Why the FHLBanks’ Affordable Housing Program Matters More than Ever
This year, the Federal Home Loan Bank System’s Affordable Housing Program (AHP) turns 25. Since it’s inception in 1990, the AHP has evolved into the largest source of private funding for affordable housing development in the nation. Collectively, the FHLBanks have provided more than $4.4 billion through the AHP to build or preserve over 600,000 units of housing for very low- to moderate-income households.
The Joint Center for Housing Studies (JCHS) of Harvard University recently published its “State of the Nation’s Housing Report 2015,” which highlights the continued critical need for affordable housing and the necessity of private investment to ensure its availability. Three key market forces are creating a near-crisis situation in affordable rental housing: (1) rental housing demand continues to outpace development by a wide margin; (2) monthly rents are increasing at twice the pace of inflation because of this imbalance; and (3) housing cost burdens are spreading rapidly into moderate-income households because of rising rents and household wage stagnation.
Specifically, consider the following data points from the JCHS’s 2015 report:
• Housing developers added 1.2 million rental units between 2010 and 2014. However, demand continued to outpace supply. The national vacancy rate dropped to 7.6 percent – the lowest point in nearly 20 years. Rents rose at an average of 3.2 percent in 2014, twice the pace of inflation.
• New units are primarily built for the high end of the market. In 2013, 11.2 million renters with extremely low incomes (earning up to 30 percent of area median) competed for 7.3 million affordable units, leaving a shortfall of 3.9 million.
• The number of vacant units with rents under $800 per month dropped some 12 percent between 2013 and 2014—contributing more than 90 percent of the decline in rental vacancies.
• The labor market recovery has yet to generate meaningful income gains.
• The cost-burdened share of renters held near record highs in the face of stagnating incomes and steadily ris¬ing rents. In 2013, almost half of all renters had housing cost burdens, including more than a quarter with severe burdens (paying more than 50 percent of income for housing).
• Cost burdens are spreading rapidly among moderate-income households. The cost-burdened share of renters with incomes in the $30,000–45,000 range rose 7 percentage points between 2003 and 2013, to 45 percent. The increase for renters earn¬ing $45,000–75,000 was almost as large at 6 percentage points, affecting one in five of these households.
This data clearly indicate a critical need for a greater supply of affordable housing today and in the future. The problems are particularly acute in the West and South and in urban centers.
Public Funding Sources Stretched
Neither public nor private sources of funding alone can support the growing needs for affordable housing units and housing aid. Federal programs administered through HUD, the USDA, and other agencies are under increasing pressure from budget cuts and reduced appropriations. In instances where programs have received increased funding, a higher cost of assistance due to higher rents offsets the additions. Compounding these budgetary pressures, the JCHS report notes that the affordability periods of more than 2 million assisted housing units are set to expire over the next 10 years. Resources such as the Low Income Housing Tax Credit program are under tremendous pressure to provide funding to preserve these units as well as support development of new units.
Value of the AHP
As a result, private funding like the AHP remains as critical as ever and will be a necessary resource to meet housing needs going forward. AHP is particularly powerful because of its leveraging ability and flexibility to support diverse housing needs.
Since AHP awards do not have to be repaid (if conditions are met), they help make affordable housing deals viable and assist developers in securing other sources of funding. AHP funds are leveraged many times over to create affordable housing. For example, the $826 million that FHLBank Atlanta has awarded through the AHP since 1990 has facilitated $11.5 billion in real estate development – a 1:13 ratio of AHP funds to total development costs. These development activities not only provided housing, but also stimulated job creation and increased the local tax base, making entire communities stronger.
AHP is also particularly effective because of its flexibility. It is a single resource that can finance rental and owner-occupied housing for very low- to moderate-income households. Funds can be used for single- and multi-family homes, subdivisions, apartments, supportive housing, veterans housing, and mixed-use communities. Since 1990, FHLBank Atlanta’s AHP funds have been used to support more than 128,000 affordable housing units, including over 47,000 ownership units and over 81,000 rental units. Funds from the AHP Competitive program increasingly have been awarded to rental projects over the last four years in direct response to needs in the affordable housing market. Rental projects represented, on average, 94 percent of FHLBank Atlanta’s awarded projects from 2011 to 2014. Over the life of FHLBank Atlanta’s AHP, rental projects have represented 63 percent of total awarded projects.
As private funding, the AHP is not subject to government budgets or appropriations. Financial resources for the AHP come from a statutory 10 percent allocation of annual net income from each FHLBank. The availability of AHP funds, however, is dependent upon the financial strength of the FHLBank System. The continued ability of the FHLBanks to serve their mission and meet the funding needs of member financial institutions ultimately determines the success of the AHP.
State of the Nation’s Housing Report 2015, Joint Center for Housing Studies (JCHS) of Harvard University, 2015.