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Housing as a political animal. (Housing Policy).

Mayors around the country are grappling with an electorate increasingly demanding more affordable housing and a fix to growing problems with endless commutes. A partnership with lenders is having some success in tackling the problem.

AS VOTERS CONTINUE TO GRAPPLE WITH ISSUES OF AFFORDABLE HOUSING and urban sprawl, mayors have become increasingly interested in finding a way to address these problems. Eager to beef up their records on affordable housing and deliver genuine relief to constituents, mayors have found a new partnership with lenders a promising approach to these thorny problems. * The Council for Investment in the New American City, the partnership between the Mortgage Bankers Association of America (MBA) and the United States Conference of Mayors (US CM), Washington, D.C., has been beneficial to both parties and has seen early success in its young life. * It was Thomas P. (Tip) O'Neill Jr., the late speaker of the House from Boston, who coined the phrase, "All politics is local." O'Neill surmised that in order to win an election on the national stage, one must command the attention of the electorate from precinct to precinct, city to city and state to state. * No one would say housing played a commanding role as an issue in the 2002 federal elections; it clearly did not. Nobody, mayor or lender or housing agency head, expects the issue will suddenly become a national prod for voters nationwide when they go to the polls in 2004 to elect a president, as well as the entire House of Representatives and one-third of the Senate. But, you never know.

A trend seems to be emerging that shows housing gaining significant ground as an election issue in local, county and state elections. And should that trend continue, housing might inch closer to the top of the list of issues claiming American voters' attention on the national level in the coming decade. At least that is the view of a growing number of mayors, lenders and nonprofit housing watchdog and advocacy groups.

Mayors have found the partnership with MBA useful in tackling the affordable housing issue in several ways. First, the direct contact with lenders helps mayors boost their lobbying clout and win federal help in the form of targeted changes in laws and regulations. A good example of what can result from this collaboration is the decision by the Department of Housing and Urban Development (HUD) to raise the Federal Housing Administration (FHA) multifamily loan limits. This change was adopted after the Bush administration included it in the HUD/Department of Veterans Affairs (VA) appropriations bill, which was signed by President Bush on Nov. 26, 2001. HUD put the increases into effect in December 2001. Another result of the collaboration is the more recent passage of the FHA Downpayment Simplification Act of 2002, which was passed by Congress in November 2002 and signed by the president on Dec. 4, 2002. Lenders also benefit from the combined lobbying power, as lawmakers hear about a shared agenda of concerns fr om MBA member companies and local mayors.

The mayors, in some cases, have been able to get some help for their local housing needs. In one case in Birmingham, Alabama, that city's mayor, Bernard Kincaid, initiated a matching-funds program primarily for down-payment assistance at the start of 2002. With the help of lenders, HUD funds and Fannie Mae, a bond deal to support the initiative injected $500,000 of a planned $1 million for the program, according to the Housing Authority of the Birmingham District.

"These and other measures we are taking will put me on the road to being the housing mayor," Kincaid says.

"I know that voters recognize that, and while everything is still in its early stages, I think it will be successful and I don't think I could have done it without this partnership. I first learned about the program in the first half of 2002, and our bond deal was priced Oct. 8," Kincaid said.

Housing's return to the national stage during an election cycle has been delayed somewhat by the emergence of other issues, particularly international ones. Yet a growing number of county politicians, mayors and governors have discovered their political futures rest increasingly on their success in addressing affordable-housing and sprawl issues.

An issue close to home

Robert Reid, executive director of the National Housing Institute, pointed to the mayoral race in Minneapolis as an example of how much this issue resonates with voters. In Minneapolis, the current mayor, R.T. Rybak, ran hard on a platform of increasing affordable housing in his November 2001 race and won with 65 percent of the vote.

"We saw the strength of housing as an issue on a city-sized scale," Reid says. "On the national scene it is not yet an issue. We have some congressmen and senators who are advocates, but I'm not confident it will be a linchpin issue on the national scene as it was in Minneapolis."

But as Reid pointed out, there are occasions when the housing and mortgage industry lobbies and other housing activist organizations are successful at getting small targeted bills through the Congress to help address the affordable housing crisis. But these efforts are typically not a product of a groundswell of political support of the kind that propels elected officials because it is a real hot-button issue for voters.

For example, the enactment of the EHA Downpayment Simplification law is what some might categorize as an example of the small targeted approach to addressing the affordable-housing problem. The law primarily calls for the indexing of FHA multifamily loan limits to inflation; permanently extending the FHA down-payment simplification process; and repealing a scheduled increase in the Ginnie Mae guaranty fee that would have raised the cost of housing for families using FHA insurance and VA guaranty programs. MBA supported the legislation, and the mayors lent some weight endorsing it in general concept.

"It was a tremendous win for the mortgage banking industry as well as the FHA borrower," says Tim Doyle, a director in MBA's government affairs group. "The law makes the simplification process permanent, which will have a positive effect on allowing first-time homebuyers to qualify for FHA loans."

In a more recent endeavor, MBA joined a coalition with nine other national housing organizations pushing for initiatives such as the formation of a tax credit for homeownership and a new multifamily production program to expand the supply of affordable rental housing for extremely low to moderate-income families in communities built for residents with a mix of incomes. Both are initiatives outlined in a May 30, 2002, report by the Millennial Housing Commission, Washington, D.C., Meeting Our Nation's Housing Challenges. The commission is a bipartisan group asked by Congress to conduct a comprehensive study of housing issues.

Governors' races affected

The housing issue emerged as a factor in some governors' races. In Maryland, according to John McIlwain, a senior housing fellow for the Urban Land Institute (ULI), Washington, D.C., former Governor Parris N. Glendening's policies on rigid smart-growth played a role in the election loss of his lieutenant governor, Kathleen Kennedy Townsend, daughter of Robert F. Kennedy. Given the closeness of the race, McIlwain says, who is to assume that the smart-growth issue did not tip the scales?

Smart growth is a movement that urges restraint in building in metropolitan areas before ascertaining the affects of that development on the existing community. Glendening pursued policies that supported restrictions on development until studies were done on the impact on local quality of life, such as additional traffic and the effect on local schools. The endeavors meant increased regulation and, some developers have said in local media reports, more red tape.

Yet, on the federal level, housing issues got lost amid a number of pressing issues last year. "The Millennial Housing Commission report [Meeting Our Nation's Housing Challenges] disappeared last year, although there will be an attempt to resurrect it this year. Given such potent issues as making the tax cuts permanent, homeland security measures and war in Iraq, it appears there was little oxygen left for affordable housing," McIlwain says.

"But housing and sprawl have generally shown [up] as important issues on the regional and state levels. We saw in Maryland that [Republican gubernatorial candidate Robert] Ehrlich won in Maryland because Glendening's land policies, including his smart-growth policy, were so unpopular." Yet, that may have not been the only reason for the loss, as there were surprises in other governors' races last year.

On the county level, the issues of sprawl and affordable housing are being taken seriously by voters as well. In issues associated with sprawl were the catalyst for smart-growth candidates winning elections across the board in the Board of Supervisors race in Loudoun County, Virginia-nearly transforming the entire board in one election.

The voters had serious concerns about their historically rural county becoming more like its larger neighbor to the east, Fairfax County. Fairfax is a suburb of Washington, D.C., that enjoyed tremendous growth during the technology boom of the 1990s, only to become overdeveloped as a result of poor urban planning, according to Paul Hughes, president of the Fairfax Coalition for Smart Growth.

"In many places around the country, [sprawl] is a high-priority issue," says Nicolas P. Retsinas, director of Harvard University's Joint Center for Housing Studies, Cambridge, Massachusetts. "It's most clearly seen on both coasts, and will remain a very strong issue on the local level. It's one of the reasons for the mayors to engage in partnerships to strengthen their ability to provide housing. It's why they have convened housing forums both in their cities and nationally in collaboration with other mayors," says Retsinas.

Mayors join the fray

Members of the USCM, through the partnership with MBA, have been given a forum to work with lenders to help take the issue off the table for future opponents, several mayors told Mortgage Banking. Within the guidelines of the partnership, mayors sit down with local lenders and talk about what they want to see accomplished. Provided that all at the table can reach an agreement, relief can be on the way for mayors who want to see a section of their city revitalized or more of that city's residents get roofs over their heads.

The mayors are on the frontlines of the affordable-housing battle. According to statistics in a report by Harvard University's Joint Center for Housing Studies, State of the Nation's Housing, 2002, one out of every seven American families has a critical housing need, including millions of working families. The problem is not only one of affordable housing to buy, but also a shortage of decent rental housing, mostly in urban areas.

According to a November 2002 report by the Washington, D.C.-based National Housing Conference, America's Working Families and the Housing Landscape, there are 14.4 million working families, both renters and homeowners of low and middle income, that are facing severe housing problems.

"Now, more than ever before, it is clear that the housing crisis is not going away, and without a major new national commitment to housing production, the crisis is only going to get worse," USCM president and Boston Mayor Thomas Menino said in a statement released by his office.

"I would like to encourage every mayor, representative or senator, and every appropriate federal domestic policy official to read this report [Working Families and the Housing Landscape] before the start of the 108th Congress. and work together to change that landscape," said Menino.

Birmingham Mayor Kincaid says he recognized early on that in his city housing was an issue over which he wanted full control. Kincaid, elected in 1998, found himself in a court battle inherited from his predecessor.

The fight began when his predecessor challenged the City Council of Birmingham over who possesses the authority to appoint members to the city's housing authority. He won that court battle. The council he inherited when he became mayor has since completely turned over.

Kincaid spoke with Mortgage Banking from his Birmingham office after returning from New York. He was in the city to meet with analysts at three rating agencies--Fitch, Moody's Investors Service and Standard & Poor's--to secure their ratings on his city's bond deal to bring in about $500,000 for housing. That money will be replenished through an arrangement with lenders, Fannie Mae and by using the city's Urban Development Action Grant Funds (UDAGF), according to Kincaid and the Housing Authority of the Birmingham District.

Kincaid learned about the partnership early in 2002. He met with lenders weeks later, hammered out the details of a $50,000 commitment from local lenders, $200,000 from city UDAGF funds and $750,000 from Fannie Mae, , according to Kincaid and the Housing Authority of the Birmingham District.

The funds will be used to buy or build homes in the corporate section, a part of the northeast quadrant of downtown Birmingham described in a 1999 Housing Authority of the Birmingham District memorandum as "dense and crime-ridden." Kincaid says the revitalized area he envisions will provide mixed-income housing, commercial business and entertainment, and he hopes it will slow the 7.6 percent decline in population that occurred from 1990 to 2000, according to the U.S. Census. The funds will be used in conjunction with other funds raised through the HOPE VI project (a plan that proposed the complete demolition of 910 units of three-story, distressed public housing to be replaced with mixed-income units), and will provide down-payment assistance in selected zones. Families with up to 140 percent of the median income will be able to participate.

According to Kincaid, a major problem with many housing programs is that the working middle-class cannot find affordable housing and are not eligible for government or private/public program help. That is a pitfall that Birmingham's program is designed to avoid, according to Kincaid.

Kincaid says he hopes the initiative, which he calls Building Equity and Security Together (Birmingham BEST), will help create 900 units of subsidized housing, with some 600 of that in mixed-income developments. Some of the units, he says, will be townhouses. The Monument Gardens area, a stone's throw from City Hall, will be a focus of the redevelopment.

A similar collaboration between mayors and lenders is also in place in Albany, New York. That program, the Down Payment Assistance Investment Note partnership (DPAIN), also provided for $12 million. The program is expected to serve 250 first-time homebuyers in Albany, and provides loans of between $2,000 and $2,500 for down-payment assistance or closing costs in selected mortgages obtained under a state or local government homebuyers' program. "Individuals who previously were unable to purchase a home because of limited financial resources now have a real chance of homeownership," said Albany Mayor Gerald D. Jennings in a statement released by his office.

According to Brent Coles, mayor of Boise, Idaho, the partnership with MBA--along with other resources such as grants from HUD and the state of Idaho--has helped raise the number of affordable-housing units in the city by 800 percent.

When Coles first became mayor, Boise had 100 municipally owned housing units to address the housing--affordability crunch. Now it has between 800 and 900 units. But beyond that, the partnership has helped Coles bring more private money into Boise's affordable-housing fight by getting straight talk from lenders on where regulations are too stringent.

"We work together on the common issues--when housing is in demand it is good for both of us," Coles says. "On our side we are looking at planning the city's parks, centers of commerce, mixed-use developments and even water-treatment plants. We show them from our side what government regulation and planning can do for us, and they show us where we are overzealous."

Coles says the partnership makes both the mayors and lenders stronger. He cites an invitation to the White House to meet with President George W. Bush in his first months in office as proof of the combined strength of USCM and MBA.

Following the founding of the partnership in 2000, MBA met with mayors in Charlotte, North Carolina; Rochester, New York; Minneapolis; and San Francisco. At those meetings, the mayors and lenders set down a framework for dealing with regional plans addressing revitalizations of downtowns, affordable housing through direct expenditures and tax policy, and incentives for private-sector investment through empowerment zones.

According to Paul Richman, senior director of corporate relations and political outreach at MBA, the most important lobbying item the mayors have worked with lenders on is raising the FHA multifamily loan limits. That achievement is considered one of the successes of the partnership.

"It has been gratifying to watch the growth and strengthening of the relationship between the mayors of our cities and the mortgage lending industry," says Andy Woodward, the former head of Charlotte, North Carolina--based Bank of America's lending division and former president of MBA from 2000 to 2001. "We are naturally bonded through a common interest in developing our communities and providing housing for our citizens. A lot has been accomplished thus far through our joint efforts. Significant opportunities remain, however, for us to work together to positively address housing issues and needs for all Americans," he says.

The Council for Investment in the New American City held a meeting in Washington, D.C., in late November, at which mayors and lenders agreed to put together a joint agenda on working to overcome tax obstacles for lenders, Richman says.

At the council's January meeting, lenders and mayors agreed to work together to tap the potential of the partnership again by jointly pushing Congress to pass a homeownership tax credit, according to Richman. The tax credit, mayors and lenders argue, would make buying a home more affordable for low- to moderate-income families. Currently, about 90 percent of the benefits from existing mortgage interest tax deductions go to families with incomes of more than $40,000 per year, according to the USCM. The targeted tax cut that lenders and mayors are proposing would help people under that income bracket as well, according to a USCM statement.

"The partnership has added tremendous political clout for MBA, and makes good business sense," says Jim Murphy, past chairman of MBA and chief executive officer of New England Realty Resources Inc., Boston. "The partnership all came out of affordable housing and some other major issues [affecting American cities]. It became apparent to us that it is as much of a problem for mayors dealing with it as it is for lenders. I'm happy to see the MBA and U.S. Conference of Mayors partnership going as well as it is."

What the future might: bring

Housing experts, mayors and lenders interviewed for this article say that while they do not believe housing will become a dominant issue in the 2004 national elections, there remains a possibility that it could. And there is much speculation on how housing will indirectly affect the elections.

One thing is certain, according to William Spriggs, director of research and public policy for the New York-based National Urban League: Voters care deeply about the economy. And if the housing sector can continue contributing strongly to the economy while other sectors are sluggish, it could play an indirect role in securing Republican election success, he says. But, if the housing sector flounders, as other sectors have, or if there is a housing bubble that bursts, Democrats could benefit in 2004, he adds.

"Housing proved a difficult issue to raise in the current environment [with a focus on terrorism and potential war with Iraq]," Spriggs says. "It's not as clear a picture as something with more universal voter appeal, such as health insurance. But if housing begins to fail the middle class, [as it did in] the 19905 housing collapse in Southern California, and to a lesser degree in Boston, that would be a different story."

Ron Utt, a senior fellow at the Heritage Foundation, Washington, D.C., a conservative think tank, has a theory about the affordable housing issue and how it could play for Republicans. Utt says President Bush's minority homeownership initiative, announced in June 2002, could lure some votes away from Democrats. In June of last year, President Bush announced a goal of helping to increase minority homeownership by 5.5 million families by the end of the decade. HUD released numbers showing that such a jump in housing would bring in an additional $256 billion in benefits to the U.S. economy.

"The more [that] the African-American demographic becomes homeowners, presumably the less appealing the Democratic platform will be to them," Utt argues. "With that higher homeownership rate, more of that voting block becomes interested in tax cuts, which is the proclaimed strength of the Republicans," he adds.

Utt says he does not mean to imply that African Americans will suddenly start voting Republican in droves, but that they simply may not be so inspired to go out and loyally vote for Democrats as they have in recent years.

Reid, Spriggs and McIlwain take issue with Utt's thinking on this. They say his theory that achieving higher minority homeownership rates could take a significant portion of the African-American electorate away from Democrats is extremely unlikely, with Spriggs calling it wishful thinking.

Trying to predict what role housing will play in the political arena in the coming years is difficult. "It's really something that nobody can predict," McIlwain says. "A lot can happen over a couple of years--the issues of sprawl and affordable housing could whimper or roar. They're not going away anytime soon, he says.

Chris DeReza is a staff writer for Thomson Financial's International Financing Review (IFR) in Boston. He can be reached at cjohndereza@yahoo.com or christopher.dereza@tfn.com.
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Author:DeReza, Chris
Publication:Mortgage Banking
Geographic Code:1USA
Date:Apr 1, 2003
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