| J. Ronald Terwilliger |
The United States faces a tidal wave of rental housing demand—a fact that Congress does not understand, said J. Ronald Terwilliger at the ULI Terwilliger Center for Workforce Housing Policy Symposium, held on September 21, 2011, at the Washington, D.C., headquarters of the Collingwood Group, the sponsor.
Terwilliger moderated a multifamily housing panel of such industry leaders as Douglas M. Bibby, president of the National Multi Housing Council; Stillman D. Knight, Jr., president and CEO of the Knight Company and a former federal housing official; Eileen Fitzgerald, CEO of NeighborWorks America; and Alan Wiener, managing director of Wells Fargo Multifamily Capital.
Based on the latest ULI research, Terwilliger stated that while U.S. homeownership has dropped from its peak of more than 69 percent in 2004 to about 66 percent today, the number of renters in the United States has grown by nearly 4 million people. The echo boom generation (i.e., those born after 1986) is expected to contribute more than 11 million new renters over the next decade.
Rental housing supply, however, is not keeping up with demand. In fact, multifamily apartment construction has dropped to historic lows, due in part to the unavailability of construction financing. And while both new construction and financing are now on the rise, not only will the new construction most likely fail to meet increased demand, but it will not even keep pace with the number of units lost to obsolescence and/or demolition.
Demand is just part of the problem, Terwilliger noted. Affordability is another issue—one that will be exacerbated by growing demand. Almost half of today’s renters pay more than 30 percent of their income on housing; 26 percent of renters spend over half their income on housing expenses.
While all of this is going on, federal government subsidies for rental housing could fall victim to congressional deficit reduction. Of the $200 billion per year that the federal government devotes to housing, more than 75 percent supports single-family housing and less than 25 percent supports rental affordability. The mortgage interest deduction alone reduces federal tax revenue by over $90 billion—nearly half of the government’s housing dollars—while only about $5 billion is devoted to the government’s main program for rental affordability, the low-income housing tax credit (LIHTC). And congressional budget-cutters have discussed eliminating the LIHTC altogether.
So what is the future of affordable multifamily housing in the United States? Panelists could not agree on a solution, but they did agree that it’s all about money. “The problem is not housing affordability; the real problem is that people don’t have enough money,” said Fitzgerald. “But what’s the chance of Congress passing a major income-transfer program at this point?”
Affordable multifamily housing is suffering as a result of the housing crisis, said panelists, when virtually all of the problems that caused the crisis were rooted in single-family home financing. Noting that Wells Fargo is the nation’s largest government-sponsored enterprise (GSE) multifamily lender, Wiener pointed out that while the GSEs have lost billions of dollars on single-family mortgages, they have profited on the multifamily side. “The GSEs provide necessary liquidity in the multifamily financing market,” he said. “Furthermore, 80 percent of GSE multifamily financing supports tenants at 100 percent of AMI [area median income].”
Like the previous symposium panel that focused on single-family housing, the multifamily panel agreed that new approaches are needed to address the crisis. In Mexico, noted Terwilliger, the government is building affordable homes that measure just 450 square feet (41.85 sq m) and cost about $10,000. Allowing a more diverse group of investors, such as high-net-worth individuals, to help fund LIHTCs is another idea that might help.
The panel also acknowledged that the industry has to do a better job of advocating for the need for more affordable multifamily housing. But it’s difficult to build a constituency, they said, when there are so many diverse and competing interests involved: renters, builders, lenders, nonprofit organizations, and more. Policy makers and the general public cite health, education, arts, and social services among their greatest societal concerns, the panelists noted, while housing isn’t even on the radar screen. “I want to do for housing what the movie Waiting for Superman did for education,” said Terwilliger. Hello, Hollywood?