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Affordable Housing - Hailed, hyped and hobbled (Part 1)

Warwick Jones, Editor

Introduction, Conclusions and Part I. The Recipients

We started working on this report about 2 months ago. It was prompted by a number of factors. Firstly, there was the concern of Council member Lewis that the City of Charleston had become very tardy in distributing funds that had been allocated to its Redevelopment and Preservation Commission. As he observed, there were many needy recipients. Fossicking in the data relating to HUD grants led us to Council member Gallant's interest in non-profits -- in particular Elpis Inc and Pastors Inc. We were struck by the seeming favored position of these two non-profits in obtaining HUD funds and the fact that neither was a significant "affordable housing" provider. Our interest rose when we observed the presence of two real estate developers and the Mayor of Charleston on committees at Elpis. One of these developers is the principal of the firm that plans to develop the Neck, an area that Council member Gallant represents.

Editor's note: Sections 2 and 3 have neem removed from the site for space reasons. However they can be viewed by downloading the report in PDF form. To view or download PDF version of this article( all sections), Press here

We have interviewed the senior executives of the four major housing providers and the Director of the City's Department of Housing and Community Development. All the "affordable housing" providers covered were sent a draft of our report and their comments have been incorporated where appropriate. The City was afforded the opportunity to read a draft. Again, its comments were incorporated where appropriate. The Elpis group was provided a draft of Section 3 of the report but has failed to respond to our telephone calls.

The opinions and errors in the reports are ours. But we would note that many of the opinions are shared with the "affordable housing" providers. As for the mistakes, we ask tolerance: HUD's fiscal year ends in August, and the City's, in May. Most of the "affordable housing" providers have a fiscal year that ends in December.


The "affordable housing" program of the City is barely making an impact on satisfying the need for housing. Although we think the City could do more, its inability to provide a greater number of houses is the more the result of a lack of funds than of anything else. HUD provides an important part of the funds that go toward "affordable housing" each year and these funds are not increasing significantly. Indeed, they have fallen over the last 20 years. Last year, construction of "affordable housing" units, rental units and homes for purchase amounted to about 60 though this total does not include "completions" financed through the Redevelopment and Preservation Commission. We do not know the latter figure but would not expect it to add significantly to the total. But even if the total was say 90 units, the need was a multiple of this amount.

"Affordable housing" providers will need to turn more to North Charleston, the County and even Dorchester and Berkeley Counties to meet "affordable housing" needs. There is a strong need in the City of Charleston. But the high cost of properties and occupancy is working against "affordable housing" on the Peninsula. As the majority of the poor live in the City, the City of Charleston is a major recipient of HUD money and plays a major role in directing "affordable housing" funds. But HUD monies are limited; a larger number of needy persons could be helped if "affordable housing" units were built outside the City.

In our view, the City has directed substantial amounts of HUD monies in recent years to projects that would best be left to others, or whose value to the community can be questioned. The funds directed to these other projects leave less for "affordable housing" and indeed, may have been better utilized if granted to "affordable housing" groups. HUD monies are the seed funds for the "affordable housing" providers - these funds are leveraged into more substantial amounts to finance "affordable housing" projects. We estimate that in 2004, less that 50% of HUD monies were allocated specifically for "affordable housing". But if grants and loans of the RPC, to make repairs and renovations, are included, then the percentage rises to over 80%. HUD monies granted to programs such home ownership education or reading initiatives, do not lend themselves to leveraging, so the impact of the grants, certainly on an economic basis, is limited. And significant questions are raised: Have allocations by the City been influenced by political considerations? Why has Elpis received such large grants over the years to restore a single historic house? We also think that a small group such as Pastors should get out of the housing business and leave it to the more professional organizations, such as the Humanities Foundation and Habitat for Humanity. The latter have the skill and the scale to develop "affordable housing" more efficiently and economically. If small groups were truly motivated in maximizing the provision of "affordable housing", they would recognize this.

The City needs to focus on the needs of the very low-income families. Reflecting he high cost of land and construction and consequently the high final costs, many needy folk are shut out of the housing market because of low incomes. Buyers of many "affordable housing" units in the City are earning above the median income. HUD sets an upper limit of 120% of the median family income to qualify for "affordable housing". We question why anybody earning the median income or above should be entitled to "affordable housing" when more needy folk go wanting. A bond issue raised $10 million about three years ago for "affordable housing". To use any of its proceeds for the financing of the Longborough project of the Beach Company would be a travesty, in our view. Indeed, we feel that the city should sell its housing entitlement at Longborough and deploy the proceeds on a more economical project.

More transparency is needed in the distribution of HUD funds. The multiplicity of City housing and social programs tends to obfuscate. The ultimate recipients of funds are not clearly evident and, although there is no suggestion of wrongdoing, it is difficult or impossible for citizens to determine their ultimate use. A large number of programs have been started by the City over the years to dispose of HUD funds. Many of these programs are small and may involve only a few thousand dollars. But some, like the Redevelopment and Preservation Commission, are large, receiving over $800,000 a year for the last few years.

The B.A.R. and Historic Charleston Foundation should relax some of their standards. The standards of these organizations are appropriate to the historic areas downtown but generally not to areas around say Line and Columbus Streets. The BAR and the Historic Charleston Foundation have played important roles in preserving the Historic districts. That role is not questioned but imposing their strict standards on areas such as the East side, where houses are falling down from neglect and are beyond preservation and where there are few houses of architectural interest, is certainly questionable. The imposition of harsh requirements is unrealistic and unrecognizing of the economic and social conditions of the neighborhoods. The extra costs necessary to meet requirements push the cost of housing, already very high, beyond the reach of the needy.

The City should ease the resale conditions on properties. There are some properties owned by the City and Charleston Affordable Housing Inc that have been waiting for buyers for some months. Their sale is restrained by the high cost, the denial of any meaningful profit to the buyer on resale, and finding families between 80 and 120% of the median income who want to buy a home with all the restrictions. The City's position is understandable considering the subsidy that buyers receive. But it seems that some relaxation on future profit entitlement, at least to a slight degree, may be necessary.

In an attempt to give some form to this study, we have broken it into four components

1. THE RECIPIENTS - Many come but few are chosen.
2. HUD AND THE CITY - The provision and allocation of finance.
3. THE PROVIDERS - An uneven field.
Humanities Foundation,Habitat for Humanity, Charleston Affordable Housing, Episcopal Diocese of Charleston CHDO, Elpis, Pastors, Agape, JDW Network

1. THE RECIPIENTS - Many come but few are chosen

What is affordable housing?
Most folk probably have only a broad understanding of "affordable housing". It is the housing provided for the poor and subsidized by the government, right? Well partially! It is subsidized but it nevertheless differs from other public housing programs that focus on the very needy and through which monthly or weekly rents are partly paid by the Federal or state governments. In contrast, the aim of "affordable housing" is to make the renter or buyer independent of government help after commitment to a contract. For a homebuyer, the home cost is reduced or made "affordable" by virtue of a subsidy or grant. But the buyer is responsible for all costs after purchase, including mortgage repayments and interest, taxes and insurance. In the case of the renter, the rents are well below market rates and thereby "affordable" because of the grants or benefits that were available to the "affordable housing" provider. These capital grants and other benefits effectively reduce the cost of land purchase and construction. In consequence, the rents, even well below market enable the "affordable housing" provider to finance the remaining borrowings which were incurred to finance construction.

Given its nature, "affordable housing" is not for everybody. The very needy can't afford it and the affluent are excluded for the obvious reason: they don't, or shouldn't, need it.

HUD makes the rules
As it is the distributor of most of the funds on which "affordable housing" is based, the Federal Department of Housing and Urban Development (HUD) makes the rules. The funds that it provides can go to housing or social programs. But having said that, HUD is guided by the cities and counties to which it makes annual grants. Much is left to their discretion in the disposition of the funds they receive from HUD. So the proportion of the funds allocated to social programs, "affordable housing", or those individuals with qualifying income levels is largely the call of the City of Charleston.

Here's the first problem
Here's the first problem: HUD has allocated to the City of Charleston funds amounting to about $2.2 million each year over the last few years. Out of this total, "affordable housing" is allocated much less than $1 million. Some may dispute this figure because some programs we exclude are housing-related, such as educating homebuyers. With these federal funds as seed money, the "affordable housing" providers and the City have constructed probably some 60 to 80 new units a year for rent or purchase over the last 5 years. We don't know how many families are in need of "affordable housing" but we are told by the providers that the supply of units is a fraction of what is needed. And indeed, with a population of over 100,000 in the City of Charleston and say an average of 2.5 persons per family, probably more than 20,000 families qualify for "affordable housing."

Our study focuses on the City and "affordable housing" providers. We have spent little time discussing those folk needing "affordable housing". This is not indifference. The Post and Courier (P&C) recently published a series on "affordable housing". It was a good series and we refer readers to it. It can be accessed through the P&C's web side. here You will have to register. The process is easy and costs nothing. Just for the record the P&C series and our report overlap to only some extent. The P&C made little reference to the City's other programs, nor did it discuss in detail the housing providers. It concentrated on the top end of the range of "affordable housing". The first of the series occurred on October 23.

So who qualifies?
Who qualifies for affordable housing? It depends on the specific project, the social groups targeted by the City and the housing provider, and the number of members in a family. An affordable rental project may target the elderly and be limited to incomes equal to or below half of the median income. Most of the "affordable housing" that is sold under the City's Home Ownership Initiative has a simple income qualification of less than 120% of the median! But the median varies with the number of members in a family. The median income of a four-person family in Charleston in 2004 is $55,900 according to HUD; families of four with incomes of less than $67,080 (120% of the median) therefore qualify. The median income for smaller families is lower: $50,310 for three persons, $44,720 for two persons and only $39,130 for a single household. Correspondingly, the financing opportunity diminishes as family size drops.

A trip through the classifieds of the P&C will show the levels of wages and salaries in Charleston. Wages for unskilled workers, or assistants in retailing could be less than $20,000 a year. Schoolteachers, skilled workers, nurses, technicians and others could earn approximately $30,000. Persons with special skills can earn $40,000 or more. In very general terms, wages and salaries are too low for many of these individuals to buy even "affordable housing" without the assistance of a working spouse, or possibly even a second job

The following table shows the relationship between maximum loans and income for a family of four, presshere

Why do above median income earners qualify?
We can understand why the low wage earners need assistance but why the need to help the above-median earners? The answer usually given is that house and apartment prices have risen at a faster rate than wages and salaries. Even families earning above the median income are finding it hard to finance the purchase of dwellings. The P&C showed that the median house price in Charleston had risen 37% over the last 5 years, whereas the median income for a 4 person family had risen only 25%. We don't have the figures for the last 10 years but we suspect the gap would be even wider.

Conventional wisdom explains the disparity between wage and house-price increases in Charleston by attributing it to the large influx of people from the North. They have been attracted to Charleston for a number of reasons, one of which was the lower cost of local housing. A house in the suburbs of New York, Washington or Boston might easily cost two to three times the equivalent in Charleston. Many northerners have come south to retire, or just have purchased a second home. But it is their purchases that have driven up the cost of housing in Charleston generally. One must also add the impact of the expansion the College of Charleston, MUSC and Trident Tech. The influx of more students has also driven up housing costs.

Rising house prices not confined to Charleston
The phenomenon of rising house prices is not confined to Charleston. It has occurred just about everywhere in the US in recent years with the fall in interest rates and the consequent greater ease of financing. But the homebuyer now coming to the market for the first time may have an income identical to a buyer of 3 years ago. Both have or had the advantage of low interest rates but the present buyer faces a housing market that is much higher.

For the table showing changes in median income and median home prices in Charleston, press

Notwithstanding the different rates of appreciation, a four-member family with the present median income of $55,900 still comes close to qualifying for a conventional mortgage to purchase a house near the present median value. Indeed, if the family can put down more than a 10% deposit, or has little credit card debt, a house above the median value possibly could be financed through a bank. And because of this, we still ask why, with so many people needing help at the low end of the income spectrum, do above-median income families qualify for "affordable housing"? Helping these families deprives the more needy of funds. And after all, there is no abundance of funds.

Some programs allied to "affordable housing"
It is worth referring to some of the available programs that are allied to "affordable housing" - specifically special loans offered by some banks and by the Charleston Bank Consortium. These loans are available to families who fall into the income category broadly defined for "affordable housing". Eligibility will also depend on family size, the amount of deposit and credit history. The last of these is the most important criterion, since a bad credit record most likely will close the door. The major benefit of special loans offered by banks and the Bank Consortium, which are generally for a maximum term of 30 years and bear a slightly better than market rate of interest, is help in meeting closing costs. These costs can often amount to 5% of loan value if a mortgage is secured from a mortgage broker. Typically they are much less when a conventional mortgage is negotiated with a bank. But with a "special loan", the closing costs could be negligible. The closing costs are paid with a second mortgage but that mortgage is forgivable over a period of time if the conditions of the first mortgage are met and the buyer remains in the home for a specified period.

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