to come, at the outset at least, to thank

you for holding this hearing on the very important subject of affordable housing production and working families.

This is but the latest in a series of hearings on the issues of

housing and transportation that you have held as Chairman of this

Subcommittee since taking over in the middle of last year. I very

much appreciate the obvious effort and thoughtfulness that you

and your staff have put into this endeavor.

Today’s hearing is a logical outgrowth of the full Committee

hearings we have held since late last year on the issue of the HUD

budget and housing needs. Throughout these hearings, we have

heard again and again there is a shortage of decent, affordable

housing in stable neighborhoods.

The National Housing Conference, whose Executive Director,

Robert Reid, and the National Low Income Housing Coalition,

whose President, Sheila Crowley, will both be testifying later, have

done studies highlighting this problem specifically among working

families. And we see that for many Americans, the problems are

getting worse.

Obviously, there are a number of steps that must be taken to address this problem. I am working on legislation to help make

vouchers more effective. Many families today cannot make use of

their vouchers and turn them back in. This is administratively inefficient and highly discouraging and I am hopeful that we can put

together a Voucher Improvement Act which will help to deal with

this problem.

But vouchers alone are not enough. In many markets across the

country, we need more affordable housing, particularly for extremely low-income families, many of whom constitute the working

poor. Indeed, affordable housing is an absolute necessity if we are

going to move people not just off welfare and into work, but also

out of poverty.

In this regard, I want to especially recognize the work of our colleague, Senator John Kerry, who, as you pointed out, was on this

Subcommittee for a number of years. Senator Kerry has authored

the National Affordable Housing Trust Fund Act, legislation that

is designed to get us back into the business of building affordable

housing in a significant way. And as a Member of the Finance

Committee, Senator Kerry has continued his efforts by trying to

link welfare to housing more closely, an effort which many of us

support.

So, John, I want to thank you for the initiatives you are taking.

Finally, Mr. Chairman, I also want to say a word about JoAnn

Kane, who is on your last panel, who has served as President and

Chief Executive Officer of the McAuley Institute since 1984.

4

The Institute is located in my State, in Montgomery County, and

JoAnn Kane brings 28 years of field experience and an extensive

knowledge of housing and neighborhood development lending to

her position.

Under her direction, the McAuley Institute provides technical information and training, lending and financial services to over 100

nonprofit organizations and resident lenders annually. And during

her 17-year tenure, McAuley has provided services to nearly 2,000

nonprofit housing development projects across the country. It is a

record to be proud of and I am delighted that she will be on your

concluding panel here this afternoon.

Thank you very much.

Senator REED. Thank you very much, Chairman Sarbanes.

Now, I would like to recognize our colleague from Massachusetts,

Senator John Kerry. Senator Kerry has been a distinguished public

servant and patriot, beginning as a naval officer in Vietnam and

continuing as a State officeholder in Massachusetts. And now, as

a Senator from Massachusetts, he brings a special passion and expertise to the area of housing policy. We welcome his testimony.

Senator Kerry.

STATEMENT OF JOHN F. KERRY

A U.S. SENATOR FROM THE STATE OF MASSACHUSETTS

Senator KERRY. Mr. Chairman, thank you very much for the

privilege of testifying before the Subcommittee, and thank you for

holding this hearing. I am thrilled that you are the Chairman of

this Subcommittee now because I know of your own deep commitment and understanding of the issue, and I think we could not be

in stronger hands in trying to move the agenda forward.

I thank the Chairman, Senator Sarbanes, and Jonathan Miller,

for carrying me for all those years.

I would just ask consent that my full text be placed in the record.

Senator REED. Without objection.

Senator KERRY. Mr. Chairman, there is just no way to overstate

the seriousness of this issue now and the way in which it is growing in its importance to the country.

I know there is an attitude among some of our colleagues that

they say, jeez, housing—most people kind of sweat it out. People

have to travel. That is the American way. You get on the subway.

You do what you do. You struggle, and families work their way upward. It is sort of the upwardly mobile route.

There are a lot of people who have a completely laissez faire

market-oriented approach to this, that the market’s going to take

care of it, you will earn more income, and one day, you will buy

a nice house. And therefore, they say the Government really has

no role to play.

I think September 11 reminded us, did not teach us, but it reminded us of an important concept. Which is that there are some

things that only the Government can do.

That is just the nature of the beast.

It happens that affordable, low-income housing is one of those.

The reason is the market cannot take care of it. It just doesn’t take

care of it because all of the market instincts move away from building something that people cannot afford to buy. That is just a law

5

of the marketplace. That is why years ago, we designed subsidy,

low-interest loan, no-interest loan, grants, various programs to

make up for the lack of response from the market.

As far back as Roosevelt, the country decided that shelter, that

affordable housing was a national priority. Why? Not because of

some do-gooder, moral interventionist attitude, but because it

makes sense for all of us.

Kids who do not have housing are kids who are on their way to

delinquency, to learning disorders, to chronic unemployment. They

are going to be the problem children of a community. And if our

communities want to build the fabric of family values, about which

we hear so many speeches, you have to understand the connection

of housing to education, to nutrition, to health care, to stability, to

a whole series of values that we think are important in the United

States of America.

The fact is that we are going backward in this country today.

The U.S. Government for the last 15 years or so has pulled back

from an involvement in the creation of housing. And we have

learned lessons. People who think that housing means those terrible old cinder block, brick warehouse, sky-rise, without a tree

around them, boxes that just housed human beings.

We have learned—that is not what people are talking about

today. We have learned the concept of ownership. We have learned

the concept of mixed housing. We have learned how to blend environments, how to deal with jobs, and all the kinds of other ingredients that make it work.

But the fact is that we have about five million American households now living in what we consider to be worst-case housing

needs. Since 1990, the number of families in the worst-case have

increased by 12 percent. That is 600,000 more American families

that cannot afford a decent place to live.

We have actually declined in the available stock of affordable

housing because we went down by about 900,000 units. And from

1996 to 1998, there was a 19 percent decline in the number of affordable housing units. So that is a dramatic reduction of 1.3 million affordable housing units.

As everybody knows, there is an increased pressure in communities all across the country for housing. Teachers, janitors, social

workers, police officers, and other full-time workers are having

enormous trouble finding an affordable, even modest two-bedroom

apartment in any major city across the Nation.

Increasingly, people cannot live where they work, or near where

they work, even. You have people spending an hour and a half, 2

hours commuting, both ways, and they get home and they are very

frazzled and they are supposed to take care of the family and take

care of other kinds of things, including civic responsibility.

We now know that a lot of current affordable housing providers

are deciding to opt-out of Section 8, and that is going to further

limit affordable housing. We have more than 40,000 to 60,000 units

of existing Section 8 housing that could be converted to marketrate apartments or condos. Within the city of Boston, Mr. Chairman, more than 16,000 of the 22,000 Section 8 units are eligible

for conversion.

6

We have decreased Federal spending on critical housing programs such as the Public Housing Capital Fund, the Elderly Housing, the Public Housing Drug Elimination Grants, and so forth. If

we had reserved just 1 year’s tax cut for the wealthiest 1 percent

of Americans, we could have taken care of every single public housing capital backlog that we face today.

These are the choices.

Mr. Chairman, what I am trying to offer is an ongoing, funded,

stream of revenue. Let’s be honest with each other, and I will try

to wrap it up quickly, we all know that we are not going to have

a whole lot of money. Nobody believes we are going to kind of cut

a deal on a zero-sum game. We are going to take money out of X

or Y to put it into this.

We do not have enough constituency. I understand that reality.

But surely, Mr. Chairman, those people who buy homes, who are

currently contributing—I am talking about affordable homes, under

the FHA program—who are currently contributing as we make a

risk-based assessment on what the insurance cost may be, which

is completely competitive with the rest of the marketplace now because Secretary Cuomo lowered the rate.

We have a $26 billion fund, according to Deloitte & Touche,

which we could use to create housing. And I would ask the Members of this Committee, what better way to do housing than to have

housing itself which produces the surplus, produce further housing?

I know the Ranking Member and others have asked, if these people are paying that excess, maybe they should get it back or something. Well, you have to find the revenue somewhere. They are not

being gouged. It is a competitive rate. And if in their accession to

the American Dream of getting a home, a fair payment happens to

result on a risk-based analysis in a surplus, that surplus should go

back into housing.

It is a very simple concept. And I simply ask my colleagues—if

they are not going to do it from there, where are they going to do

it from? How are we going to address this need so that we have

less families in extreme circumstances than we do today, so kids

can have stable homes, schools can have stable school districts.

Ask any teacher about the difficulties of 10 kids who are in a

classroom one day and they are gone several weeks later and they

are replaced by 10 more kids. And you try to bring that classroom

together.

This is an education issue. It is a health care issue. It is an equity issue. It is a stability in our communities issue. It is a race

issue. It is a fairness issue. We should find a way to fund it. And

I hope this Committee will do that.

Thank you, Mr. Chairman.

Senator REED. Thank you very much, Senator Kerry.

Senator Allard and Senator Corzine have joined us. I wonder,

Senator Kerry, do you have time for questions?

Senator KERRY. Sure. I can stay.

Senator REED. Senator Allard, do you want to give your opening

statement?

Senator ALLARD. Mr. Chairman, just a brief statement.

Senator REED. Senator Allard.

7

COMMENTS OF SENATOR WAYNE ALLARD

Senator ALLARD. First of all, I want to thank you for holding this

hearing. I appreciate the opportunity to learn more about the affordable housing issue.

Many of us realize that there is an affordable housing problem

out there. I hope that in this hearing we do not focus so much on

the fact that there is a problem, but on the solutions to this problem. That might vary a little bit depending on the States that we

represent. The definition of affordable housing may vary a little bit

depending on the community which you come from.

Now, I am particularly interested in learning how we can make

it easier for the private market to provide affordable housing, how

we can preserve the existing stock of affordable housing, what incentives we can provide for nonprofits, and how we can reduce the

red tape that is driving up the cost of housing. I think this is a

local, State, and Federal partnership.

How can we get more power to the State and local levels? Our

line-up of witnesses has knowledge of many aspects of affordable

housing. I am hopeful that they will be able to offer proposals to

preserve and increase the supply of affordable housing throughout

this great country.

Again, I would like to thank all of the witnesses for being here

to testify. It is not easy to come to Washington to share your views

and thoughts with us, but we do appreciate it.

Thank you, Mr. Chairman.

Senator REED. Thank you, Senator Allard.

Senator Corzine, do you have a statement?

COMMENTS OF SENATOR JON S. CORZINE

Senator CORZINE. Thank you, Mr. Chairman. I have a formal

statement I would include in the record.

Senator REED. Without objection.

Senator CORZINE. I want to compliment you on having this hearing and I particularly want to compliment Senator Kerry for his

views on the National Affordable Housing Trust Fund.

This is a serious issue, the shortfall of affordable housing. I think

New Jersey is probably a lot like Massachusetts in the number of

people who are left out of affordable housing, that decline that you

talked about in affordable housing and the 12 percent increase in

demand shows up readily in my State. It is also showing up in the

budget of the State of New Jersey because the lack of affordable

housing means that temporary housing is being financed for many

homeless at as much as $2,000 a month per family in motel rooms.

It is a serious problem in this transitioning of families from Welfare to Work.

I do not think we have a more silent but serious problem in this

society than this particular issue. We need to get those resources

that I think are being supported in part by the kind of Government

programs of subsidization for people who can afford housing. We

have to use those resources, I think, to make sure that those who

are left out, have a chance to go. And so, I compliment Senator

Kerry on the issue.

Thank you.

Senator REED. Thank you, Senator Corzine.

8

Let me note that there is a vote in progress now, approximately

7 or 8 minutes left to table the Lieberman Amendment. What I

would suggest is perhaps one question apiece, if you want it.

Senator ALLARD. I have no questions, Mr. Chairman.

Senator REED. I have one question, and at the conclusion, we will

recess briefly, we will vote, come back, and have the second panel.

First, let me commend you, John, for your eloquence and your

passion on this issue, and for your leadership again. You preempted my line of questioning by talking about objections to using

the FHA fund. I, frankly, as a cosponsor and a strong supporter,

think it is a reasonable place to go. But might you elaborate on

some arguments that it is not available for use, that the FHA fund

is not available, or any other thoughts that you have on using the

FHA fund.

Senator KERRY. Mr. Chairman, thank you very much.

Mr. Chairman, it is really a constructed argument. For years,

guess where the money was going? Straight into the general treasury. Nobody even raised an issue about it. It wasn’t until I said,

wait a minute. Housing is producing a profit. Housing should

produce housing. And all of a sudden, people started to find reasons why, oh, gosh, it cannot go to housing.

If it can go to the general treasury, it in effect is available for

anything. What was it doing? Well, it was available for a tax cut

or it was available for military spending or it was available for any

other choice we made. So it is simply bogus to suggest that we do

not have the ability to designate where this goes.

Second, let me say one other important thing, that I think is important. The Federal Government is making this FHA program

available. This is a Federal program. We are helping people to get

into homes. If by helping people to get into homes we turn a surplus and it is at a competitive market rate, and we can produce

money that helps more people get into homes, how in God’s name

do you stand up and say, that is not rational, or an effective way

to do something?

We are giving people an advantage—because they cannot get

that mortgage, necessarily, cannot get the insurance, because they

fall in between it.

So, we are making homeownership available, and by making

homeownership available, we then go one step further and make

maybe rental available and hopefully, maybe even homeownership.

It is not a question of capacity. It is a question of will power.

Senator REED. Thank you very much, Senator Kerry.

Senator Corzine, do you have a question?

Senator CORZINE. That is more than enough of a question for me.

Senator KERRY. Thank you very much.

Senator REED. Senator Kerry, thank you very much again for

your leadership.

Senator KERRY. I appreciate it. Thank you, Mr. Chairman. It has

been a privilege.

Senator REED. We stand in recess until approximately 3:15 p.m.,

as we go vote.

Thank you very much.

[Recess.]

Senator REED. Let me call the hearing back to order.

9

I will call the third panel now: Mr. Reid, Ms. Kane, Mr. Curtis,

and Ms. Crowley. Because of the traffic congestion and everything

else, Mr. Lane, our second panel, might be delayed. But if you

could take your seats we will begin.

[Pause.]

Thank you for joining us. Let me introduce our panel.

Mr. Bob Reid, who has been Executive Director of the National

Housing Conference since 1993, is our first witness who will testify

on this panel. Mr. Reid has enjoyed a 45-year business career that

has included tenures as Executive Vice President of the Gold Dome

Bank in New York, Chief Executive Officer of the Home Owners

Warranty Corporation, and Vice President of the Allstate Insurance

Company.

Ms. JoAnn Kane has served as President and Chief Executive Officer of McAuley Institute since 1984. Under Ms. Kane’s direction,

McAuley provides technical information and training, lending, and

financial services to over 100 nonprofit organizations and residents

annually. During Ms. Kane’s 17-year tenure, McAuley has provided

services to nearly 2,000 nonprofit housing development projects in

48 States and the District of Columbia.

Mr. David Curtis is currently Chairman of the Housing Finance

Committee of the National Association of Home Builders, Vice

President of the board of directors of the Federal Home Loan Bank

of Pittsburgh, Executive Vice President of Leon N. Weiner & Associates, a multifaceted real estate development firm, and President

of Arbor Management, a multifamily residential management company, with a portfolio of more than 4,400 units in 52 properties

throughout the Mid-Atlantic and New England States.

Ms. Sheila Crowley is the President and Chief Executive Officer

of the National Low Income Housing Coalition, where she leads a

membership dedicated solely to ending the affordable housing crisis

in America. She joined the staff of the National Low Income Housing Coalition in December 1988, after 25 years of experience in

Richmond, Virginia, in organizational leadership, direct service policy advocacy, and scholarship on homelessness and housing issues.

We look forward to the testimony of each of the witnesses, and

I would ask Mr. Reid to begin.

STATEMENT OF ROBERT J. REID

EXECUTIVE DIRECTOR

NATIONAL HOUSING CONFERENCE

Mr. REID. Thank you, Mr. Chairman. Thank you for quoting extensively from some of our reports in your opening remarks.

I would like to say, over the past 4 years, we have done extensive

research on the housing needs of working families across the Nation. Our first report was issued in June 2000, which documented

the need of 13 million families, finding that 3 million of them were

full-time working families. We updated the first research with 1999

data and published our second publication, ‘‘Paycheck to Paycheck:

Working Families and the Cost of Housing in America.’’ That report showed that after 2 years, there were still 13 million

families with critical housing needs. Notable, though, was the fact

that the number of low- and moderate-income working families had

grown from 3 million to 3.9 million, a 30 percent increase.

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*Held in Committee files.

As the Chairman mentioned, Paycheck examined five occupations

in 60 housing markets, the major housing markets, and we measured their income against the cost of housing. The five occupations

were: Janitor, retail sales clerk, licensed practical nurse, elementary school teacher, and police officer, very representative occupations for low- and moderate-income.

I would draw your attention to the two charts which illustrate

the plight of janitors and retail sales clerks in two representative

cities. They illustrate the multiple of salaries needed to afford

either rental or homeownership.

We have recently published the third report in the series: ‘‘Housing America’s Working Families: A Further Exploration.’’* I would

ask that the full text of this report be included in these hearings.

Senator REED. Without objection.

Mr. REID. This report documents that rising housing cost is the

primary culprit affecting both renters and homeowners equally. It

also substantiates the fact that critical housing needs are not just

an urban problem, four out of 10 working families with critical

housing needs living in the suburbs, equal to the number in urban

areas. The other two out of 10 are in rural and nonmetro areas.

Housing needs are most critical in 24 of the highest hot high-cost

areas—Boston, Chicago, Los Angeles, New York, and so forth. I believe the need has been well-documented and makes the case that

affordable housing has to be a much higher priority in this Nation.

So what about solutions?

This past year, NHC convened a series of roundtables with local

housing professionals and with community leaders in MinneapolisSt. Paul, New Orleans, Portland, and Seattle. We published an

overview of these roundtables in a report called: ‘‘Four Windows:

A Metropolitan Perspective on Affordable Housing Policy in America, 2001.’’* I would ask that this report be included in the record

of these proceedings, Mr. Chairman.

Senator REED. Without objection.

Mr. REID. The report makes clear that the absence of sufficient

Federal funding has fostered, by necessity, a level of creativity

that, for example, has enabled or encouraged local communities to

establish levies for housing, housing trust funds, tax-based sharing,

and regional planning.

The demand for new affordable housing exists across a wide

range of incomes and record numbers and is not being satisfied by

the private market.

In all the roundtables, there prevailed a common view that we

must encourage and reward local and State efforts to produce and

preserve affordable housing. The challenge is to fashion the right

kind of incentives that will encourage communities to do this.

The National Housing Conference recommends two actions. First,

additional resources be provided for our proven tools—CDBG,

HOME, Low-Income Housing Tax Credit, and so forth. Second,

focus attention on State and local efforts and explore ways to make

the production and preservation of affordable housing more appealing through the use of incentives.

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Mr. Chairman, this concludes my remarks and I would be happy

to answer questions.

Senator REED. Thank you very much, Mr. Reid. Thank you not

only for your testimony, but also for abiding by our informal 5 minutes. I appreciate that very much.

Ms. Kane.

STATEMENT OF JOANN KANE

PRESIDENT AND CHIEF EXECUTIVE OFFICER

McAULEY INSTITUTE

Ms. KANE. Thank you, Mr. Chairman. I want to thank you for

your invitation today and to particularly thank you for your leadership on this issue. I have been in the field quite a while and it has

been a long time looking for this bright spot.

The McAuley Institute is a women’s housing intermediary headquartered in Silver Springs, Maryland. We provide technical assistance and financial resources for startup nonprofit housing development groups and faith-based organizations across the country.

I believe that there are two emphases needed in Federal housing

policy. First, we need a large infusion of resources for housing production in order to meet the Nation’s affordable housing crisis. And

second, we need more housing for families who are devastated by

domestic violence and for people who are homeless, for those living

with HIV/AIDS and those leaving welfare.

To meet these challenges, I would offer five directions.

First, Congress should enact a National Housing Trust Fund, as

Senator Kerry so eloquently described today. The resources in that

trust fund must be sufficient to provide a minimum of 1.5 million

units over 10 years. I believe that a trust fund would be the right

choice to dedicate resources to expand our Nation’s affordable housing infrastructure. Trust funds have been dependable, effective

tools in the development of our national infrastructure for many

decades, and it is a choice that would channel substantive benefits

to the economy, family stability, and quality of life.

Second, community-based nonprofits make unique contributions

to the creation of affordable housing. And as Bob noted, we need

production-focused legislation to streamline the financing process

to help nonprofit developers become even more productive.

In response to Senator Allard’s request for information about

streamlining the process, we have had some good success here in

Washington, DC, making things run smoothly and we would be

happy to share more on that.

At the same time, we must protect funds for existing programs

that make the work of community nonprofits possible. I am talking

about the HOME and CHDO technical assistance funds, the community development financial institution’s fund, rural housing economic development at HUD, and USDA housing programs, all

frozen or slated for cuts in the Administration’s budget.

To illustrate these points, I would like to tell you about one organization that we work closely with and have invested in for 6

years. We have given them pass-through funds for technology. We

have supported the staff and board on strategic planning, housing

development, and now homeownership counseling.

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The HUD CHDO technical assistance funding makes this kind

of hands-on assistance possible with groups like S.A.F.E. in West

Virginia.

S.A.F.E. began by renovating a former school building to create

transitional housing for 31 domestic violence survivors and homeless women with children. The organization has grown to assist

hundreds of women working to support their families. It is the

county’s largest housing developer and after the hospital, its largest employer.

Recently, the McDowell County Commissioner asked S.A.F.E. to

provide relocation for a thousand households to be affected by an

Army Corps of Engineer flood protection project. But just last

week, we received a heartbreaking call from S.A.F.E.’s Director,

Sharon Yates, who reported that the flood that struck her area the

week before had taken 2,000 homes.

Now there is a looming deficit of 3,000 homes in this, one of the

poorest counties in the country. Ironically, one of the many public

and private partners S.A.F.E. has worked with has been HUD’s

Rural Housing and Economic Development Program, whose $25

million funding is proposed for elimination next year.

Third, we would recommend that all housing programs incorporate the collaborative community planning processes as modeled

by the successful Continuum of Care programs. In your draft legislation reauthorizing the McKinney–Vento homeless programs, we

strongly support your position in favor of the continuum of care

process and your proposal for new funding for permanent housing

for the chronically disabled and homeless families.

In my experience, decisions made in collaboration among public

officials, community stakeholders, and expert nonprofit providers

out perform a narrow block grant approach.

Fourth, we believe that the Congress should encourage the development of innovative combinations of housing assistance and support services. Senate 2116, the Welfare Reform and Housing Act,

introduced by Senator Kerry, would authorize $50 million in demonstration of such programs for TANF recipients facing multiple

employment barriers. Research by MDRC has shown significantly

higher employment and earnings rates for welfare recipients receiving both housing and other support services.

Last, the Senate should act on the VAWA housing assistance

provision which recently passed the House as part of the Child

Abuse Prevention and Treatment Act. The Committee should also

consider a bill similar to that introduced by Representative Janice

Schakowsky, H.R. 3752, a measure which would authorize the production of transitional housing with appropriate services for battered women.

McDowell County is but one example, and my written statement

contains additional examples of nonprofit groups using innovative

partnerships. Housing reform stressing community partnerships

like that of S.A.F.E.’s, along with an emphasis on a highly-targeted

production program, will go a long way toward meeting the housing

needs of the Nation.

Thank you.

Senator REED. Thank you for your excellent testimony.

Mr. Curtis.

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STATEMENT OF DAVID W. CURTIS

CHAIRMAN, HOUSING FINANCE COMMITTEE

NATIONAL ASSOCIATION OF HOME BUILDERS

EXECUTIVE VICE PRESIDENT

LEON N. WEINER & ASSOCIATES, INC.

Mr. CURTIS. Thank you, Mr. Chairman. I am very pleased to be

here representing the 205,000 member firms of the National Association of Home Builders, to discuss the affordable housing needs

of working families.

The crisis in affordable housing, including housing for working

families, has been well documented, addressed by you and other

panel members, and is certainly well known to the Committee.

To address the crisis, NAHB believes that some solutions can be

found in improvements to existing programs, but that, ultimately,

new production programs are needed.

With regard to homeownership, NAHB supports the creation of

a homeownership tax credit, which is included in the Administration’s 2003 budget. The proposal, modeled after the Low-Income

Housing Tax Credit Program, is designed to encourage construction

and substantial rehabilitation of homes for sale to low- and moderate-income families in economically distressed areas.

Senators Kerry and Santorum have a legislative draft of this tax

credit that will be introduced to the Senate soon, and we urge your

support for that proposal.

On the multifamily side, the NAHB proposes the establishment

of a new rental housing production program that would produce

between 60,000 and 70,000 units annually to meet the needs of

households having incomes between 60 and 100 percent of the

median. These households are not eligible for housing assistance

through most of the current Federal housing programs. Our program is designed to produce mixed-income housing, which has

proven to provide greater financial stability and community acceptance than developments that concentrates on very low- and lowincome households. The program focuses primarily on working families, although a portion of each property would be set aside, up to

25 percent, for very low- and extremely low-income households.

The financing mechanisms would be through low-interest rates

available through Ginnie Mae guaranteed lower floater securities.

Interest rate subsidies or buy-downs would be used to achieve

additional affordability, and a minor modification to the existing

voucher program would ensure that very low- and extremely lowincome households could be served.

We believe that the program could be administered by the State

housing finance agencies. The program would require only a small

amount of Federal Government subsidy per development and would

provide for ongoing maintenance and future capital improvements

by building in adequate reserves to ensure the long-term viability

of each property.

Concerning existing programs, NAHB strongly supports a proposal introduced in the Senate last year requiring HUD to index

FHA multifamily insurance limits each year to the annual construction cost index. Indexation will help stabilize the program and

give builders and lenders confidence that it may be utilized in their

communities over the long-term.

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NAHB also recommends giving HUD’s Secretary greater latitude

to raise mortgage limits in areas where construction costs are inordinately high, up to 170 percent on a project-by-project basis.

Both indexation and adjustments upward for high-cost areas will

make FHA multifamily programs more workable throughout the

country, and these proposals are also supported by the National

Association of Realtors.

The FHA Single-Family Mortgage Insurance Program provides

Federal support for homeownership, particularly for first-time

homebuyers. NAHB supports a proposal introduced by Members of

this Committee to permanently extend what is referred to as the

downpayment simplification process. This simplified method of

maximum mortgage calculation has a proven track record which results in greater loan-to-value loans, making homeownership more

attainable.

Often overlooked in housing affordability are layers of excessive

regulation that dramatically increase the cost of production. NAHB

supports a proposal to require Federal agencies to conduct a housing impact analysis and to promulgating new rules if it would have

an economic impact of more than $100 million on housing affordability. The impact statement would have no effect on the content

of the rule, but is simply designed to raise public awareness of the

cumulative effect of regulations on housing affordability.

Finally, the NAHB believes it is essential that Congress modify

the Low-Income Housing Tax Credit Program in order to ensure its

continued viability. The program has provided a key part of the financing for nearly all of the affordable rental housing over the last

decade, and in October 2000, the Internal Revenue Service issued

five technical advice memoranda that threatened the ability of the

program to continue to provide affordable housing.

The so-called TAMS take aggressive position aimed at reducing

eligible basis which lowers the amount of the credits and the equity

financing a project received.

NAHB supports legislation that would provide certainty for tax

credit allocations. H.R. 3324 and its companion legislation, S. 2006,

specifically identify costs that qualify as includable in basis. The

legislation will ensure that quality affordable housing will be maintained and that investor and lender confidence will be restored.

That concludes my statement, which is a good thing because the

red light is on.

Thank you.

[Laughter.]

Senator REED. That is not terminal.

[Laughter.]

Mr. CURTIS. Good. Thank you.

Senator REED. Ms. Crowley.

STATEMENT OF SHEILA CROWLEY

PRESIDENT

NATIONAL LOW INCOME HOUSING COALITION

Ms. CROWLEY. Thank you very much, Mr. Chairman. I am very

pleased to be invited to testify today on behalf of the National Low

Income Housing Coalition, and on behalf of the National Housing

Trust Fund Campaign and the over 2,300 organizations and elected

15

officials from every State who have endorsed the National Housing

Trust Fund.

We had a surge of endorsements since I submitted my written

testimony yesterday, and I would like to offer the most up-to-date

list of endorsers of the trust fund for the record.

Senator REED. Without objection.

Ms. CROWLEY. Thank you. Also, I have a letter here from the

U.S. Conference of Catholic Bishops from Cardinal McCarrick, sent

to every Senator, asking for support for the trust fund.

Senator REED. Without objection.

Ms. CROWLEY. We are very grateful to you, Senator Reed, for

championing the National Affordable Housing Trust Fund Act of

2001 so vigorously, and we deeply appreciate the outspoken way

you have taken on this campaign.

We also are very pleased with Senator Kerry for coming today

to testify on this, and we are pledged to continue to build support

for S. 1248 this session and, if necessary, its successor bill in the

108th Congress.

This is one of the many hearings in both the Senate and House

that have thoroughly documented the depth and breadth of the

critical housing problem we face in the United States. Congress

does not lack evidence that we have a serious housing problem and

there is little disagreement that something needs to be done, and

I think we have heard that today. The opening statement of Senator Allard certainly confirmed that.

It is our position that the most serious housing affordability

problem and housing shortage is experienced by people who are extremely low income. That is, in HUD jargon, people with incomes

at or below 30 percent of the area median.

Meaning is often assigned to the term, extremely low income,

that somehow implies it does not include working people. And I

think we need to be very clear that that is erroneous. A full-time, minimum-wage worker earns $10,700 a year. In the

District of Columbia, an extremely low-income family has income

of $18,390 or less a year. These are the wages that are earned by

workers in the service economy—retail clerks, day care workers,

home health aides, hotel and restaurant workers, janitors, security

guards, all the people whose daily labor is essential to the functioning of our economy.

In the District, 30 percent of area median income, if one works

full-time, and you break that down, is $8.84 an hour. The hourly

wage required to afford the fair market rent for a two-bedroom

rental unit in the District is $18.13 an hour.

In all jurisdictions in the country, the difference between what

low-wage earners can earn and what the rental housing market

can demand is unbridgeable without Federal intervention. We need

to do several things.

First, we must increase low-wage workers’ purchasing power in

the housing market with more housing vouchers and improvements

to the housing voucher program, and we support Senator Sarbanes’

forthcoming legislation.

Second, we must preserve as much as possible the existing housing that we have that is affordable to extremely low-income households, including public and subsidized housing. We support Senator

16

Jeffords’ Preservation Matching Grant bill and we urge Senator

Kerry to include preservation as an eligible activity in the trust

fund bill.

Third, we need a renewed Federal commitment to building housing that is affordable for the lowest-income families. The National

Housing Trust Fund Act creates a dedicated source of funds for the

production and the rehabilitation of affordable housing, primarily

rental housing for extremely low-income households.

In the course of discussing this bill, in nearly every Senate office

and most House offices, we have found considerable interest and

great support. And indeed, at this point, there are 27 cosponsors

in the Senate and as of today, 176 cosponsors in the House.

We have also heard all the arguments against it. And so, I would

just like to take a moment to raise these arguments and then to

respond to them. One argument is that we do not need another

program and many will advocate that we simply should add to existing programs.

What we need is a sharp increase in the level of housing funding

that is targeted to serve the lowest-income households. And the

National Housing Trust Fund is a new source of funding more than

it is a new program, and it would be used to augment existing production programs that cannot or do not serve these households.

A significant infusion of funds is required that is unlikely to be

forthcoming within the constraints of the current appropriations

process. So the trust fund idea moves us into much broader thinking about housing funding.

The second argument, one that you raised with Senator Kerry,

is that the excess FHA revenue does not exist. This is, in fact, the

most frequent objection that we hear and it is only in the highly

idiosyncratic language of Federal budgeters that it is possible to

say that the money doesn’t exist.

What they are really saying is that it is being used for other purposes and, thus, not available for this use, or that S. 1248 is not

budget-neutral and calls for spending without providing offsets.

These are policy decisions that can be changed. And the latest

analysis by Deloitte & Touche, which is attached to my written testimony, tells us that the FHA program will generate by 2008 $26

billion more than is required to maintain the safety and soundness

of the program.

Another argument that we have just discussed as well is that

any excess FHA revenues should go back to FHA-insured homeowners. Once objectors have accepted the notion that there are

extra funds, this is the next issue they raise.

It is important to know that the distributive nature of the FHA

single-family program was eliminated by Congress in 1990 as part

of the reform needed to prevent the program’s financial demise.

HUD’s Secretary now has the authority to reduce premiums and,

indeed, premiums were reduced significantly in the year 2000.

FHA-insured homeowners are receiving an important Federal benefit and they are paying a fair price for it.

The use of the FHA revenue will harm the FHA program. That

is another argument. S. 1248 protects the FHA program more than

current law does, by raising the capital adequacy ratio or the level

of required reserves from 2 to 3 percent. The projected $26 billion

17

excess that would go into the National Housing Trust Fund assumes the higher ratio.

The Deloitte & Touche analysis includes other projections that

are based on several other economic scenarios. And even in the

worst-case scenario, the ratio remains well above 3 percent.

Another argument is that it is not appropriate to use funds from

the FHA Single-Family Program to fund multifamily housing production. It is not the goal of the program.

This could be a legitimate policy argument if the funds were, indeed, sitting idle. But they are not. They are going into the Federal

Treasury and funding other Federal priorities.

Then the final argument is that we cannot afford it. This is the

least convincing argument of all. Of course, we can afford new investment in rental housing production if we decide it is a priority.

We have made housing a national priority at several points in the

past when we faced housing shortages, and we can do so again.

Not only can we afford to do this, but also more importantly, we

cannot afford not to. The consequences of failing to act are serious.

Good housing is fundamental to healthy human development, and

housing instability has adverse effects on employment success,

school achievement, health status, and family well-being.

Thank you for the opportunity to testify today.

Senator REED. Thank you very much, Ms. Crowley, for that excellent testimony.

We have been joined by Senator Carper. Do you want to make

an opening statement now?

Senator CARPER. No, thank you, Mr. Chairman.

Senator REED. Let me begin the questioning.

First, let me thank you all for excellent testimony. I think you

have illustrated the problem extremely well and you have pointed

out some possible solutions. Also, you have refuted in great degree

some of the arguments against Senator Kerry’s proposal.

Bob, I was particularly moved by your charts, since my father

was a janitor. That story is compelling information to me. It does

sketch out a very bleak picture for working families. And as Ms.

Crowley pointed out, very low income are not welfare recipients.

They are working families.

I wonder, in your roundtables which you have conducted, what

ideas have been advanced for dealing with this production shortfall, some that we might have discussed this afternoon and others?

Mr. REID. Well, one of the things that was pretty consistent in

all of the roundtables—and incidentally, since we published this,

we have had an additional one in San Diego, is the problem they

had with NIMBY-ism, and they came up with—one of the solutions

which was that one of the ways to combat NIMBY-ism is to have

better design and better ways to do truly mixed-income housing.

And this seems to be a problem in many of the high-cost areas because the 60 percent income limit certainly makes it very, very difficult for them to get any meaningful mixed income.

So, they plead for the fact that they need higher income limits,

without neglecting the poor, and let me add here that this is not

a zero-sum game, and nobody suggested that it was because in

every case we are talking about additional resources, not reallocation of resources. But they need some more flexibility on Federal

18

programs. There was a lot of talking about layering and being more

efficient in combining various Federal and State programs.

The mixed-income issue came up time and time again, the ability

to really do mixed-income housing. And again, they are talking

about getting up to beyond the 60 percent. Most of them talked

about up to 100 percent.

Mr. REID. Thank you. I want to raise the issue you mentioned.

A lot of commentators would suggest that this is not a resources

problem. It simply is more efficiently reallocating Federal resources

or getting rid of some of the road blocks, zoning, et cetera. From

your observations and your work, can you confirm that this is a resource problem that can be aided by smarter zoning, et cetera?

Mr. REID. Obviously, there is always room for improvement every

place. And these people in these roundtables admit that many of

their problems are local, zoning, outmoded codes, and things like

that. But the fact remains when you look at the extent of the problem, the number of families in all of these communities, they need

a tremendous increase in amount of resources. I do not care how

much efficiency you bring into the system, there is only so much.

Actually most of these localities in our experience are operating

pretty efficiently. They just need more resources.

Senator REED. Thank you.

Ms. Kane, again, thank you for your testimony on behalf of the

McAuley Institute. I also have a sense of, at least attenuated affiliation. McAuley Institute was started by the Sisters of Mercy.

Ms. KANE. That is correct. We are the national housing corporation of the Sisters of Mercy.

Senator REED. Well, they were my teachers when I was in grammar school.

Ms. KANE. Another fabulous job.

[Laughter.]

Senator REED. So, you already have me persuaded. I am convinced.

[Laughter.]

In your testimony, you talked at some point about a particularly

vulnerable population. That is, those individuals who are leaving

welfare and searching for housing.

Ms. KANE. Yes.

Senator REED. Could you elaborate a bit on that, your observations and the special needs that might be encountered by this population?

Ms. KANE. Well, we have been fortunate that a number of our

colleagues and constituents that we have been working with have

been observing those who have successfully begun to get jobs and

then begin to move onto that next step in self-sufficiency.

And there are two major issues before them. One is the cost of

housing and the other is health care, both of which, in combination,

create an economic problem, as well as a health problem for that

family. They are detailed in our written testimony, Senator. Some

things that we are suggesting to include in the TANF reauthorization bill are a demonstration of housing with service models for

families facing multiple work barriers and a provision to treat

housing support as ‘‘nonassistance,’’ similar to how child care is

treated.

19

Senator REED. It is in your written testimony. We can certainly

go back.

If I could bring another aspect to your testimony. You talked

about research presented by Jens Ludwig about the effect of education, stable housing, and education. Is that something that you

are prepared to comment on? If you are not, just indicate, because

we can go right back into the testimony.

Ms. KANE. That one, I do not recall, sir.

Senator REED. All right.

Ms. KANE. On education and housing?

Senator REED. I believe so, yes.

[Pause.]

Ms. KANE. It was something in our written testimony which my

fine staff was working on while I was in Chicago this morning. Our

written testimony sites a study by Ludwig, of Brookings, as finding

that affordable housing is as cost-effective as reducing class size

from 22 to 13 in improving education levels.

Senator REED. I understand. It is a hectic pace, and not to worry.

Let me again thank you, not only for your testimony today, but

also for the efforts of the McAuley Institute to reach out to many

other nonprofits throughout the country and try to give them the

tools and the perspective to advocate and work for better housing.

Thank you so much.

Ms. KANE. Well, we have been fortunate on those connections on

health care and education, as you pointed out, Senator, to have our

colleagues working in educational institutions and health care that

support those nonprofits and give us that extra edge when we are

working with very low-income people.

Senator REED. Thank you very much.

Mr. Curtis, again, let me thank you for your testimony. It was

extremely well done. You had several proposals. Could I ask you,

on that list, what do you believe from your perspective and the

homebuilders perspective is the single most important thing that

we can do, or the two things that we should do?

Mr. CURTIS. First of all, I would like to reiterate the importance

of supply. Therefore, we think we need a new production program.

And kind of piggybacking off of what Mr. Reid said—I want to

say that I also agree that there is an absolute lack of resources.

It is not a matter of trying to be more efficient.

I can tell you stories about housing sponsors. One group that I

know had to go to stitch together eight different funding resources

to make feasible a job for 14 units.

So housing providers are very, very efficient and there is a lack

of resources, a great lack of resources.

One area that is relatively well provided for is roughly the range

of incomes between, I will say 40 to 45 percent and 60 percent, because that is what is serviced primarily by the Low-Income Housing Tax Credit Program.

I think what the panel would agree on is that, for the very low

incomes, those people at 30 percent and below and even 40 percent

and below, there is relatively almost no resources. And the same

is true for somewhat higher-income families, earning between 60

and 100 percent.

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Our program is designed to address both of those needs in— again picking up on what Bob talked about, getting the benefits of

a mixed-income community because we believe that the families

earning between 60 and 100 percent of median can be served relatively efficiently with a very shallow subsidy.

We would propose that, in order to get the benefits of a mixedincome community, we include persons and families, again, up to

25 percent of the development, through the use of vouchers, who

are very low and extremely low.

So, we think that, if you are asking me for my number one

choice, I think that would be it—a new production program that

really makes a difference for all of those that are not served and

that you spoke so eloquently about.

On the much more simple side, I think that the fixes to the multifamily insurance programs are very easy and really need to be

done. There is really no basis that I can think of for having increased the limits by 25 percent last year and then keeping them

static so that you have the bump and then everybody’s sitting on

the hot seat, wondering whether the program is going to be usable

into the future.

Senator REED. Thank you very much.

I want to turn to Senator Carper, but Ms. Crowley, you emphasized, I think, when you spoke about the very low income, that is

30 percent or below of the area median income, that there is a real

critical shortage there. Is that the most glaring area, the gap that

you see?

Ms. CROWLEY. Yes. Technically very low income is at 50 percent

of area median income, and extremely low income is at 30 percent

of area median income. I think the statute defines very low income,

and extremely low income is defined in regulation.

There is two very important analyses that we have offered to the

Committee. One is referenced in my testimony. They are both done

using the American Housing Survey 1999 data. One was done by

Katherine Nelson, who is with the Office of Policy Development

and Research at HUD.

Clearly, when you look at her analysis, what we see is, over the

past decade, an increase in the number of rental housing units that

are affordable to people at 50 percent of area median income and

above, and we have seen a severe decline in the number of units

that are available and affordable to people at 50 percent and below.

And then when you get to below 30 percent, that is where the most

acute decline is.

So that is one way of looking at the American Housing Survey

data. Then the other is one that the National Low Income Housing

Coalition has done which we have submitted in previous testimony.

It looks at the number of people, number of households within the

given income range. Then the number of units that are, in fact,

available and affordable for them. And in the under 30 percent of

area median income, that is where the number of households far

outstrips the number of actual physical units of housing. And as

you go up the income scale, in fact, you get to where there are more

units than there are people.

Now does that mean that there is some sort of surplus out there?

No. People are living in these units and in some cases, people are

21

paying far more than what is affordable for them to be able to—

far more than the standard of affordability of 30 percent.

Our thesis is that if you produce more housing that is affordable

to the extremely low-income people, then in fact, you free up a lot

of housing in the rest of the market and you would have a lot more

housing available for other higher-income people.

Senator REED. Thank you very much.

Senator Carper.

COMMENTS OF SENATOR THOMAS R. CARPER

Senator CARPER. Thanks, Senator Reed.

Boy, one of you looks awfully familiar. David Curtis. I think I

have seen you before. How are you?

Mr. CURTIS. Doing well, Senator. How are you?

Senator CARPER. Good.

Let me ask the other panelists—is he doing okay?

[Laughter.]

He is no stranger around here. He testifies on a pretty regular

basis. Thank you for coming.

Tip O’Neill used to say that all politics is local. Let me just start

off with a local question involving the HOPE VI project over in Wilmington. Can you give me just an update? How are we doing there?

Mr. CURTIS. Yes. The demolition is done and we are scheduled

to begin producing the new Village of East Lake in July. So it is

good news on that front. It has been long in coming, but it is a very

worthwhile project. We appreciate your asking.

Senator CARPER. You bet. I have not been fortunate enough to

hear all of your testimonies. But I would like to ask—sometimes

when I arrive late at a hearing—this is my fifth hearing today—

sometimes when I miss the testimony, I ask the witnesses, where

do you agree? Where do you agree on your advice to us?

Let me just start with Ms. Crowley over here. Where did you all

agree that you can give us some common advice?

Ms. CROWLEY. There is universal agreement on two things. One

is that we have a severe housing affordability problem. Two is that

what we need is new Federal resources to build more housing, a

new Federal production program. Nobody disagrees on that.

Senator CARPER. Did you agree on the form that the resources

should take? Appropriations? Tax credit? Did you agree on that?

Ms. CROWLEY. No.

Senator CARPER. Okay.

Ms. CROWLEY. Some of us are calling for a National Housing

Trust Fund. Other people would call for other ways.

Senator CARPER. Is that the Kerry approach?

Ms. CROWLEY. Yes. And then, other people would call for funding

within existing programs.

Our feeling is that the trust fund is the approach that is going

to generate the most resources in the current environment, and

that more resources are needed. So, we would advocate for that.

Senator CARPER. Just refresh my memory. What is the source of

the funds for the trust fund?

Ms. CROWLEY. The source of the funds for the trust fund at this

point are excess revenue produced by the FHA’s Single-Family InVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 89139.TXT SBANK4 PsN: SBANK4
22

surance Program. And then much smaller amounts for the Ginnie

Mae program.

The FHA program is one that has been earning money far in excess of what is required to secure the safety and soundness of the

program for several years. That money at this point has been absorbed into the Federal Treasury and is supporting other Federal

priorities. Our argument is that these are Federal housing dollars

that are being produced by a Federal housing program and could

be redirected into other Federal housing priorities.

Senator CARPER. But when you take those different revenues

that are now going into the Treasury and you pull them into a

housing trust fund, any idea how much money that adds up to on

an annual basis?

Ms. CROWLEY. The latest projections from Deloitte & Touche, and

the Executive Summary of the Deloitte & Touche review is attached to my written testimony, but the latest projections from

Deloitte & Touche are that between now and 2008, there would be

$26 billion in excess of what is required to maintain the program

safely at the 3 percent capital adequacy ratio, which is what Senator Kerry’s bill calls for. Current law is 2 percent. So that would

make the program even more secure than it is under his bill and

we would still have in excess of $2 billion.

Senator CARPER. I do not know, Mr. Chairman, do we have to

provide an offset? Would OMB or CBO come to us and look for an

offset for that money?

Senator REED. I would not be surprised, given the way OMB operates. They are looking for an offset.

Senator CARPER. Okay. Good. Thank you very much.

David, you were asked a question I was going to ask. The Chairman said, of all the things you were recommending, what would be

the most important? And you indicated what that might be. Would

you share with me maybe another idea or two that you think are

especially meritorious from the ones that you presented?

Mr. CURTIS. Sure. I will start with another simple idea. And that

is, the simplification of the downpayment calculation for the FHA

single-family program. This was a pilot 3 years ago. I think it

started in Alaska and Hawaii and it has been national for the last

3 years. It sunsets December 31, 2002. Very noncontroversial, I

think. All we need to do is to extend it permanently. Easy for me

to say, right?

Then the other thing that I spoke on, that it may not be exactly

the purview of this Committee, relates to the Low-Income Housing

Tax Credit Program, and these technical advice memoranda that

have come out from the IRS. They really are threatening the ability

of the program to function productively, because what is happening

is that the IRS is seeking to shrink the basis that is eligible for

the tax credit.

This oftentimes forces those projects into a situation where they

are infeasible. And once again, there is legislation in the House and

a companion bill in the Senate that seeks to simply clarify on a nononsense basis what is eligible to go into the tax credit basis and

what is not, so that you do not have to hire an army of accountants

and tax advisers to try to figure out—for example, as I went

through, whether the roof is part of the basis or not.

23

Senator CARPER. Senator Reed likes to hire armies. I like to hire

navies.

Senator REED. Navy pilots.

[Laughter.]

Senator CARPER. What role does the Federal Home Loan Banks

have in this broader issue?

Mr. CURTIS. Well, the Federal Home Loan Bank System has been

involved in something called mortgage partnership finance, which

is an alternative to single-family mortgage financing through the

other GSE’s that we think provides a synergy by connecting the

traditional lender, the individual member bank with their customers, and therefore providing more efficiency and hopefully,

lower-cost loans.

The system is also looking to see whether there is something that

can be done in the construction lending area. The Pittsburgh Bank

has been a leader in starting a program called Banking On Business, through which we provide low-interest, even forgivable, loans

to promote new business enterprises in economically-distressed

areas.

So there is a lot that the Federal Home Loan Bank System can

do. And there is no shortage of good ideas on this panel, in answer

to your earlier question. As Sheila said, the agreement is that we

have a drastic shortage. We have a housing affordability crisis. We

need more resources. We need it from everybody, including the

Federal Home Loan Bank System. There are lots of good ideas. We

need to sort through those that we need to pick and hopefully, rely

on the help of people like you to help us get some funding.

Senator CARPER. Good.

So, Ms. Kane, you were in Chicago today, did you say?

Ms. KANE. Yes.

Senator CARPER. Getting around. Did you see my wife there?

That is where she is today.

Ms. KANE. There were a lot of us moving.

[Laughter.]

Senator CARPER. I missed your testimony. I apologize for that.

But the question that I asked earlier of the other panelists would

simply be extended to you, in terms of where you saw consensus,

where you saw agreement among the witnesses, where you find it.

Ms. KANE. Well, I heartily agree with what Sheila was saying for

McAuley Institute’s perspective, but I think for everyone, that we

agree that production is hugely necessary.

I would say an area that I would pick up that Bob and I would

look at as well as that there is an important role for nonprofits in

the delivery of that production system.

So, I wouldn’t say that perhaps that is full consensus, but—— Senator CARPER. You say an important role?

Ms. KANE. I believe so, yes.

Senator CARPER. All right.

Ms. KANE. Where we see an ability, there is the ongoing issue

of affordability and the attachment to resources. The way that you

can continue to work to lower the cost of that housing, such as

some of the groups that we are working with in the border area,

where they are using innovative building techniques and ways to

make it more affordable.

24

They still need the resources to do it, but the nonprofit organizations continue to look at innovative ways of both packaging and

providing extra subsidies out of that platform.

Senator CARPER. Good.

Mr. Reid, where are you from?

Mr. REID. Well, I live here, but I am from Missouri, originally.

Senator CARPER. Okay.

Mr. REID. But I am easy to show.

[Laughter.]

One of the things that we think, being realistic, is that the Congress or no Administration in the foreseeable future is going to

write a big blank check in the amount of funds that we really do

need to get this job done.

When you really put the numbers to it and look at it, it is so astounding that you think you are trying to do a Marshall Plan,

which, in fact, we may be needing, as a matter of fact.

One of the things we need to look at is how we can better leverage the resources that are there. We need a lot more resources. We

are all in agreement on that. There is no substitute for that.

One of the areas that we have been looking at and working with

people more on is employer-assisted housing. The more that we can

get the major employers into the game and understanding that it

is in their interest, that it is also a problem for them when they

cannot get employees that are reasonably close to their place of

employment and do not have a decent place to live. So employerassisted housing I think is a very important issue that you can look

at here.

When it comes to incentives, I mentioned that a lot of the barriers to building the housing, once you have the resources, they are

local. These are not Federally-mandated. These are local issues. As

you said, all politics is local. And zoning, NIMBY-ism, all of those

things. But the Federal Government does have the ability to be a

tremendous incentivizer to help those local communities, ‘‘do the

right thing.’’

So, I think that is another important area. And the other thing

is that we have supported Congressman Frank’s first shot, you

might say, across the bow, saying we need a $15 billion increase

in the HUD budget, knowing that he is not going to get it. But on

the other hand, I think what he is trying to do is to make a statement that we cannot keep operating on a marginal basis—‘‘a billion

here, a billion there,’’ to quote the late Senator Dirksen. But, unfortunately, it is not going to work any more with a billion. It is going

to be 15 here, 20 here, 40 here, 50 there.

Senator CARPER. Good. Well, that is very helpful.

Thank you, Mr. Chairman.

Mr. CURTIS. May I make one other comment?

Senator CARPER. You sure can.

Mr. CURTIS. Okay. Thank you. Senator, you have had me changing hats so often, that I just want to follow up on one more thing,

putting my Federal home loan——

Senator CARPER. Who is the Vice Chairman now of the Pittsburgh Home Loan Bank Board?

Mr. CURTIS. That is me.

Senator CARPER. That would be you. Okay.

25

Mr. CURTIS. Right.

Senator CARPER. He is going through all the chairs.

Mr. CURTIS. Senator Reed was kind enough to identify that earlier. And when you asked me the question, how can the Federal

Home Loan Bank System be involved, my mind in this panel is

focused on new products.

But I would be remiss, my friends back at the bank would be disappointed with me if I did not just highlight that last year, the

Federal Home Loan Bank System as a whole celebrated a milestone of having given a billion dollars to affordable housing in this

country, all communities, urban, rural, throughout the entire 50

United States and some other possessions, I think. And so that has

been a tremendous boon to those of us who try to provide affordable housing in this country.

Senator CARPER. Well, some of that money, some of that billion

dollars has even found its way to Delaware. And for that, we are

very, very grateful. Grateful for your stewardship, for your willingness to serve as the Chairman, and now the Vice Chairman of our

regional Home Loan Bank Board.

Mr. Chairman, thank you. And to our witnesses, thank you.

Senator REED. Thank you very much, Senator Carper.

I would just, if I may, take one quick round. I want to ask, Ms.

Crowley, we have talked about what we have to do. But it might

be helpful to briefly give your opinion of how we got here. What

are the forces that have driven us to this position?

If others want to elaborate on that, I would be very pleased to

hear it. Also, give each and every one an opportunity to express

that one thought that, on the way home, you will say, boy, I wish

I had said that. I was thinking about it, but I wish I said that.

We have heard the testimony. It has been excellent testimony. So

if you think about the one or two things that has not been said and

should be said on this topic, you will have your opportunity.

But Ms. Crowley, why don’t you begin and give us an idea of,

from your perspective, how did we get here in terms of this housing

crisis?

Ms. CROWLEY. Thank you, Mr. Chairman.

I would like to refer back to Senator Kerry’s comment about the

nature of the market and where the market plays and who the

market attends to, and that there is always going to be a role as—

there has been a role for many years, for Government intervention

in market failure for housing for extremely low-income people.

I think that it is not a stretch to say that, if you look at the trajectory of the Federal housing production programs and the investment by the Federal Government in housing and how that declined

precipitously in the late 1970’s and the early 1980’s, that there is

some culpability there.

I recently had the good fortune of meeting Secretary Carla Hills,

who was HUD’s Secretary during the Ford Administration. And it

was Under Secretary Hills’ tenure that we had our peak investment in Federal housing production for extremely low-income people at 500,000 units that year. That far exceeds anything that we

have even gotten close to now.

26

So, I think that at least one significant factor has to be the sizable Federal disinvestment in housing and that we need to return

to the Federal Government taking that responsibility.

Senator REED. Thank you very much.

Anything that, Mr. Curtis, you would like to add, I will go down

the panel. But also that final thought that you wish you had said.

Here is your chance.

Mr. CURTIS. I would echo what Sheila said. I know that, I do not

have it in front of me, but a survey of Members of Congress some

4 or 5 or 6 years ago, graphically showed why we are in this situation. It had 30 items, issues, listed in area of importance. And

housing was 29th.

When I was growing up, it was food, clothing, and shelter. Somehow, another 26 items got to be more important than the shelter

part, and we need to correct that.

As far as things that I have forgotten to say, I think the most

important thing is to thank you, as my compatriots have, for holding this hearing and allowing us the opportunity to come and speak

on what is a very important issue and problem.

Senator REED. Thank you very much.

Ms. Kane, any final thoughts?

Ms. KANE. I must also agree. The devastating cuts to the HUD

budget have definitely contributed to it. But as a result of that, I

think there is also some systemic issues that relate to the complexity now.

In response to that, we have fragmented the system in hundreds

of ways. You see that in our testimony. Each of us goes to certain

pieces, and as much as we want to look at an umbrella of it, this

issue has been sliced so thin, that a lot of our best thinking and

activity is spent in repatching it together.

I think that is one problem now that exacerbates the deep budget

cuts and the abdication of the Federal position. And anything that

we can do that, once we look at resources, it is also a simple approach. We are talking about housing as a right.

The fact that, again, we divide up our communities into some

who need more than others—for instance, when we look at those

who need a great deal of care and how much of some of the problems of duly diagnosed, who come from the fact that we have totally eliminated care for the mentally ill in a substantive and

meaningful fashion.

So, I would like to weave together again the part that housing

really builds our communities and if we can make it simple and we

can put the right dollars there, we will be successful.

Senator REED. Thank you very much.

Mr. Reid.

Mr. REID. I always go back, because I am older than everybody

else on this panel, to a statement that Franklin Roosevelt made in,

I think it was his second inaugural address, where he said, ‘‘one

third of this country is ill-fed, ill-clothed, ill-housed.’’

Interesting, he said housed.

Now, we are down to one-seventh. I guess my question is, as the

richest country in the world, in the history of the world, are we satisfied? Are we going to live with one-seventh and declare victory?

27

Senator REED. I hope the answer to that is no. And because of

your efforts, we are at least moving forward in the right direction.

I thank you all for your testimony. It was excellent.

Our other witness, Mr. Lane, has been apparently, unavoidably

delayed because of the confusion and the traffic around the Capitol

today with the police ceremony.

Without objection—and I see none—his statement will be made

part of the record.

Again, I thank you all and this hearing is adjourned.

[Whereupon, at 4:14 p.m., the hearing was adjourned.]

[Prepared statements and additional material supplied for the

record follow:]

28

PREPARED STATEMENT OF SENATOR JACK REED

One out of every seven American families spends more than half of their total income on housing, or lives in a severely inadequate unit. Although the number of

families with critical housing needs held more or less steady between 1997 and

1999, the number of working families with critical housing needs grew from 3 million to 3.9 million. About 80 percent of these 3.9 million families paid more than

half of their income for housing. The other 20 percent lived in severely inadequate

housing.

The Center for Housing Policy has found that when it comes to rental housing,

a janitor can only rent a one-bedroom apartment on 30 percent of his income in six

out of 60 metropolitan areas, while retail salespeople can afford a one-bedroom

apartment in only three. For two-bedroom apartments, the situation is even worse.

The same problem exists for teachers, police officers, and licensed practical nurses

in too many high-cost metropolitan areas.

In a recent article in The Washington Post reporter Peter Whoriskey pointed out

that the rapid escalation of housing prices in the Washington area has largely been

caused by a huge increase in employment opportunities without a similar increase

in the number of new dwellings. For example, the number of jobs in Fairfax County

during the 1990’s increased three times as fast as the supply of homes—roughly

166,000 new jobs compared with 56,000 new units of housing—according to county

and State statistics.

Simply put, in too many places across America there aren’t enough homes for the

number of families who need them.

In preparing for this hearing, we heard about a family that has been living in

a Fairfax County homeless shelter. The family has a mom and dad, and two children, a boy and girl. The mom has worked for the Department of Veteran’s Affairs

for 9 years and makes over twice the minimum wage. The dad held a seasonal job

with Fairfax County until the job ended. They were living in a townhouse in Alexandria, Virginia, that cost $950/month until the dad lost his job. He now has found

work at a local military installation as a chef and the family is trying to find a new

home. However, because of the age of their children, they are being told that in Virginia this means that they have to rent a three-bedroom apartment. This family is

playing by the rules but they still haven’t been able to find housing and have been

looking since early January.

However, critical housing needs are not just concentrated in urban areas. Only

1.6 million of those with critical housing needs live in central cities. Another 1.5 million live in the suburbs and about 660,000 families live in nonmetropolitan areas.

In many cases, working families have the worst of both worlds. They have too

much income to qualify for the limited housing assistance available, but too little

to benefit from the favorable tax treatment given to homeowners. For too many, a

job does not guarantee a family a decent place to live at an affordable cost.

Thus, it is our hope today that by holding this hearing of the Senate Banking

Committee’s Subcommittee on Housing and Transportation, we can learn more

about the affordable housing crisis that is affecting working families around the

country and come up with some solutions that might help mitigate the problem.

Each of our witnesses has been asked to comment on affordable housing needs

of working families; the state of the Nation’s housing supply for both renters and

prospective low-income homebuyers; and to highlight any proposals that should be

considered as part of legislation to increase the production of affordable housing for

working families.

I want to thank all of our witnesses for testifying today. We appreciate the time

and effort you have taken.

It is apparent from today’s testimony that Congress and the President must make

a significant and sustained commitment to creating more affordable housing for

hard-working families.

As the new Chair of the Housing and Transportation Subcommittee, I look forward to working on achieving this critical objective, to create more affordable housing for working families in the United States. No one should have to live without

a roof over their head in this country. A safe, decent, and stable home should not

just be the American Dream, it should be the American commitment.

—————

PREPARED STATEMENT OF SENATOR JON S. CORZINE

Mr. Chairman, I want to thank you for holding this hearing on the affordable

housing crisis impacting our Nation’s low- and middle-income working families. The

theme of this hearing bridges the issues and concerns the Subcommittee has adVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00032 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
29

dressed in recent hearings on homelessness, the Section 8 program, and the housing

needs of families transitioning off of welfare. I strongly believe that without an increase in affordable housing production, we will fail to resolve these pressing issues.

As Senator Kerry mentioned in his testimony, increasing the production of affordable housing is one of the most critical needs facing working families in our country.

I am an original cosponsor of his legislation to create a National Affordable Housing

Trust Fund, legislation that should be at the top of our housing agenda.

Mr. Chairman, in 1999, approximately one out of seven American families spent

more than half their income on housing. Housing cost increases in our country, and

particularly in my State of New Jersey, are far outpacing wage increases. In New

Jersey, an individual would have to earn $17.87 an hour—roughly $40,000 a year—

in order to earn enough to afford the Fair Market Rent for a two-bedroom dwelling.

This is the equivalent of three minimum wage salaries.

There lack of affordable housing in New Jersey is so severe that the State finds

itself paying as much as $2,000 a month to temporarily house families transitioning

from Welfare to Work. As population growth continues to outpace housing production and vacancy rates decline, this shortage will only worsen.

Clearly, something must be done immediately to address the housing shortage.

Federal housing assistance programs are currently operating at a maximum. In

New Jersey, families wait up to 3 years to receive a Section 8 voucher. Even when

they receive that voucher many are unable to find housing.

Despite the fact that we have several programs that invest resources in new housing production and housing rehabilitation, including Section 202 Elderly Housing,

the HOME program, and Hope VI, funding for housing production has stagnated

and actually decreased over the last 20 years.

We must find ways to provide new funding sources to finance the construction and

rehabilitation of affordable housing for our Nation’s working families. The National

Affordable Housing Trust Fund represents a workable solution that would finance

the construction of 1.5 million homes for low-income families by 2010 through FHA

mortgage insurance reserves.

Mr. Chairman, the production of affordable housing is critical to the well-being

of our Nation’s working families and crucial to residents of my State, particularly

those trying to achieve economic self-sufficiency. If we expect to end homelessness,

improve the Section 8 program, and help families’ transition from Welfare to Work,

we must address the affordable housing crisis now.

The needs are real, and they need real solutions—not more lip service about ‘‘compassion.’’ I look forward to working with you toward that end.

—————

PREPARED STATEMENT OF JOHN F. KERRY

A U.S. SENATOR FROM THE STATE OF MASSACHUSETTS

MAY 15, 2002

Mr. Chairman, I want to take this opportunity to thank you for holding this important hearing on affordable housing and Federal housing policy. You have been

a leader in the Senate on housing issues, and I look forward to working with you

on this critical issue. I very much appreciate the opportunity to discuss the National

Affordable Housing Trust Fund Act of 2001 that I introduced last year. I look forward to working with you, Chairman Sarbanes, and others to enact this legislation

during the 107th Congress.

Today, our Nation is facing an affordable housing crisis. For thousands upon thousands of low-income families with children, the disabled, and the elderly privatelyowned affordable housing is simply out of reach. Recent changes in the housing

market have further limited the availability of affordable housing across the country, while the growth in our economy in the last decade has dramatically increased

the cost of the housing that remains.

The Department of Housing and Urban Development (HUD) estimates that more

than five million American households have what is considered worst-case housing

needs. Since 1990, the number of families who have worst-case housing needs has

increased by 12 percent—that is 600,000 more American families that cannot afford

a decent and safe place to live.

At the same time, there has been a tremendous decline in the available stock of

affordable housing. Between 1993 and 1995, there was a decline of 900,000 units

of affordable housing available to very low-income families. From 1996 to 1998,

there was a 19 percent decline in the number of affordable housing units. This

30

amounted to a dramatic reduction of 1.3 million affordable housing units available

to low-income Americans.

The lack of available affordable housing has also increased the cost of existing

housing. The cost of affordable housing has increased above the rate of inflation for

the fourth consecutive year in 2000. On average, a person needs to earn more than

$11 per hour just to afford the median rent on a two-bedroom apartment in the

United States. There is not one metropolitan area in the country where a minimumwage earner can afford to pay the rent for a two-bedroom apartment. Just to afford

a two-bedroom apartment in Boston, you must earn at least $35,000 a year. Teachers, janitors, social workers, police officers, and other full-time workers are having

trouble affording even modest two-bedroom apartments in major cities across the

Nation.

This problem is only getting worse. Many current affordable-housing providers are

deciding to opt-out of their Section 8 contracts or are prepaying their HUD-insured

mortgages. These decisions have and will further limit the availability of affordable

housing across the country. For example, over the next 5 years, the Commonwealth

of Massachusetts could see a dramatic reduction of available affordable housing

units as Section 8 contracts expire. More than 40,000 units of the existing 60,000

Section 8 housing units could potentially be converted to market-rate apartments

or condominiums. Within the city of Boston, more than 16,000 of the 22,000 Section

8 units are eligible for a conversion.

Despite the fact that more families are unable to afford housing, we have decreased Federal spending on critical housing programs such as the Public Housing

Capital Fund, Elderly Housing, and Public Housing Drug Elimination Grants since

fiscal year 1995. The return to deficit spending let alone the disappearance of what

were once budget surpluses makes it almost impossible for any significant increases

in the HUD’s budget over the next decade. So, we are left with a question of choices.

HUD’s budget for fiscal year 2002 is only $30 billion. Had we reserved 1 year’s tax

cut for the wealthiest 1 percent of Americans we could have taken care of all the

public housing capital backlog that we face today. The question is, what do we do

today to face—and to finance—this mounting challenge?

We know we can no longer ignore the lack of affordable housing and the impact

it is having on families and children around the country. I believe it is time for our

Nation to take a new path—one that ensures that all Americans, especially our

poorest children, have the opportunity to live in decent and safe housing.

And the good news is that it is within our means to take those steps today.

I wrote legislation establishing a National Affordable Housing Trust Fund to

produce 1.5 million units of affordable housing over the next 10 years using excess

revenues from the Federal Housing Administration (FHA) and the Government

National Mortgage Association (GNMA). The goal of my legislation is to create longterm, affordable, mixed-income developments in areas with the greatest opportunities for low income families. Seventy-five percent of the trust fund assistance will

be given out, based on need, through matching grants to States. This will help ensure that new rental units are built for those who need assistance most: Extremely

low-income families, including working families. A portion of the frust fund will also

be used to promote homeownership for low-income Americans.

The National Affordable Housing Trust Fund bill is cosponsored by a bipartisan

group of 26 Senators. Similar legislation has been introduced in the House of Representatives and currently has 174 cosponsors, including 20 Republicans. The trust

fund has been endorsed by more than 2,200 community organizations around the

United States in an effort led by the Low Income Housing Coalition.

Funding for the trust fund would be drawn from excess revenue generated by the

FHA and the GNMA beyond the amounts necessary to ensure their safety and

soundness. These Federal housing programs generate billions of dollars in excess income, which currently go to the General Treasury. It is time to stop taking housing

money away from Federal housing programs and to start putting in new money to

produce affordable housing. According to current projections, approximately $26 billion will be available for the trust fund between now and 2008.

Because of the positive effect that the affordable housing trust fund would have

on America’s children, my legislation was included in the Act to Leave No Child

Behind, a comprehensive proposal by the Children’s Defense Fund to assist in the

nurturing of our Nation’s children.

We also must do everything we can to preserve the existing affordable housing

units from opt-outs and prepayments so housing remains available for low-income

families, the disabled, and the elderly. That is why I have worked with Senator Jim

Jeffords to introduce the Affordable Housing Preservation Act, which will provide

Federal matching grants to States that provide non-Federal funds for the preservation of affordable housing. The bill allows flexibility in determining how to achieve

31

*Held in Committee files.

the goal of preservation, within guidelines that promote long-term solutions built

upon cooperation among State, local, nonprofit, and private-sector participants. This

will help provide some much needed long-term stability for affordable housing in our

country.

I support a proposal by Chairman Sarbanes to develop thrifty vouchers—these are

vouchers that are designed to provide rental assistance to extremely low-income

families in units that separately receive a capital subsidy. For example, if 25 units

of a 100-unit building were built using funds from the National Affordable Housing

Trust Fund so that there is no debt service on those units, a Public Housing Authority could allocate 25 project-based thrifty vouchers to that building so they can serve

the extremely low-income residents. The vouchers are ‘‘thrifty’’ because they pay

only up to 75 percent of the payment standard since they do not have to support

debt service payments on a mortgage. Until the trust fund passes, the thrifty vouchers can be used with HOME or CDBG funds.

We need to bring housing resources back up to where they belong and begin again

the production of affordable housing in the United States. Everyone here knows that

decent housing, along with neighborhood and living environment, play enormous

roles in shaping young lives. Federal housing assistance over the past generation,

has benefited millions of low-income children across the Nation and has helped in

developing stable home environments. However, recent changes in the housing market, along with the potential decline in Federally-subsidized housing units in the

near future, clearly show that we need to take additional steps to both produce and

maintain affordable housing units. Otherwise, many more children and their families will live in substandard housing or become homeless. These children are less

likely to do well in school and less likely to be productive citizens. They deserve our

best efforts and require our help.

Mr. Chairman, thank you for this opportunity to testify.

—————

PREPARED STATEMENT OF ROBERT J. REID

EXECUTIVE DIRECTOR, NATIONAL HOUSING CONFERENCE

MAY 15, 2002

Mr. Chairman and Members of the Subcommittee on Housing and Transportation,

I want to thank you for the opportunity to appear before you today on the challenge

of expanding the supply of affordable housing in this Nation. My name is Bob Reid.

I am the Executive Director of the National Housing Conference (NHC) and its research subsidiary the Center for Housing Policy. NHC was founded in 1931 and is

the Nation’s oldest and most broadly-based nonpartisan advocate of affordable housing. Its member corporations and organizations represent all elements of those who

produce, finance, and preserve affordable housing.

One Out of Every Seven American Families has a Critical Housing Need

Over the last 4 years, the Center for Housing Policy has conducted extensive research on the housing needs of working families across the Nation. Our first report,

Housing America’s Working Families, which was published in June 2000, and based

on 1997 American Housing Survey (AHS) data, found that over 13 million families

had a critical housing need—either they spent more than 50 percent of their income

on housing or they lived in a seriously substandard unit. The most disturbing discovery in that report was that despite unprecedented economic prosperity, about 3

million households were working families with critical housing needs. These families

earned between $10,700 a year (the equivalent of a full-time job at minimum wage)

and 120 percent of the area median income.

We updated Housing America’s Working Families* in July 2001 and published

Paycheck to Paycheck: Working Families and the Cost of Housing in America.* That

report used 1999 AHS data and found that one out of every seven American families

(13 million) still had a critical housing need. Notable in the research contained in

that report, however, was the fact that low- and moderate-income families made up

28.5 percent of the total number of working families with critical housing needs,

compared to 23 percent previously, increasing from 3.0 million to 3.9 million families. Paycheck to Paycheck also provided an occupational wage analysis examining

whether working families that earn the prevailing wages for five selected occupations (teachers, retail salespeople, licensed practical nurses, police officers, and janitors) were able to pay reasonable costs for housing in the communities in which they

32

*Held in Committee files.

live. We found that in the 60 largest housing markets across the country, retail

salespeople and janitors were virtually shut out as potential homebuyers, and that

individuals working in these same occupations were having great difficulty finding

rental housing they could afford. While teachers, police officers, and nurses fared

slightly better according to our findings, there was still ample evidence to underscore the fact that a larger and more economically diverse number of American families were unable to locate decent affordable housing for their families. To illustrate

this point in more detail, we have attached two charts which illustrate the plight

of retail salespeople and janitors in Providence, RI, and Denver, CO. Individuals in

these occupations, according to our research, would need to pay multiples of their

current salary to afford either a one- or two-bedroom rental unit or a median-priced

home. Janitors, retail salespeople, and workers in other occupations we examined

faced similar difficulties in many of the largest housing markets in this country.

Today, I am pleased to present to the Subcommittee the findings from our latest

report, just released, Housing America’s Working Families: A Further Exploration.*

I would ask that the full text of this report be included in the record of these proceedings.

This report contains new and important findings on the housing needs of working

families, including the following:

• One out of every seven American households (13 million) continues to have a critical housing need. This includes 3.9 million households who work the equivalent

of a full-time job.

• Rising housing costs are the primary culprit, affecting homeowners and renters

in nearly equal numbers.

• Critical housing needs are not just a ‘‘city problem.’’ While four out of 10 working

families with critical needs live in urban areas, another four out of 10 live in suburban areas, with the remainder living in nonmetropolitan areas.

• Geography matters. Low- and moderate-income working families with critical

housing needs are more likely than not to live in the more than two dozen metropolitan ‘‘hot spots,’’ where high prices reflect the lack of affordable housing. These

areas had monthly housing costs in the range of $735 to $1,167 in 1999, and include such places as Boston, Chicago, Honolulu, Los Angeles, New York, Trenton,

Seattle, and Washington, DC.

• These high-priced markets exact other costs from working families. Families are

more likely to have longer commutes and are more likely to share housing or

other expenses than families in lower-cost markets. They also are more likely to

avoid high housing costs by living in crowded conditions and, to a lesser extent,

living in poorer quality housing.

• Families with chronic housing needs tend to be more often supported by a single

worker than any other group.

• Racial and ethnic minorities are over-represented among working families with

chronic critical housing needs, making up more than half (53 percent), compared

with 42 percent of families with temporary critical needs, and 29 percent of families without any critical housing needs.

• Nearly a fifth (19 percent) of working families with chronic housing needs are

female-headed families with children. Although having children does not distinguish working families with chronic needs from those with temporary needs, the

number of children does. More than a third (36 percent) of families with children

who have chronic housing needs have three or more children, compared with 25

percent of families with children whose housing needs are temporary.

Taken together, the findings in these reports elevate our concerns about the housing needs of low- and moderate-income working families. This group is growing in

numbers, yet it’s been for the most part, overlooked by existing housing programs.

NHC believes that housing policies (and resources) geared to the circumstances of

working families need to become part of our overall commitment to decent, affordable housing for all Americans. Addressing the housing needs of these families, however, should not be viewed as part of a zero sum game. Families at or near the bottom of the income ladder—who are either out of the labor market or only marginally

employed—continue to have the highest incidence of housing needs.

Affordable Housing Funding Must Become a Higher Priority

NHC’s research over the past 4 years underscores and brings into sharper focus

what those of us in the housing community have known for years. This Nation does,

indeed, have an affordable housing problem of crisis proportions. That said, it is

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*Held in Committee files.

more than unfortunate that this crisis is not well known and not well understood.

News reports that trumpet record homeownership rates, increased housing starts

and the overall strength of the private housing industry in an uncertain economy

at best muddy the waters and at worst provide decisionmakers like yourselves with

a false sense of security that all is well in America as it relates to housing. Our

research indicates that all is not well.

Far more troubling than this, however, is the ongoing refrain here on Capitol Hill

that ‘‘this will be a tight budget,’’ and ‘‘there is little or no room for increased domestic spending,’’ and ‘‘there is no political support for increased funding for Federal

housing incentives.’’ In fact, over the period of the last several years, we have, in

a very real sense, painted ourselves into a corner such that marginal (and totally

inadequate) increases in Federal spending for housing have been and may yet this

year be viewed as a ‘‘victory.’’

The National Housing Conference believes that the time has come to reach a new

political consensus with respect to housing. This new consensus should be based

upon an understanding and appreciation of the depth and breadth of the housing

needs faced by American families. For far too long, housing policy at the Federal

level has been formed by longstanding skepticism over failed housing initiatives,

mismanagement at HUD and, more on the local level, the larger and less welldefined concerns often referred to as NIMBY-ism. The consensus that I am referring

to must be based on a common belief that 13 million families with critical housing

needs is unacceptable. This new consensus must stimulate a heightened sense of

urgency and foster the political will necessary to address the housing needs of

American families. We have the tools and we know what to do; now we must act.

With our Nation battling terrorism and with national security concerns on everyone’s mind, elevating housing will not necessarily be the most popular thing to do.

However, NHC’s members believe that national security, in its most basic form, begins in our homes and in our communities. In times of national crisis, we draw

strength from our families and the stability that comes from a decent home and

suitable living environment. Viewed in this manner and given the breadth of the

current need for affordable housing that I noted earlier, housing, even in these troubled times, can and should be seen as a more important domestic priority and much

more connected to our overall security interests here at home.

As I mentioned, it is our contention that we are not lacking workable programs

or housing expertise. What we need quite simply are more resources to either

directly fund or leverage the dollars necessary to produce more affordable housing

or preserve the current supply of affordable housing. The Federal dollars necessary

to support many of the affordable housing programs we now have are simply not

there in sufficient amounts to meet current needs.

Four Windows: A Metropolitan Perspective on

Affordable Housing Policy in America, 2001

This past year, the NHC convened a series of roundtables with local housing professionals and community leaders in Minneapolis-St. Paul, New Orleans, Portland,

and Seattle. We published an overview of these roundtables in a report called Four

Windows: A Metropolitan Perspective on Affordable Housing in America, 2001.* I

also would ask that this report be included in the record of these proceedings. In

conducting these roundtable discussions, we were most impressed by the level of

creativity and ingenuity that has been used in the effort to meet local needs for

housing. In some respects, the absence of sufficient Federal funding has fostered (by

necessity) a level of creativity that has enabled or encouraged local levies for housing in Seattle, a Housing Trust Fund in San Diego, tax-based sharing in Minneapolis-St. Paul, and regional planning with respect to housing in Portland. While

these communities and many others are attempting to find new ways to meet local

housing needs, leaders in these communities will tell you that the demand for new

affordable housing across a wide range of incomes exists in almost record numbers.

The demand for new affordable housing in these and many other communities

around the country is not being satisfied by the private market. In the main, the

private sector provides a product for those whose incomes enable them to enjoy the

freedom and security that comes with the ability to buy or rent at the high end.

During these roundtables there were several common themes with respect to the

role of the Federal Government in housing that should be explored in greater detail

by this Committee, including:

• Federal conventions and standards create unintended consequences in delivering

housing assistance.

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• Despite the Federal Government’s stated intent to give the States and localities

considerable discretion in designing programs and directing resources, Federal

policies and regulations do sometimes unnecessarily limit localities’ ability to deal

with local issues.

• Even where direct Federal expenditures are not involved, Federal policies can fail

to take into account variations in State and local circumstances.

In specific response to your question about the need for more production of affordable housing for working families, we found that at all four roundtables there prevailed a common view that, as a Nation, we must encourage and reward the local

and State efforts to produce and preserve affordable housing. After all, it is local

tax, planning and zoning decisions that really determine what is done or not done

about affordable housing. And it is precisely in those communities where affordable

housing for working families is most needed that the most opposition to such housing exists.

The challenge, it was generally agreed, is to fashion the right kind of incentives

that will encourage those communities to recognize and support the production and

preservation of affordable housing. Proven tools to create affordable housing exist,

such as inclusionary zoning, local levies, trust funds, employer support, regional

strategies, and other revenue raising techniques. Participants urged that we find

ways to reward and support these absolutely necessary activities while recognizing

the importance of local diversity and creativity. Federal and State incentives to

localities to promote affordable housing could include challenge grants, funding

formulae, consolidated plan improvements, and tax benefits.

In summary, NHC is recommending that two actions be taken. First, that additional resources be provided for proven tools and programs that we currently have,

including HOME, CDBG, and Section 8, etc. Second, we hope this Subcommittee

will focus attention on State and local efforts to promote affordable housing and explore ways to make these activities more appealing through the use of incentives.

Mr. Chairman, this concludes my testimony. I would be happy to answer any

questions you or other Members of the Subcommittee may have, and NHC welcomes

the opportunity to continue to assist you in the work of this Subcommittee.

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36

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1The reference was to Section 8 vouchers under the Moving to Opportunity demonstration,

which combines a voucher, choice of location, and employment support. In the same program,

significant improvements are being documented in health, mental health, and parenting according to Ludwig.

PREPARED STATEMENT OF JOANN KANE

PRESIDENT AND CHIEF EXECUTIVE OFFICER, MCAULEY INSTITUTE

MAY 15, 2002

Mr. Chairman and Members of the Committee, thank you for inviting me to share

our ideas about the affordable housing needs of working families and possible solutions. As President of McAuley Institute, a women’s housing intermediary, I would

like to address some special concerns of women working to support their families

on small incomes. Mr. Chairman, I would also like to express my gratitude for the

leadership you have shown, as well as the dedication, knowledge, and openness of

your staff.

McAuley Institute, through technical assistance and financial resources, attempts

to bring compassionate business acumen to the development of emerging, nonprofit

housing development groups, most of them led by women working to improve conditions in their communities. Founded in 1983 by the Sisters of Mercy, McAuley is

a faith-based institution headquartered in Silver Spring, Maryland. We have regional offices in Houston, Austin, and Raleigh.

Overall, I believe two emphases are needed in Federal policy. First, we need a

large infusion of resources for production to meet the Nation’s current affordable

housing crisis. And second, we need to pay attention to the more nuanced housing

needs of special populations like battered women and people who are homeless,

those living with HIV/AIDS and those leaving welfare. Women and minorities make

up a disproportionate share of these groups, and their plight is rooted in a history

of racism, sexism, and segregation. Federal leadership is warranted because the

marketplace, State and local governments often lack either the will or the capacity

to adequately respond.

In my testimony, I would like to make five specific recommendations and also

highlight some of the successes that McAuley Institute has been a part of, through

our nonprofit partners, at the grassroots level.

Need for Production for Extremely Low-Income Families

First, we believe that a trust fund would be the right choice to dedicate resources

to expand our Nation’s affordable housing infrastructure. We believe that the Congress should enact a national housing trust fund targeted to extremely low-income

people and sufficient to build, rehabilitate, or preserve 1.5 million units over 10

years. We appreciate Senator Kerry’s introduction of S. 1248 that would create such

a trust fund.

Even on a scale of 150,000 units a year, it will take many years to assure a safe,

decent affordable house for all. The shortage of units that are both affordable and

available to extremely low-income households (those with income less than 30 percent of the area median) is 5.3 million. In 1999, of the 4.9 million households HUD

defines as having ‘‘worst-case housing needs,’’ slightly more than half were women

or women-headed. So 1.3 million were elderly households, including 62 percent

women or women-headed; 1.8 million were households with children, 51.4 percent

of them headed by women.

The social benefits of affordable housing opportunities are really astounding. Jens

Ludwig, a Brookings Institute fellow and a Georgetown University professor, cited

research at a conference last month indicating that the impact of housing vouchers

on children’s reading tests was equivalent to that of reducing the class size from

22 to 15.1

Some object to a trust fund on the face of it, but this Nation has long recognized

the appropriateness of dedicating related revenues for such purposes as road building, airport operation, and old age security. For affordable housing, we should look

to the FHA and Ginnie Mae surpluses or the tax subsidies that now drive the overproduction of McMansions and second and third homes. Assistant Secretary for

Housing and FHA Commissioner John Weicher acknowledged in testimony before

this Subcommittee last month that these surplus receipts do indeed exist. Unless

the excess not needed to guarantee FHA solvency is captured for another housing

purpose, such as a trust fund for extremely low-income households, these surpluses

will continue to accumulate in the General Treasury and be expended for nonhousing purposes. FHA borrowers last year received a share of the surplus through

reduced premiums. In addition, since they have already benefited from a Federal

program that enabled them to become homeowners, it is only fitting that the surVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00041 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
38

plus, largely attributable to a strong economy, now be ‘‘recycled’’ to reach the millions of needy families who receive no Federal housing assistance.

Assuring the Community’s Voice in Homeless Planning

My second recommendation, Mr. Chairman, is that all housing programs require

transparent community planning processes such as one employed by Continuum of

Care programs. In your draft legislation reauthorizing the McKinney–Vento homeless programs, we strongly support your position in favor of the Continuum of Care

process and your proposal for new funding for permanent housing for the chronically

disabled and homeless families. We strongly believe that decisions made in collaboration among public officials, community stakeholders, and expert nonprofit providers are preferable to the vagaries of a block grant program.

About 1 percent of the U.S. population is likely to experience homelessness at

least once during a year, according to a 2000 Urban Institute study. Persons in families, usually mothers and children, make up one-third of those homeless on any

given night. We understand that your bill will propose an increased authorization

level and a permanent national set-aside for permanent housing for the chronically

disabled and the homeless families. This is important because it is unbelievable that

any child ever spend one night without a roof over her head. Families, mostly mothers and children, are the fastest growing segment of the homeless population, and

affordable, permanent housing is ultimately what they need. At the same time, an

emphasis on permanent housing for the chronically disabled is important because,

over the long-term, those most susceptible to recurring bouts of homelessness are

disabled persons who need ongoing medical and other supportive services.

Mr. Chairman, I know you have been a visitor at McAuley Village in Providence,

Rhode Island, whose Executive Director, Sr. Dolores Crowley, served on our board

of directors at McAuley Institute. McAuley Village is an excellent example of how

comprehensive, individualized services, along with safety and security, and help

young single parents achieve self-sufficiency. With an average residency of 21

months, 60 percent of McAuley Village’s residents have found jobs in such fields as

engineering, nursing, banking, and cosmetology. Some have started their own businesses and others have bought their own homes.

Meeting the Housing Needs of Domestic Violence Survivors

About half of homeless women are fleeing domestic violence, bringing me to our

third recommendation. Women fleeing a batterer or sexual predator need not only

a place to live, but also a sanctuary for protection. To meet their particular needs

for security, privacy, and personal support, the Senate should act on the VAWA

housing assistance authorization, at $25 million, which recently passed the House

as part of the Child Abuse Prevention and Treatment Act (H.R. 3839) and is now

pending before the Senate Committee on Health, Education, Labor, and Pensions.

This provision, originally passed as part of VAWA 2000 but never funded, provides

for support services and up to 12 months of cash assistance for transitional housing

for domestic violence survivors in danger of becoming homeless.

To go a step further, the Committee should consider drafting a companion bill to

the Domestic Violence and Sexual Assault Victims’ Housing Act (H.R. 3752) intro- duced by Representative Jan Schakowsky. This measure would authorize $50 million for housing, including construction, and the appropriate services for battered

women. This measure would provide a continuum between emergency shelter and

independent living, either in the form of transitional housing production or financial

assistance for security deposit, first month’s rent and transitional rent assistance.

The legislation has bipartisan support. Women need both full funding of McKinney

programs plus a new initiative to address the particular needs of all women escaping domestic violence.

Supporting the Link Between Housing and Employment for TANF Leavers

Fourth, we believe Congress should act to make housing available as a support

service for those who recently or soon will be expected to leave welfare. Although

housing assistance can greatly increase the ability of families to become gainfully

employed, only 30 percent of welfare recipients receive any form of housing subsidy.

The Manpower Demonstration Research Center’s evaluation of the Minnesota Family Investment Program, found the greatest impact on employment and earnings to

be among families that received housing assistance in addition to other TANF benefits and services. Their employment rates were 18 percentage points higher and

quarterly earnings 25 percentage points higher.

Senator Kerry’s bill, S. 2116, the Welfare Reform and Housing Act (S. 2116) would

give flexibility to States to treated housing assistance as a work support, or ‘‘nonassistance’’ under TANF, in the same manner as child care and transportation assistance paid with TANF funds are now. In addition, S. 2116 would authorize a $50

39

million HHS–HUD demonstration of innovative ‘‘housing with services’’ programs

for TANF recipients facing multiple employment barriers, including homelessness,

unstable and precarious housing.

Iowa Department of Human Services data show that 52 percent of recent welfare

leavers had insecure housing arrangements 2 years later. Of the leavers, 24 percent

were unable to pay the rent or mortgage, 19 percent were doubled up and 8 percent

were homeless. Under such precarious circumstances, obtaining and keeping steady

employment becomes extremely difficult. The demonstration program would address

not only the housing situation but also through appropriate services, health and

mental health and skill deficits facing some of those who remain on welfare.

An example of such a housing and services approach is provided by one group

McAuley works with in Philadelphia. The Women’s Community Revitalization

Project (WCRP), builds housing and manages services for women who have numerous obstacles to self-sufficiency—limited fluency in English, education deficits, lack

of work experience, physical disability, the lack of constructive children’s activities,

and traumas left from domestic violence and crime. (Domestic violence is a factor

in the need for assistance by nearly half of all TANF cases.) In this eastern part

of North Philadelphia, approximately 70 percent of residents receive public benefits

and the remainder support their families on less than $16,000 a year.

The WCRP, like some other nonprofit groups, does not take a developer’s fee. This

allows the group to rent units for as little as $150 per month. Four years after becoming WCRP tenants, only 30 percent of the women remain on public assistance.

Such success comes from services tailored to each individual. Many of the social,

education, and employment services already exist in the community, but others like

child care are provided in conjunction with the housing and case management. Frequently, WCRP staff are called on to assist in crises arising from illness, domestic

violence, loss of employment or economic support, child abuse, suicide attempts, and

conflicts between tenants. The case manager also helps resolve potential lease violations before they occur. As a result, the program has experienced very low eviction

rates. WCRP encourages tenants to join the WCRP board, advisory committee, and

other committees that play a role in management.

WCRP’s model is similar to a variety of approaches that could be tested and evaluated as part of the demonstration authorized in S. 2116. The proposal would also

allow up to 10 percent of funds for testing approaches that would promote housing

stability, employment retention, and responsible parenthood among noncustodial

parents. While such a demonstration and treatment of housing as a work support

are issues that can be addressed under welfare reform reauthorization, there are

changes in housing programs that this Committee should consider to facilitate the

movement of TANF recipients to economic independence:

Authorization and appropriation of Welfare to Work vouchers linked with PHA

workforce programs. Experience with the 50,000 vouchers of this type appropriated in fiscal year 1999 suggests that, in addition to helping families, the program provided positive incentives for cooperation between PHA’s and workforce

investment agencies.

Provision of funds to help families with vouchers move closer to jobs. To obtain

housing in areas where more jobs are available than where they currently live,

TANF recipients who also receive vouchers often need assistance to become familiar with new communities and identify willing landlords. Housing search assistance costs up to $3,000 per family, but the PHA’s currently do not get additional

administrative fees for this purpose from HUD. PHA’s unable to use all their allocated voucher funds should be permitted to use a portion for the one-time costs

of housing search assistance. Additional funds should be made available for those

that have no other funds to use for such assistance.

Modification of the Family Self-Sufficiency Program so it is able to reach more

than the 1.5 percent of eligible TANF families that it now enrolls. FSS is a HUDadministered employment and savings incentive program for low-income families

that have housing vouchers or live in public housing. Earnings held in escrow

may be used for downpayments toward homeownership. Families that live in

project-based Section 8 units are not currently eligible for FSS. Congress should

amend that restriction and clarify that HUD may provide funding for multiple

FSS coordinators to PHA’s with large public housing FSS programs.

Clarification that legal immigrant victims of domestic violence eligible for TANF

and other welfare-related benefits are also eligible for housing benefits under Section 214 of the Housing and Community Development Act. When the welfare law

was passed in 1996, Congress in an apparent oversight failed to extend the same

eligibility to housing assistance, as it did for other benefits, for abused immigrants

who have filed a petition for permanent residence or related relief under the 1994

Violence Against Women Act (VAWA).

40

Sustaining the Role of Nonprofits

McAuley’s final recommendation is that Congress recognize the unique ability of

nonprofits to develop affordable housing by encouraging the participation of nonprofit developers in any housing production legislation. Nonprofits could become

even more productive and efficient if Federal policy helped streamline the financing

process and eliminate duplicative paperwork.

While the private market and tax policy encourage private developers to build

larger and more expensive units, nonprofits are dedicated to long-term affordability,

often for the lowest income families in a community. One nonprofit McAuley has

worked with, Bickerdike Redevelopment of Chicago, is virtually the only developer

of affordable housing in the city’s changing West Town according to a recent study

by the University of Illinois at Chicago. Long-term affordable housing is only 7.4

percent of the present stock of this once economically and ethnically diverse neighborhood not far from the Loop.

Another example of the growing sophistication of these groups is S.A.F.E. (Stop

Abusive Family Environments) in southern West Virginia, which McAuley has

worked with for at least 6 years, helping the staff and board on strategic planning,

project development, resource development and, now, homeownership counseling.

(Our assistance has been funded under a HUD CHDO TA contract.) S.A.F.E. began

by renovating a former school building to create transitional housing for 31 domestic

violence survivors and homeless women with children. Now the organization has not

only helped hundreds of women working to recover from trauma and support their

families, but has also grown to become the county’s largest housing developer and,

after the hospital, its largest employer.

S.A.F.E. has become a certified Community Housing Development Organization

(CHDO) under the HOME Partnership Investment Act. Having built both homeownership and rental units, S.A.F.E. and a partner have created a low-downpayment

mortgage product that will foster homeownership in a county whose median income

is only $19,000.

Recently, the McDowell County Commissioner asked S.A.F.E., through resources

S.A.F.E. would need to leverage, to provide for the relocation of 1,000 households

to be impacted by an Army Corps of Engineers flood protection project. But just last

week, we received a heart-breaking call from S.A.F.E’s Director, Sharon Yates, who

reported that the flood that struck her area the week before had taken 2,000 homes

in addition to the five lives known lost. Suddenly, the looming housing shortage

units has tripled to 3,000. Meanwhile, one of the many public and private partners

S.A.F.E. has worked with, HUD’s Rural Housing Economic Development (RHED) Program, stands to loose its funding, $25 million in fiscal 2003.

Funding must be protected for programs on which nonprofits like this depend to

do their work—programs like the HOME Investment Partnerships, CHDO TA, the

Community Development Financial Institutions fund, (CDFI), and USDA housing

programs. Like RHED, most of these are cut or provided no increase in the Administration’s budget request for fiscal 2003. The budget request would zero out RHED. The request for CDFI is $68 million, or 15 percent less than fiscal year 2002 and

42 percent less than fiscal year 2001. The request for the USDA Section 515 Rural

Rental Production Program is $60 million, or 47 percent below the current $114 million. HOME would remain at the same level, but the Administration would continue

to cut the amount for technical assistance to nonprofit developers. HUD offered no

funding for CHDO TA in its recent Super NOFA. The line item it comes from (for

technical assistance and management information systems) has fallen from $22 million in fiscal year 2001 to $12 million requested for next year.

The nonprofit sector in housing and community development started to blossom

only after 1987 passage of the National Affordable Housing Act which established

and legitimized CHDO’s. HOME-funded technical assistance has helped nonprofits

become more sophisticated. The 15 percent HOME set-aside for CHDO’s helped open

the eyes of State and local officials to the effectiveness of nonprofits. In 1986, the

year prior to HOME’s enactment, Low-Income Housing Tax Credit was adopted and

made a significant source of funds available to nonprofit developers.

In the past 15 years, there has been a tremendous growth in the number of

CHDO’s and CDFI’s. Nonprofits have produced over 550,000 units, or one-third of

the subsidized housing stock according to the National Congress of Community Economic Development. Nonprofits have succeeded, where others have not tried, in getting prices down so that units are affordable at less than 50 percent of median

income. Units such as WCRP’s rent for as little as $150 per month. We also know

from the GAO and elsewhere that nonprofits provide a quality product tailored to

the particular needs of poor populations, including disabled and elderly persons and

large families. Often this work is done under challenging environmental and political circumstances.

41

Because we are charitable, tax exempt organizations, nonprofit intermediaries,

and developers have been able to bring billions of dollars from an array of sources

to the task of affordable housing. Without nonprofits, these charitable contributions

from foundations, community institutions and businesses would not be available for

housing. The Nation’s socially conscious investors would find other uses for the

funds they put now into affordable housing. Nonprofit housing developers also have

used the Community Reinvestment Act, Home Mortgage Disclosure Act, and Fair

Housing laws to hold financial institutions accountable for serving and investing

equitably in low-income and minority areas.

In addition, community-based nonprofits have learned to collaborate with institutional partners like hospitals and universities to develop housing and link it to

human services and employment. These partnerships have resulted in larger-scale

development than community organizations would be able to produce on their own.

Nonprofit organizations are maintainers as well as builders of affordable housing.

According to NCCED, they manage 59 percent of the housing they produce. Because

they are mission-driven, this stock is more likely to be maintained in sound condition and kept affordable for the long-term. The nonprofit housing organizations also

tend to provide a range of services, including health, recreation, social services, and

crime prevention. We found this to be particularly so among women-led community

development organizations in our 1999 study, Women as Catalysts for Social

Change. Nonprofit organizations, particularly those led by women, emphasize community planning and organizing to strengthen residents’ influence with Government

and private institutions. Nonprofits help empower residents to advocate for the benefit of the community.

Besides drawing capital into poor areas for housing and economic development,

nonprofits like S.A.F.E. not only incubate small businesses but also become significant employers themselves, all the time helping to develop skills and careers for

community residents. Nonprofits have become an engine of social and economic

change in areas the private sector has written off. S.A.F.E. has brought $2 million

in investment into a county that, once the richest in West Virginia, is now the fifth

poorest in the Nation.

We need more CHDO’s nationally, particularly in the many areas where none now

exist. One unofficial estimate is that only 20 percent of communities which could

use community development organizations have them. Many of these places are outside the largest urban centers. Many are in rural areas and small cities and towns,

especially in the South. Often these are places where there is little interest by the

private or public sectors in building affordable housing or supporting community

development. The 15 percent set-aside for CHDO’s in the HOME program will continue to be an important means of getting Federal support to new organizations in

such areas.

In our experience, great potential arises daily out of faith communities, neighborhood organizations, and even individuals who become inspired to do something for

their neighborhoods. At McAuley Institute, we do not have the staff to meet all the

requests we get for technical assistance from people like this who want to start a

new housing nonprofit. At times requests have outsized our capacity by a factor of

seven to one.

Nonprofits encourage human ingenuity as people in communities struggle to solve

real problems with very little financial capital. In places like San Juan, Texas,

Proyecto Azteca has been trying to meet and improve deplorable housing conditions

for Mexican immigrants, mostly farm workers, who earn $4,500 to $13,500 a year.

In 1992, McAuley made Proyecto its first loan from our CDFI-supported loan fund

and we have continued to provide, pass-through grants and hands-on CHDO TA for

project, organizational and resource development. Since 1992, Proyecto has supervised the construction of over 160 self-help homes by the people who eventually purchased them. Production has grown from five to over 35 houses per year.

Recently, the organization has experimented with a new housing model known as

‘‘cascarones,’’ or shell houses. The strategy is consistent with the self-help philosophy and a culture in which people are accustomed to buying only as much of a

product that they can afford at the time. At $10,000 per unit, the cascerones are

affordable to low-income families who then may finish them according to their needs

and financial ability. Proyecto Azteca’s goal is to offer houses that even the lowestincome colonia residents can afford. Like S.A.F.E., Proyecto has developed an affordable mortgage product with another housing organization and hopes to become a

CDFI itself.

The cascarones strategy also helps Proyecto stretch its resources further in the

face vast housing needs along the border, including the need to install water and

sewer facilities, roads and drainage. As a CHDO, Proyecto has depended on HOME

and USDA funds. For Proyecto, one difficulty with HOME is that funds may be used

42

to buy land but not buy down leased property. Most of their clients own the structures on land leased from landlords.

Conclusion

In summary, Mr. Chairman, we hope that America’s low-income working families

will see the fruits of the spotlight that this Committee, the Millennial Housing Commission and others have thrown on our frayed affordable housing infrastructure. A

dedicated source for investment in large-scale production will be critical to repair

the gap. The nonprofit developers are ready and able to help as partners in this endeavor and, at the same time, to minister to the whole range of human frailties and

obstacles that confront certain subgroups of those who are inadequately housed.

—————

PREPARED STATEMENT OF DAVID W. CURTIS

CHAIRMAN, HOUSING FINANCE COMMITTEE

NATIONAL ASSOCIATION OF HOME BUILDERS

EXECUTIVE VICE PRESIDENT

LEON N. WEINER & ASSOCIATES, INC.

MAY 15, 2002

Introduction

On behalf of the 205,000 members of the National Association of Home Builders,

I want to thank you for inviting us to speak about the housing affordability issues

facing our country. My name is David Curtis, and I am a builder from Wilmington,

Delaware. I currently serve as Executive Vice President of Leon N. Weiner & Associates, Inc., a Wilmington-based home building, development, and property management firm. The Weiner organization and its affiliates have developed and constructed more than 4,500 homes and 9,000 apartments, as well as several hotels,

office buildings, and retail facilities.

Background on the Affordable Housing Needs of Working Families

The Center for Housing Policy released two reports recently as part of a series

the Center is publishing concerning the housing needs of America’s working families. The first, Paycheck to Paycheck: Working Families and the Cost of Housing in

America, was published in June 2001. The most recent report, Housing America’s Working Families: A Further Exploration, was released in March 2002.

These reports focus on the characteristics and housing cost burdens of working

families, defined as those earning between the equivalent of a full-time minimum

wage job ($10,712) and 120 percent of area median income. The Center is focusing

on this group because there are signs of persistent and worsening housing affordability for them in all parts of the country, including cities, suburbs and rural areas,

despite general economic prosperity.

Workers in municipal jobs, such as teachers and police officers, and in the services

sectors, such as janitors, licensed practical nurses, and salespeople, fall into this

group of people and are a large and growing component of many local economies.

The growth in such jobs, however, is not matched by the growth in the supply of

affordable housing, creating an increasingly difficult situation for both renters and

homeowners.

According to the March 2002 report, in 1999, there were 13 million American families that had a critical housing need, which is defined as paying more than 50 percent of their income for housing or living in severely inadequate housing. This is

a decline of less than 1 percent from 1997. The proportion of low- to moderateincome working families with critical housing needs rose from 23 percent in 1997

to 29.4 percent in 1999, going from 3 million to 3.9 million families.

For low- to moderate-income working families experiencing critical housing needs,

eight out of 10 pay more than 50 percent of their income for housing. The other 20

percent of these families live in severely inadequate housing. And the problems of

low- and moderate-income families with critical housing needs are geographically

widespread—1.7 million of these families reside in central cities, 1.5 million live in

the suburbs and another 656,000 live in nonmetropolitan areas.

The report also states that housing cost burdens overall are worsening, with 38

percent more renters and 22 percent more homeowners having a critical housing

need in 1999 compared to 1997.

The June 2001 report conducted an in-depth look at rental and homeowner affordability for low- and moderate-income working families, using five typical servicerelated occupations in 60 different metropolitan areas. The report finds that in not

43

one of these areas could renters afford a two-bedroom unit without paying considerably more than 30 percent of their income for rent, and often two earners in the

household were required to pay for housing costs. And on the homeownership side,

the report found that unless a household had two earners, it would not be able to

purchase a median priced home in two-thirds of the metropolitan areas examined.

The report also points out that many of these households will be forced to remain

renters for the indefinite future, putting further pressure on the affordable rental

housing stock.

The Joint Center for Housing Studies of Harvard University’s ‘‘The State of the

Nation’s Housing’’ 2001 report had similar findings regarding increasing housing

affordability stresses low- and moderate-income families. This report also discusses

the imbalance between the supply of affordable units and the growing demand for

them. The report states that although 1.6 million rental units were constructed during the 1990’s, 1.25 million units were removed.

The ‘‘State of the Nation’s Housing’’ report also points out that the limited production of units affordable to low- and moderate-income households is likely to cause

the critical housing needs problem to spread further to moderate-income families.

While Federal housing programs, such as housing vouchers and tax credits, can provide housing for very low-income households and still be profitable to owners, the

report states that increasing land costs have made rental units for moderate-income

households barely profitable.

The report concludes by saying that housing affordability, which is already a critical problem for very low- and low-income households, is beginning to affect more

moderate-income households, too, and that it is likely to worsen over the next decade. The report cites the growing pressure to restrict growth and land development,

exclusionary zoning practices, and high land costs as hampering the production of

new affordable units and that these factors will make it increasingly difficult to help

even moderate-income families.

NAHB Recommendations

NAHB appreciates that Congress and the Administration must reconcile significant demands on the budget every year, but especially this year because of the need

to expand homeland security and defense in light of the September 11 attacks. That

being said, we believe there are a number of steps that can be taken to improve

existing housing programs to produce more affordable rental housing and to help

low- and moderate-income households become homeowners. However, we believe

that it is necessary to consider some new programs as well, particularly related to

multifamily rental housing, because if we continue to delay addressing current

needs, it will be even more difficult to resolve these problems in the future.

HOUSING IMPACT ANALYSES

Layers of excessive and unnecessary regulation imposed by all levels of government—Federal, State, and local—can add 20 to 35 percent, or thousands of dollars,

to the cost of a new home, making it difficult or even impossible for families to

achieve homeownership or find affordable rental housing. The housing industry

needs sensible, appropriate, and balanced regulations and guidelines at all levels of

government. NAHB believes the elimination of unnecessary barriers to the production of affordable housing should be a critical element of our national housing policy.

It is NAHB’s position that Federal agencies (with some limited exceptions) should

be required to conduct a housing impact analysis for any new proposed and final

rule, if that rule will have an economic impact of $100,000,000 or more on housing

affordability. Agencies should be required to prepare an initial housing impact analysis for each proposed rule and have it published in the Federal Register at the

same time as the proposed rule, including an invitation to the public to comment.

The initial impact analysis should contain a description of the reasons an agency

is taking the action; the objectives and legal basis for the rule; and, an evaluation

of the extent to which the rule would increase the cost or reduce the supply of housing or land for residential development. The initial analysis should include a citation of any Federal rules that may be duplicative or conflict with the proposed rule.

Each final housing impact analysis should contain a statement of the need for and

objectives of the rule; a summary of the significant issues, analyses, and alternatives to the proposed rule raised during the proposed rule public comment period;

a description and estimate of the extent to which the rule will impact housing

affordability or an explanation of why no such estimate is available. The agency

should be required to make the final housing impact analysis available to the public

and to publish it in the Federal Register.

We also believe that, no later than 1 year after enactment of the housing impact

analysis requirement, the Secretary of HUD should publish model initial and final

44

housing impact analyses in the Federal Register. The model analyses should define

the primary elements of housing impact analyses to instruct other agencies on how

to implement the requirement.

NAHB believes that housing impact analyses will greatly help in reducing the

number of regulatory barriers to the production of affordable housing, and we urge

you to consider it as an important element of future housing policy.

A NEW MULTIFAMILY RENTAL PRODUCTION PROGRAM

As we discussed earlier, despite the Nation’s general prosperity, there continues

to be a critical shortage of affordable rental housing for both low- and moderateincome households. NAHB believes that the establishment of a new rental housing

production program that produces 60,000 to 70,000 units annually should be a top

housing priority for the Administration and Congress this year. As described in the

reports we cited, there is a need for a new multifamily rental housing production

program that would meet the affordable housing needs of households with incomes

between 60 and 100 percent of area median income (AMI), America’s ‘‘working

poor.’’ These households are not eligible for housing assistance through most current

Federal housing programs.

NAHB has developed an approach different from several current proposals, including the new HOME production program contained in H.R. 3995. Our program

is designed to produce mixed-income housing, which has proven to provide greater

financial stability and community acceptance than developments that concentrate

very low- and low-income households. The program focuses primarily on the working

poor, although a portion of each property (up to 25 percent) is reserved for very lowand extremely low-income households.

There are several ways in which this program could work. Our proposal relies primarily on the low-interest rates available through Government National Mortgage

Association (Ginnie Mae) guaranteed lower floater securities, which carry very low

rates of interest. The securities could be issued by a variety of entities, including

developers, private lenders, housing finance agencies, and local governments. Ginnie

Mae would guarantee the timely payment of principal and interest to investors,

which would further lower financing costs. Underlying loans could be backed by the

Federal Housing Administration (FHA) or the Rural Housing Service (RHS), or

could be conventional loans (use of the latter would require a change in Ginnie

Mae’s charter).

Interest rate subsidies or buy-downs could be employed to achieve additional affordability. To further reduce debt coverage requirements, developers may also use

sources of equity and soft-second debt such as tax credits, HOME, the Federal Home

Loan Bank System’s Affordable Housing Program, and State housing trust funds.

The only Federal budget dollars required would be for any credit subsidy needed

for Ginnie Mae’s participation, interest rate subsidies or buy-downs, and a marginal

increase in the cost of rental assistance vouchers for those units serving very lowand extremely low-income households. The program would require only a small

amount of Federal Government subsidy per development and would provide for ongoing maintenance and future capital improvements by building in adequate reserves from monthly cash flow at a level sufficient to rehabilitate the development

in year 2020. A minor modification to the existing voucher program rent payment

standard would ensure that very low- and extremely low-income households could

be served. The program would work in all areas of the country, including urban and

rural areas.

The program also provides incentives to owners through deferral of profits and by

making the recognition of any gains contingent on property performance (both financial and physical) throughout the 40-year period that the units must be held in the

affordable housing stock. There should be no exit tax on noncash appreciation of the

property when an owner sells the property. However, if the property is sold after

40 years, 50 percent of the equity appreciation should be returned to the Federal

Government to produce additional affordable housing.

The program could be administered by State housing finance agencies, which already administer the tax credit program, HOME, CDBG, and other housing loan

and grant programs. Centralized administrative elements could be handled by HUD,

which already performs similar functions for many of the programs listed above.

In looking at how a new production program might work, NAHB believes we need

to tackle affordability problems at all income levels. We urge you to take a close

look at our proposal as you consider how to address this issue.

FEDERAL HOUSING ADMINISTRATION (FHA) MULTIFAMILY PROGRAMS

NAHB is a strong supporter of the FHA Multifamily Mortgage Insurance Programs. We have worked with HUD and Congress over the years to bring improveVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00048 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
45

ments to the programs, which are critical to addressing the Nation’s affordable

housing needs.

Indexing the Loan Limits to Inflation

NAHB applauds Congress and HUD for increasing the FHA multifamily mortgage

loan limits by 25 percent last year. The increase has already assisted in opening

up markets previously unable to use the programs because the loan limits were too

low. However, NAHB believes that, without an indexation for inflation, any gains

realized from the 25 percent increase will be quickly lost.

We believe that the FHA multifamily mortgage loan limits should be indexed to

inflation, as measured by the annual construction cost index published by the Bureau of the Census of the Department of Commerce. Indexing the loan limits will

help stabilize the programs and give builders and lenders confidence that they will

be able to use the programs in their communities every year, even as construction

and land costs rise over time.

Increasing the High-Cost Limits

NAHB also strongly believes that housing needs in high-cost markets where the

base loan limits are too low must be addressed. Currently, the law gives the Secretary of HUD the discretion to increase the base limits by up to 110 percent in

geographic areas where construction costs are very high. The Secretary is also able,

at his discretion, to approve an increase of up to 140 percent for individual projects

in high-cost areas. However, there are a number of high-cost urban markets, such

as New York, Boston, San Francisco, Chicago, and Los Angeles, where construction

costs are significantly higher than in other areas of the country, and the high-cost

factors have not been sufficient to allow use of the FHA Multifamily Mortgage Insurance Programs. NAHB conducted an analysis of those five high-cost urban areas,

which demonstrates that, even with the recent 25 percent increase and current

high-cost factors, costs exceed the current limits.

NAHB supports an increase in the maximum high-cost factor from 110 percent

to 140 percent in geographic areas and an increase in the high-cost factor from 140

percent to 170 percent on a project-by-project basis. NAHB believes that indexing

the loan limits to inflation and increasing the high-cost factors together will greatly

improve effectiveness of the FHA Multifamily Mortgage Insurance Programs. Markets previously unable to use the program would be able to start increasing the supply of much-needed new affordable housing for low- and moderate-income families.

FHA SINGLE-FAMILY MORTGAGE INSURANCE

NAHB is also recommending some improvements to the FHA Single-Family Mortgage Insurance Programs that increase the efficiency of FHA’s programs and enable

these programs to make homeownership attainable for more families.

Downpayment Simplification

The FHA simplified downpayment procedure was first implemented as a successful pilot for residents of Alaska and Hawaii, and then was expanded nationally 3

years ago via a series of temporary extensions. The most recent extension of the

authority for the simplified method of calculation is scheduled to terminate on December 31, 2002.

The Senate Banking Committee Chairman Paul S. Sarbanes (D–MD) recently

introduced S. 2239, the ‘‘FHA Downpayment Simplification Act of 2002,’’ and this

legislative provision is also contained in H.R. 3995. NAHB supports making the simplified downpayment calculation method permanent and urges Congress to enact

this measure.

The strength of the Mutual Mortgage Insurance Fund has improved each year

since 1998 when this provision was temporarily enacted. This procedure actually offers a simplified method of maximum mortgage calculation. The simplified method

results in greater loan-to-value ratio loans than permitted under the previous calculation method.

The simplified calculation multiplies a loan-to-value percentage times the lesser

of the appraised value or the sale price. By contrast, the former system required

that the acquisition cost first be determined, then two calculations were performed:

One in which the acquisition cost was multiplied by a tiered series of percentages;

and a second in which the appraised value was multiplied by a factor. Under the

former system, the maximum mortgage was the lesser of the two products.

Hybrid ARM Adjustments

NAHB supports a technical change in the National Housing Act, which would

make hybrid adjustable-rate mortgages (ARM’s) available at competitive rates and

46

terms for FHA borrowers who otherwise would not be able to obtain funding under

conventional hybrid ARM programs.

The FHA-insured ARM has been a valuable tool for expanding homeownership opportunities. Last year, FHA obtained authority to insure a hybrid ARM, a mortgage

that has a fixed rate of interest in the early years of the loan before switching to

annual adjustments over the mortgage’s remaining term. Unfortunately, the current

law caps the initial adjustment for FHA-insured 5–1 hybrid ARM’s to 1 percent,

which makes the FHA-insured hybrid 5–1 ARM less attractive to investors than

conventional hybrid ARM’s that carry a 2 percent initial adjustment cap. This

means that, under normal market conditions, lenders will not offer FHA-insured

hybrid ARM’s due to unfavorable pricing in the secondary market. A change in the

interest rate adjustment limit, therefore, is needed to allow FHA to offer a product

that is attractive to secondary market investors.

GINNIE MAE GUARANTEE FEE

NAHB urges Congress to repeal the increase (from 6 to 9 percent) in the Government National Mortgage Association (Ginnie Mae) guaranty fee, which is scheduled

to take effect in fiscal year 2004. A guaranty fee increase of even three basis points

would represent a heavy tax on affordable housing and would decrease homeownership opportunities for thousands of families each year. The increase would be passed

along in financing charges, generally to borrowers who could least afford additional

mortgage financing costs. There is no financial basis for a guarantee fee increase

because Ginnie Mae operates at a profit and has done so throughout its existence.

TAX-RELATED HOUSING PROGRAMS

The Low-Income Housing Tax Credit Technical Advice Memoranda

The NAHB believes it is essential that Congress modify the Low-Income Housing

Tax Credit (LIHTC) Program in order to ensure its continued existence. The LIHTC

program has provided a key part of the financing for nearly all of the affordable

rental housing built in the last decade. The credit provides equity financing that reduces lower mortgage amounts, providing reduced debt service and, therefore, more

affordable rents for households with incomes at or below 60 percent of area median

income.

In October 2000, the Internal Revenue Service (IRS) issued five technical advice

memoranda (TAM’s) that threaten the ability of the LIHTC program to continue to

provide affordable housing. The TAM’s take aggressive positions aimed at reducing

the eligible basis, which lowers the amount of tax credits or equity financing a

project receives. The TAM’s have the effect of reducing credits for many projects by

25 percent or more. In addition, uncertainty over future IRS actions is reducing the

prices paid for the credits, further reducing the effectiveness of the LIHTC program.

NAHB supports legislation that would provide certainty for tax credit allocations.

In the House, Representatives Nancy Johnson (R–CT) and Charlie Rangel (D–NY)

sponsored H.R. 3324, and the Senate companion legislation S. 2006 is sponsored by

Senators Bob Graham (D–FL), Orrin Hatch (R–UT), Jim Jeffords (I–VT), Robert

Torricelli (D–NJ) and John Kerry (D–MA). This bill introduces the concept of ‘‘development cost basis’’ and then specifically identifies costs that qualify as includable

in basis. The identified costs are: Site preparation costs, State and local ‘‘impact’’

fees, reasonable development fees, professional fees related to basis items, and construction financing costs (but not financing costs to acquire land). This legislation

will ensure that quality affordable housing will be maintained and that investor and

lender confidence will be restored. This will increase private investment and allow

more housing to be built for each tax credit dollar.

A NEW SINGLE-FAMILY HOMEOWNERSHIP TAX CREDIT

NAHB believes a new program is needed to create homeownership opportunities

for low- and moderate-income individuals who currently lack decent housing opportunities. Therefore, NAHB supports the creation of a housing tax credit called the

‘‘Renewing the Dream’’ homeownership tax credit that is included in the Administration’s fiscal year 2003 budget. The proposal, modeled after the Low-Income Housing Tax Credit Program, is designed to encourage new construction and substantial

rehabilitation of homes for sale to low- and moderate-income families in economically distressed urban and rural areas.

The proposed homeownership tax credit would provide an annual Federal tax

credit of $1.75 per capita or a minimum of $2 million per State. This credit would

be allocated to developers that construct or rehabilitate owner-occupied homes in

census tracts with incomes at or below 80 percent of area or statewide median income. Developers would be allocated tax credits through a competitive allocation

process administered by State agencies. The credits would be claimed over a 5-year

47

period. Tax credits could be used for up to 50 percent of the development cost of

each home and could be sold to investors to provide financing for the construction

or rehabilitation of the homes.

Senators Kerry (D–MA) and Santorum (R–PA) have a legislative draft of the

homeownership tax credit that will be introduced in the Senate soon. This legislation will significantly reduce the cost of homes for low-income individuals and will

provide the necessary financial incentives for builders to build and rehabilitate in

low-income areas where costs are high. We urge you to support this proposal.

THE SINGLE-FAMILY MORTGAGE REVENUE BOND PROGRAM

Two bills, S. 677 and H.R. 951, entitled The Housing Bond and Credit Modernization and Fairness Act, have been introduced in Congress to address problems impairing the effective operation of The Single-Family Mortgage Revenue Bond (MRB)

Program administered by State housing finance agencies. The MRB program is an

important source of mortgages for low- and moderate-income households, financing

over 106,000 mortgages in 2000. Nationally, the average income among the MRB

purchases was $34,200 (approximately 68 percent of the national median income)

and half the median income of conventional purchasers. In 2000, 21 percent of the

MRB purchasers were minorities; about 60 percent of the loans were in urban areas;

and, 20 percent of the loans helped families in rural areas. The bills include three

provisions:

First, the bills repeal the Ten Year Rule, which was enacted in 1988 and requires

States to use MRB mortgage payments received after the original MRB has been

outstanding for 10 years to retire the bonds rather than to make new mortgages.

It is estimated that by 2005, State housing finance agencies will lose more than $12

billion—140,000 mortgages—in mortgage authority because of the Ten Year Rule.

Second, the bills would provide an alternative means of establishing the MRB

purchase price limit. Currently, the statute requires purchase prices to be no higher

than 90 percent of the average area sales price. The current limits have not been

raised since 1994, which is the last time the Internal Revenue Service (IRS) published safe harbor purchase price limits. Although State housing finance agencies

are permitted to publish their own purchase price limits, many do not because of

the difficulty of compiling accurate data. The bills would allow States to determine

purchase price limits at levels three and one half times the MRB qualifying income.

Low-Income Housing Tax Credit Program Income Limits

S. 677 and H.R. 951 also address an income-eligibility issue related to the LowIncome Housing Tax Credit Program. The bills would give State housing finance

agencies the flexibility to use the greater of the area or statewide median income

in determining qualifying income levels for tax credit developments located in rural

areas. This change would help provide more affordable rental housing in rural

areas, where incomes typically are too low to support the development of new rental

housing.

Conclusion

In conclusion, Mr. Chairman, we believe that, in response to the identified housing needs of working families, measures are needed to increase the supply of affordable multifamily rental housing and to help low- and moderate-income families

become homeowners. We believe that this will require the development of some new

programs, particularly one designed to spur the production of rental units for working families in the 60 to 100 percent of median-income range. While the FHA Multifamily Mortgage Insurance Programs are extremely important, these programs

alone do not have the capacity to produce the number of units needed to meet current and future demand. The Low-Income Housing Tax Credit Program has done

a good job of producing affordable rental housing for very low-income households,

but there are no Federal programs to assist working families whose incomes fall between 60 and 100 percent of median.

However, recognizing that resources will continue to be tight in the near future,

we also feel it is important to improve the FHA Multifamily and Single-Family,

Low-Income Housing Tax Credit, and Mortgage Revenue Bond Programs. Since

these programs have proven track records, Congress can be confident that the

changes we are recommending will produce results immediately. Equally important

is the need to eliminate unnecessary barriers and burdensome regulations that prevent the production of affordable housing—we urge you to consider enacting a housing impact analysis requirement.

Thank you for the opportunity to be here today.

48

1 Nelson, K. (2001, May 3). ‘‘What do you know about shortages of affordable rental housing?’’

Testimony before the House Committee on Financial Services, Subcommittee on Housing and

Community Opportunity.

PREPARED STATEMENT OF SHEILA CROWLEY

PRESIDENT, NATIONAL LOW INCOME HOUSING COALITION

MAY 15, 2002

Chairman Reed and Members of the Subcommittee, I am Sheila Crowley, President of the National Low Income Housing Coalition. I am pleased to be invited to

testify today on behalf of our members who include nonprofit housing providers,

homeless service providers, fair housing organizations, State and local housing coalitions, public housing agencies, private developers and property owners, housing researchers, local and State government agencies, faith-based organizations, residents

of public and assisted housing and their organizations, and concerned citizens. I am

also representing the over 2,200 organizations and elected officials from every State

who have endorsed the establishment of the National Housing Trust Fund. We are

especially grateful to you, Senator Reed, for championing S. 1248, the National

Affordable Housing Trust Fund Act of 2001, so vigorously.

It is an honor to follow the testimony of Senator John Kerry, the sponsor of

S. 1248, and to add further evidence of the soundness of his proposal. The National

Housing Trust Fund Campaign pledges to continue to build support for S. 1248 this

session and, if necessary, its successor bill in the 108th Congress. The 27 cosponsors

of the S. 1248 including Senator Kerry and the 175 cosponsors of H.R. 2349, the companion bill in the House, are just the start of the number of Senators and Congressmen that we intend to convince to vote to establish the National Housing Trust

Fund.

This Subcommittee and the full Committee have had several hearings on the

housing affordability crisis that have thoroughly documented the depth and breadth

of the housing problem we face in the United States. Under Senator Allard’s leadership in the last Congress, the Subcommittee also held hearings that came to the

same conclusion. In the House, the Subcommittee on Housing and Community Opportunity of the Financial Services Committee has been quite active in its analysis

of the affordable housing crisis, with a series of hearings in 2001 and this year. At

the National Low Income Housing Coalition, we are very gratified that our data on

the gap between housing costs and income are cited virtually every time Members

of Congress come together to discuss the housing problem. My point is that Congress does not lack evidence that we have a serious housing problem, and there is

little disagreement that something needs to be done. What remains is to reach consensus about what needs to be done and the role of the Federal Government in its

implementation.

Let me add documentation of the problem for the record today. It is the position

of the National Low Income Housing Coalition that the housing affordability and

housing shortage problem is most severe for the lowest income people. In HUD’s

jargon, these are extremely low-income households or those with incomes at or less

than 30 percent of the area median. On a national basis, the number of rental housing units affordable for people in this income range has dropped precipitously in the

last decade, while the number of rental housing units for other low-income people

whose incomes exceed 50 percent of the area median income, but are still less than

80 percent of AMI, actually grew. Between 1991 and 1999, the number of rental

units affordable to extremely low-income households declined by 940,000 units or 14

percent of the total rental stock affordable to people in this income range.1

People often assign meaning to the term extremely low income that somehow implies that it is a category that does not include working people. Let’s be very clear.

A full time minimum wage worker makes $10,700 a year. In the District of Columbia, an extremely low-income family has income of $18,390 or less a year. In Providence, RI, it is $16,230. In Denver, CO, it is $19,500. In Boston, MA, it is $21,480.

These are not unusual wages. These are the wages earned by the workers in the

service economy. These are retail clerks, day care workers, home health aids, hotel

and restaurant workers, janitors, bus drivers, security guards, nursing home staff—

all the people whose daily labor is essential to the functioning of our economy. The

notion that extremely low-income families are somehow different from working families is erroneous.

In the District, 30 percent of area median income if one works full time breaks

down to $8.84 an hour. The hourly wage required to afford the fair market rent for

a two-bedroom rental unit in DC is $18.13. In Providence, extremely low income is

$7.80 an hour or less, while the two-bedroom housing wage is $12.50 an hour. For

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2 National Low Income Housing Coalition. (2001) Out of reach 2001: America’s growing wagerent disparity.

Denver, the respective numbers are $9.37 an hour vs. $17.17 an hour. In Boston,

$10.33 an hour is the upper limit of the extremely low-income category, while the

housing wage is $20.21 an hour.2 In all these cases, as it is in all jurisdictions in

the country, the difference between what low-wage earners can earn and what the

rental housing market can demand is unbridgeable without Federal intervention.

Telling people to get better paying jobs so they can afford to pay the rent is hardly

the answer. There will always be a demand for people to make up this segment of

the workforce.

The position of the National Low Income Housing Coalition is that there is no single solution to the affordable housing crisis, but rather multiple approaches are required. First, we must increase low-wage workers’ purchasing power in the housing

market with more housing vouchers. But more vouchers must be in conjunction with

improvements to the housing market’s response to voucher holders and reducing

barriers to successful voucher use. Imagine being on the waiting list for a voucher

for several years, all the while struggling to maintain a home that costs an excessive portion of your income. Finally, you rise to the top of the voucher waiting list

and are issued a voucher. You spend weeks searching for a suitable home to rent

with a voucher, only to come to the end of your time limit without finding any place.

You have to turn the voucher back and start over again at the end of the line. In

many communities, the voucher program has become an exercise in social Darwinism, rather than an intervention in the mismatch between what low-income

people earn and what housing costs. Therefore, we are very supportive of Senator

Sarbanes’ forthcoming voucher improvement bill.

Second, we must preserve as much as possible the existing housing we have that

is affordable to extremely low-income households, including public and subsidized

housing, as well private market, unsubsidized housing. We support S. 1365, Senator

Jefford’s preservation matching grant bill, and we urge Senator Kerry to add preservation as an eligible activity of the National Housing Trust Fund. We also are very

concerned about the precipitous loss of housing that is affordable to the extremely

low-income people through HOPE VI and other public housing demolition or revitalization efforts.

Third, we advocate a renewed Federal commitment to building housing that is affordable for the lowest-income families. Although there has been lots of discussion

about ‘‘new production’’ proposals by all sorts of housing advocacy and industry

groups, the only proposal that has actually become legislation in the Senate is Senator Kerry’s National Affordable Housing Trust Fund Act. This bill will create a

dedicated source of funds for the production and rehabilitation of affordable housing,

primarily rental and primarily for extremely low-income households. S. 1248 warrants serious review by this Committee.

The National Low Income Housing Coalition and our many partners from across

this country have been working hard to educate Members of Congress and your constituents about the need for and the merits of a National Housing Trust Fund. This

campaign has generated great optimism and support, as evidenced by the over 2,200

endorsements we have received to date. I would like to place in the record the latest

list of endorsers, as well as a letter from Cardinal Theodore McCarrick, the Archbishop of Washington, on behalf of the U.S. Conference of Bishops, which was sent

to each Senator and to each House Member urging support of the National Housing

Trust Fund.

In the course of discussing this bill in communities across the country and with

nearly every Senate and many House offices, we have found great interest and considerable support. We have also heard all the arguments against it. I would like to

use my time today to raise and then respond to these arguments.

1. We do not need another program. We may not need another housing program,

but we do need a sharp increase in the level of housing funding that is targeted

to serve the lowest-income households. A National Housing Trust Fund is a new

source of funding more than it is a new program. The National Housing Trust Fund

will augment existing production programs that cannot or do not serve these households. Given the severity of the housing shortage, a significant infusion of funds is

required that is unlikely to be forthcoming in the current appropriations process.

A trust fund with dedicated sources of funding is more likely to provide the level

of funding required.

H.R. 3995, which Chairwoman Roukema has introduced in the House, acknowledges the need for rental housing production for extremely low-income households

by creating a more deeply-targeted component of the HOME program. This is a conVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00053 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
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cept that deserves consideration. However as proposed, H.R. 3995, does not provide

for new funding, but rather uses recaptured Section 8 funds. We strongly object to

this redirection of Section 8 funds, and much prefer the approach suggested in Senator Sarbanes’ bill that will improve the voucher program so that there are no

longer any funds to recapture because all are being used for their intended purpose.

2. The Federal Government has failed at housing programs for the lowest-income

households. First of all, we disagree that all housing programs are failures, but we

do agree that mistakes were made. Lessons learned are reflected in the design of

the National Housing Trust Fund. First, the National Housing Trust Fund will not

recreate economic segregation. Trust fund dollars are to be used in conjunction with

other funds to support the production of housing affordable to extremely low-income

households in mixed-income developments and low-poverty areas. Second, housing

produced by trust fund dollars must remain affordable for 40 years and not be subject to loss to the affordable housing supply as much of the privately-owned, publicly-subsidized housing is today. Third, the National Housing Trust Fund does not

favor one housing sector over another. Public housing authorities, nonprofit organizations, and for-profit companies are all potential developers and operators of housing produced through the National Housing Trust Fund. Funds are to be awarded

on the basis of merit to those entities that can best demonstrate their capacity to

get the job done.

3. Production funding for extremely low-income households is insufficient; operating subsidies are also required. We agree. In response to criticisms that the National Housing Trust Fund proposal and S. 1248 have weak operating subsidy provisions, the National Housing Trust Fund Campaign convened a committee of housing

experts to develop a new approach. The result is the ‘‘thrifty production voucher’’

proposal that is under consideration in the House as part of H.R. 3995 and is expected to be in Senator Sarbanes’ voucher improvement bill. We urge Senator Kerry

to add thrifty production vouchers to the operating subsidy options in S. 1248.

4. The excess FHA revenue does not exist. This is the most frequent objection we

hear. It is only in the highly idiosyncratic language of Federal budgeteers that is

possible to say that this money does not exist. What they are really saying is that

it is being used for other purposes and therefore not available for this use, or that

S. 1248 is not budget-neutral and calls for spending without providing offsets. These

are policy decisions that can be changed, not evidence that funds do not exist. Indeed, it is precisely these kinds of objections that argue for creating a dedicated

source of revenue that makes clear how these particular funds should be used. According to the latest actuarial review of the FHA Single-Family Insurance Program

by Deloitte & Touche, the FHA program will generate by 2008 $26,383,000,000 more

than is required to maintain the safety and soundness of the program. The Executive Summary of the Deloitte & Touche report is attached to my written testimony,

as is the HUD press release that accompanied the report in which Secretary Martinez announces the continued health program.

Please note that it is our position that the National Housing Trust Fund should

not rely solely on the FHA and Ginnie Mae programs as the dedicated sources of

revenue. Indeed, these are insufficient to meet the goal of 1,500,000 homes in 10

years. There are 280 State and local housing trust funds across the country, funded

by a wide range of sources. We see the FHA and Ginnie Mae as making some, but

not all, of the contributions to the trust fund. We are interested in working with

you to identify other appropriate sources of dedicated revenue streams.

5. Any excess FHA revenue should go back to FHA-insured homeowners. Once

objectors have accepted the notion that there are extra funds, the next argument

is that they should be redistributed to the insured homeowners who must be overcharged for their homeowners’ insurance. The distributive nature of the FHA SingleFamily Program was eliminated by the Congress in 1990 as part of the reform to

the program needed to prevent its financial decline and to put the program on sound

financial footing going forward. The HUD Secretary does have the authority to reduce premiums and, indeed, the premiums were reduced in 2000. FHA-insured

homeowners are receiving an important Federal benefit, that is, access to homeownership that otherwise would not be available to them, and are paying a fair

price for this service.

6. This use of FHA revenue will harm the FHA program. This is yet another argument against the use of the FHA revenue for a National Housing Trust Fund.

S. 1248 protects the FHA’s programs more than current law does by raising the capital adequacy ratio, or the level of required reserves, from 2 percent to 3 percent.

The projected $26 billion excess that would go into the National Housing Trust

Fund assumes the higher ratio. The Deloitte & Touche analysis also includes projecVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00054 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
51

tions based on several other economic scenarios. Even in the worst-case scenario,

the ratio remains well above 3 percent.

7. It is not appropriate to use funds from the FHA Single-Family Program to fund

multifamily housing production, because such proposals are beyond the goals of the

program. This could be a legitimate policy argument, if the funds were sitting idle.

But they are not; they are going into the Federal Treasury and funding other Federal priorities. Our argument is that funds earned by one Federal housing program

are appropriately used to support other Federal housing priorities. This is simply

a decision to make rental housing production for extremely low-income families and

individuals a Federal priority again. Having said that, we are open to being persuaded that other sources of funds may be more appropriately dedicated to the National Housing Trust Fund and welcome any and all suggestions that Members of

the Subcommittee and others may have.

8. We cannot afford it. This is the least convincing argument of all. Of course, we

can afford new investment in rental housing production if we decide it is a priority.

We have made housing a national priority at several points in the past when we

faced housing shortages and we can do so again. Housing has historically received

bi-partisan support and indeed, the peak year of subsidized rental housing production of 500,000 units was during the Ford Administration.

Not only can we afford to do this, more importantly, we cannot afford not to. The

consequences of failing to act are serious. Good housing is fundamental to healthy

human development. We have growing evidence that housing instability has adverse

effects on employment success, school achievement, health status, and family wellbeing. Excessive housing cost burdens are the primary cause of housing instability.

Housing instability means frequent moves, family disintegration, staying with relatives, lack of a permanent address, inability to hold onto possessions, and in the

most serious cases, falling out of the housing system altogether and become homeless. Once homeless, regaining stable housing is even more difficult.

Because most of us enjoy good housing that we can afford in neighborhoods of our

choice, we take housing for granted and find it difficult to empathize with people

with housing problems. However, we all tacitly know how central our housing is to

our physical and emotional well-being, to our ability to fulfill our family obligations,

and to our capacity to do our jobs. Imagine not having a regular and safe home.

How well would any of us do at what is expected of us in the absence of the security, respite, comfort, and sanctuary that our homes provide?

Thank you for the opportunity to testify today. We are looking forward to working

with the Committee on S. 1248, the National Affordable Housing Trust Fund Act.

—————

PREPARED STATEMENT OF EMMANUEL LANE

A WORKING PARENT—RESIDENT OF SHARING AND CARING HANDS

MINNEAPOLIS, MINNESOTA

MAY 15, 2002

My name is Emmanuel Lane. I am married and I am the proud father of five children. In fact, my wife gave birth to our first son 6 weeks ago, Monday, April 9. Unfortunately, despite the fact that I am working full-time, my family is homeless. I

am here today to share my story in the hopes of providing a greater understanding

of the situation facing many people in Minnesota and across the country.

I want to take some time quickly to thank Mary Jo Copeland and Patrick Ness.

Mary Jo Copeland is the Founder and Director of Sharing and Caring Hands. Patrick Ness is the Housing Manager at Mary’s Place. Both have been inspirational in

my involvement with the issue of affordable housing. My family has been staying

at Mary’s Place transitional housing since January 28, 2002. The time spent in this

transitional housing unit has benefited my wife and I, as well as our family. Here

we have rested our spirits and begun saving money to put toward a house. A hundred families like ours do this everyday at Mary’s Place. Everyone needs shelter,

but unfortunately even working families cannot afford it. We did not want to be

homeless. Thankfully Mary Jo Copeland built a transitional housing unit to house

families like ours. Mary’s Place has played a vital role in my family’s, and many

other family’s, struggle to find affordable housing. Mary Jo now has a new vision

and is trying to build a children’s home in Eagan, Minnesota. The children’s home

will house up to 200 lost and abused kids.

As I mentioned I am married and have five children. My oldest child is 10 years

old and my youngest child is officially 6 weeks and 2 days today. I am a former

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U.S. Marine. I served in the Marines from 1983 to 1987. I worked in social services

at Catholic Charities from 1990 to 2000. I left Catholic Charities to take a job as

Youth Manager at the Division of Indian Work. My wife also worked full-time at

the Division of Indian Work. My wife and I, and our four children had been living

in a one-bedroom apartment in Minneapolis for close to 3 years. We were very

crowded, but given our income, this was all that we could afford. Our landlord was

sympathetic to our situation and allowed us to live there in spite of concerns about

over-crowding. However, when our landlord sold the building in July 2001, our new

landlord said that he simply could not risk it, and asked us to be out in 30 days.

My wife and I looked for another apartment in Minneapolis, rents for three-bedroom

apartments averaged $1,100/month. We simply could not afford this.

My wife and I decided to move to Mankato. My wife’s aunt worked for the county

there and she had been able to find housing through a grant program. My family

stayed with her for a couple of weeks, however, we left because we were afraid of

causing trouble for her because there were so many of us in her house. I then applied for assistance through the Homeless Veteran’s Program in Mankato. The Veteran’s Program gave us a voucher to stay in a motel for 1 month while I continued

to look for an apartment and work. We were lucky and we received a rent subsidy,

so we were able to rent an apartment and only pay 30 percent of our income. Unfortunately, I was unable to find work earning more that $7.50/hour. This was clearly

not going to be enough to support my family.

In December 2001, my brother told me that the school bus company that he was

working for was looking for drivers. I applied for a job and got a full-time work driving for this company. At first I commuted every morning from Mapletown (a small

town about 20 minutes south of Mankato where we were living). This meant getting

up at 4:00 a.m., arriving in Minneapolis at approximately 6:00 a.m. Driving until

the break at around 11:00 a.m., then picking the kids up after school. I also took

an additional shift driving kids who participated in after-school events. I usually

would arrive home in Mapletown around 9:00 p.m. We realized that this was putting too many miles on our car, so I began staying with my brother during the week

and then driving back to my family on the weekends.

My wife and I decided that this separation was not working because our kids are

so young and they need both parents. My wife and kids moved back to Minneapolis

in January. We stayed briefly with different relatives, but all of our relatives were

in apartments that were already over-crowded. On January 28, 2002, we moved into

Mary’s Place. I am working to save money to try to find a place for my family.

I hope that my story helps to demonstrate the kinds of struggles facing working

families.

Thank you.

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(103)

AFFORDABLE HOUSING PRODUCTION AND

WORKING FAMILIES

WEDNESDAY, SEPTEMBER 25, 2002

U.S. SENATE, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, SUBCOMMITTEE ON HOUSING AND TRANSPORTATION, Washington, DC.

The Subcommittee met at 2:35 p.m. in room SD–538 of the Dirksen Senate Office Building, Senator Jack Reed (Chairman of the

Subcommittee) presiding.

OPENING STATEMENT OF SENATOR JACK REED

Senator REED. The Subcommittee will come to order.

Good afternoon. I would like to welcome everyone to today’s Subcommittee hearing on Affordable Housing Production and Working

Families.

Although there are a number of Federal programs that are encouraging the production of affordable housing, they are falling

short of meeting the housing needs of our country’s hardest-working families. Despite incredible demand, cuts in these programs

which began in the 1980’s have allowed only a limited number of

units to be produced. In addition, housing price increases over the

last two decades have outstripped income growth, making homes

too expensive for many working families.

One out of every seven American families spends more than half

their total income on housing or lives in a severely inadequate unit.

That is 15.5 million families, both homeowners and renters.

Working hard and playing by the rules is currently not enough

to allow a family to have decent, safe, and affordable housing.

For the fourth year in a row, the National Low Income Housing

Coalition, in its Out of Reach Report, shows that there is no place

in the United States, urban or rural, where the minimum wage is

enough to afford the standard rent for a two-bedroom apartment.

A worker would have to earn $14.66 per hour, far more than the

minimum wage of $5.15 per hour, just to afford the median market

rent, let alone save for a downpayment on a home.

In my own State of Rhode Island, where the minimum wage is slightly higher than the national at $6.15 per hour, a worker still

has to work 86 hours in order to afford a two-bedroom home. This

problem is affecting both our middle- and lower-income families.

Teacher, police officers, and nurses are struggling to afford housing

in high-cost areas.

Simply put, in too many places across America, there are not

enough homes for the number of families who need them and those

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that are available are too expensive for middle- and lower-income

families.

Too often, working families have the worst of both worlds—they

have too much income to qualify for the limited housing assistance

available, but too little to benefit from the favorable tax treatment

given to homeowners.

In addition, families who are paying too much in rent are not

able to save up money for the downpayment on a house. Critical

housing needs are not concentrated in urban areas. All regions of

the country have experienced increases in critical housing needs.

Only 1.6 million of those with critical housing needs live in central

cities. Another 1.5 million live in the suburbs and about 660,000

families live in rural areas.

Thus, it is our hope today that by holding this hearing, we will

continue to highlight the urgent need for production of affordable

housing for working families and continue to build consensus that

something needs to be done to address this critical issue.

Today, we will hear from two panels of witnesses. The first panel

will consist of my colleagues, Senator Christopher ‘‘Kit’’ Bond of

Missouri, and Senator John Edwards of North Carolina. Our second panel will consist of Mayor Thomas M. Menino of Boston, who

is also President of the U.S. Conference of Mayors. Mr. Richard H.

Godfrey, Jr., Secretary of the National Council of State Housing

Agencies and also the Executive Director of Rhode Island Housing

and Mortgage Finance Corporation. Finally, Mr. Bill Picotte, who

is President, Housing Assistance Council; and Executive Director,

Oti Kaga, Inc. of the Cheyenne River Sioux Reservation.

Each of our witnesses has been asked to testify about the impact

of the affordable housing shortage, strategies for increasing or

stimulating affordable housing production, and any proposals that

should be considered as part of Federal legislation to encourage the

production of affordable housing for working families.

Now before I recognize Senator Sarbanes for his opening statement, let me say all the statements have been received for the

record and we would ask all of our witnesses to try to adhere to

a 5-minute time limit.

Thank you very much.

Senator Sarbanes.

STATEMENT OF SENATOR PAUL S. SARBANES

Senator SARBANES. Mr. Chairman, I will be very brief, out of deference to our colleagues who are here and we are very much interested in hearing from them, and I know that they have, as we all

do, pressing schedules.

Also let me commend you for holding another hearing on this

critically important issue of affordable housing.

I think that this effort to develop a consensus on this issue is extremely important. We have to act on this. It is a pressing crisis

all across the country, hidden, to some extent, but becoming more

and more manifest. I appreciate the fact that you referred to the

recent report of the National Low Income Housing Coalition, Out

of Reach.

Every year they come out with this report and they have now

structured this concept of the housing wage, how much would one

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have to earn in order to afford a minimal level of rental housing.

And of course, what they are now telling us—actually, there is no

city or county in the Nation where one minimum wage-earner can

afford to rent a modest, two-bedroom apartment. In three-quarters

of the States, a family needs to have more than two full-time minimum wage-earners in order to pay the rent.

That gives you some sense of the gap between what people are

earning and what is needed in order to obtain affordable housing.

It is very important that we are focusing on this. I very much appreciate the concern and the initiatives which both Senator Bond

and Senator Edwards have taken on this issue.

I am also pleased that we have this very distinguished panel to

follow, with Mayor Menino, the very able Mayor of Boston, who

heads up this year the Conference of Mayors.

Mr. Godfrey, from your own State, we know of the quality of the

Rhode Island program.

And Mr. Picotte, we are delighted that he is here with us today.

I know that Senator Johnson has taken a particular interest in trying to address the housing question on the Indian reservations, and

it is an issue that he has been following very closely. In fact, we

have held some other hearings that he helped to initiate on that

very important question.

Thank you very much.

Senator REED. Thank you, Senator Sarbanes.

Let me recognize Senator Bond, who has long been a leader on

this issue and now serves on the Appropriations Committee, where

he continues to provide extraordinary leadership.

Senator Bond.

STATEMENT OF CHRISTOPHER S. BOND

A U.S. SENATOR FROM THE STATE OF MISSOURI

Senator BOND. Chairman Reed and Chairman Sarbanes, thank

you very much for giving me the opportunity to comment on the

affordable housing needs of low-income families, especially extremely low-income families.

You have outlined in your opening remarks why this is such an

important issue, and while this Nation has made substantial

progress through its housing programs, clearly we all agree that

there is still much that needs to be done, especially for the extremely low-income families, those at or below 30 percent of the

median income. In part, to help focus the debate on the need for

housing production for extremely low-income families, and to give

us a starting point, I have recently introduced with Senator Collins, S. 2967, the Affordable Housing Expansion Act of 2002. I ask

that a summary of the provisions of the legislation be included,

along with my full written statement, as part of the record.

Senator REED. Without objection.

Senator BOND. You will be relieved to know I will give a briefer

summary.

[Laughter.]

The Affordable Housing Expansion Act of 2002 would establish

a new block grant program to be administered by HUD, who would

allocate funds annually through a block grant to State housing finance agencies to develop mixed-income housing. These Federal

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block grant funds would be targeted solely to the development of

very low-income and extremely low-income housing units within

mixed-income housing. Our formula would allocate on a per-capita

basis with no State receiving less than $6 million. States also

would have to contribute a 25 percent match. Up to 20 percent of

these block grant funds could go to preserve existing low-income

multifamily housing and for the rehabilitation needs of low-income

multifamily housing.

I know there is a difference of opinion as to the entity to administering the housing production program, a lot of different ideas on

it. I chose to use State housing finance agencies. I have seen the

effectiveness of the Missouri Housing Development Corporation. I

served on it in a prior life. I have worked with housing finance

agencies across the country and I have seen their effectiveness in

administering the low-income tax credit program. I think State

housing finance agencies know the local housing markets within

their States and they have the experience and funding sources to

ensure effective use of Federal housing funds.

Also, the question of funding has been one of the roadblocks that

has long hampered the consideration of a new housing production

block grant program for extremely low-income families. The question of funding is a difficult issue. While a housing production program needs to be a priority for this Nation, I know in my work

with Senator Sarbanes’ colleague from Maryland, Senator Mikulski, on the VA–HUD Independent Agencies Appropriations Subcommittee, there are a number of other very important and pressing needs, including the need for increased funding for veterans’ medical care, EPA water and wastewater infrastructure needs,

science research space, and emergency response.

Nevertheless, I believe we should look at reserving any ‘‘excess’’ Section 8 funds, up to $1 billion a year, for the production of lowincome housing. To me, this is a credible source of funds, especially

since every year, we go through the frustration of seeing Congress

and the Administration, both parties raiding the excess Section 8

funds, rescinding a billion dollars or more a year to pay for other

program priorities. Some of them may be in HUD, VA, and EPA,

but they can just as well be some place else. This is a honey pot

that is taken out of housing to be used elsewhere. I think we

should keep it in housing. And contrary to popular belief, these

Section 8 funds can be rescinded so that not a single family will

lose any housing or housing assistance. They are not necessarily

funds that come because people cannot find housing.

The Affordable Housing Expansion Act of 2002 also provides new

authority for low-income housing production under Section 8 and

the Public Housing program. Under the Section 8 program, the bill

provides new authority for a ‘‘Thrifty Voucher’’ program that will

allow the use of Section 8 project-based assistance for new construction, substantial rehab and preservation of affordable housing

for extremely low-income families, and I believe the Chairman has

worked on that effort in the past.

This bill also would authorize a new loan guarantee program

that will allow public housing agencies to rehabilitate existing

public housing or develop off-site public housing in mixed-income

developments. This is an important tool we have included in the

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appropriations bill. It would allow Public Housing Agencies to be

more aggressive in addressing the over $20 billion backlog of public

housing capital needs.

The Act I am proposing is the first step toward addressing a

growing shortage of affordable housing for very low-income and for

extremely low-income families. As noted, HUD’s most recent report

in 1999 on worst-case housing needs concluded that the shortage

of affordable housing has worsened. In particular, the number of

affordable housing units available to extremely low-income renters

dropped at an accelerated rate from 1997 through 1999.

As has been stated, I believe, the report found a record of 5.4

million families that have incomes, 50 percent of the median income or below, and pay at least 50 percent of their income in rent.

These worst-case housing needs have become increasingly concentrated among families with very low incomes and extremely low

incomes.

Further, we have lost 200,000 units of Section 8 project-based

units to rent increases, as well as to decisions by owners of the

housing not to renew, and in many areas such as my State, families with vouchers simply cannot find housing in tight rental markets. The Council of Large Public Housing Agencies in 2000 found

that the average turn-back rate for vouchers was 19 percent, that

means for every five vouchers put out, one holder came back and

could not find housing even with a 6-month extension. In addition,

the survey found that it took the average voucher holder 85 days

to find housing. And while voucher utilization is improving, some

892 PHA’s in 2000 and 715 in 2001 had voucher utilization rates

of below 90 percent. Finally, as families age and people live longer

lives, we are beginning to face a new crisis of a lack of affordable

housing for seniors.

The bill I am proposing should provide additional needed tools to

allow States and communities to develop this needed housing. Decisions would be driven by local choice and need, particularly where

there is little or no housing for families and seniors at the low end

of the economic scale. These families need to be served and the cost

to build affordable housing is small compared to potential cascading social and economic cost from failure to provide it.

One final issue. I know the Subcommittee has concerns regarding

HUD’s new legal position that would support the ability of certain

Section 8 project owners to opt-out of Section 8 contracts where an

owners has prepaid the mortgage on a multifamily housing project

insured prior to 1980. I do as well. I have asked for and am awaiting a response from HUD on a number of related questions, but absent clear evidence from HUD in support of its legal interpretation,

I am deeply concerned that HUD’s new position is contrary to both

policy and law. HUD’s position is also creating substantial uncertainty in the housing marketplace and I hope that we can convince

them to rethink that position.

I thank you, Chairman Reed, and Senator Sarbanes. We look forward to working with both of you. I would be happy to try to answer any questions you might have.

Senator REED. Thank you very much, Senator Bond. And likewise, I look forward to working with you and thank you for your

attention to this very critical issue for all of our constituents.

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Senator SARBANES. Mr. Chairman, can I say—— Senator REED. Absolutely.

Senator SARBANES. —that we strongly share your views on the

HUD issue that you raised right at the end of your testimony. We

have been in touch with them, as I know you have. I think it is

bad policy and, as you suggest, there are serious questions whether

even legally they have the authority to undertake what they seem

to be trying to do.

Senator REED. Thank you.

Senator John Edwards of North Carolina, with a passion and an

advocate for people, as a lawyer, and he continues that. This is one

of those issues which he is particularly concerned about.

Thank you for joining us, Senator.

Senator Bond, if you have to leave—— Senator BOND. I received one of those blackberry messages. I am

not sure whether it is timely or whether it is an hour late. But they

told me that I was needed. I apologize to my colleague from North

Carolina. I will look forward to reading his testimony.

Thank you.

Senator REED. Thank you, Senator.

Senator Edwards.

STATEMENT OF JOHN EDWARDS

A U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

Senator EDWARDS. Thank you to both the Chairmen. Thank you

for holding this very important series of hearings on housing in

America. I am grateful for the opportunity to be here today to talk

generally about the need for increased rural housing, and to talk

more specifically about legislation I have introduced, the Rural

Rental Housing Act.

Of course, this problem of the shortage of affordable housing is

also a problem for families in our cities and it is a serious problem

that we have to address. But today, my focus will be on the problem as it exists in rural America.

There is nothing more important to a good life in America than

a good home. And there is no problem in rural America larger than

the shortage of affordable housing. For working families in rural

America today, the shortage of affordable housing is becoming a

crisis.

About 2.6 million rural households live in housing that either

has serious structural problems or doesn’t have indoor plumbing,

heat, or electricity. In North Carolina, my State, the problem is

even bigger. As many as one in 10 people in five of North Carolina’s rural counties live in inferior housing.

The rural housing shortage is also part of a bigger problem in

rural America. In America’s economy today, rural areas are falling

behind. They do not have the access that they need to technology,

to lending, and to investments that will create good jobs. As a result, while Americans in rural areas have always been poorer than

Americans in cities, that gap has grown larger since 1979. In many

rural North Carolina counties, 20 percent or more of the people live

below the poverty line.

Rural areas cannot address their housing problems alone, but

Washington has turned its back on the problem. Federal investVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00112 Fmt 6601 Sfmt 6601 89139.TXT SBANK4 PsN: SBANK4
109

ment in rural rental housing is at its lowest level in more than 25

years. This year, the Administration’s budget provided zero dollars

for building rental homes in rural America—zero.

More generally, as the Millennial Housing Commission said in its

recent report, and I am quoting, ‘‘Rural housing needs . . . are

often neglected by major Federal housing programs. . . .’’ That is

the truth.

So the shortage of affordable housing in rural areas is a crisis

for working families and it is a crisis that we in Washington are

not addressing.

Mr. Chairman, let me talk briefly about how my legislation addresses this problem.

Owning a home is a central part of the American Dream, but the

reality is that many working families cannot afford to buy a home.

These people still need and deserve a decent roof over their heads.

One in five rural renters pays more than 50 percent of their income

for housing. For a typical working family, that is not sustainable.

So, we have to do something to address the shortage of rural

rental housing that is affordable.

That is what this bill is about. The Rural Rental Housing Act would create a $250 million Federal fund to build or rehabilitate

rental housing that addresses urgent local needs. The fund would

work in a smart innovative way. Rather than creating a new bureaucracy, we would say that people closer to the grassroots, not

people here in Washington, would make the decisions about how

these funds are spent. Rather than having one agency dictate how

the funds are spent, we would encourage partnerships among private developers—banks, States, and nonprofits. Rather than limiting Federal funds to a few projects, we would stretch Federal dollars by requiring substantial amounts of matching funds from the

State and local levels. And we would focus the funds on the people

who need the help the most.

Let me give one example of how this program would work.

Shelby, North Carolina, which is in the western part of our

State, has a population of about 20,000 people. Charles Place is a

40-unit affordable housing complex for the elderly in Shelby. It is

a good, dignified place for an elderly person to retire—nice, onebedroom apartments, open common spaces, and nice landscaping.

Thanks to a partnership among lots of different entities, these

apartments are available at a reasonable rental rate that people

can afford—less than $300 a month. That is the kind of housing

that this legislation would support.

There is no question that the Rural Rental Housing Act is only

one part of the solution to the problem of affordable housing facing

rural America. There is much more that we need to do. But this

Act is a solid step on the road to making sure that Americans who

live in rural areas enjoy all the opportunities and all the promises

of life in our great country.

I look forward to working with both the Chairmen on this issue.

I thank you for your focus on an issue that is critically important

to all of America. And thank you for allowing me to testify.

I ask that my entire statement be made a part of the record.

Senator REED. Without objection, thank you very much, Senator.

And thank you for your particular concern about rural housing.

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That is an issue that is noted, but sometimes not followed up on,

as you intend to do.

Senator EDWARDS. Thank you very much, Mr. Chairman.

Senator REED. Let me now call the second panel to the dias.

I welcome our second panel, beginning with Thomas M. Menino,

the Mayor of Boston, since 1993. Tom has done a remarkable job

in Boston. It is one of the great cities of America, right up there

with Providence, Rhode Island.

[Laughter.]

We appreciate what you have done. We also appreciate the fact

that you are now serving as the President of the U.S. Conference

of Mayors. You took it upon yourself to ensure that, in addition to

homeland security, housing was one of the major issues that the

mayors would address this year in going forward. We thank you.

The second panelist is Mr. Richard H. Godfrey, Jr., Executive

Director of the Rhode Island Housing and Mortgage Finance Corporation. Richard also serves as the State Housing Commissioner

and the Executive Director of the Rhode Island House Resource

Commission.

Let me tell you from first-hand experience, there is no better

housing administrator in the United States than Richard. His colleagues and he have done great work in Rhode Island to give people the opportunity to live decently and afford their shelter.

Thanks, Richard.

Finally, we are joined by Bill Picotte. He has been a Member of

the Housing Assistance Council Board of Directors since 1993 and

currently serves as its President. He is also Executive Director of

Oti Kaga, Inc., a nonprofit housing development corporation that

he founded in 1993. He is a Member of the Board of Directors of

the National Rural Housing Coalition and also a Member of the

Cheyenne River Sioux Tribe.

Thank you, Bill, for joining us and we look forward to the testimony of all our panelists.

Let me now recognize Chairman Sarbanes.

Senator SARBANES. Thank you very much.

Mr. Chairman, can we get Baltimore included on that list with

Boston and Providence.

[Laughter.]

Senator REED. I think there are a lot of similarities. The big bay.

I think they fit.

[Laughter.]

Senator SARBANES. Mr. Godfrey, I am sure you would agree with

me, after having heard those very laudatory remarks from Senator

Reed, that you have an outstanding Senator from Rhode Island

here with really terrific perceptions about what realities are.

[Laughter.]

I am going to apologize to this panel. I am not going to be able

to stay, unfortunately. I do want to in particular, though, commend

Mayor Menino for putting the affordable housing issue on the top

of the agenda for the U.S. Conference of Mayors. I think that is an

enormously important contribution and I think it is providing some

impetus for our efforts here to try to develop some consensus thinking on the affordable housing issue.

111

Of course, this session of Congress is coming to a close, but we

have the next one not too far in the future. And that will still be

during your term as President of the Conference of Mayors. Maybe

we can use that as an incentive to try to move things along, so it

can happen on your watch. That would be a nice accomplishment.

We know the energy and effort you are putting into this and before I departed, I wanted to express my appreciation to you.

Mayor MENINO. Thank you, Mr. Chairman.

Senator REED. Mayor Menino, all the statements are a part of

the record. If you would like to summarize, that is perfectly appropriate. Please go ahead.

STATEMENT OF THOMAS M. MENINO

MAYOR, CITY OF BOSTON, MASSACHUSETTS

PRESIDENT, U.S. CONFERENCE OF MAYORS

Mayor MENINO. Thank you.

Senator Reed, Senator Sarbanes, thank you both for being at our

conference in May to address the Mayors of America. Both of you

could be suburbs of Boston, if you want, Providence and Baltimore.

[Laughter.]

We will accept you.

[Laughter.]

Mr. Chairman and Members of the Committee, thank you for inviting me to speak about the shortage of workforce housing that too

many American families face today. As Mayor of Boston and President of the U.S. Conference of Mayors, this issue is at the top of

my agenda because strong cities must meet the diverse needs of

their housing markets.

And Senators, despite our best efforts at the local level, we cannot do it alone. We need a real group of partners and Washington

must be a better partner. We need our national leadership to: Expand the supply of housing for working families, seniors and the

needy; make homeownership a more attainable goal, particularly in

communities of color, and; preserve the stock of reasonably priced

housing we have now—from public housing to assisted living.

Despite, or maybe because of, the strength of the housing economy across our country, working families and people of all ages, at

different income levels, are struggling to keep a roof over their

heads. So the time has come to give this national issue the real attention it deserves.

This evening, mayors from across this country will be arriving in

Washington for our first ‘‘Lobby Day.’’ And one issue that will be

at the top of everyone’s agenda is the need for more housing.

Too many families are falling through the cracks. According to

the National Low Income Housing Coalition study, Out of Reach,

for the fourth year in a row, there is no jurisdiction in the United

States where a minimum-wage job provides enough income for a

household to afford a two-bedroom apartment.

Just think about that.

From State-to-State and from city-to-city—the story is the same.

The situation in Boston is indicative of the situation in many communities throughout this country. In Boston, the average two-bedroom apartment costs $1,600 a month. To afford that, you need to

earn at least $64,000 per year. If you are working a job that pays

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the Federal minimum wage, that means you have to work 72 hours

per week—and use 100 percent of your earnings to pay the rent.

And for many families, public assistance is no assistance. In Boston, a family of four has to earn under $28,250 to qualify for public

housing—and under $33,900 to be eligible for the HOME program

and Low-Income Housing Tax Credits.

As we go through these issues, Mr. Chairman, housing is one of

those issues that affect us in so many different ways. I look at it

as it affects a family in health and education because the infant

mortality rate in people who do not have permanent housing are

up tremendously.

Education—if a kid doesn’t have a stable home life and lives in

a shelter, they are not able to be educated. They go from school to

school during the course of the year.

It is no wonder that over the past decade in our country, homelessness has more than doubled. And more than 80 percent of the

people in our shelters are working mothers with children. Meanwhile the average wait for people with emergency housing needs is

21 months. The Boston Housing Authority has over 15,000 families

on its waiting list.

Mr. Chairman, in Boston, I believe I am doing my part. I do not

mind being the leader—but I do not want to be the loner. We have

permitted more than 5,000 new units in the last 2 years and I have

dedicated $30 million in city funds for housing creation. And in the

28 cities and towns around Boston, they have created 471 units.

Just think about that, about the affordability of workforce housing. They talk about it in suburbia, but they do not want to do it.

The cities need housing. We need a national housing agenda and

we need it now. Delay carries a high price—cities like Boston risk

becoming a place where only the very rich and the very poor can

afford to live.

I should add that the housing crisis is not just a problem on the

two coasts, as many believe. Studies have shown housing costs rising dramatically in States such as Minnesota and Colorado. And I

recently received an invitation to speak in North Carolina on this

issue, so the problem is clearly expanded beyond what we think of

as the high-cost communities.

So the time is right to invest in housing. It is also the perfect

medicine for a sluggish economy. Remember, when you add up all

the building costs, people buying appliances and furniture, housing

counts for one-fifth of our Gross Domestic Product. It puts people

to work, builds stronger communities, and strengthens families.

How much housing do we need? The National Housing Coalition

predicts that by 2010, we will need an additional 11 million housing units.

To make housing available to everyone, we have to reverse some

troubling trends: First, between 1997 and 1999, we lost more than

200,000 affordable units. In the absence of any new production, we

have to preserve all our assisted units. Second, homeownership is

at 67.9 percent. But for African-Americans and Latino families, it

is only 45 percent. Third, the number of 25 to 34 year-olds living

with their parents has reached record numbers. We need to give

young people a chance to jump-start their lives. Fourth, funding for

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assisted housing for seniors remains flat, despite the fact that they

are the largest growing segment of our population.

To move forward, we must create a national strategy—that is

why in May, I convened the Conference of Mayors National Housing Summit. We met for 2 days with some of the best minds in the

housing business and we reached out to new partners including

labor, seniors, and leaders in the public health and business communities. We concluded that this new strategy should include:

One, establishing a strong housing production program, such as

a National Affordable Housing Trust Fund—based on the 200

funds established in communities across this country, including

Boston. Last week, Los Angeles Mayor Hahn created a $100 million

housing trust. I applaud the efforts of Senators Kerry, Bond, and

Edwards, who along with Representative Sanders and others, have

filed strong proposals for this.

Two, at the same time, we need to provide incentives to builders.

One way to do this is to provide a tax credit for the development

of homeownership housing as the President has proposed.

Three, we should work to expand employer-assisted housing programs for working families. In Boston, we have Citizens Bank,

which you are familiar with, which has done that.

Senator, for the record, I would like to submit a copy of our comprehensive National Housing Policy, as approved by the mayors at

our Annual Meeting this spring. It is our hope that this document

will add to the long-needed debate on how to provide every American with safe, decent, and affordable housing.

I see the red light is on. Mayors do not have red lights.

Senator REED. In Boston, no one pays attention to red lights.

[Laughter.]

Mayor MENINO. Well, I pay attention. So, I just want to tell you,

this is one of those issues, Senator, you know it, you are one of the

experts. I have been with you at several forums. It takes you 2 or

3 years to get it done, to get through all the politics of it. But it

is the most important issue that we face in America today.

More and more families come to me out in the neighborhoods of

our city and say, how can I afford to live in these apartments?

I had a family in Brighton. A year and a half ago, they were pay- ing $750 a month rent. Today, they are paying $1,500 for that

same apartment—two bedrooms, and the gentleman makes $1,900

a month. His whole take-home is going to pay for that rent.

We have to get into the production business. HUD several years

ago turned out hundreds of thousands of units per year. Now it is

a mere trickle.

It is time for us to realize also that housing is an important part

of our economic stimulus package. Like I said, it creates jobs. People have to buy appliances, all those things.

So, Senator, I ask you to work with us and we will work with

you as we go forward in this housing crisis.

Senator REED. Let me thank you, Mayor Menino. If you have additional comments, we would be happy to hear them because you

are right on target and your experience is not hypothetical.

Every day, you go through the cities and the neighborhoods of

Boston and you encounter people, as I do in Rhode Island, and it

is the same refrain over and over—I cannot find a place to live. I

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cannot afford the place I am living in. And one major avenue of redress is production. I hope we can do something.

Let me join with Senator Sarbanes and reiterate my initial compliment because you have taken this issue, which was out there,

everyone sensed it, and you made it a major plank in the effort of

our mayors.

One of the things that troubles me is that this issue is so obvious

to all of us when we go home, it just doesn’t translate here in

Washington to get effective action. So your presence here today,

your leadership with the mayors, is absolutely extraordinary and

I thank you for that.

Mayor MENINO. Thank you, Mr. Chairman.

Senator REED. I do not know what your schedule is like, Mr.

Mayor. If you have to depart, then you certainly go with our thanks

and our appreciation. If you would like to stay, I will have Mr.

Godfrey and Mr. Picotte testify and then we will have questions.

Mayor MENINO. Thank you very much.

Senator REED. Thank you very much.

Mr. Godfrey, please.

STATEMENT OF RICHARD H. GODFREY, JR.

EXECUTIVE DIRECTOR, RHODE ISLAND HOUSING AND

MORTGAGE FINANCE CORPORATION

SECRETARY & MEMBER, BOARD OF DIRECTORS

NATIONAL COUNCIL OF STATE HOUSING AGENCIES

Mr. GODFREY. Thank you, Chairman Reed.

I want to echo the thanks to Mayor Menino for his leadership on

this issue. It really has moved housing to the fore, as it should be.

Thank you.

I speak today on behalf of the 50 State housing finance agencies.

State housing finance agencies administer many of the housing

production program funds right now across the country, including

the Low-Income Housing Tax Credit, the HOME funds, and the

issuance of MRB’s.

I want to thank the Members of the Senate who sponsored and

cosponsored S. 677, which is the Housing Bond and Credit Modernization and Fairness Act. This is a critical bill because half of

the bond cap which Congress recently enacted will be wiped out

unless the 10-year rule is repealed. So, I want to thank all of you

who have cosponsored that bill and I urge the leadership to get it

passed this year.

We do confront in our country right now an affordable housing

crisis. You acknowledged that one in seven families has a severe

housing problem. Sixteen million families spend more than half of

their income on housing or live in substandard housing. Indisputably, those hardest hit have the least income.

Of the 16 million families with severe housing problems, 80 percent are very low income. Steady losses of affordable apartments

exacerbate the problem. A million fewer apartments are affordable

now to extremely low-income families than were in 1991.

We need a Federal production program right now. The private

sector is not meeting the need. Rents that families can pay are not

sufficient to support the production and operation of rental housing

without substantial subsidies. In Rhode Island, for example, over

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the past 3 years, we have seen rents for a typical two-bedroom

apartment go from $613 a month to $854 a month. Unfortunately, it will take $1,500 in rent to stimulate the start of new construction in the private sector. So going from $600 to

$1,500 is just a burden that families cannot bear, so the private

sector cannot meet this need. We need the Federal intervention

right now. Existing Federal housing resources are not sufficient.

Demand for housing far outstrips supply. One-third of the families

eligible for housing assistance can get it.

Meanwhile, we have seen HUD’s budget shrink by about twothirds in real dollars since 1976. Funneling more resources into existing programs will not solve the problem. HUD’s programs were

not designed to be major producers of new housing. We have not

had a major production program in HUD since the demise of the

Section 8 program in the early 1980’s.

Even the housing credit, the greatest single producer of affordable rental housing today, was not designed to serve extremely lowincome families.

While States consistently serve families earning considerably less

than the 60 percent of average median income, State HFA’s, such

as Rhode Island, and across the country, are finding it extremely

difficult to meet those lowest income needs.

In Rhode Island, we recently convinced the legislature to commit

State funds to be able to subsidize those rents which we can get

with the tax credit program to reach the lowest-income families.

The legislature appropriated $10 million this year, and we are

using it with the tax credit program. It increased affordability, but

it did not increase supply, and we need increased supply.

We believe the best solution can be achieved without designing

a new program. All that is needed is a Federal commitment of new

flexible funds allocated through State HFA’s which can then leverage the entire panoply of other funds out there.

We recommend that rental production funds be administered by

the States for at least four compelling reasons:

First, at the State level, we are in the best position to judge

where the needs are greatest. Housing needs in cities, suburbs, and

rural areas do not exist in isolation. We can work with the local

governments to meet those needs. We have the ability to marshal

other resources, as we have done, for example, with welfare agencies using TANF funds.

Second, any funds which the Federal Government provides we

assume would be not sufficient. If we divide it up in greater than

50 parts, we lose the economy of scale. Housing production is very

expensive. We need to be able to marshal and put those funds in

the best places.

State housing finance agencies have proven their ability to administer sophisticated multifamily financing programs. We possess

the underwriting and, more importantly, the asset management capability, to assure that these developments and these apartments

will be available over the long run.

We have a many-decade record of responsibility and effectiveness

in administering tens of billions of funds. We are the only point

where Federal, State, and local resources can be brought together

in one place to meet that need.

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Any new production program should leverage and should expand

the current housing programs. It should be integrated with the existing allocation plans and funding systems. And it is essential that

any income, rent, and other rules be flexible enough to ensure compatibility with the housing credit and with other Federal housing

programs.

Finally, HUD regulation must be kept to a minimum. Several

Members of Congress, the Millennial Housing Commission, and a

number of housing groups, including the Senators you heard from

here today, have put forward proposals for meeting the rental

housing need.

You have seen Senator Kerry’s National Housing Trust Fund,

along with Senator Bond’s Affordable Housing Expansion Act. We

urge you to take these programs and move forward with a Federal

production program. We urge it to be administered by the States,

but we need action now.

Thank you very, very much.

Senator REED. Thank you very much, Richard.

Mr. Picotte.

STATEMENT OF WILLIAM (BILL) PICOTTE

PRESIDENT, HOUSING ASSISTANCE COUNCIL

EXECUTIVE DIRECTOR, OTI KAGA, INC.

CHEYENNE RIVER SIOUX RESERVATION

Mr. PICOTTE. Good afternoon, and thank you, Chairman Reed,

for holding this important series of meetings.

My name is Bill Picotte, and I am Executive Director of Oti

Kaga, Incorporated, located on the Cheyenne River Sioux Indian

Reservation in north central South Dakota. I am also President of

the Board of Directors of the Housing Assistance Council, as you

said. My testimony today focuses on housing production in rural

areas, and I have submitted a longer statement for the record.

Senator REED. Thank you very much.

Mr. PICOTTE. Let me tell you a little bit about the Cheyenne

River. The family poverty rate for the Cheyenne River Sioux Indian

Reservation is 41 percent. Median family income is $15,800. That

is median income, and that may be something that is difficult to

grasp in a metro area like this, where median income is $50,000

or higher. The homeownership rate for the Cheyenne River Sioux

is 52 percent, that is compared to 67 percent nationally. Our Housing Authority’s Indian Housing Plan currently documents a need

for 1,747 housing units, including 1,104 for new rental units, and

309 new homeownership units.

To help with this need, Oti Kaga develops both single-family and

multifamily housing. We also provide loan packaging for USDA

programs and housing counseling services. Essentially, we are engaged in affordable housing production, the focus of today’s hearing. We use low-income housing tax credits and the USDA Rural

Housing Service’s Section 502, 504, and 515 programs. We also use

HUD Section 184, the HOME programs, and the Affordable Housing Program of the Federal Home Loan Banks, along with

partnering with the Enterprise Foundation and other resources.

Production of new units is not the only way to meet housing

needs, but it also is an essential tool, especially in rural areas.

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Both substandard quality and affordability are major problems in

rural housing, especially for low-income people. Approximately 5.5

million nonmetro households pay more than 30 percent of their

monthly incomes for housing and more than 2.4 million pay over

half their incomes for housing. Substandard housing also still exists, especially in rural areas in central cities. 6.9 percent of

nonmetro units are either moderately or severely inadequate.

To help meet these needs, Federal programs are vital. Federal

housing assistance has played an important role in the production

of affordable rural housing since the mid-1930’s. Yet, according to

a methodology developed by the HAC, only 7 percent of nonmetro

households receive some type of Federal or other publicly-supported

housing assistance. One successful production approach is that of

the Rural Housing Service. After producing over 3 million units

since 1950, USDA programs have been sharply reduced in recent

years. A primary example is the Section 515 rural rental housing

program.

In fiscal year 1994, Section 515 funded 11,542 units of affordable

rural rental housing, but in fiscal year 2001 the program funded

only 1,621 units, an 86 percent reduction. The larger Section 502

single-family loan program has also seen deep cuts. These programs need to be maintained and restored.

Several Federal housing programs have also been affected by a

shift in emphasis to indirect subsidies such as loan guarantees.

One significant result is a reduction in the number of low-income

households served.

HUD programs are also very important to housing production in

rural America. The CDBG and HOME programs are vital. So is the

HUD Rural Housing and Economic Development Program, which

this year had a $25 million appropriation. Oti Kaga has won three

RHED grants since its inception, which help our local nonprofits

with both bricks-and-mortar gap funding and capacity building dollars. The funds are highly competitive and go directly to community groups. The Bush Administration has twice proposed eliminating the program, but the Congress—let by the Senate VA–HUD

appropriators, including Senators Bond and Johnson—have wisely

rejected that approach. Doubling the program money to $50 million

would be a much better idea.

A number of production strategies would be helpful. Increasing

funding for the current RHS programs—and for HUD programs

serving rural areas—is vital, as the Millennial Housing Commission recommends. But there are also other very worthy ideas for

new legislation. They include: Enactment of Senator Edwards’

Rural Rental Housing Act; Passage of the National Housing Trust

Fund proposal; Enactment of Senator Bond’s affordable housing

production bill; Enactment of the President’s homeownership tax

credit proposal; and expansion of self-help housing.

Rural rental housing may face the biggest crisis. Restoration of

the Section 515 program is key and HAC has estimated that $100

million would cover the development of at least one new Section

515 project in each State. Portfolio maintenance requires approximately $50 million a year and $25 million is needed for equity

loans to owners who wish to prepay. In short, $175 million would

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cover minimal essential activities, and $350 million would begin to

replenish the program to its former strength.

Production of new units will not solve all rural housing problems.

Financial aid, such as vouchers and funding for rehab are very important. But for millions of rural residents with limited incomes,

those solutions are simply not available. On Cheyenne River, we

need production of at least 1,700 new homes. Vouchers won’t help

that situation, since we do not have very many livable empty units

waiting to be rented or bought—as a matter of fact, vacancy rates

are essentially zero—we need production. Rural America needs production. Additional units of safe and affordable housing are very

much needed, and Federal funding is essential to make new production happen.

I want to thank you for inviting me today. I appreciate it.

Senator REED. Thanks very much for your excellent testimony.

We have a rare opportunity. We have two individuals of great experience. Rhode Island is a little different than the Cheyenne Sioux

Reservation.

Mr. PICOTTE. I think there is Indian gaming there.

Senator REED. No, no.

Mr. PICOTTE. Not yet.

[Laughter.]

Senator REED. That is another committee.

[Laughter.]

Mr. GODFREY. That is right.

Senator REED. We are a small, compact city-state, essentially, so

we see the issues in perspective in the lens of cities and suburbia.

You, obviously, have a great perspective in rural America. Let

me ask a series of questions and use this expertise as well as I can.

Generally, starting with Richard Godfrey, what is the biggest

roadblock for working families to attaining affordable housing

today in the cities, suburbs, rural areas?

Mr. GODFREY. The biggest roadblock is just the lack of supply.

There is just not enough units being produced. The private market

cannot meet the demand. As the economy grows, as new workers

are added to the economy, we have seen overcrowding in Rhode Island increase 34 percent over the past decade. That means families

are just crowding into existing units because there are no new

units being produced. There are no starter homes being produced.

In fact, we are seeing our starter homes being torn down to build

big mansions because there are just so many building restrictions

and lack of available land.

So, really, the private-sector production program is broken. We

need Government intervention to fix it.

Senator REED. Thank you.

From your perspective, Mr. Picotte?

Mr. PICOTTE. I really must agree with Mr. Godfrey on Cheyenne

River and Indian country. I think in rural America, in general, the

lack of available units, is the biggest problem. And once those units

are available, it is often a question of affordability.

Senator REED. You have all referenced the various production

proposals that are encapsulated in legislation by Senator Kerry,

Senator Bond, and Senator Edwards. Can you comment generally

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about these production ideas? Which one do you think would have

the most impact, would be the first choice of housing advocates?

Mr. GODFREY. I think that the most flexible program is the key.

I think, certainly, we are very pleased that Senator Kerry has put

forth a trust fund program because I think it has raised the level

of debate on that issue. But it does keep back a 25 percent setaside for HUD. And I think really the best place for these programs

to be distributed and administered is at the State level.

I think we also need flexibility in terms of targeting. Certainly

I know that Senator Bond has in his bill some requirements that

have mixed-income developments. That is certainly a goal that we

all aspire to. But mixed-income developments do not work in every

neighborhood. You might have trouble renting up one group of

units or another. In some neighborhoods, you might have trouble

attracting the lowest-income populations. In other neighborhoods,

you may have trouble attracting the higher-income populations.

Government intervention to force income mixing does not always

work. So, I think that we would support a program that allows the

greatest amount of flexibility and allows the States to decide on

their own where that money should be targeted.

Mr. PICOTTE. Chairman Reed, I think that each of the proposals

that the panel talked about has its own unique ability to produce

housing.

Personally, I am particularly intrigued with the Homeownership

Tax Credit. I founded Oti Kaga with the hope that increasing

homeownership on the reservation would increase personal wealth

on the reservation and give people the ability to improve their economic conditions, putting equity into a home as opposed to throwing money away on rent. So, I have very high hopes for that proposal myself.

Senator REED. I am just curious, Mr. Picotte. Financial institutions, are they actively engaged? I know Mayor Menino mentioned

Citizens Bank, which is a major bank-holding company in the

Northeast and they are active. A lot of our financial institutions

are partners in affordable housing efforts. One would hope that

they would do more if we did more. But, nevertheless, is that similarly the situation on the reservation?

Mr. PICOTTE. Yes. Currently, I work with Wells Fargo Bank,

Citibank. I know that Bank of America has been very active in

housing production, and several other financial institutions like

that. I am sure that a lot of them have involvement somewhat. But

those are the ones that I have worked with.

Senator REED. Great. Now one of the issues that Mayor Menino

raised, and something that I find consistently, is the issue of the

widespread impact of housing problems. It is not just a shelter

issue. It is an education issue, a health care issue, an employment

issue, and you go down the whole roster of human concerns. If you

have people in good, decent, affordable housing, a lot of those concerns can be addressed. Without good housing, few of them can be

reached.

Let me start with Mr. Picotte. Is that the experience that you

have seen, that this undermines other important social issues?

Mr. PICOTTE. Oh, very much so. Particularly, Mayor Menino

mentioned children’s education. He addressed health. I think that

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those two things are particularly affected by not having affordable,

decent, safe housing.

I would reflect his statement.

Senator REED. Richard.

Mr. GODFREY. Senator Reed, you are absolutely right. In fact, the

other day I was with Mayor Abodesian in Warwick. And in one of

their school districts, they had a 60 percent turnover in their students. That is, of the number of children who started the year, 60

percent of them had moved out of the school district over the

course of the year. That was a direct result of housing instability.

How can you expect the kids in Warwick to learn when you have

that kind of a turn-over? As you know, you do not generally think

of Warwick as being a place that has that kind of a crisis. But it

is a crisis.

Certainly, the over-crowding which is occurring, and in Rhode

Island, over the past 10 years, we have seen housing over-crowding

increase 34 percent. We know that is not happening as much in the

suburbs, so we have to assume that it is in the cities that housing

over-crowding is just about doubling. That overtaxes an already

aging housing stock, which exacerbates the problems of lead paint

and other housing-related health issues. So, not surprisingly, we

are seeing that run through the entire theme.

Senator REED. For the record, Warwick is a suburban community, not a central-city community.

Mr. GODFREY. That is right.

Senator REED. So it is surprising when you see that kind of volatility in their school populations.

We talked about private financial institutions. But Fannie Mae

and Freddie Mac are out there. Just in general, and Mr. Godfrey,

we will start with you, how can we get those two institutions more

actively engaged? They are engaged. I know that, in fact, Fannie

Mae has just opened up an office in Providence and is reaching out.

But can we do more there to get a partnership going?

Mr. GODFREY. Fannie Mae and Freddie Mac are both private sector, market-driven entities. Even though they are Governmentsponsored enterprises, they really respond more to Wall Street

than they do to Main Street. And they really have done very little

about meeting those with greatest housing needs. They have filled

the niche in terms of assuring a secondary market for homeowners.

But, generally, none of those homeowners are the ones who are

entry-level, first-time homebuyers, or in the lower incomes.

Fannie Mae—they have filled the niche. We have a secondary

market in housing in the United States that is the leader in the

world. But they really do not serve any affordable housing needs.

Fannie and Freddie do not take any housing risks.

So, obviously, first-time home-buyers, people with marginal incomes, they are not being served by enterprises which are driven

by Wall Street.

Senator REED. Mr. Picotte.

Mr. PICOTTE. Chairman Reed, I do not really have very much experience with Freddie Mac, personally. But as far as Fannie Mae

goes, they invest in the tax credit properties that I develop through

the syndicator, Enterprise Social Investment Corporation, a subsidiary of the Enterprise Foundation. I work with them on several

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issues. I am currently working with the South Dakota partnership

office to develop a mortgage program for Cheyenne River in, I

guess, cooperation with our initiative, my organization’s initiative,

to become a CDFI.

So, we do work with them. I think they are taking more interest

in Indian country in general, and I appreciate the effort.

Senator REED. Thank you.

Mr. Godfrey, you mentioned in your testimony the housing credit

and bond volume caps. How will these increases affect positively

housing? Can you elaborate essentially on the bond caps?

Mr. GODFREY. The 10-year rule prohibits recycling of mortgages.

We have worked very hard. Most of the State housing finance

agencies have worked very hard to get those mortgage revenue

bonds. And as Congress originally intended, as soon as the mortgage is repaid, we refinance that and try to preserve that volume

cap wherever we can.

The 10-year rule says you cannot recycle your bond money for

more than 10 years. Whereas the program started in 1986, many

of us have seen those mortgage funds recycled two or three times

and now we cannot. Those bonds have to go away. So that by eliminating the 10-year rule, we could preserve that volume cap and

move forward.

Many of the States, mostly the larger States—in Rhode Island,

we see other constraints on the mortgage system other than the 10-

year rule. But certainly in the larger States, where volume cap is

taken for a lot of other purposes, a number of homeowners are

being prevented from entering the market because of those rules.

Similarly, S. 677 does address some of the rural housing issues.

The tax credit program does not work in some of our rural States

because the way that HUD issues their median-income levels does

not allow sufficient rental levels to produce new rental housing.

So the bill would allow some relief there in terms of justifying

those changes in the rents and allowing the tax credit program to

serve more rural housing needs. And it really has been our rural

coalition of States that has been pushing for that change.

Senator REED. Mr. Picotte, you mentioned the several programs

that you use in your activities on the reservation. One of them I

think is the Section 515 program. Could you comment on how effective this is? In general, how effective are these programs? What

changes you might suggest based on your experience?

Mr. PICOTTE. Well, we have used Section 515 now for the last 4

or 5 years to produce—currently, we have 51 units under management, another 26 in the development pipeline. But, for now, for Oti

Kaga, it has been really the only way that we can find to meet our

mission through the use of Section 515 funds.

Originally, our very first tax credit project was a 10-unit project

done with single-family detached housing under the lease purchase

provisions of Section 42 of the IRC. But after the implementation

of NAHADSA, I did not have access to Indian HOME funds any

more, and I do not have access to State home funds in the State

of South Dakota.

Our challenge was to produce housing with the resources that we

had and we found the Section 515 program to be an effective way

to provide housing. Just by way of example, we rented up our FalVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00125 Fmt 6601 Sfmt 6601 89139.TXT SBANK4 PsN: SBANK4
122

con Apartments project in February. I had over 200 families apply

for those 16 units. So it is very important that my organization

produce housing. But 515 is definitely one of the ways that we have

been able to utilize resources to do that.

Senator REED. The 502 program, could you comment on that?

Mr. PICOTTE. The 502 has been somewhat helpful, but it is rife

with regulations. In Indian country, certainly we take advantage of

it when we can. But we find that, more often than not, because of

economic conditions on the reservation, people’s credit histories do

not allow them to participate in that program, with the strictures

there. Sometimes it is still a question of affordability, even with the

subsidized interest.

Senator REED. Well, I want to thank both of you gentlemen for

your excellent testimony, for your responses to questions, and for

your commitment and dedication to helping people find affordable,

decent housing throughout the country.

Again, I think it was a good opportunity to get perspectives from

a metropolitan orientation and from a very rural orientation, and

I thank both of you.

It is readily apparent from today’s testimony that Congress and

the President must make a significant and sustained commitment

to creating more affordable housing for hard-working families. Both

Mr. Godfrey and Mr. Picotte indicated that the real constraint is

that there is no production.

If you have a Section 8 certificate, you cannot find a rental unit.

If you have a family that is willing to move up for first-time homeownership, they cannot find the house. Unless we make the commitment, not just rhetorically, but in real resources, we are not

going to solve this problem.

I would also suggest that we have come a long way from the rate

of production we had a decade or two decades ago. So this is not

something novel. Ten years ago, 20 years ago, we were producing

lots of housing with these same programs that we are talking about

today. We can do it again, and we have to do it again.

As the Chair of this Subcommittee, I look forward to working

with you to achieve this critical objective, and to working with my

colleagues, Senator Bond, Senator Edwards, Senator Sarbanes, and

Mayor Menino and his colleagues.

No one in our country should have to live without a roof over

their head. A safe, decent, and stable home should not just be the

American Dream—it should be our commitment.

Again we recognize and today’s testimony bears out the fact that

providing good, safe, decent, dependable housing might go a long

way in addressing issues of education and health care, of employability, all the issues that we struggle with here every day.

I thank you for participating today.

The hearing is adjourned.

[Whereupon, at 3:37 p.m., the hearing was adjourned.]

[Prepared statements and additional material supplied for the

record follow:]

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PREPARED STATEMENT OF CHRISTOPHER S. BOND

A U.S. SENATOR FROM THE STATE OF MISSOURI

SEPTEMBER 25, 2002

Mr. Chairman and Members of the Subcommittee, thank you for inviting me to

testify on the affordable housing needs of low-income families, especially extremely

low-income families. This is an important issue, and while this Nation has made

substantial progress in homeownership rates and in housing programs for lowincome families, there is still much to be done especially for extremely low-income

families, those at or below 30 percent of medium income.

In part, to help focus the debate on the need for housing production for extremely

low-income families, I introduced, with Senator Collins, S. 2967, the Affordable

Housing Expansion Act of 2002. I ask that a summary of the provisions of the legislation be included with my written statement as part of the record. Mr. Chairman,

I praise your strong efforts in support of affordable housing for low-income families.

Both you and Senator Sarbanes have sponsored similar legislation in S. 1248, the

National Affordable Housing Trust Fund Act of 2001, as well as S. 2721, the Housing Voucher Improvement Act of 2002.

The Affordable Housing Expansion Act of 2002 is intended to begin to meet the

long-term housing needs of very low- and extremely low-income families. In particular, this legislation would establish a new block grant program to be administered by the Department of Housing and Urban Development (HUD). Under this

program, HUD would allocate funds through a block grant to State housing finance

agencies for the development of mixed-income housing. These Federal block grant

funds would be targeted solely to the development of very low-income and extremely

low-income housing units within mixed-income housing. The funds would be allocated on a per capita basis with no State receiving less than $6,000,000. Each State

housing finance agency would have to submit an affordable housing expansion plan

to HUD that ensures the funds are allocated to meet the low-income housing needs

in both the rural and urban areas of each State. States also would have to contribute a 25 percent match. Moreover, each State housing finance agency could use

up to 20 percent of these block grant funds to preserve existing low-income multifamily housing and for the rehabilitation needs of low-income multifamily housing.

I know that there is some differences of opinion as to what entity should administer a Federal housing production program. I believe there are any number of good

ideas on this issue. I chose to use State housing finance agencies, in part, because

of effectiveness of the Missouri Housing Development Corporation in administering

housing programs in Missouri, including the low-income housing tax credit program.

Moreover, I support the use of State housing finance agencies because these entities

know the local housing markets within their States and have both the experience

and funding sources to ensure the effective use of Federal housing funds.

In addition, the question of funding has been one of the roadblocks that has long

hampered the consideration of a new housing production block grant program for

extremely low-income families. This is a difficult issue. While a housing production

program needs to be a priority for this Nation, the VA–HUD Appropriations Subcommittee has a number of other important and pressing funding needs of great importance and interest, including the need for increased funding for, among other

things, VA Medical Care, EPA water and wastewater infrastructure needs, and

science research.

Nevertheless, I believe we should look at reserving any ‘‘excess’’ Section 8 funds,

up to $1 billion a year, for the production of low-income housing. This is as a credible source of funds for this housing block grant program, especially since every year

the Congress and the Administration rescind a billion dollars and more to pay for

other program priorities, including programs within HUD, VA, and EPA, among

others. And contrary to popular belief, these Section 8 funds can be rescinded so

that not a single family will lose any housing or housing assistance.

The Affordable Housing Expansion Act of 2002 also provides new authority for

low-income housing production under the Section 8 program and the Public Housing

program. Under the Section 8 program, the bill provides new authority for a

‘‘Thrifty Voucher’’ program that would allow the use of Section 8 project-based assistance for new construction, substantial rehabilitation and preservation of affordable housing for extremely low-income families. Because the cost of these vouchers

is capped at 75 percent of the payment standard, these vouchers will need to be

used in conjunction with other housing assistance programs, such as the HOME

program, the Community Development Block Grant program or Low-Income Housing Tax Credit program, to be successful. This new Section 8 authority is substanVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00127 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
124

tially the same as legislation included by Chairman Reed and Senator Sarbanes in

S. 2721.

The bill also would authorize a new loan guarantee program that will allow public

housing agencies to rehabilitate existing public housing or develop off-site public

housing in mixed-income developments. The long-term debt of these loans would be

tied to the prorata share of funds under the Public Housing Capital and Operating

Funds that would be allocated to the units that are rehabilitated or constructed over

a maximum of 30 years. This tool will allow Public Housing Agencies to address

more aggressively the over $20 billion backlog of public housing capital needs.

The Affordable Housing Expansion Act of 2002 is an important first step toward

addressing a growing shortage of affordable housing for very low-income and extremely low-income families. While homeownership rates have grown and the cost

of housing has skyrocketed, many very low-income and extremely low-income families are being left behind without the availability of affordable rental housing. This

is unfortunate, and the social and economic costs to the Nation are dramatic.

In particular, HUD’s most recent report on worst-case housing needs, A Report

on Worst-Case Needs in 1999: New Opportunity Amid Continuing Challenges, con- cluded that the shortage of affordable housing has worsened. In particular, the number of affordable housing units available to extremely low-income renters dropped

between 1997 and 1999 at an accelerated rate. As we have seen in this economy,

as rents continue to rise faster than inflation, the cost of rental housing at the low

end of the housing market has increased, resulting in the further erosion in the supply of rental units that are affordable and available without Government subsidies.

In addition, this report found a record high of 5.4 million families (some 600,000

more families with worst-case housing needs than in 1991) that have incomes below

50 percent of median income and pay at least 50 percent of their income in rent.

The worst-case housing needs have become increasingly concentrated among those

families with extremely low incomes.

Further, since that time, we have lost some 200,000 units of Section 8 projectbased units to rent increases, as well as to decisions by owners of the housing not

to renew their Section 8 contracts. In addition, many families with vouchers simply

cannot find housing in tight rental markets. For example, a recent survey conducted

by the Council of Large Public Housing Agencies (CLPHA) in 2000 found that the

average turn-back rate for vouchers was 19 percent, which means that almost 1 in

every 5 vouchers holders returned their vouchers unused despite time extensions

granted to voucher holders for housing searches that can be as long as 6 months.

In addition, this survey found that the average time needed by voucher holders to

find housing was 85 days. And while voucher utilization is improving, some 892

PHA’s in 2000 and 715 PHA’s in 2001 had voucher utilization rates of below 90 percent. Finally, as families age and people live longer lives, we are beginning to face

a new crisis of a lack of affordable housing for our seniors.

The Affordable Housing Expansion Act is designed to provide additional, needed

tools that will allow States and communities to develop new affordable low-income

and mixed-income housing. This would help fill a gap in the housing needs of the

Nation that would allow these lowest-income families to begin to climb the housing

ladder to homeownership. Decisions would be driven by local choice and need and

start to meet the burgeoning need for new low-income housing in tight markets

where there is little or no housing for families and seniors at the low end of the

economic scale. These families need to be served and the cost to build affordable

housing is small compared to potential cascading social and economic costs to both

communities and families—it is a simple equation—homes equal stable environments in which children are educated and people can obtain jobs. Jobs and homes

represent the tax base of any community and educated children are the future of

our Nation.

This is important legislation. The private sector is not making the needed investment to meet the low-income housing needs of the present and future, and existing

Federal programs are not addressing those families in the most need—extremely

low-income families. The Federal Government must show the leadership and make

the needed investment to partner with State and localities, as well as public and

private entities in the low-income housing infrastructure of the Nation. This bill is

designed to start to meet this need and focus the debate on the importance of lowincome housing production to the current and future housing needs of this Nation.

One final issue. I know that the Subcommittee has some concerns regarding

HUD’s new legal position that would support the ability of certain Section 8 project

owners to opt-out of Section 8 contracts where an owner has prepaid the mortgage

on a multifamily housing project insured prior to 1980. I am waiting for a response

from HUD on a number of related questions, but, absent clear evidence from HUD

in support of its legal interpretation, I believe that HUD’s new position is contrary

125

to both the policy and law. Also, unfortunately, HUD’s position is creating a lot of

uncertainty in the housing marketplace and the issue may have to be resolved in

the courts.

*****

AFFORDABLE HOUSING EXPANSION ACT OF 2002

(INTRODUCED BY SENATOR CHRISTOPHER S. BOND AND SENATOR SUSAN M. COLLINS)

Title I—Production of New Housing for Extremely Low-Income and

Very Low-Income Families—

• Establishes a $1 billion block grant program beginning in 2003 that would allocate funds to State housing finance agencies on a per capita basis according to

the population of the State. No State would receive less than $6 million.

• Allows funds to be used for acquisition, new construction, reconstruction, or moderate or substantial rehabilitation of affordable housing; permits funds to be used

for rehabilitation needs and preservation of existing assisted low-income housing

(although no more than 20 percent of the funds can be used for rehabilitation and

preservation); allows conversion of existing housing to housing for the elderly or

for persons with disabilities.

• Requires States to meet a 25 percent matching requirement to ensure accountability and to leverage additional funds.

• Requires housing developed to be low- and mixed-income housing with at least 30

percent of the assisted units targeted to extremely low-income families (families

at or below 30 percent of medium income); remaining assisted units would be targeted to very low-income families.

• Rents for assisted units are modeled after the low-income tax credit program only

with deeper targeting—extremely low-income families would pay no more than 25

percent of 30 percent of medium-income and very low-income families would pay

no more than 25 percent of 50 percent of medium income.

• Authorizes a new multifamily risk-sharing mortgage insurance program to help

underwrite housing assisted under this title.

Title II—Section 8 Housing Production—

THRIFTY VOUCHERS

• Establishes a ‘‘Thrifty Voucher’’ Housing Production Program that targets Section

8 project-based assistance for new construction, substantial rehabilitation and

preservation with eligible families defined as ‘‘extremely low-income families’’

(those at or below 30 percent of adjusted income).

• Limits assistance to 25 percent of units in a building while limiting the cost for

a unit at 75 percent of the payment standard or fair market rent (really is operating costs, utility costs, and reasonable return on operating costs). Initial rent

term would be 15 years with renewals through at least year 40. The premise is

to use anticipated Section 8 project-based funds to capitalize the cost of new construction, substantial rehabilitation and preservation while subsidizing these costs

over some 40 years plus. Thrifty Vouchers could be used in conjunction with lowincome housing tax credits, HOME, CDBG, or the (Title I) ‘‘Bond’’ Housing Production Block Grant program.

• New Thrifty Vouchers would be distributed under the formula used for the HOME

program.

REALLOCATION OF VOUCHERS

• New Section 8 provision would provide for the reallocation of Section 8 funds

where a PHA fails to utilize at least 90 percent of allocated Section 8 tenant-based

assistance, and then 95 percent after 16 months from notice on failure to meet

the 90 percent utilization requirements. Allows PHA’s to challenge for a new survey of market rents in an area for an increased rent payment standard or fair

market rent. Provides for a reallocation to another PHA, State or local agency,

or non-profit/for-profit capable of administering Section 8 assistance upon a finding that a PHA has failed to meet these performance requirements. Upon a finding that there is a lack of eligible families for Section 8 assistance in an area,

HUD may reallocate Section 8 assistance to other needy areas.

PRESERVATION OF SECTION 8 ASSISTANCE ON HUD-HELD AND -OWNED PROPERTIES

• New provision that requires HUD to maintain existing Section 8 project-based assistance for any HUD-owned or HUD-held multifamily projects upon disposition,

except where HUD determines the project is not viable. (Mirrors Bond provision

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carried in annual VA–HUD Appropriations Acts for the disposition of HUD-owned

or HUD-held multifamily projects that serve elderly or disabled families.)

Title III—Public Housing Loan Guarantee Program—

• Establishes a new HUD loan guarantee program for public housing agencies for

the rehabilitation of a portion of public housing or the development of off-site public housing in mixed-income developments. Long-term debt is tied to the prorata

share of funds under the Capital and Operating Funds that would be allocated

to the units rehabilitated or constructed over a maximum of 30 years.

—————

PREPARED STATEMENT OF JOHN EDWARDS

A U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

SEPTEMBER 25, 2002

Mr. Chairman, thank you for holding this important series of hearings on housing

in America. I am grateful for the opportunity to appear before you today to talk generally about the need for increased rural housing, and to talk more specifically

about legislation I have introduced, the Rural Rental Housing Act.

There is nothing more important to a good life in America than good housing. And

there is no problem in rural America larger than the shortage of affordable housing.

For working families in rural America today, the shortage of affordable housing is

becoming a crisis. About 2.6 million rural households live in housing that either has

serious structural problems or does not have indoor plumbing, heat, or electricity.

In North Carolina, the problem is even bigger. As many as one in 10 people in five

of North Carolina’s rural counties live in inferior housing.

The rural housing shortage is part of a bigger problem. In America’s economy

today, rural areas are falling behind. They do not have the access they need to the

technology, lending, and investment that will create good jobs. As a result, while

Americans in rural areas have always been poorer than Americans in cities, but the

gap has grown bigger since 1979. In many rural North Carolina counties, 20 percent

or more of the people live below the poverty line.

While rural areas aren’t able to address their housing problems alone, Washington has turned its back on the problem. Federal investment in rural rental housing

is at its lowest level in more than 25 years. This year, the budget provided zero dollars for building rental homes in rural America—zero. Rural rental housing production financed by the Federal Government has been reduced by 88 percent since

1990. In addition, while 28 percent of the urban poor have access to Federal housing

subsidies, only 17 percent of very low-income rural renters get help.

Although the rural population is 22 percent of the Nation’s population, only 12

percent of HUD’s Section 8 funds reach nonmetropolitan areas. This is due in part

to the lack of decent housing in rural areas. HOME and CDBG also neglect smaller

communities by mostly funding larger ones. Rural counties also fared worse with

Federal Housing Administration (FHA) assistance on a per capita basis as well, getting only $25 per capita versus $264 in metro areas. Our veterans in rural areas

are no better off: Only 11 percent of Veterans Affairs housing programs reach nonmetropolitan areas.

In its recent report, the Millennial Housing Commission noted this funding disparity by pointing out that ‘‘rural housing needs . . . are often neglected by major

Federal housing programs. . . .’’ The Commission recommended that the Congress

provide additional funding for programs in rural areas. It also mentioned that

States, too, must ‘‘pay special attention to the needs of rural areas.’’ The Commission is right.

We know that there is a real scarcity of rural housing—and this scarcity is even

greater when it comes to rural rental housing.

All of us recognize that owning a home is a central part of the American Dream.

But the reality is that many people cannot afford it, and these people still need and

deserve a decent roof over their heads. One out of every three renters in rural America pays more than 30 percent of his or her income for housing; 20 percent of rural

renters pay more than 50 percent of their income for housing.

To address the shortage of rural rental housing, I believe that the Federal Government must come up with new solutions. We cannot simply throw money at the

problem and expect the situation to improve. Instead, we have to work in partnership with the State and local governments, private financial institutions, private

philanthropic institutions, and the private and nonprofit sectors to make headway.

We must leverage our resources to increase the supply and quality of rural rental

housing for low-income households and the elderly.

127

Senator Jeffords, Senator Leahy, Senator Wellstone, and I have proposed a new

solution. Our Rural Rental Housing Act would create a flexible source of financing

to build or rehabilitate rental housing based on local needs. We demand that Federal dollars be stretched by requiring State matching funds and by requiring the

sponsor to find additional sources of funding for the project. We are pleased that

more than 70 housing groups from 26 States have already indicated their support

for this legislation. Let me briefly describe what the measure would do. We propose a $250 million

fund to be administered by the U.S. Department of Agriculture (USDA). The fund

will be allotted to States based on their share of rural substandard units and of the

rural population living in poverty, with smaller States guaranteed a minimum of

$2 million. We will leverage Federal funding by requiring States or other nonprofit

intermediaries to provide a dollar-for-dollar match of project funds. The funds will

be used for the acquisition, rehabilitation, and construction of low-income rural

rental housing.

The USDA will make rental housing available for low-income populations in rural

communities. The population served must earn less than 80 percent area median

income. Housing must be in rural areas with populations not exceeding 25,000. Priority will be given to very low-income households, those earning less than 50 percent of area median income, and to very low-income communities or in communities

with a severe lack of affordable housing. To ensure that housing continues to serve

low-income populations, the legislation specifies that housing financed under the

legislation must have a low income use restriction of not less than 30 years.

The Act promotes public-private partnerships to foster flexible, local solutions.

The USDA will make assistance available to public bodies, Native American tribes,

for-profit corporations, and private nonprofit corporations with a record of accomplishment in housing or community development. Again, the Act stretches Federal

assistance by limiting most projects from financing more than 50 percent of a

project cost with this funding. The assistance may be made available in the form

of capital grants, direct, subsidized loans, guarantees, and other forms of financing

for rental housing and related facilities.

Finally, the Act will be administered at the State level by organizations familiar

with the unique needs of each State, not by creating a new Federal bureaucracy.

The USDA will be encouraged to identify intermediary organizations based in the

State to administer the funding. These intermediary organizations can be States or

State agencies, private nonprofit community development corporations, nonprofit

housing corporations, community development loan funds, or community development credit unions.

Non-profit organizations, public bodies, and the other eligible intermediary organizations are well-versed in combining funding sources to finance housing for lowincome families. In fact, it is almost impossible to find a housing project which is

funded purely by Section 515 funds any more. Most rural rental housing projects

have multiple sources of funding.

An example of a project which would clearly benefit from Rural Rental Housing

Act funding is one sponsored by the nonprofit organization Southern Maryland TriCounty Community Action Committee, in Calvert County, Maryland. This high rent

area has such strong demand for Low-Income Housing Tax Credit funding that it

only has one funding round per year, rather than the usual two. The Community

Action Committee received approval from the County to build 104 units of affordable

rental housing. The land is available, but the funds are not.

Out of the 104 scheduled units, the Committee has only been able to find funding

to build 28 units, through patching together funds from the Section 515 program,

the State housing finance agency, tax credits, and the Affordable Housing Program

of the Federal Home Loan Bank. Because the incomes served by this project are so

low in comparison to the surrounding area, ranging from 21 percent ($17,000) to 33

percent ($30,000) of the area median income, tax credits alone are not an option to

build the remaining units.

With additional Federal funds through the Rural Rental Housing Act, to match

tax credits or State funds or even conventional bank mortgages, the Committee

would be able to finance the remaining 76 units of affordable housing that are desperately needed. You may have seen the recent articles in The Washington Post outlining the serious lack of housing in Calvert County, where even those families with

valid Section 8 vouchers cannot find housing. Federal funding, matched by local,

State, and private funds, is needed to begin to address this problem. In many rural

areas, the local government does not have access to a Federal funding stream to

finance rental housing. In most States, there is a long line for HOME and CDBG

funds. Small, isolated poor communities must compete with central cities, larger

towns, and suburbs for Federal block grant funding.

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The Rural Rental Housing Act would provide an additional source of funding, devoted exclusively to rural America, for rental housing development, acquisition, and

rehabilitation. By providing another tool, target to our small towns and farming

communities, the Rural Rental Housing Act provides an additional tool, or resource,

to finance rental housing for rural families.

The Rural Rental Housing Act is not meant to replace, but to supplement, the

Section 515 Rural Rental Housing program, which has been the primary source of

Federal funding for affordable rental housing in rural America from its inception in

1963. Section 515, which is administered by the USDA’s Rural Housing Service,

makes direct loans to nonprofit and for-profit developers to build rural rental housing for very low-income tenants. Our support for Section 515 has decreased in recent

years—there has been a 73 percent reduction since 1994—which has had two effects. It is practically impossible to build new rental housing, and our ability to preserve and maintain the current stock of Section 515 units is hobbled. Fully threequarters of the Section 515 portfolio is more than 20 years old.

The time has come for us to take a new look at a critical problem facing rural

America. How can we best work to promote the development of quality rental housing for low-income people in rural America? My colleagues and I believe that to

answer this question, we must comply with certain basic principles. We do not want

to create yet another program with a large Federal bureaucracy. We want a program that is flexible, that fosters public-private partnerships, that leverages Federal

funding, and that is locally controlled. We believe that the Rural Rental Housing

Act of 2001 satisfies these principles and will help move us in the direction of ensuring that everyone in America, including those in rural areas, have access to affordable, quality housing options.

There is no question that the Rural Rental Housing Act is only one part of the

solution to the problem of affordable housing facing rural America. There is more

we need to do. But I do believe this Act is an important step on the road to making

sure Americans who live in rural areas enjoy all the opportunities and promise of

life in our great country. Mr. Chairman, I look forward to working with you on this

bill and this issue in the future.

Thank you.

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PREPARED STATEMENT OF THOMAS M. MENINO

MAYOR, CITY OF BOSTON, MASSACHUSETTS

PRESIDENT, U.S. CONFERENCE OF MAYORS

SEPTEMBER 25, 2002

Mr. Chairman and Members of the Committee, thank you for inviting me to speak

about the shortage of workforce housing that too many American families face

today. As Mayor of Boston and President of the U.S. Conference of Mayors, this

issue is at the top of my agenda because strong cities must meet the diverse needs

of their housing markets.

Senator, despite our best efforts at the local level, we cannot do it alone. We need

a real group of partners and Washington must be a better partner. We need our

national leadership to: Expand the supply of housing for working families, seniors

and the needy; make homeownership a more attainable goal, particularly in communities of color; and, preserve the stock of reasonably priced housing we have now—

from public housing to assisted units.

Despite, or maybe because of the strength of the housing economy across our

country, working families and people of all ages, at different income levels, are

struggling to keep a roof over their heads.

So the time has come to give this national issue the real attention it deserves.

This evening, Mayors from across the country will be arriving in Washington for

our first ‘‘Lobby Day.’’ And one issue that will be at the top of everyone’s agenda

is the need for more housing.

Too many families are falling through the cracks. According to the National Low

Income Housing Coalition study, Out of Reach, for the fourth year in a row, there

is no jurisdiction in the United States where a minimum wage job provides enough

income for a household to afford a two-bedroom apartment.

From State-to-State and city-to-city—the story is the same. The situation in Boston is indicative of the situation in many communities throughout the country. In

Boston, the average 2-bedroom apartment costs $1,600 a month. To afford that, you

need to earn at least $64,000 per year. If you are working a job that pays the Federal minimum wage, that means you have to work 72 hours per week—and use 100

percent of your earnings to pay the rent.

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And for many families, public assistance is no assistance. In Boston, a family of

four has to earn under $28,250 to qualify for public housing—and under $33,900 to

be eligible for the HOME program and Low-Income Housing Tax Credits program.

But what about people—such as teachers, secretaries, police officers, restaurant

workers, and countless others—who earn too much to qualify for public assistance,

but not enough to afford an average market rate apartment?

It is no wonder that over the past decade, homelessness has more than doubled.

And more than 80 percent of the people in our shelters are working mothers and

children. Meanwhile, the average wait for people with emergency housing needs is

21 months. The Boston Housing Authority has over 15,000 families on its waiting

list for public housing.

Mr. Chairman, we are doing our part in Boston. We have permitted more than

5,000 new units in the last 2 years and I have dedicated $30 million in city funds

for housing creation. But the problem simply goes far beyond any one city’s ability

to address it.

We need a national housing agenda and we need it now. Delay carries a high

price—cities like Boston risk becoming a place where only the very rich and the

very poor can afford to live.

I should add that the housing crisis is not just a problem on the two coasts, as

many believe. Studies have shown housing costs rising dramatically in States such

as Minnesota and Colorado. And I recently received an invitation to speak in North

Carolina on this issue, so the problem is clearly expanding beyond what we think

of as the high-cost communities.

So the time is right to invest in housing. After all, it is also the perfect medicine

for a sluggish economy. Remember, when you add up all the building costs, people

buying appliances, and furniture, housing counts for one-fifth of our Gross Domestic

Product. In addition, it puts people to work, builds stronger communities, and

strengthens families.

How much housing do we need? The National Housing Coalition predicts that by

2010, we will need an additional 11 million housing units.

To make housing available to everyone, we have to reverse some troubling trends:

• Between 1997 and 1999, we lost more than 200,000 affordable units. And in the

absence of any new production, we have to preserve all assisted units.

• Homeownership is at 67.9 percent. But for African-Americans and Latino families,

it is only 45 percent. We need to close the racial gap.

• The number of 25 to 34 year olds living with their parents has reached record

numbers. We need to give young people a chance to jump-start their lives.

• Funding for assisted housing for seniors remains flat, despite the fact that they

are the largest growing segment of our population. We need to provide for our

senior citizens, not squeeze them out of their homes.

To move forward, we must create a national strategy—that is why in May, I convened the Conference of Mayors National Housing Summit. We met for 2 days with

some of the best minds in the housing business and we reached out to new partners

including labor, seniors, and leaders in the public health and business communities.

We concluded that this new strategy should include:

• Establishing a strong housing production program, such as a National Affordable

Housing Trust Fund—based on the 200 funds established in communities across

the country, including Boston—to provide a steady revenue stream to assist lowincome workers. Last week, Mayor Hahn of Los Angeles hosted the leadership of

the mayors at a briefing on his housing $100 million housing trust fund. I applaud the efforts of Senators Kerry, Bond, and Edwards, who along with Representative Sanders and others, have filed strong proposals for housing production. But it is important to cities and to the U.S. Conference of Mayors that any

housing trust fund proposal be funded with new money and that it provide cities

with direct access to funds. Let’s cut out the overhead and the middlemen.

• At the same time, we need to provide incentives to builders. One way to do that

is to provide a tax credit for the development of homeownership housing as the

President has proposed. Any housing package must be a bipartisan package and

the Administration has put forward a good idea for adoption.

• We should work to expand employer-assisted housing programs for working families. In Boston, companies like Citizens Bank, which Chairman Reed knows well,

are starting these programs. We should look at new incentives to expand these

efforts.

Senator, for the record, I want to submit a copy of our comprehensive National

Housing Policy as approved by the mayors at our Annual Meeting this spring. It

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is our hope that this document will add to the long needed debate on how we provide every American with safe, decent, and affordable housing.

It is time to go beyond the tired housing policies of the past. Back then our policy

was to throw up 30 story buildings that were neighborhood eyesores. Well, times

have changed, and most of those buildings are being demolished.

Many cities, including Boston, know that the best way to build housing is to create mixed-use developments and design the buildings so that they compliment and

strengthen the neighborhood.

In the last few months, Democratic and Republican mayors have worked with the

leaders in Washington to pass the education bill and we reached an agreement to

secure critical resources for Homeland Security. We can—and we should—use this

spirit of bi-partisanship to create more homes and apartments that working families, seniors, low-income workers, and the disabled can afford.

Housing is not a luxury; it is a fundamental right. This issue deserves national

attention. Mayors and our coalition partners stand ready to work with you to help

more American families attain this right.

Mr. Chairman, thank you for your continued leadership on these issues.

—————

PREPARED STATEMENT OF RICHARD H. GODFREY, JR.

EXECUTIVE DIRECTOR

RHODE ISLAND HOUSING AND MORTGAGE FINANCE CORPORATION

SECRETARY & MEMBER, BOARD OF DIRECTORS

NATIONAL COUNCIL OF STATE HOUSING AGENCIES

SEPTEMBER 25, 2002

Chairman Reed, Senator Allard, and Members of the Subcommittee, I am Richard

Godfrey, Executive Director of the Rhode Island Housing and Mortgage Finance

Corporation. Thank you for this opportunity to testify on behalf of the National

Council of State Housing Agencies (NCSHA).

NCSHA represents the Housing Finance Agencies (HFA’s) of the 50 States, the

District of Columbia, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands. I am a Member of NCSHA’s Board of Directors and serve as its Secretary.

State HFA’s allocate the Low-Income Housing Tax Credit (Housing Credit) and

issue tax-exempt private activity bonds (Housing Bonds) to finance apartments for

low-income renters and mortgages for lower-income first-time homebuyers in nearly

every State. They administer the HOME Investment Partnerships (HOME) program

in 40 States to provide both rental and homeownership assistance for low-income

families. Many State HFA’s administer other Federal housing programs, including

Section 8 and homeless assistance.

State HFA’s have helped more than 2.2 million lower-income families buy their

first home with a Mortgage Revenue Bond (MRB) mortgage. HFA’s have financed

more than 2 million rental apartments for low- and moderate-income families, including more than 1.4 million apartments for low-income families with the Housing

Credit. They have provided another 220,000 low-income families homeownership

and rental housing help through HOME.

State HFA efforts to finance homeownership and rental housing received a boost

from Congress’ recent passage of a near 50 percent increase in the Housing Credit

and Bond volume caps. However, these increases were not enough even to restore

the purchasing power these programs had lost to inflation since Congress imposed

the caps in 1986. Demand for Housing Credits and Bonds still outstrips their supply

in virtually every State.

The availability of scarce Bond financing is severely threatened by the MRB TenYear Rule. The rule requires HFA’s to use MRB mortgage payments to retire the

MRB, rather than make new mortgages to lower-income families, once the MRB has

been outstanding for more than 10 years. This arbitrary and obsolete rule puts increased pressure on the already inadequate Bond cap by forcing States to use new

Bond authority to finance MRB mortgages, rather than recycling old authority into

new mortgages. In 3 more years, the rule will have wiped out the equivalent of the

Bond cap increase you and so many in Congress worked so hard and long to enact.

The Housing Bond and Credit Modernization and Fairness Act, S. 677, repeals the

MRB Ten-Year Rule and makes other important changes in the MRB and Credit

programs to assure that their usefulness in all parts of the country, particularly in

very low-income, predominantly rural, areas. Seventy-six Senators have cosponsored

S. 677.

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I encourage you, Mr. Chairman, and Senator Sarbanes, to join them in cosponsoring this important bill. I ask all Members of the Subcommittee to communicate

to the Senate Leadership and Finance Committee Chairman Baucus (D–MT) and

Ranking Member Grassley (R–IA) the urgent need to include S. 677 in a viable tax

bill this year.

Thank you, Mr. Chairman, for your strong and consistent leadership on affordable

housing matters. NCSHA commends you for holding this hearing to shine light on

our Nation’s affordable housing shortage and possible solutions.

Over the last several years, Members of Congress, the Millennial Housing Commission (MHC), housing industry groups, and other housing advocates have recognized the critical need for increased production of affordable housing, particularly

for our Nation’s very low- and extremely low-income renters. Many have presented

proposals for increased Federal investment to meet this need. Now is the time to

identify and combine the best elements of these proposals in an effective response

to our Nation’s affordable rental housing shortage.

A Pressing Need for Affordable Housing Persists Throughout the Nation

There is an ever-growing consensus, supported by academic research, newspaper

reports, and the personal experience of millions of low-income families, that our Nation confronts an affordable housing crisis. According to the 1999 Annual Housing

Survey, one in seven American families has a severe housing problem, meaning they

spend more than half their income on housing or live in substandard housing. That

is 15.5 million families, both homeowners and renters.

This crisis extends from the very poor to the solidly working class. Yet indisputably, those families hardest hit are those with the least income. Of the 15.5 million families with severe housing problems, 80 percent are very low income, earning

50 percent of their area’s median income (AMI) or less. Nearly 60 percent have extremely low incomes, earning 30 percent of AMI or less.

In its much anticipated, recently released report on Federal housing policy, the

Millennial Housing Commission concluded:

The most serious housing problem in America is the mismatch between

the number of extremely low-income renter households and the number of

units available to them with acceptable quality and affordable rents. This

is a problem in absolute terms, with 6.4 million extremely low-income

households living in housing that is not affordable. And it is a problem in

terms of severity, in that extremely low-income households make up only

25 percent of renters, but 76 percent of renter households with severe housing affordability problems.

The Commission found that even if all rental apartments affordable to extremely

low-income households were appropriately located, the right size, of good quality,

and available, the Nation would still have a shortage of 1.8 million apartments

affordable to them. Many apartments affordable to extremely low-income families do

not meet these conditions, making the real supply gap much larger.

According to the National Low Income Housing Coalition’s just-released report on

housing affordability, Out of Reach 2002, the average hourly wage of workers in extremely low-income households is $8.37 an hour. Yet, the ‘‘housing wage,’’ the average hourly wage necessary to afford a two-bedroom home at the nationally weighted

fair market rent (FMR), is $14.66.

This means that a worker earning the Federal minimum wage, $5.15 an hour,

would need to work an average of 114 hours per week in order to earn enough

money to rent a two-bedroom apartment at the FMR. Last year, more than 2 million

workers in the United States earned the Federal minimum wage or less.

There is no State or county in the country where a minimum wage worker can

afford a two-bedroom apartment at the FMR. Seventy-five percent of the States

have a housing wage of more than twice the prevailing minimum wage. Ninety percent of all renter households live in these States.

Extremely low-income families undoubtedly have the most acute housing needs.

Since frequently homeownership is not an option for them, more Federal resources

must be concentrated on producing rental housing affordable to these vulnerable

families.

Though very low- and extremely low-income families have the most acute needs,

the need for quality affordable housing extends to low- and even middle-income families. According to the Commission’s report, housing affordable to families earning

between 60 and 100 percent of AMI plummeted between 1985 and 1999, dropping

by 2.3 million units, or 20 percent.

The steady losses of affordable apartments exacerbate the affordable housing

shortage. According to HUD’s 2001 report on worst-case housing needs, there were

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almost a million fewer apartments with rents affordable to extremely low-income

families in 1999 than there had been in 1991. Between 1997 and 1999 alone, the

number of apartments affordable to extremely low-income families declined by

750,000, or 13 percent. More than 100,000 assisted units have been converted to

market rate housing due to owners opting out of Federal housing assistance programs. The threat of further losses looms as contracts on hundreds of thousands of

units expire each year.

Substantial New Federal Resources Are Needed

Substantially more Federal resources must be devoted to producing and to preserving affordable rental housing, especially for those with the least income. Rents

these families can afford to pay simply are not sufficient to support the production

and operation of rental housing without substantial subsidies. Existing Federal resources are not sufficient. Demand for subsidized housing far outstrips supply. Only

one-third of families eligible for rental housing help receive it.

Meanwhile, today’s HUD budget is a third of what it would have been had it kept

pace with inflation since 1976. The HUD budget has remained flat in nominal terms

over the last 27 years. It has barely grown from $29.2 billion in 1976 to $30 billion

in 2002, losing nearly two-thirds of its purchasing power. During the same period,

total Federal discretionary budget authority has grown from $194 billion to $635 billion, a three-fold increase.

Increased funding for existing HUD programs is essential. However, funneling

more resources into these programs alone will not solve the affordable rental housing shortage. Existing HUD programs were not designed to produce new rental

housing on any significant scale. In fact, one of the only HUD programs actually

producing new affordable rental housing today is the HOME program. Despite its

achievements, HOME is not the best vehicle for delivering new Federal rental production resources.

HOME funding is allocated among more than 600 State and local government

recipients. Many of them do not receive funding allocations sufficient to make meaningful investments in rental housing production.

HOME funding also is used to help finance the entire range of affordable housing

activities, including downpayment assistance, mortgage assistance, home improvement and rehabilitation, tenant-based assistance, lead-based paint abatement, reconstruction, rental rehabilitation, rental production, and acquisition. This further

reduces HOME funding availability for rental housing production.

Even the Housing Credit—the single greatest producer of affordable rental housing today—was not designed to serve extremely low-income families without additional subsidies. In 2001, 45 States allocated some portion of their Credits to apartments for families earning 50 percent of AMI or less. In 18 of these States, more

than half of the apartments allocated Credits in 2001 were dedicated to families

earning 50 percent of AMI or less. Nearly half of all of the States allocated some

portion of their Credits to apartments targeted to families earning 30 percent of

AMI or less.

While States consistently serve families earning considerably less than the 60 percent of AMI Federal income limit, State HFA’s in Rhode Island and across the country are finding it increasingly difficult. There are not sufficient subsidies to combine

with the Credit to meet the large and growing need among very low- and extremely

low-income families. It is especially difficult to reach such families in areas with

very low AMI’s.

Utilize the Proven State Housing Delivery System

We believe the affordable rental housing shortage can be solved without designing

a complicated new program or delivery system. The delivery system already exists

in State HFA’s. All that is needed is a Federal commitment of new flexible funds

allocated through State HFA’s to leverage Bonds, Housing Credits, and other resources to reach underserved families, particularly those with very and extremely

low incomes.

Any new funding Congress is able to appropriate for this purpose almost certainly

will be insufficient to meet the need. Therefore, it is essential that whatever limited

funds that Congress makes available be delivered through an established and integrated system that facilitates their coordination with other resources and targets

them to where they are most urgently needed. This system is already in place at

the State level.

NCSHA recommends that any new rental production funds be administered by

the States for at least four compelling reasons:

First, only statewide government is in a position to judge and to allocate the assistance to the most pressing needs, wherever they exist in each State, in amounts

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sufficient to make a difference. Housing needs in cities, suburbs, and rural areas

do not often exist in isolation from one another.

Moreover, housing needs, job and commercial development, transportation burdens, health care availability, human services demands, and other neighborhood

development requirements flood across city and county political boundaries, sometimes across broad areas of a State. These interrelated needs cannot be addressed

as fairly, effectively, or efficiently by a proliferation of individual subdivisions acting

alone. States can work with local governments to recognize and address these needs.

States are uniquely positioned. They are close to real local issues and housing

needs, but have enough perspective to bring a State and regional focus to problems

that cannot be solved within individual municipal boundaries. States are in an unparalleled position to ensure that funding is applied where it is most needed and

integrated with other public investments in our physical, economic, and human

infrastructure.

States have the ability to bring together State agencies and resources in ways the

Federal Government and local communities cannot. For example, State HFA’s have

partnered with welfare agencies to use Temporary Assistance to Needy Families

(TANF) funds to provide housing assistance to families attempting to make the

transition from welfare to work. They have teamed up with State health and human

services agencies to obtain Medicaid waivers to cover the cost of services in HFAfinanced assisted living. They work with State departments of mental health and

retardation to provide quality housing linked to supportive services for people with

mental illness and retardation.

State HFA’s also successfully partner with local governments, nonprofits, the private sector, resident and community groups, and service providers to address the

diverse housing challenges they confront. Through comprehensive and coordinated

State, regional, and local planning, State HFA’s can assure that housing is developed where it is most needed and in sustainable communities with access to jobs,

transportation, schools, health care, and other services.

Second, the funds potentially available for any new production program under any

reasonably anticipated budget scenario will be too scarce to be divisible among more

than the 50 States, if relative needs in all parts of each State are to be considered

and prioritized adequately, and the funds marshaled to meet them. Dividing into

more than 50 parts whatever additional housing funding Congress provides would

dilute those funds in many places to amounts too little to be effective or meaningful.

The programs such as HOME and CDBG that divide limited resources between

hundreds of local communities simply are not conducive to large scale, expensive

production activities. This fractionalization makes these programs very popular

among a broad base of local governments, but distributes funds without regard to

consideration of or prioritization among statewide or even regional needs and in

shares frequently too small to address whatever needs exist even in the county or

city receiving them. State level administration is the only possible way to bring always-too-scarce Federal assistance to bear in the most comprehensive, coordinated,

cost-effective fashion on the most pressing multifamily production problems, wherever they exist in each State.

Third, only the State government has the capacity in every State to administer

sophisticated multifamily financing. State housing agencies possess statewide focus,

sophisticated finance, underwriting, and asset management capacity, and a multidecade record of responsibility, effectiveness, accountability, and success in administering tens of billions of dollars of housing assistance. They are investment grade

rated.

States are the only point in the entire Federal system where all Federal and State

housing resources—Housing Bonds, Housing Credits, HOME, Federal Home Loan

Bank advances, FHA insurance, and State—provided funds—can be accessed in one

place and brought to bear on housing needs.

Fourth, Federal oversight capability can be more effectively concentrated on 50

entities than on programs spread among hundreds of States and municipalities, a

point which HUD itself recently recognized in limiting to the States the delegation

of contract administration on its 850,000 unit Section 8 project-based portfolio. We

expect that HUD will supervise the proper use of funds it allocates, but eschew prescriptive regulations or micromanagement of State administrators.

Any new production vehicle should leverage and expand the reach of the current

housing programs and be integrated with existing State housing plans and funding

systems. It is essential that any income, rent, or other rules be flexible enough to

ensure compatibility with the Housing Credit and other Federal housing programs,

for the combination of this new funding with them will almost always be necessary

to reach extremely low-income families.

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1 HAC has just published an issue of its magazine, Rural Voices, that is devoted to rural housing production. The issue and other information on rural housing are available on HAC’s web

site, www.ruralhome.org.

We propose that new rental production funds be allocated by State HFA’s, subject

to a State allocation plan, modeled on and coordinated with the Housing Credit

qualified allocation plan. The plan, developed with extensive public input, including

from local governments and nonprofits, would identify the State’s priority rental

housing needs and strategies for using the funds to address them.

States should be empowered to use funds for a wide range of activities, including

project-based assistance, new construction, rehabilitation, and preservation. Funds

should not be encumbered with program set-asides.

Finally, it is essential that States have the flexibility they need to tailor innovative solutions to their unique and varied housing problems. HUD regulation must

be limited to that which is necessary to assure nondiscrimination and accountability

for the use of funds to achieve the goals Congress has set. Irrational and unnecessarily burdensome rules, regulations, and reporting requirements frustrate State

HFA’s and their partners, smother creativity, and delay results.

The Solution is at Hand; The Time to Act is Now

Members of Congress in both Houses and from both sides of the aisle have long

recognized the need for increased production of affordable rental housing. The Congressionally-mandated Millennial Housing Commission report confirms this need.

Several Members of Congress, the Commission, and a number of industry groups,

including NCSHA, have put forward proposals for addressing this need. Many of

these proposals, particularly Senator Kerry’s National Housing Trust Fund Act of

2001 (S. 1248) and Senator Bond’s Affordable Housing Expansion Act of 2002 (S.

2967), contain many of the essential elements outlined in this testimony, including

State administration, deep income targeting, and flexible program rules.

We are confident that legislation incorporating these elements would attract

broad bipartisan support. We urge you to move forward and pledge our full support.

—————

PREPARED STATEMENT OF WILLIAM (BILL) PICOTTE

PRESIDENT, HOUSING ASSISTANCE COUNCIL

EXECUTIVE DIRECTOR, OTI KAGA, INC., CHEYENNE RIVER SIOUX RESERVATION

SEPTEMBER 25, 2002

Thank you for the opportunity to submit testimony to the Subcommittee on affordable housing production, and thank you, Chairman Reed, for holding this important

hearing. My name is Bill Picotte, and I am Executive Director of Oti Kaga, Inc., a

nonprofit housing development organization located on and serving the Cheyenne

River Reservation in north central South Dakota. I also am President of the Board

of Directors of the Housing Assistance Council (HAC), a national nonprofit group

working to create more affordable housing throughout rural America.1 My testimony

focuses on housing production in rural and nonmetropolitan areas.

First let me say something about our own situation in South Dakota. That will

set a context for my comments on the national scene. The family poverty rate for

the Cheyenne River Sioux Indian Reservation is 40.9 percent, compared to 11.6 percent statewide and 10.0 percent nationally. Median-family income for the reservation is $15,797, compared to $27,602 statewide and $35,225 nationally. Per capita

median income for the reservation is $6,405, compared to $10,661 statewide, and

$14,420 nationally. Yes, those are median incomes, something that may be difficult

to grasp in a major metro area where the median household income is $50,000 or

higher. The homeownership rate for Cheyenne River is 51.6 percent, compared to

66.1 percent statewide, and 67 percent nationally. The Cheyenne River Housing

Authority’s Indian Housing Plan currently documents a need for 1,747 housing

units, including 1,104 new rental units, 309 new homeownership units, supportive

services, student, transitional, homeless, elderly, and essential personnel housing.

These statistics demonstrate the extreme poverty and housing need faced by our

residents. To help alleviate some of these conditions, Oti Kaga has undertaken development of both single-family and multifamily housing; loan-packaging services

for Rural Development programs; a loan program; and housing counseling services.

Essentially, we are engaged in affordable housing production, the focus of today’s

hearing.

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2Portions of this and the following sections are drawn from Lance George, ‘‘Why Rural America Needs Affordable Rural Housing,’’ Rural Voices, Summer 2002. 3The number of rental households receiving assistance is estimated from those households

who report their income as part of their rental lease, pay a lower rent because the Government

is paying part of the cost of the unit, or live in a building owned by a public housing authority.

These estimates include Federal, State, and local Government assistance. Data on Government

subsidized owners in the AHS are limited. The number of homeowners who receive public mortgage assistance is estimated from those households who indicate they obtained a mortgage

through a State or local government program that provides lower-cost mortgages or have a primary mortgage from the USDA Rural Housing Service. This methodology is assumed to provide

an underestimate of the number of subsidized owners.

Founded in 1995, Oti Kaga, Inc. views housing development as a fundamental

approach to improving economic conditions on the Cheyenne River Reservation, in

Indian country generally, and in all of rural America. We have used numerous production programs including Low-Income Housing Tax Credits; the USDA Rural

Housing Service’s Section 502, 504, and 515 programs; the HUD Section 184 and

HOME programs; the Affordable Housing Program of the Federal Home Loan Bank;

and aid from the Enterprise Foundation, Fannie Mae, and other sources. To help

with production, we have also established two loan funds. One provides small loans

to our Sections 502 and 504 applicants for credit check fees, appraisal fees, and

other costs associated with applying for these programs. Then our Homeownership

Assistance Program (HAP) Loan Fund provides loans to Section 502 and 184 loan

applicants for downpayment and closing cost assistance. Oti Kaga also provides

loan-packaging services for the Section 502 and 504 programs through our ‘‘Increasing Access to Rural Development Programs’’ project, which is funded by the USDA

and the Housing Assistance Council. And we offer credit counseling and homebuyer

education.

Housing Conditions and Need in Rural America 2

Production of new units is not the only way of meeting housing need, but it is

also an essential tool, especially in rural areas. The level of need is shown in data

from the 2001 American Housing Survey, as compiled and analyzed by the Housing

Assistance Council. For most of the 20th Century, substandard quality was the primary housing problem in rural areas. But today sharply higher and increasing housing costs have made affordability rather than poor conditions the major problem in

rural housing, especially for low-income people. While housing costs are lower in

nonmetro areas than in cities, incomes are also lower. As a result, many rural

households find it difficult to meet basic housing expenses. Among the 23 million

nonmetro households, approximately 5.5 million, or 24 percent, pay more than 30

percent of their monthly incomes for housing costs and are considered cost burdened. Of these nonmetro cost-burdened households, more than 2.4 million pay more

than half their incomes toward housing costs.

Most cost-burdened households have low incomes, and a disproportionate number

are renters. In fact, renters are 35 percent of nonmetro cost-burdened households

while they comprise less than one-quarter of all nonmetro households. Research by

the National Low Income Housing Coalition, supported in part by the Housing Assistance Council, shows that nowhere in the United States can a household afford

a two-bedroom apartment at the fair market rent with income at the Federal minimum wage. Even in very rural places, minimum wage incomes place fair market

rents out of reach.

There have been many gains in rural housing quality, largely because of Federal

programs. But substandard housing still exists in the United States, especially in

rural areas and central cities. The frequency of housing inadequacy among nonmetro units is slightly higher than for all housing units. Approximately 1.6 million,

or 6.9 percent, of nonmetro units are considered either moderately or severely inadequate. Fully 12 percent of low-income households in nonmetro areas live in physically inadequate housing, and poor housing conditions are disproportionally more

common among renters and minority households than among owners and whites.

Current Programs

Federal housing assistance has played an important role in the production of lowand moderate-income rural housing since the mid-1930’s. Yet, according to a methodology developed by the Housing Assistance Council, only 7 percent of nonmetro

households receive some type of Federal or other publicly-supported housing assistance.3 One little known but successful production approach is that of the USDA

Rural Housing Service (formerly the Farmers Home Administration). After having

successfully produced over 3 million units since 1950, the USDA rural housing programs have been sharply reduced in recent years. (See the following chart.) The role

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and impact of these programs in production has been dramatically transformed. A

primary example is USDA’s Section 515 rural rental housing program, which serves

the poorest households.

In fiscal year 1994, Section 515 funded 11,542 units of affordable rural rental

housing, but in fiscal year 2001 the program funded only 1,621 units—an 86 percent

reduction. The larger Section 502 single-family loan program has also seen deep

cuts. These programs need to be maintained and restored.

Making the rental shortfall worse is the fact that much of the current subsidized

rental housing stock is at risk of loss. Many owners of rental developments with

subsidized mortgages from USDA or HUD are seeking to opt-out of the subsidy programs by prepaying their mortgages and converting their apartments to market rate

rentals. Likewise, landlords can opt-out of HUD’s Section 8 rental assistance program in search of higher rents and fewer Government regulations.

Several Federal housing programs have also been affected by a shift in emphasis

to indirect subsidies such as loan guarantees and tax incentives. One significant result of these policies has been a reduction in the number of lower-income households

served. The USDA Section 502 homeownership loan program has recently shifted

its emphasis from direct loans to loan guarantees. In fiscal year 2000 just 3 percent

of Section 502 guaranteed loans served very low-income households as opposed to

44 percent of the program’s direct loans.

HUD programs are also very important to affordable housing production in rural

America. The CDBG and HOME programs are vital. And let me cite one much

smaller HUD initiative that was created by the U.S. Senate. This is the HUD Rural

Housing and Economic Development Program, which this year has a $25 million appropriation. Oti Kaga has competed for and won three RHED grants, which help

local nonprofits with both bricks-and-mortar gap funding and capacity building dollars. The funds are highly competitive and go directly to community groups. The

Bush Administration has twice proposed eliminating this program, but the Congress—led by the Senate VA–HUD appropriators including Senators Bond and

Johnson—has wisely rejected that approach. Doubling the program money to $50

million would be a much better idea.

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4See Millennial Housing Commission, Meeting Our Nation’s Housing Challenges, May 30,

2002, p. 71.

Strategies and Legislative Ideas

A number of production strategies and proposals are appropriate. Increasing funding for the current RHS programs—and for HUD programs serving rural areas—

is vital (as the Millennial Housing Commission recommends 4). But there are also

other very worthy ideas for new legislation. They include:

• Enactment of Senator Edwards’ Rural Rental Housing Act (S. 652).

• Passage of the National Housing Trust Fund proposal (H.R. 2349).

• Enactment of Senator Bond’s affordable housing production bill (S. 2967), which

would create a $1 billion housing block grant program.

• Enactment of the President’s homeownership tax credit proposal (H.R. 5052).

• Expansion of self-help housing.

• Increased (or restored) staffing for the Rural Housing Service to allow more effective use of the programs.

• Passage of the Kelly Sanders amendment to provide Federal matching funds to

State and local housing trust funds.

Rural rental housing may face the biggest crisis. To help meet the crisis restoration of the USDA Section 515 program is key. The Housing Assistance Council has

estimated that $100 million is required to cover the development of at least one new

Section 515 project in each State. Necessary portfolio maintenance requires approximately $50 million per year. A minimum of $25 million is needed for equity loans

to owners who wish to prepay. In short, $175 million would cover minimal essential

activities under Section 515. We believe that the program should be funded at $550

million, and suggest that the Congress begin by appropriating $350 million for fiscal

year 2003.

Conclusions

Production of new units will not solve all rural housing problems. For rural Americans who can find decent existing homes, financial aid to make costs affordable

may be the best solution; for others, affordable existing homes can be made decent

with more rehabilitation funding. But for millions of rural residents with limited incomes, those solutions are simply not available. On Cheyenne River we need production of at least 1,700 new homes. Vouchers will not help, since we do not have many

liveable empty units waiting to be rented or bought. We need production. Rural

America needs production. Additional units of decent, affordable housing are very

much needed, and Federal funding is essential to make new production happen.

Thank you very much.

APPENDIX

Oti Kaga Projects developed to date include the following:

TIPI TOKAHEYA

A four-unit renovation project developed with Rural Development Section 502

funds.

ELK VIEW HOMES

A ten-unit single-family, detached, lease/purchase project developed with LIHTC,

Indian HOME and Affordable Housing Program funds. Construction was completed

in late 1998.

SOUTH MAIN APARTMENTS

A twenty-unit multifamily housing project developed with LIHTC, Rural Development Section 515 (including 100 percent rental assistance), and Affordable Housing

Program funds. Construction was completed in November 1999.

FALCON APARTMENTS

A sixteen-unit multifamily housing project developed with LIHTC, Rural Development Section 515 (including 100 percent rental assistance), and Affordable Housing

Program funds. Construction was completed in February 2002.

BLACKHAWK APARTMENTS

A fifteen-unit multifamily housing project developed with LIHTC, Rural Development Section 515 (including 100 percent rental assistance). Construction is scheduled for completion in December 2002.

138

THE U.S. CONFERENCE OF MAYORS

RECOMMENDATIONS FROM THE MAYORS NATIONAL HOUSING FORUM

MAY 20–22, 2002

Introduction

On May 20, 2002, the U.S. Conference of Mayors (USCM) sponsored a National

Forum to develop and advocate for a comprehensive housing policy for the Nation.

Led by USCM President Mayor Thomas M. Menino of Boston and USCM Community Development and Housing Committee Chair Mayor Willie Brown of San Francisco, a group of mayors and public and private sector housing leaders, called for

housing to be made a national priority.

The Forum participants reaffirmed the importance of housing to the vitality and

stability of our Nation’s cities. They referenced well-documented findings showing

the increasing difficulty people are having finding safe, decent, and affordable housing. They agreed that while housing has not received the national attention and resources it deserves, it is intricately linked to national priorities, such as education,

public safety, and health care.

As Mayor Menino stated, ‘‘From the need for young families to find their first

home, to the special housing and service needs of senior citizens and households

with disabilities, to the shelter challenges of the poor and homeless, the issue of

housing affects the lives of everyone in our society. Therefore, we must work together to preserve the housing we have and produce the housing we need.’’

Housing helps promote neighborhood stability, improved educational opportunity,

employment stability, and helps owners save for their futures. Housing serves as

an economic generator and springboard which fosters solutions for many other national and local priorities.

Housing, however, has not kept pace with the needs of the residents in most

urban markets. Despite an all-time high homeownership rate in America of over 68

percent, the rate in cities is only 50 percent and even lower for minority and lowand moderate-income households. More than 14 million families spend more than

half their income on housing. Clearly, in many markets, housing costs are growing

faster than incomes.

The U.S. Conference of Mayors calls for a comprehensive national housing policy

that addresses the variety of housing challenges in our urban communities, including homeownership, rental housing, public housing, special needs housing, and

homelessness issues.

Some of the challenges include:

Rental Housing

• In 2000, rents increased faster than overall inflation for the 4th consecutive year

and vacancy rates dropped in more than half of the 75 largest metropolitan areas.

• More than 6 million families spend more than half of their incomes for rent.

• Almost 2 million low- and moderate-income working families pay more than half

of their income on rent or live in severely inadequate housing.

Homeownership

• More families build wealth by owning a home than stocks or other investments,

as yet homeownership remains out of reach to more than half of all minority families and low-to-moderate income residents.

• Moderate and middle-income families increasingly struggle to afford a medianpriced home in more than three-quarters of our Nations’ 60 largest housing

markets.

• The lack of supply of affordable homes often limits housing choices and drives the

cost of housing beyond the reach of many families.

Public Housing

• More than 1.3 million families call public housing home. More than one-third of

these are seniors over the age of 62. The rest are disabled and single mothers

with children. Another 3.3 million live in private, subsidized apartment or receive

vouchers to rent apartments.

• With the stock of public housing and subsidized apartments falling far short

of the need, the waiting lists for public housing have grown to about one million

households. In some large cities, families must wait 10 years or more for an available unit.

• While the need grows dramatically, the gap between supply and demand widens.

No significant new public housing has been built in the past 25 years.

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Special Needs

• 1.4 million elderly and 2 million people with disabilities pay more than 50 percent

of their incomes for housing or live in substandard housing.

• Section 811 funding for the disabled has declined by nearly $100 million in the

past decade, from $387 million to $271 million.

• In 2001, both hunger and homelessness rose sharply in major American cities.

Requests for emergency food assistance climbed an average of 23 percent and request for emergency shelter assistance increased an average of 13 percent in 27

cities surveyed by the U.S. Conference of Mayors.

Preservation

• More than one million Federally-subsidized housing units are at risk due to a expiration of Federal subsides and use restrictions; aging deterioration, need for

debt restructuring; and local real estate market conditions.

• Millions of private, unsubsidized properties that provide affordable rents also are

at risk. Almost one million of unsubsidized affordable housing have been lost over

the past decade due to disrepair, to abandonment, or to the gentrification of

neighborhoods.

• Between 1997 and 1999, more than 200,000 unsubsidized rental units affordable

to extremely low-income families were lost from the stock.

Rental Housing

Rental housing for all income groups is essential to create neighborhoods of choice

and stimulate the economic growth of our Nation’s cities. Therefore, Congress

should provide an array of tools and resources to leverage the private sector to

produce and to preserve an adequate supply of rental housing to meet each city’s

priorities.

As part of this comprehensive strategy, Federal programs should place a very

high priority on achieving both mixed-income developments and mixed-income

neighborhoods.

Congress should create a new rental housing production program to serve the

needs of working families with incomes up to 100 percent AMI. Adjustments for

high-cost areas should be allowed.

The Conference supports the creation of a National Housing Trust primarily, but

not exclusively, designed to meet the needs of the very low income, for example, 30

percent AMI or below, through the production and preservation of rental housing.

Cities must receive a direct allocation of funds under both the workforce production program and the National Housing Trust Fund.

Current Federal programs supporting rental housing production, for example,

CDBG, HOME, LIHTC must be fully funded and redesigned to work together easily

to meet a more diverse array of local housing challenges.

Federal programs, including nonhousing programs, should provide significant incentives for regional fair share housing agreements and production consistent with

smart growth principles.

States should allocate existing housing resources in accordance with city priorities, for example, qualified allocation plans for LIHTC should reflect city priorities.

States should create a set aside of all Federal and State housing, social services

and transportation funds to provide cities with additional funds to implement targeted comprehensive neighborhood revitalization strategies.

Cities should reduce the regulatory costs of housing production and rehabilitation

by streamlining building codes, inspection and the permit process, as well as by

adopting ‘‘smart codes.’’

Congress should eliminate the volume cap for mortgage revenue bonds which fund

the production and preservation of affordable housing.

Create a National Housing Opportunities Corporation to give technical assistance

and support to suburban communities to develop affordable housing.

Expand the Low Income Housing Tax Credit Program to create mixed-income developments.

Encourage Fannie Mae and Freddie Mac to create national employer-assisted

housing programs to support homeownership by working families.

Homeownership

Homeownership is the primary vehicle to improve individual economic well being

and create wealth for households and neighborhoods.

Public and private sector should promote regional planning and implementation

that develops and retains a diverse housing stock.

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Public and private sector should continue to fund homeownership education and

outreach, credit counseling programs, bi-lingual credit counseling, and financial

literacy programs.

Congress should expand the Community Reinvestment Act (CRA) to cover entities

currently not included by the Act such as marketing companies, expand CRA regulations to local operations when the financial institution is not locally owned and

expand rating to include comprehensive community development activities.

Congress should expand CDBG and HOME funding.

Congress should relax CDBG and HOME regulations that limit the use of the

funds for new construction to give local government’s more flexibility.

Congress should pass the Community Homeownership Tax Credit.

Public and private sector should develop a secondary market for lenders to nontraditional borrowers who have had appropriate counseling and a seasoned performing loan.

Congress should continue to support homeownership through existing policies

such as the mortgage interest deduction, mortgage revenue bonds, and passage of

predatory lending regulations.

Local governments should develop policies and programs which result in homeownership land use opportunities such as land banking, military sites reuse,

brownfield reuse, and in-fill housing.

Congress must fund comprehensive strategies such as the homeownership zone,

Empowerment Zones, and Enterprise Zones.

FHA should extend the amortization period to 40 years.

FHA should provide mortgages for accessing homeownership and home repairs to

borrowers with lower credit scores and nontraditional credit histories.

Public and private sectors should aggressively target education of the elderly population of their opportunities to access financing for home repairs.

Public and private sectors should develop programs to support construction management of repair projects for elderly residents.

Enact predatory lending legislation.

Create incentives for local PHA to utilize homeownership Section 8 programs.

Over the next decade reduce disparity of homeownership rates between white and

nonwhites by 50 percent.

Public Housing

Public Housing continues to play a significant role in the ability of cities to maintain a diverse population and respond to the needs of a wide range of citizens. The

program should be preserved, expanded, and redefined.

Congress should enact legislation which funds the development of 150,000 units

of public housing annually for the next 10 years in a form which encourages income

diversity and fosters healthy urban neighborhoods. All public housing developments

should be wired to facilitate access to today’s technology.

Mayors should facilitate cooperative activities between public housing authorities

and public school systems in their communities. Congress should authorize and fund

specific programs aimed at enhancing both educational activities and housing environments of public housing children.

Congress should adopt legislation that ensures public housing operating and capital subsidies are allocated in a manner that is predictable, objective, and consistent

with actual need. Funds should continue to be made available directly to PHA’s.

Conventional public housing and Section 8 should be considered complimentary

and not competitive programs. Each should be adequately funded and cities should

be permitted to use funding for the two programs interchangeably as local needs

dictate from time to time, including the capacity to increase the use of project-based

Section 8 beyond current levels.

HOPE VI should be reauthorized for an additional 10 years and funded at levels

recommended by the Commission on Severely Distressed Public Housing—$1 billion

per year.

Congress should enact legislation which provides maximum housing choice for

senior citizens and persons with disabilities including opportunities to remain at

home with necessary assistance.

Congress should enact legislation which establishes a valid and an appropriate

method of assessing pubic housing authority performance and should mandate maximum flexibility for PHA’s who perform well under the system.

Special Needs Housing Recommendations

More than 3.5 million households have special needs for housing with supportive

services. Special needs housing includes the elderly, the disabled, the homeless,

HIV/AIDS victims, battered women, the mentally ill, and many others. The longVerDate 11-MAY-2000 13:55 Sep 12, 2003 Jkt 000000 PO 00000 Frm 00144 Fmt 6621 Sfmt 6621 89139.TXT SBANK4 PsN: SBANK4
141

term solution for much of the special needs housing problem is to expand the supply

of affordable, permanent housing. In the short term, however, transition housing

with special services is needed to stabilize these households and to allow them to

progress to more permanent solutions.

A Special Needs Coordinator should be appointed in every city to coordinate and

optimize existing funding streams for special needs populations, including Medicaid,

CDBG, tax exempt financing and other sources.

Mayors should charge the department leaders to develop collaborative programs

between sectors: Housing and education, housing and health services, housing and

children’s services, and so forth.

Section 202 funding should be expanded to $760 million annually for new construction and rental assistance.

Two hundred fifty million dollars should be appropriated for modernization of up

to 32,000 units of elderly housing, with a priority for accessibility and the delivery

of supportive services.

Fifty million dollars should be appropriated to preserve elderly housing, permitting nonprofit organizations to purchase elderly housing projects with expiring Section 8 contracts.

Senior citizen housing should include Service Coordinators. Seventy-five million

dollars should be appropriated to provide Service Coordinators in 21,000 units of

elderly housing and provide for the ability to fund Service Coordinators through

PRAC contracts.

Section 811 funding for the disabled should be increased to prior levels at $400

million.

McKinney Act homeless assistance grants should be increased to $1.8 billion.

Encourage mayors in each city to dedicate 10 percent or more of all housing units

in projects supported with locally administered Federal funds—CDBG, HOME, etc.—

for homeless and special needs populations, under a competitive application process.

The Section 811 program for disabled housing should be streamlined to permit

smaller scale projects and more flexible use of funds for purposes like capital grants,

services, tenant support, and so forth. The model for this type of flexibility is in the

McKinney Act homeless programs.

Homeless housing renewals should be mainstreamed through the HUD Housing

Certificate Fund. Permanent housing created through the McKinney Act homeless

programs—Shelter Plus Care, the Supportive Housing Programs, the SRO Program—should be renewed through the mainstream HUD Housing Certificate Fund,

rather than through renewals of the McKinney Act programs.

Preservation

Mayors support exit-tax relief to existing owners to encourage the transfer and

long-term preservation of affordable rental housing to preservation entities.

Mayors oppose the S. 236 ($300 million) recession and encourages HUD to make

these funds available per Title V of the fiscal year 1998 Appropriation Act to rehabilitate HUD-assisted properties.

Mayors encourage States to award bonus points in their QAP or tax credits award

process or to create set-asides for long-term preservation of HUD-assisted Low Income Housing Tax Credit properties.

Small unassisted properties (less than 30 units) are below the radar screen, but

are being lost at alarming rates.

• HUD should conduct a needs assessment to determine the scope of the problem

and create a sketch of the owners.

• HUD should develop programmatic responses from the data.

• In conjunction with the needs assessment, engage the GSE’s (Fannie Mae and

Freddie Mac) in developing financing products and outreach to the ownership

community.

• Mayors advocate increased funding for CDBG and HOME for subsidized loans and

grants to create long-term affordability for these small rental properties.

HUD should appoint a dedicated leader who has the overall responsibility for

preserving the affordable rental housing inventory and reporting to cities and other

municipalities on at least an annual basis on the status of the inventory in all communities in the United States.

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TESTIMONY OF SAUL N. RAMIREZ, JR.

EXECUTIVE DIRECTOR

NATIONAL ASSOCIATION OF HOUSING AND REDEVELOPMENT OFFICIALS

SEPTEMBER 25, 2002

Good afternoon, my name is Saul Ramirez. I am the Executive Director of the National Association of Housing and Redevelopment Officials (NAHRO). NAHRO is the

Nation’s oldest and largest organization that represents the interests of housing and

community development agencies seeking adequate and affordable housing and

strong communities. NAHRO’s membership administers more than 3 million housing units for 7.6 million people.

I would like to thank Chairman Paul Sarbanes, Ranking Minority Member Phil

Gramm, and the other distinguished Members of the Senate Committee on Banking,

Housing, and Urban Affairs for allowing me to offer written comments on proposals

to increase the production of affordable rental housing in communities across the

country.

There is a critical lack of affordable rental housing in this country. The Millennial

Housing Commission wrote in its 2002 report, Meeting Our Nation’s Housing Challenges, that while the ‘‘addition of 150,000 units annually would make substantial

progress toward meeting the housing needs of ELI households . . . it would take

annual production of more than 250,000 units for more than 20 years to close the

gap.’’ These numbers do not even account for those households who are lowerincome but earn more than 30 percent of the area median income. In fact, in speaking to the rental housing needs of lower-income households in general in their 2002

State of the Nation’s Housing report, the Joint Center for Housing Studies of Harvard University states that most recent construction and substantial rehabilitation

projects have done little to expand the supply of affordable housing. In addition,

preservation of existing units is in jeopardy, and ‘‘the ongoing losses of affordable

rental housing will place even greater cost pressures on lower-income and workingclass households.’’ In response to this need there have been a number of proposals offered, including

those offered by Senator Bond and Senator Edwards. NAHRO believes strongly that

additional resources must be allocated to this area, and appreciates the interest of

the Subcommittee in hearing from a variety of stakeholders as to the most generative approach. NAHRO has worked with many of these agencies on this issue, and

believes that all proposals offered have been well intentioned and passionately represented. It is also true that NAHRO has concerns with each of the proposals, in

that NAHRO must be able to show its members that any program proposed is one

that they would be able to implement effectively. To holistically address these factors, I would like to talk about the key principles that NAHRO believes must be

included in any production proposal under consideration.

Production Requires Funding at the Local Level

The issue of how the funding is distributed is one on which proposals vary widely.

Senator Bond’s bill would send the funding only to State housing finance agencies,

which would then be responsible for allocating it through a competitive process. The

rural rental housing bill authored by Senator Edwards would provide the funding

through intermediaries, which may be States or other entities with the appropriate

capacity, but does not specifically include local jurisdictions. Negotiating contracts

for the production of housing units is complicated and time-consuming, and should

not have the additional layer of regulations and mandates that States would impose.

NAHRO believes that funding must go directly to the local communities working to

address these issues. One of the successes of the HOME Investment Partnership

Program is its ability to get funding on the ground where it is needed, and NAHRO

sees this program as a model in this regard for how any new production program

should operate. NAHRO also recognizes the assistive role of the State in channeling

funding to smaller communities, and therefore proposes a formula allocation, with

60 percent of the funding at the local level and the remaining 40 percent going to

states to serve smaller communities. It is worth noting that while the original National Housing Trust Fund legislation (S. 1248) called for funding States and intermediaries, the most recent version on the House side included the same 60/40 split

as recommended by NAHRO.

Production Must Result in a Net Increase in Units

It is clear that worst-case housing needs continue to escalate for households at

the lowest end of the income scale. Further, the most recent Out of Reach report

released by the National Low Income Housing Coalition shows that rental housing

in America is largely unaffordable even for those approaching the median income

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of a given community. This environment means that, given the resources currently

available for the creation of affordable units, having both capital and operating subsidies involved is virtually unavoidable. NAHRO recognizes that in certain markets

this is in fact a requirement for feasible development. However, it is important that

any new production program that provides a capital subsidy be able to stand on its

own to a large extent, resulting in a net increase in units rather than a shifting of

resources. NAHRO has worked diligently with its members to assess what type of targeting

would allow for both project feasibility requirements to be met and affordable housing to be provided to those most in need. NAHRO believes strongly that any new

production program should address this need through the development of opportunities that are targeted fully at those earning 50 percent of the area median income

(AMI) or less, with the ability to go up to 80 percent with proper waiver authority.

While bills such as Senator Bond’s and Senator Kerry’s call for deeper targeting,

with 30 percent and 75 percent of funds respectively set aside for households at 30

percent of AMI or lower, NAHRO has deep concerns about the efficacy of this

approach, and believes that less restriction will result in more affordable units

ultimately being provided.

Rental Contributions Must Work for Everyone

NAHRO recognizes and appreciates the current trend in mixed-income housing

development. In creating opportunities for mixed-income and mixed-use development, NAHRO believes it is critical to ensure the affordability of all units for the

households they are targeted to. The Millennial Housing Commission in its own production proposal for extremely low-income households recognized that a contribution

greater than 30 percent of a household’s income might be both necessary and feasible. NAHRO supports this flexibility, and simultaneously urges caution. Proposals

such as Senator Bond’s would ensure affordability for the targeted households, with

the maximum proposed rent estimated at 40 percent of area median income. In the

development of a capital production program, NAHRO encourages Congress to craft

a program not fully reliant on operating subsidies, affordable for both the tenant and

the owner.

Production Requires Consistency

We are all aware of the challenges in funding any capital project with a series

of funding streams, which must be accessed competitively, each with different

timelines, and all wanting to know that the other funds are secured. It is crucial

that any new production program not add to this tension, but rather provide some

consistency of funding and effort that communities can then build upon. The bills

authored by Senators Bond and Edwards differ on this point, with Mr. Bond recommending an up-front planning process at the State level, and Mr. Edwards outlining

a competitive application process.

NAHRO appreciates the elements of competitive processes that have shown themselves successful in other arenas, such as the Continuum of Care, but has also seen

how this process jeopardizes capital projects unnecessarily. Even now, NAHRO is

advocating along with the Millennial Housing Commission for changes to the HOME

and Low-Income Housing Tax Credit (LIHTC) program which would allow them to

work together more seamlessly. NAHRO recommends that any new production program be a block grant, a consistent source of funding around which communities and

States would develop a planning process to govern distribution.

Funding for Production Must Be Significant

NAHRO appreciates the competing interests which face Congress in allocating

what are becoming scarce resources for nondefense related spending. However,

NAHRO believes strongly that the funding for any new production program must

come from new Federal appropriations, rather than a realignment of current resources. This is especially so when the current resource is actually not available,

such as recaptures from the Section 8 program. NAHRO applauds Senator Bond for

including a section on the reallocation of unused Section 8 budget authority in

S. 2967, and we believe it indicates the Senate appropriators and authorizers are

serious about keeping unused Section 8 funds within the Section 8 program rather

than forfeiting them to a rescission or other housing programs. However, HUD estimates that by fiscal year 2003 the balance in that account is expected to be $0.

NAHRO encourages Congress to ensure a net increase in affordable housing units

by requiring that this funding does not diminish existing housing and community

development funding levels. In order to significantly impact the need for rental units

across the country, NAHRO urges Congress to authorize and appropriate $1 billion

in new Federal funding for housing production. This figure is one which has been

agreed on by a number of stakeholders, and is included in Senator Bond’s proposal

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for fiscal year 2003. Senator Edwards’ bill, which speaks only to the needs of rural America, proposes $250 million annually be appropriated.

Production Must Be Viewed with a Large Lens

It is not only the production of new units that is vital to meeting the needs of

rental households across the country. In fact, as Senator Bond’s report illustrates,

the creation of new units without the preservation of existing affordable housing

stock is folly. We will never be able to fill the gap with the sand pouring out the

other side. For this reason NAHRO believes that any new production program must

provide local communities with maximum flexibility, and allow for not only acquisition and new construction but rehabilitation and preservation efforts as well. While

the bill authored by Senator Bond recognizes this, in setting a maximum of 20 percent of funding for rehabilitation and preservation it unnecessarily limits the ability

to projects to maximize on the local landscape and meet local needs. The exclusion

of preservation from the bill authored by Senator Edwards is hopefully an oversight,

as one of the biggest challenges facing rural communities is the preservation of existing Section 515 projects under the Rural Development Agency.

Affordability Must Be a Long-Term Commitment

The current crisis in the preservation of affordable housing units should speak for

itself. With thousands of units leaving the inventory of affordable housing stock

monthly, it is crucial that any new production program expands and protects the

affordability of new units. While Senators Edwards and Bond propose terms of 30

and 40 years, respectively, NAHRO believes Congress should go further. Along with

the Millennial Housing Commission, NAHRO endorses a fifty (50) year affordability

period for new units.

Again, we appreciate the opportunity to provide written comments to the Committee, and we look forward to an active partnership in the development of a new

affordable rental housing production program.

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TESTIMONY OF ROBERT A. RAPOZA

EXECUTIVE SECRETARY, NATIONAL RURAL HOUSING COALITION

SEPTEMBER 25, 2002

Mr. Chairman and Members of the Senate Subcommittee on Housing and Transportation, my name is Robert Rapoza. I am Executive Secretary of the National

Rural Housing Coalition. The National Rural Housing Coalition (NRHC) has been

a national voice for rural low-income housing and community development programs

since 1969. The Coalition is comprised of approximately 300 members nationwide.

Through direct advocacy and policy research, the Coalition has worked with Congress and the Department of Agriculture to design new programs and improve existing programs serving the rural poor. The Coalition also promotes a nonprofit delivery system for these programs, encouraging support for rural community assistance

programs, farm labor housing grants, self-help housing grants, and rural capacity

building funding. We have testified before the Committee before and appreciate this

opportunity to submit this statement for the record.

Thank you for holding this series of hearings on affordable housing production.

The National Rural Housing Coalition is a strong supporter of USDA’s housing programs for low-income families, as well as the legislation introduced by Senator John

Edwards, S. 652 the Rural Rental Housing Act of 2001.

The Need for Affordable Housing in Rural America

The need for affordable housing is especially strong in rural areas. In fact, a disproportionate amount of the Nation’s substandard housing is in rural areas. Rural

households are poorer than urban households; pay more of their income for housing

that their urban counterparts.

Renters in rural areas are the worst-housed individuals and families in the country. Thirty-five percent of rural renters are cost-burdened, paying more than 30 percent of their income for housing costs. Almost one million rural renter households

suffer from multiple housing problems, 60 percent of whom pay more than 70 percent of their income for housing.

There are also a number of obstacles to improving homeownership in rural areas

including high rates of poverty and poor quality of housing. According to a 1999 Economic Research Service report, the poverty rate in rural America was 15.9 percent,

compared to 13.2 percent in urban areas. In addition, the income gap between urban

and rural households has grown since 1979. In fact, the median income in rural

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America is about the same today as it was in 1979, although incomes have increased

in urban and suburban areas overall.

Minorities in rural areas have much higher rates of poverty with an average of

34.1 percent compared to urban minorities at 28.1 percent. More than 1.6 million

low-income rural households live in moderately to severely inadequate housing.

These are units without hot or cold piped water, and/or have leaking roofs, walls,

rodent problems, inadequate heating systems, and peeling paint, often lead-based.

Rural households are less likely to receive Government assisted mortgages. For

example, although the rural population is 22 percent of the Nation’s population:

• Only 6 percent of FHA assistance goes to nonmetro areas. On a per-capita basis,

rural counties fare worse with FHA, getting only $25 per capita versus $264 per

capita in metro areas.

• Only 11 percent of Veterans Affairs housing programs reach nonmetro areas and

per capita spending in rural counties is only one-third that of metro areas.

In addition:

• Only 12 percent of Section 8 funds go to nonmetro areas.

• There is no set-aside for rural areas under the HOME program, which means that

most of HOME funding ends up in participating jurisdictions, in metropolitan

areas.

• Although the CDBG has the State and Small Cities Block Grant program, there

is a significant problem for rural areas from a targeting standpoint in that States

may award grants to communities with populations up to 50,000. This means that

small rural communities must compete with larger jurisdictions for funding.

Rural residents also have limited access to mortgage credit and the secondary

mortgage market. The consolidation of the banking industry that accelerated

throughout the 1990’s has had a significant impact on rural communities. Mergers

among lending institutions have replaced local community lenders with large centralized institutions located in urban areas. Aside from shifting the locus of loanmaking, this has resulted in the diminishment of a competitive environment which,

in the past, encouraged rural lenders to offer terms and conditions that were attractive to borrowers. Because of the gap left by traditional lenders, rural households

are often prime targets for predatory lenders.

Federal Rural Housing Programs

The Rural Housing Service (RHS), formerly Farmers Home Administration, of the

U.S. Department of Agriculture, administers a range of direct loans, grants and related assistance to low-income rural families. The RHS is the only Federal agency

devoted to improving housing conditions in rural America. RHS programs have been

reduced in years and as a result there is tremendous demand for assistance. Any

revitalization of Federal housing production should include the existing housing programs of RHS.

Section 502 Single-Family Direct Loan Program

Every year, RHS makes about $1 billion in loans to low- and very low-income families to acquire, rehabilitate, or construct their own homes. To qualify for the direct

loan program, borrowers must have very low or low incomes but be able to afford

mortgage payments. The average income of households assisted under Section 502

is $18,500. About 9 percent of households have annual incomes of less than $10,000.

Since its inception, Section 502 has provided loans to almost two million families.

The Section 502 direct loan program is the most cost-effective housing program

in the Federal Government. The cost to the Government per house under the Section 502 direct loan program is only $10,000.

However, this effective program has also received severe cuts in recent years.

Funding was available for 132,000 units in 1976, but because of funding, production

has dropped by 89 percent to fewer than 15,600 units. Currently funded at $1.1 billion, the President’s budget cuts this program by 13 percent to $957 million in program level.

In many rural communities, the only housing option available to low-income families is Section 502. Therefore, it is not a surprise that there is a backlog of $5 billion

and 80,000 loan requests in RHS offices across the country.

As one way to widen the effectiveness of Section 502, USDA has expanded its cooperation with nonprofit housing organizations. Under the Mutual and Self-Help

Housing Program, for example, with the assistance of local housing organizations,

groups of families eligible for Section 502 loans perform approximately 65 percent

of the construction labor on each other’s homes under qualified supervision. This

program, which has received growing support because of its proven model, has

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existed since 1961. The housing organizations involved receive funding for technical

assistance through the Section 523 program. The average number of homes built

each year over the past 3 years has been approximately 1,500.

Section 514 Loan and Section 516 Grant Farm Labor Housing Programs

Migrant and seasonal farmworkers are some of the Nation’s most poorly housed

populations. The last documented national study indicated a shortage of some

800,000 units of affordable housing for farmworkers.

Farmworker households are also some of the least assisted households in the Nation. Some 52 percent of farmworker households’ incomes are below the poverty

threshold, four times the national household poverty rate, and 75 percent of migrant

farmworkers have incomes below the poverty line. Yet little more than 20 percent

of farmworker households receive public assistance; most commonly food stamps,

rarely public or subsidized housing.

There are only two Federal housing programs that specifically target farmworkers

and their housing needs: Sections 514 and 516 of the Housing Act of 1949 (as

amended). Borrowers and grantees under Rural Housing Service Sections 514 and

516 receive financing to develop housing for farmworkers. Section 514 authorizes

the Rural Housing Service to make loans with terms of up to 33 years and interest

rates as low as 1 percent. Section 516 authorizes RHS to provide grant funding

when the applicant will provide at least 10 percent of the total development cost

from its own resources or through a Section 514 loan.

Nonprofit housing organizations and public bodies use the loan and grant funds,

along with RHS rural rental assistance, to provide units affordable to eligible farmworkers. These funds are used to plan and develop housing and related facilities for

migrant and seasonal farmworkers. Most local programs are for seasonal workers—

those in home-based States that work in the fields for most of the year. Lack of decent housing overall the limited availability of long-term subsidies for operating

costs limits the utility of the program for migrant farmworkers.

Current funding for Sections 514 and 516 totals $37 million in program authority.

This amount provides about 700 units of housing. The estimated need is two to

three times the appropriated level.

In recent years, Congress and the Administration have worked to gradually increase funding for farmworker housing. However, to really begin to address this

problem, Congress should provide additional funding for farmworker housing programs and address the overall need for rental housing assistance in rural America.

Section 515 Rural Rental Housing Program

Today’s hearing is a step in the right direction for assisting rental housing in

rural America. Unfortunately, the Federal Government’s current investment in

rural rental housing is at its lowest level in more than 25 years. In fact, this year

is the first time that the Administration’s budget included no funding for rural

rental housing production. Over the last 15 years, the Congress and Administrations

of both parties have engaged in unwise budget cutting of rural rental housing.

Spending has declined from over $500 million a year to $114 million in fiscal year

2002. As a result, there is little production of new rental housing in rural areas.

Renters, like homeowners, in rural areas live in difficult situations. Thirty-five

percent of rural renters are cost-burdened, paying more than 30 percent of their

income for housing costs. Almost one million rural renter households suffer from

multiple housing problems, 60 percent of whom pay more than 70 percent of their

income for housing.

Moreover, poor rural renters do not fair as well as poor urban renters in accessing

existing programs. As noted, HUD has done little to pick up the slack as only 17

percent of very low-income rural renters receive housing subsidies, compared with

28 percent of urban poor. Overall, only 12 percent of HUD’s Section 8 assistance

gets to rural areas.

Historically, the Agriculture Department’s rural rental housing program has been

the key tool for improving the quality and quantity of rental housing in rural areas.

The Section 515 is an invaluable tool for rural rental housing production, repair,

and preservation for very low- and low-income families. Under Section 515 nonprofit

and for profit entities can receive 1 percent loans for acquisition, rehabilitation, or

construction of rental housing and related facilities. For much of the history of Section 515 loan term was for 50 years. Recently, in a cost cutting move, the term of

the loan was reduced to 30 years. Most Section 515 loans have gone to for-profit

entities that combine the subsidized loan, rental assistance, and tax subsidies to

finance the housing.

The portfolio contains 450,000 rented apartments in Section 515 developments.

The delinquency rate is a low 1.6 percent. The average tenant income is little more

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than $8,000 which is equal to only 30 percent of the Nation’s rural median household income. Sixty percent of the tenants are elderly or disabled and one-quarter

are minority.

Section 521 rental assistance is used in conjunction with Section 515 to help families who cannot afford even their reduced rent. In recent years, mostly in response

to an escalating number of expiring contracts, appropriations for rental assistance

have gone up. Despite the fact that the current appropriations stand at $701 million

(fiscal year 2002), the funds are insufficient. Although about 50 percent of the

450,000 Section 515 households receive rental assistance, almost 90,000 Section 515

households who need assistance do not receive it. The need for rental assistance is

projected to increase to $937 million by 2006.

As Congress considers future policy for housing it faces two challenges regarding

rural rental housing. The first is to maintain the existing stock of Section 515 units.

The second is to increase the production of affordable rental housing units in rural

communities.

Preservation of Section 515 Housing

The current portfolio of Section 515 units represent an important resource to lowincome families in rural America. At a time of declining Federal resources for rental

housing, it is hard to envision a time in which Federal policy will finance the development of a large number of rental housing developments. So, it is important to preserve the existing stock.

In 1987, Congress enacted legislation to regulate rural rental housing principally

financed under Section 515. This legislation placed a low income use restriction on

Section 515 and also established financial incentives to owners to maintain their

properties for low-income housing. In general, at the end of the initial 20 year use

restriction, an owner could seek an incentive to extend long-term low-income use,

or sell the project to a nonprofit organization or public body that would operate the

housing for low-income use.

A principal source of financing for incentives was the Section 515 and the use of

these funds for equity loans authorized under Section 515. However, as Congress

and Administration reduced funding for Section 515, USDA reduced preservation

funding to only about $5 million per year.

Roughly two-thirds of the Section 515 portfolio is regulated under the 1987 Act.

The lack of adequate funding for incentives has raised a great concern among the

owners. For the most part, the law limits their options to seeking incentives or selling to a nonprofit organization or public body.

The demand for incentives is estimated at approximately $100 million for equity

loans alone. But cuts in Section 515 have limited the ability of USDA to implement

a good preservation program.

In response to the growing concern about the lack of preservation resources,

S. 2801, the Agriculture Appropriations bill for fiscal year 2003, recommends an

increase in Section 515 from $114 million to $120 million. The recommendation includes $50 million for new construction, $50 million for repair, and $20 million for

preservation. The bill also includes increased funding for debt forgiveness related

to preservation and increases the reimbursement to nonprofit organizations for activities related to acquiring properties for preservation purposes. However, this is

only a small, first step.

Unfortunately there continue to be attempts to weaken the Section 515 program.

The most recent attempt is an amendment proposed by Representatives Bob Ney

(R–NE) and Mike Ross (D–AR) as part of H.R. 3995, the Housing Affordability for

America Act. This bill has currently passed the Financial Services Committee and

is awaiting floor action. The amendment would immediately end the low income use

restriction on certain Section 515 housing developments, displacing up to 300,000

low-income households nationwide.

Vouchers proposed under this amendment are not a viable option for rural areas,

where other decent and affordable housing is simply not available. The cost of

vouchers is estimated at $1.5 billion. Although the amendment as it was originally

offered in Committee did not require appropriations to be available before owners

could prepay, or that owners must take the vouchers held by their Section 515 tenants, the language was changed to include both of these requirements. While this

provision is an improve over the original Ney–Ross Amendment, it does little to preserve a stock of affordable housing in rural America. A better approach, which the

Senate Agriculture Appropriations bill takes, is a substantial increase in Section

515 with an allocation for incentives for equity loans, as well as enhanced tools for

nonprofit organizations and public bodies to acquire projects.

As I mentioned earlier, the existing Section 515 program contains a strong infrastructure to address the needs of the tenants and property owners. What lacks is

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funding for the program. I urge you to reject this amendment as part of any Senate

legislation or upcoming conference agreement. We also urge the Committee to work

to increase the preservation resources available under Section 515.

Rural Rental Housing Act (S. 652)

The National Rural Housing Coalition supports of the Rural Rental Housing Act

(S. 652) sponsored by Senator John Edwards and co-sponsored by Senators Jim Jeffords, Paul Wellstone, and Patrick Leahy. This legislation proposes a $250 million

Federal matching grant program for low-income households and the elderly. The

funds may be used on a flexible basis to provide various forms of assistance. It is

a new important tool for increasing production of rural rental housing.

The Rural Rental Housing Act is an initiative of the National Rural Housing Coalition. Rural housing practitioners met in 1997 and 1999 to address the growing lack

of resources for financing housing in rural areas and to come up with a plan of how

to improve the situation.

The practitioners concluded that a new rural multifamily housing delivery system

is evolving. Providers continue to build successful projects using financing tools and

housing programs that are currently available, including Section 515; they have

found, however, that managing the various components required to make a project

viable is difficult, time-consuming, and staff-intensive. Providers stressed that governmental subsidies are necessary if lower-income households are to be housed.

As part of their commitment to housing, these providers formed the idea of the

Rural Rental Housing Act. This program would build on the strength of nonprofits

and other organizations at the community level and match it with a new commitment on the Federal level. This Federal funding would encourage the continuation

of the State and local partnerships already forming, and add a critical Federal

financing piece to make housing feasible for lower-income Americans.

USDA would administer the program, as well as have the authority to delegate

administration to intermediaries. Funds will be allotted on a State-by-State basis,

to provide a dollar-for-dollar match of project funds. The grants will be for the acquisition, rehabilitation, and construction of low-income rental housing. USDA will

make assistance available to public bodies and Native American tribes, as well as

private nonprofit and for-profit corporations with a record of accomplishment in

housing or community development. Federal assistance, available in the form of capital grants, direct subsidized loans, guarantees, and other forms of financing, would

be typically available to finance up to 50 percent of project cost. The legislation

specifies that housing financed under the legislation must have a low income use

restriction of not less than 20 years.

Qualified intermediary organizations include: States or State agencies; private

nonprofit community development corporations; nonprofit housing corporations;

community development loan funds; and community development credit unions.

Funds that are allotted to intermediaries may be used to provide technical assistance and financing to housing organizations, for the acquisition, rehabilitation, and

construction of housing. The intermediaries are responsible for matching the USDA

funds on a dollar-for-dollar basis.

The population served must be households with incomes of 0 percent to 100 percent of the area median income. Priority for assistance will be given to extremely

low-income (0 percent—30 percent of area median income) and minority households.

Housing must be in rural areas with populations not exceeding 25,000, outside of

urbanized areas. Priority for assistance will be in low-income communities or in

communities with a severe lack of affordable housing.

The added value of this proposal is the flexible financing it brings and the partnerships it creates. A variety of financing tools may be used to match the Federal

funds, including loans, grants, interest subsidies, annuities, and other forms of assistance. The proposal would encourage partnerships among Federal agencies, State

and local governments, private financial institutions, private philanthropic institutions, and the private sector, including nonprofit organizations.

Nonprofit organizations, public bodies, and the other eligible intermediary organizations are well-versed in combining funding sources to finance housing for low-income families. In fact, it is almost impossible to find a housing project that is funded

purely by Section 515 funds anymore.

An example of a project that would clearly benefit from Rural Rental Housing Act

funding is one sponsored by the nonprofit organization Southern Maryland TriCounty Community Action Committee, in Calvert County, Maryland. This high-rent

area has such strong demand for Low-Income Housing Tax Credit funding, that it

only has one funding round per year, rather than two, during which all of the funds

are immediately spoken for. The Community Action Committee received approval

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from the County to build 104 units of affordable rental housing. The land is available, but the funds are not.

Out of the 104 scheduled units, the Committee has only been able to find funding

to build 28 units, through patching together funds from the Section 515 program,

the State housing finance agency, tax credits, and the Affordable Housing Program

of the Federal Home Loan Bank. Because the incomes served by this project are so

low in comparison to the surrounding area, ranging from 21 percent ($17,000) to 33

percent ($30,000) of the area median income, tax credits alone are not an option to

build the remaining units.

With additional Federal funds through the Rural Rental Housing Act, to match

tax credits or State funds or even conventional bank mortgages, the Committee

would be able to finance the remaining 76 units of affordable housing that are desperately needed. You may have seen the recent articles in The Washington Post outlining the serious lack of housing in Calvert County, wherein even those families

with valid Section 8 vouchers cannot find housing. Federal funding, matched by

local, State, and private funds, is needed to begin to address this problem. In many

rural areas, the local government does not have access to a Federal funding stream

to finance rental housing. In most States, there is a long line for HOME and CDBG

funds. Small, isolated poor communities must compete with central cities, larger

towns and suburbs for Federal block grant funding.

Mr. Chairman and Members of the Committee, once again we thank you for holding this hearing and we look to you for continued support of the efforts of affordable

rural housing development.

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