A Policy Context for Addressing the U.S. Affordable Housing Crisis

This article appeared in the winter issue of Urban Land on page 78.

Since the end of the Great Recession, few matters seem to garner greater bipartisan consensus than the fact that we are in the midst of a national affordable housing crisis. Calling it an affordable housing crisis, however, does not fully define the problem. Certainly, if thousands of new affordable housing units were suddenly developed on the least desirable and inaccessible land in any city in an effort to eliminate the deficit in affordable housing units, thoughtful individuals would not think we have resolved the crisis.

The goal is great housing in great neighborhoods. Regardless of the city, chances are the challenge is not simply a lack of affordable housing. Rather, it is the lack of housing affordability in communities where people with means live or would want to live. Indeed, what we have is a community development crisis, in which the shortage of affordable housing is only one component, albeit an important one. Community development and affordable housing development are vastly different, though the terms are routinely used as if they were synonymous. The distinction is important and is not simply a matter of semantics.

There is a common saying that goes, “We should not let zip code determine destiny.” In recent American history, though, one’s zip code has been a determinant of opportunity and, therefore, destiny. Instead of continuing to move a fortunate few of the disenfranchised out of “bad” zip codes and into “good” ones, perhaps it is time to dedicate talent, time, and resources toward intentionally transforming conditions in the “bad” zip codes given the significant number of lives that could be uplifted by such a move. If this is done properly, the impact would be powerful for the health and vitality of society. So, the saying above could be considered a great goal, the pursuit of which is a worthwhile endeavor with profound human benefit. The pursuit of that goal requires, at a minimum, two components:

• A strategy to introduce housing affordability into neighborhoods that are already healthy and sustainable; and
• An approach that transforms less desirable neighborhoods—the “bad” zip codes—into healthy and sustainable ones.

It should be clear that, in isolation, an affordable housing unit does not align with the affordable housing goal unless it is located in a currently or emerging healthy and sustainable neighborhood. Indeed, this principle is central to my experience and to my thesis: “A sustainable neighborhood is one that has access to job centers; contains essential quality-of-life infrastructure such as good schools, parks, and health care; and contains enough households with disposable income to attract retailers and other providers of neighborhood goods and services.” To make undesirable neighborhoods desirable, a community must be developed with an eye toward the inclusion and uplift of existing residents, and a combination of sustainable community elements to ensure the neighborhood’s long-term desirability.

The first component—introducing housing affordability into neighborhoods that are already healthy and sustainable—is an important part of an effective overall housing affordability strategy because it can yield some new affordable housing units relatively quickly. But, it is a very expensive proposition on a per-unit basis, given the lack of readily available land or the high cost of available land. Without substantial subsidy, there is likely to be significant developer resistance for financial reasons. And, for social and other reasons, there also is likely to be a great deal of neighborhood resistance. Yet, NIMBYism (not in my backyard) is something worth tackling, particularly in those instances in which the local government can make a compelling public policy case for inclusionary housing and has the leverage and resources (financial and otherwise) to drive measurable outcomes.

The second component—transforming undesirable neighborhoods into healthy and sustainable ones—is a heavier lift, but in a very different way. It is a much harder and more time-consuming undertaking and involves more than just affordable housing. It requires the coordination of parties that usually have divergent interests to find common ground and achieve results that are measured in terms other than just the number of affordable housing units produced.

It is this complexity that creates the need for the more strategic community development approach, instead of seeing the challenge solely as an affordable housing issue. It is community development when one seeks to engage disenfranchised young people and the elderly in solving the community’s challenges. Likewise, it is community development that addresses child care and transportation challenges for families pursuing financial self-sufficiency through increased workforce participation. And, I would argue, it is a community development lens that enables one to see the need to introduce viable workforce housing options for both lower- and middle-income households into healthy and sustainable neighborhoods.

The lack of commitment to community development by some public-sector leaders has been largely responsible for the severity and tension surrounding the gentrification battles playing out across the country today. As an example, a heightened and sudden emphasis on the need to house police officers in gentrifying neighborhoods and step up police presence highlights the sense that safety and security are reserved for certain citizens but not for others.

Indeed, safety and security should not be afforded only to the new residents of greater economic means who decide to move into historically low-wealth (often black and brown) neighborhoods.

The safety and security of all residents needed to have been a concern for local political, philanthropic, and business leaders when the neighborhood residents were overwhelmingly poor and minority. Without safety and security, as well as other essential public services and public investments similar to those provided in other neighborhoods in the city, low-wealth neighborhoods are allowed to suffer and decline until their conditions and property values hit severely depressed levels.

This neglect of low-wealth neighborhoods, often over extended periods of time and multiple mayoral administrations, denies those residents the opportunity to see steady and predictable appreciation in home values and the resulting increase in home equity and associated wealth. As the neighborhoods’ decline fuels even further decline, residents become easy prey for marginal and questionable business establishments, as well as various criminal elements.

Eventually, driven by simple capitalism and the desperation found in the low-wealth neighborhoods, better-resourced individuals are able to capitalize on the increasingly desperate circumstances faced by the lower-income residents. Understandably, people with resources see the opportunity to acquire land and existing homes at depressed prices and are able to exert greater influence in challenging political leadership to deliver services responsibly and make public investments in their now “new neighborhoods,” something denied the previous residents.

Ironically, the improving conditions in the neighborhoods, and the increasing home values and corresponding tax bills present yet another significant challenge for existing residents whose opportunities for economic growth and upward mobility had been severely compromised for many years, and often decades. These residents had come to relate to their declining neighborhoods as places from which they should help their offspring escape, thereby severing generational connections. It is also understandable that, given the lack of connection to the old neighborhoods, the drivers of the “new” neighborhoods often seek to remake those neighborhoods in their own image.

Accordingly, it should be apparent that the seeds for the generational disinvestment from these neighborhoods, and the impoverishment of their longstanding residents, were sown by dynamics that were set in motion long before the current gentrification battles began. This dynamic has been hidden in plain sight over a period of many years. The gentrification battles over which many are now outraged are but a natural response by enterprising individuals with means, making what they perceive to be good investment decisions in a capitalist society. Over time, the result is a transfer of wealth from lower-income households to the more affluent, and the further disenfranchisement of the poor. But it is never too late to expand the conversation, change strategies, and improve outcomes, though we have already failed many of our citizens by our delayed outrage.

To restate: we need housing affordability in existing and emerging healthy neighborhoods while also transforming less desirable neighborhoods into neighborhoods of choice. Effective community development exists at the intersection of public policy and investment, both public and private. Until this point is fully understood, we will waste considerable time and other resources attempting to solve a symptom rather than the real problem, and our public leaders, regardless of race, will preside over the continued disenfranchisement of the city’s poorer citizens.

In the final analysis, intentionally investing in the transformation of a city’s less desirable, low-wealth neighborhoods—with their corresponding depressed real estate values—into healthy and sustainable communities provides the best opportunity to produce large numbers of affordable housing units at lower per-unit costs. It also will do more to improve the economic potential for residents of these currently “bad” zip codes.

Community development requires taking a long view, and an attention span to match. Leaders possessing both attributes are rare, because the pressures of reelection cycles and term limits appear to take precedence over making truly transformational investments, the results of which often tend to play out across longer horizons. Such courageous leadership, however, could make the United States a country that truly offers an opportunity for upward mobility for all, regardless of income and race.

The recognition of the importance of the two-component strategy in addressing the housing affordability crisis should drive both public policy discussions and local implementation strategies. It is that recognition that led my business partner and me, almost 27 years ago, to create a company to give life to that vision.

In the process of developing our specific business approach, we conceived a holistic community development model that was inspired by the African proverb “It takes a village to raise a child.” Our village needed to integrate a mixed-income housing solution with education (early childhood and K–12); health, wellness, and recreation; transportation accessibility; access to jobs; neighborhood retail goods and services; and a set of people-centered services designed to help lower-income families in their pursuit of greater economic independence.

Two years later, we started the Integral Group LLC and, partnering with another developer and the Atlanta Housing Authority, created the first such community in modern times on the site of what had been the nation’s first public housing project. We sought to build a neighborhood that provided upward mobility in a carefully curated mixed-income community, using compatible public/private partnership resources and strategies. The significant improvement in the trajectory of the lives of thousands of individuals and families is both the proof of concept and the reward.

Today, that simple and commonsense approach, called the “Atlanta Model” by Henry Cisneros, former secretary of the U.S. Department of Housing and Urban Development, has been replicated in varying degrees across the city of Atlanta and in many other cities across the country.

Consider a Parallel Anecdote

A generation ago, in an effort to provide access to good educational opportunities for students from poorly performing school systems, progressive boards of education put forth policies that resulted in busing students enrolled in poorly performing schools in poor neighborhoods (usually the “bad” zip codes) into higher-performing schools in other neighborhoods (usually the “good” zip codes). But, as could be expected, there was a limit to the percentage of students the busing strategy could affect.

Certainly it was not possible or desirable to move every student out of the poor schools and enroll them in better schools. There was—and still is—no substitute for fixing the poorly performing school systems and the neighborhoods in which they are located if we are to remove the barriers that lower the trajectory for the overwhelming majority of students in failing schools. Yet, while our goal to help the majority of students in failing schools should be clear, there is ample opportunity to disagree about the strategy.

The housing affordability crisis is no different in that regard. We got ourselves into the current education and housing dilemmas through a combination of bad public policies, intentional and unintentional, and the natural human and marketplace response to those policies.

Housing affordability challenges are exacerbated by the impact of race and class bias in our daily lives. Affordable means different things to different people. For far too many of us, the visual images that come to mind when we hear the words affordable housing determine whether we are for or against it. Many of the experienced advocates and supporters of affordable housing take great pains to describe affordable housing as housing that accommodates police officers, nurses, firefighters, teachers, retail-sector workers, and so on, to counter the tendency to relate to housing on racial terms.

A class bias is also evident in the debate between the benefits of rental housing, whether affordable or not, and homeownership. But are homeowners really that different from renters?

The fact is that both types of households could very well be living in housing that is being subsidized by the government and tax dollars. Consider the outrage that would erupt if the millions of American households that claim the mortgage-interest deduction when filing their federal tax returns were labeled as living in “subsidized housing” and stigmatized accordingly. After all, the value of the government subsidy for the mortgage-interest deduction typically exceeds the housing subsidy that many so-called welfare recipients receive.

Yet, to demonstrate our biases, many homeowners are quick to agree that public housing residents should be evicted and their future eligibility for public assistance revoked if a member of the household engages in any criminal activity. Imagine if your eligibility to claim a mortgage-interest deduction or any other form of public assistance could be similarly revoked because a member of your household was caught using illegal drugs. If not for our class bias, we would consider that to be fair treatment.

In most urban centers and the adjacent neighborhoods, race and class biases are on display at the same time—all the time—and the issue of housing affordability forces us to confront them.

If we are to be honest and constructive in addressing our housing affordability challenge, we need definitions that are clear and provide housing affordability solutions for households across a broad range of incomes. Also, we are in desperate need of courageous leadership with the judgment, compassion, and long-term commitment necessary to address this crisis comprehensively.

With the community development context as a given, the specific housing solutions must do the following:

• Reflect the fact that the specific strategies for cities will, and should, differ because zoning laws, neighborhood issues, and the availability of desirable land are more acute and, therefore, more determinative of the outcomes in some cities than they are in others;
• Increase homeownership opportunities for the full range of creditworthy households while working to lower the cost of, and increase access to, credit for those households;
• Address rental housing and/or homeownership needs of all income ranges—from the very low income, to low income, to the forgotten middle, and all the way to the top end of the market;
• Take into account the fact that the overwhelming majority of housing supply is produced in the private marketplace, and therefore any affordability strategies should seek to tap into that engine in a manner that still enables capital providers to meet their risk/return objectives; and
• Recognize that there already is a functioning marketplace that responds to basic supply-and-demand dynamics and to public stimuli, as well as to the inherent marketplace biases.

From experience, I can safely say that, while the work is complex, it is made much simpler if we make it personal. If we could see ourselves as the individuals whom our policy and strategy are being designed to benefit, the correct approaches become obvious and it would become clear why the issue is about community development—not just affordable housing.

For all these reasons, it is time for us to come together and address the housing affordability crisis by doing the hard but rewarding work required to build the strong, safe, and sustainable communities that offer all people an opportunity to achieve their full potential.

Former ULI full member EGBERT L.J. PERRY is chairman and chief executive officer of the Integral Group and the immediate past chair of the board of directors of Fannie Mae.