Through The Roof Executive Summary
What happened to Austin's affordable housing?
Why doesn't the market provide?
Why should we care?
Don't reinvent the wheel: Best practices in affordable housing
What can we do? Recommendations for Reform
Executive Summary
On the eve of a new century, Austin finds itself living in high times. In November 1998, Fortune magazine named it the best city in which to do business. The Austin metropolitan area has added more than 208,000 new jobs since 1990, roughly 35 percent of "total" jobs. Unemployment rates are at their lowest in years despite the mass influx of new residents. The explosive growth of the 1990s has also led to tremendous traffic problems, sprawling growth in the suburbs and surrounding cities, rising housing prices and rents, and increasing concern for the region's fragile environment.
Housing plays a vital role in every community. Homes are where people live; where children and pets play; and where friends and family gather. Shelter is a need as basic as food and clothing. Housing is also an important economic engine for a community; it generates jobs and tax revenue.
Homes are Foundations for Families and Communities
In Austin, housing has become precious. Between 1990 and 1998, average single-family home prices and average rents rose approximately 70 percent. This translates to an average 1998 home sale price of $149,700 and an average rent of $801 for a two-bedroom apartment. This is a swift change from the previous two decades; from 1970 to 1990, Austin was one of the most affordable places to live in the country, according to a 1998 study sponsored by the U.S. Department of Housing and Urban Development (HUD).
The lack of moderately priced homes in Austin makes recruiting and keeping entry-level workers difficult and eventually dampens the economic growth as the central city's tax base moves further and further into outlying areas. The quality of life for all residents erodes as they face longer commutes, more pollution, poorly funded essential public services, such as schools, and unequal tax burdens.
The Lack of Affordable Homes Contributes to Other Problems
Recognizing these alarming trends, members of the Community Action Network called upon 23 community and business leaders in the spring of 1998 to research, define, and make recommendations to assist in the development of a comprehensive housing policy for Austin and Travis County. The Community Action Network, a private/public partnership of 13 major community organizations, is committed to Austin-Travis County becoming a healthy, safe, educated, and compassionate community where people work together to achieve their full potential. Newly reorganized in 1992, the Community Action Network has the unique mission of engaging the community in a planning process that coordinates and optimizes public, private, and individual assets and actions to achieve sustainable solutions to health, human, and social issues. The Community Action Network Working Group on Affordable Housing represents a range of stakeholders, most of which work in housing-related fields, including homebuilders/developers, realtors, and housing advocates. The Working Group prepared "Through the Roof: A Report on Affordable Homes in Austin" in response to the Community Action Network directive. The report found cause both for optimism and for much concern.
With Austin's record-setting employment and population growth, the region is the envy of most urban areas. This rapid growth, combined with other factors, however, has put average housing prices and rents out of the reach of many of Austin's middle-class residents and places relentless burdens on the poor and those on fixed incomes.
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Disabled residents face almost impossible challenges in finding homes and apartments thatare adapted for their use. According to City of Austin projections for the year 2000, this means approximately 34,000 households (82,000 people) pay more for housing in proportion to monthly income than is affordable (more than 30 percent of income by federal standards). About 40,000 households (97,000 people) live in substandard homes, which lack adequate kitchen and bath facilities, and approximately 11,000 households (27,000 people) live in overcrowded conditions.
These are conservative estimates; they do not include households with incomes greater than 80 percent of median family income.
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These are not only people on public assistance. These are largely our schoolteachers, our entry-level firefighters, our musicians and artists, our sales clerks, and our entry-level workers as illustrated in the graph below.
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The market provides choices for those who are seeking homes and apartments above the median price, but there is a desperate need for more affordable housing in Austin -- homes priced at or below $85,000 and apartments that rent for less than $600 per month.
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To address the need for housing assistance, the federal government provides an array of resources to states and cities. These may combine with private and nonprofit efforts to increase housing opportunities through building new homes or apartments or providing financial assistance to low and moderate-income residents. Existing public and private housing programs in Austin, however, are often too narrowly designed and/or underfunded to make a significant impact. Many residents most in need of assistance often cannot access programs due to low wages or credit problems.
The enormous demand for lower priced homes and apartments and the barriers posed by the existing network of housing programs are not insurmountable. "Through the Roof" challenges every business, community, and religious leader, each public official, and every resident to learn how to help increase housing options for all residents of the region.
The report addresses the acute need for permanent housing for Travis County residents earning below median income. It describes the causes of the housing shortage, barriers to addressing it, and its impact on the region.
The Working Group also included "best practices" in affordable housing from across the country and recommendations for action in Austin. This Executive Summary provides an overview of the report.
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WHAT HAPPENED TO AUSTIN'S AFFORDABLE HOUSING?
Several factors converged to create a gap between the housing needs of Travis County residents and the housing available to them. The most important are:
KEY CAUSES OF HOUSING GAP
(1) Rapid Population & Employment Growth. The City of Austin has been growing rapidly for more than two decades, but the recent rate is staggering. Since 1990, Austin has added almost 150,000 people 50 new residents every day for eight years.
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This wave is at a lesser overall rate than those booms of the 1970s and 1980s, but it is projected to continue steadily for the next decade with the metropolitan area reaching 1.5 million residents shortly after 2010. People came most often for jobs -- 208,400 new ones since 1990 in the metropolitan area. The nature of Austin's economy during the 1990s, however, is fundamentally different from that of the 1980s. In the previous decade, state and local government, which includes the University of Texas (state) and the Austin Independent School District (local), employed a substantial portion of the Austin labor force. The economy of the 1990s is built on broader base within basic industry functions such as high-tech manufacturing and software design companies. Migrants to Austin are not homogeneous; indeed, they reflect the increasing diversity of the regional economy. Such diverse employment growth has fueled housing demand at all price levels.
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2) Uneven Growth in Wages. The benefits of the region's robust economic growth have not been shared evenly. According to The Benchmark Company's 1997 Austin Newcomer Study, 63 percent of new residents earned below $50,000, and 29 percent were below $25,000. The latter salary qualifies an Austin resident for federal housing assistance.
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A four-person household at that income would be considered low income. The metropolitan poverty rate of 16.6 percent in 1996 was well above the national rate of 13.7 percent. Texas' poor are most likely to work, predominantly in service or retail trades according to a study by the Center for Public Policy Priorities, and the Texas Workforce Commission projects that eight out of ten of Austin's fastest growing occupations have average wages below $13,520. (See graph above.)
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3) Lack of Available Affordable Homes. The increase in available housing has not kept pace with the number of new people and jobs arriving in Austin. Swift absorption of new developments illustrates the sharp demand for housing. New homes offered for less than $100,000 are sold before they can be built. Currently, existing single-family homes remain on the market for less than two months on average, continuing a downward trend. Occupancy rates for apartments citywide continued to move upward, approaching 97 percent a 3 percent vacancy rate by the end of 1998. Occupancy rates between 90 and 95 percent are considered a healthy economic balance. Much of the growth in employment in the early 1990s took advantage of the vacant inventory created during the mid-1980s. Such slack in the market has been absorbed to a great extent, and Austin is losing the competitive advantage of offering low-priced housing.
The increased demand on existing housing and slow addition of new stock drove up housing prices. Between 1990 and 1998, average single-family home prices rose from $87,600 to $149,669, a 71 percent increase. For the large share of the county's population who rent, housing costs are also rising: between 1990 and 1998, average rent per square foot rose from 50 cents to 84 cents, a 68 percent increase. This translates to an average rent of $801 for a two-bedroom apartment. In Central Austin, rents averaged closer to $1.15 per square foot or $1,071 for a two-bedroom apartment, and occupancy rates were above 97 percent at the end of 1998.
In response to the high level of demand and the difficulty of developing lower cost homes and apartments profitably, builders and lenders have focused on more expensive properties. Multifamily buildings (those with two or more units) built in the 1990s account for almost 27 percent of the market and typically rent for more than the average. Only in the last year has this begun to change as a few more moderately priced multifamily developments financed with federal tax credits have been constructed. This financing, however, is highly competitive and cannot be considered as a stable long-term source of moderately priced multifamily housing.
In the single-family market, new construction has also shifted toward more expensive homes: 28 percent of sales reported were of four-bedroom homes with an average sales price of $201,030. Homes selling between $150,000 and $175,000 (above the area average) had the largest decrease in the time they spend on the market. Increasingly, single-family homes are built outside of Austin. In 1997, only 25 percent of the new homes built in the metropolitan area were inside the Austin city limits. While in 1990, Austin captured about 50 percent of the new single-family home construction. Data from 1998 suggests this trend will continue without aggressive strategies that allow people to stay or move back to Austin.
4) Critical Mismatch between Incomes and Prices. This convergence of a rapid growth in population, employment and housing costs has increased the amount of money housing consumes from Austin residents' budgets. Those particularly hard hit are making less than the regional median income, especially the poorest groups and people on fixed incomes.
Even in an era of low interest rates, Texas and Austin homeownership rates lag the 1998 national rate of 66.3 percent, according to the Real Estate Center at Texas A&M University. Across the state, 62.5 percent of households owned their homes, less than in 1980 (64.3 percent). Only 54.8 percent of Austin metropolitan residents owned their homes in 1998. Historically, city rates fall behind the region. In Austin, this is due in part to a large student population, but the mismatch between incomes and housing prices also influences these figures. In 1998, 63 percent of Austin households had sufficient income to purchase the median priced home ($117,800), and this figure overestimates the actual number since it assumes all have good credit histories and can afford to make a downpayment of 20 percent.
For renters, the situation is also disheartening. The National Low Income Housing Coalition calculated in 1998 that 41 percent of Austin metropolitan area renters are unable to afford a market-rate, two-bedroom apartment for about 30 percent of their income (the federal payment standard for affordable housing). Earning the federal minimum wage of $5.15 per hour, an Austin area resident would have to work 103 hours per week to afford that market-rate, two-bedroom apartment. An hourly wage of $13.21 -- 257 percent more than the federal minimum wage -- is required to rent the same apartment and work 40 hours per week.
(5) Decline in Federal Resources. The federal government provides the majority of funding for low and moderate-income housing assistance. These monies have declined markedly over two decades. HUD funding dropped from $71 billion in 1978 to $20.7 billion in 1999, a decline of over70 percent. In 1998, HUD provided the City of Austin almost $12 million for a wide array of services from housing assistance (homeless to homeownership) to youth programs to neighborhood and small business assistance; the slight increase, $900,000 from 1996, is due to Austin's rapid rise in population. The Housing Authority of the City of Austin (HACA) received about $17 million from HUD in 1998, down from $21 million in 1996, to assist very poor residents. The Travis County Housing Authority receives roughly $3 million annually from HUD.
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Federal resources can not begin to meet the scale of need in the Austin area. The Community Action Network estimates that more than 3,800 people in Austin are homeless on any given night. The Austin and Travis County Housing Authorities serve more than 7,000 residents with average annual incomes of less than $8,500. On April 27, 1999, more than 2,300 Austin workers waited in line for hours -- many camped overnight -- to be placed on the waiting list for HACA rental assistance vouchers. The current wait in Austin for a voucher is six months to three years. The City of Austin receives more flexible federal housing resources to serve residents with low and moderate incomes, but it also cannot meet the demand for housing assistance.
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WHY DOESN'T THE MARKET PROVIDE?
These factors help to explain the emergence of a housing crisis for many Austin residents. Given the great demand for homes below $85,000 and rents below $600 per month and availability of government subsidies, albeit limited, why hasn't the private market filled the gap? By its very nature, providing a product at below-market prices is a formidable task, and government housing programs are notoriously complicated. Austin, however, has some unique factors that magnify the difficulties of developing lower cost housing. Ineconomic terms, when demand outpaces supply, prices will rise; in Austin, however, supply is constrained by other factors, which further increase housing prices.
KEY BARRIERS TO AFFORDABLE HOUSING
1) Difficulty Accessing Housing Programs. While a number of worthwhile programs are operating, they are proving inadequate because those most in need cannot access them due to low wages, poor credit histories, or existing debt burdens. These residents then pay more than 30 percent of their income for housing or move in with friends or family -- "cost burdened" and "overcrowded" are the technical terms. Often, the most affordable housing option is an inferior one, such as one with little or no infrastructure (sewer, roads) in an outlying area.
2) Difficulties in Building/Renovating Homes. Building new homes or rehabilitating existing housing presents its own challenges. Austin is a popular market, so costs are high for construction labor, building materials, and land.
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Austin's natural environment also impedes building lower cost housing; the natural clay soils found primarily east of MoPac-Loop 1, for instance, require more foundation work to stabilize movement over time, which adds costs. The hills to the west have a strong rock floor but overlay the aquifer. City policies to protect Austin's water source restrict the ability of homebuilders to create more dense, andthus, less expensive, housing. High fees, extensive regulations, and delays in approval by the City of Austin complicate building residential developments, even more so for lower cost housing. Finally, nonprofit developers are often key partners in the production of affordable homes; however, the current capacity of nonprofits in Austin is limited.
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3) Lack of Awareness. The widespread lack of awareness of housing's vital role in the community is a significant obstacle to improving housing opportunities in the region. Public officials, business leaders, and residents need to understand the importance of housing; how their daily decisions impact the local housing market; and how the lack of affordable housing affects their ability to do business. For instance, approximately 48,000 students study at the University of Texas each year; the University, however, provides housing for roughly 6,100 students. Thus, the Austin housing market absorbs the balance. Community leaders can, by their actions, inadvertently increase the costs and difficulties of creating more affordable housing. Educating residents and neighborhood groups is a critical step in increasing Austin's housing opportunities. Objections to perceived declines in property values and increases in traffic, school populations, and crime have led residents to block affordable developments in their neighborhoods despite a developer's ability to address concerns.
4) Lack of Resources. The community's existing housing programs and resources -- the majority of which come from the federal government -- do not adequately address Austin's rapidly changing needs. To leverage declining federal funds, many states and cities have chosen to dedicate their own monies and to partner with private and community institutions to increase housing opportunities. The State of Texas provides some additional monies for housing through the Texas Housing Trust Fund. Housing programs administered by the City of Austin, approximately $12 million annually, are funded by HUD. Austin does not use its local tax revenues for housing programs as many cities do. Moreover, the Austin business and charitable communities provide only limited resources for housing.
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WHY SHOULD WE CARE?
The City of Austin is losing its middle class to outlying areas, notably to the northern cities of Round Rock, Pflugerville, and Cedar Park. As more residents become commuters, the City of Austin will provide more and more services to people who do not pay property taxes. Even though it is home to Dell Computer Corporation, 58 percent of Williamson County income was earned elsewhere, presumably Travis County, according to a 1998 study by Texas Perspectives, and 75 percent of new single-family homes were built outside Austin's city limits in 1997.
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The future can be seen in most older urban areas -- the middle-class attracted by lower housing prices and better schools settle in the suburban areas. The central city becomes home to only the rich who can afford the higher cost of living and the very poor who cannot afford to escape it. This scenario ultimately degrades everyone's lifestyle. It also creates great inequities in the tax base. A vibrant city is critical to the survival of any metropolitan area. Such cities attract residents and visitors with sports, entertainment, arts and other attractions. Nationwide, since 1992, metropolitan areas, which include cities and their suburbs, are overwhelmingly responsible for the country's economic growth -- they support 84 percent of the jobs and house 85 percent of the people, according to the 1998 State of the Cities report by HUD. Cities, however, face more significant challenges than their suburbs -- concentrated poverty, fewer middle-class residents, and a lack of employment, education, and housing opportunities for residents.
An obvious sign of Austin's regional decline is traffic congestion. A 1998 Sierra Club study of urban sprawl named Austin the "second most threatened" of medium-sized cities in the nation. More than 200,000 cars cross Town Lake each work day, and for every 1 percent increase in population, traffic on Interstate 35 increases by 4 percent. According to a nationwide study of traffic by Texas A&M University, Austin ranked as the worst medium-sized cities in the nation for the amount of time (61 hours) and gasoline (90 gallons) wasted idling in traffic in 1996. Austin often ranked closer to cities much larger in size, such as Dallas and Houston, than its medium-sized counterparts, such as El Paso or Nashville. This could ultimately result in Austin being classified as a non-attainment city under the Clean Air Act by the Environmental Protection Agency, radically impacting Austin's ability to access federal highway funds and further degrade traffic conditions.
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DON'T REINVENT THE WHEEL: BEST PRACTICES IN AFFORDABLE HOUSING
Austin's challenges in providing lower priced homes for its residents are not unique. Cities and states across the country have created diverse and dynamic partnerships to address their housing needs. Austin can learn from their experiences. Innovative collaborations between the public, private, and nonprofit sectors stretch scarce federal resources. "Through the Roof" highlights more than 20 affordable housing "best practices" from across the United States, including Texas. These model programs were tailored to meet the distinct needs of their areas; to adopt them in Austin, some features may need to be adapted to local characteristics. Typically programs address common barriers to affordable housing -- acquisition of land or properties, construction expenses, and funding for rehabilitation/renovation of existing structures.
WHAT CAN WE DO? RECOMMENDATIONS FOR REFORM
Austin is at a strategic point in its growth. Without providing more housing at lower prices, Austin's middle class -- and soon, its businesses -- will move to more affordable areas in nearby cities or beyond. In order to help to overcome the key barriers to affordable housing -- the lack of public awareness, supply, access, and resources -- four goals were developed by the Community Action Network Working Group on Affordable Housing. Important first steps to achieve these goals are also outlined. These actions are neither exhaustive nor mutually exclusive nor do they need to be undertaken chronologically; these actions complement one another.
RECOMMENDED GOALS AND ACTIONS
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GOAL 1. EDUCATE THE COMMUNITY ON THE REGIONAL HOUSING CRISIS. In order to educate residents and business and community leaders on the impacts of a lack of affordable housing and the difficulties facing area residents in finding affordable housing, the Community Action Network partners should:
Action 1-A. Make housing a priority in decision-making processes throughout the region. Policy decisions made by community leaders should weigh the impact on the housing market.
Action 1-B. Convene major employers and the universities and colleges to discuss the housing crisis, its impact on their business or institution, their impact on the housing market, and their responsibility to help improve conditions.
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Action 1-C. Institute a public education campaign to educate residents, neighborhood associations, and employers on the impact of the affordable housing crisis on them. Raise awareness of substandard conditions in unregulated or poorly managed developments and the difficulties facing low-wage workers. Rising housing prices mean businesses will face more difficulties in recruiting and retaining workers, and Austin residents will face rising tax burdens as their middle-income neighbors move to the suburbs.
GOAL 2: IMPROVE EXISTING FINANCING METHODS. Existing housing programs of government, lending institutions, and nonprofit organizations are largely ineffective, narrowly designed, and/or underfunded. The community must develop new ways of creating more housing opportunities for low and moderate-income residents of Travis County. To do so, the Community Action Network partners should:
Action 2-A. Encourage public officials to develop incentives for building more affordable housing through a variety of tools, such as rehabilitation of existing buildings, tax abatements, tax increment financing, fee waivers, density bonuses or transferable development rights.
Action 2-B. Facilitate a review of the current allocation of housing resources, e.g., federal and state funds, lending pools, and foundation/nonprofit support, to ensure they are operating efficiently to meet the needs of eligible residents.
Action 2-C. Challenge lenders to develop new and appropriate loan products to accommodate lower income borrowers and borrowers with less than perfect credit ratings.
GOAL 3. DEVELOP PROACTIVE POLICIES TO MEET COMMUNITY NEEDS. In order to ensure that the tax burden is equitably distributed, Austin-Travis County must attract and retain residents across the income spectrum. A citywide housing policy to clarify priorities, goals, and responsibilities is essential to do so. Elements of the policy may vary, but critical issues should be addressed. The Community Action Network partners should:
Action 3-A. Encourage city and county officials to adopt a joint affordable housing policy that includes a comprehensive list of neighborhood impacts that all housing developments must address including traffic, school capacity, long-term maintenance, crime and safety issues, and other issues to be identified. Developments that comply with this policy will be approved. Among other issues, the policy should:
Action 3A-1. Promote efforts to make more land available at below market prices for affordable housing developers, such as convening taxing authorities to develop a vacant-lot foreclosure program, creating a land bank, or allowing appropriate entities the first right of refusal for surplus public lands.
Action 3A-2. Encourage public officials to review zoning ordinances to facilitate affordable multifamily developments and other group quarters, especially single-room occupancy units, similar to college dormitories.
Action 3A-3. Promote community and employer efforts to help consumers achieve their housing goals, such as credit counseling for both renters and homebuyers, homeownership counseling, and savings programs.
Action 3A-4. Highlight that any housing built with public subsidies must be accessible to disabled residents and encourage privately developed housing to be as well.
GOAL 4. INCREASE RESOURCES FOR HOUSING. The Working Group estimates that tens of thousands of households live in substandard housing; pay an excessive amount for their housing; and/or live in overcrowded conditions. The public sector cannot address these problems only with federal resources. Additional monies are necessary to address the current shortfall in affordable housing units. To raise supplemental funds for the community's housing needs, the Community Action Network partners should:
Action 4-A. Work with public and community leaders to create a housing trust fund with adequate, dedicated resources for affordable housing efforts by the year 2000.
Action 4-B. Engage the assistance of private and community institutions in collaborating with the public sector in providing more housing programs.
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