Charlotte City Council votes to incentivize affordable housing development

Consultants hired by the city of Charlotte had advised the city council back in October that it needed to create more affordable housing for the city’s lower-income residents.  According tot he consultants, Charlotte is short 15,000 units for residents making less than 30 percent of the median income, but has a surplus of 10,000 units for those making more than 60 percent of the median income. Last night, in response to this recommendation, Charlotte’s City Council voted to provide developers with a “density bonuses”– an allowance to develop more units than what the zoning laws allow– if they incorporate affordable housing into their development. Developers could then build more market-rate units to offset the cost of the affordable units.

Interestingly, what the city council voted on would not actually be targeted toward the city’s poorest residents– the ones, mentioned above, that make less than 30 percent of the median income, and who face a significant affordable housing deficit. Instead, these affordable units would be for those making 60 to 80 percent of the median income.

Zoning laws have often been used to delineate boundaries and exclude certain groups. For example, by regulating minimum lot sizes, minimum home sizes, density, etc, zoning ordinances have effectively been used to steer away lower-income residents. This kind of initiative falls under the category of ‘inclusionary zoning‘– efforts to ensure that development within a city include housing opportunities for a mix of incomes. In many cities across the country, inclusionary zoning has been successful in reversing this segregation. Inclusionary zoning helps to incorporate affordable housing across cities, rather than letting it get clustered in certain areas, as it currently is in Charlotte.

The density bonus program approved by the city council is an example of voluntary inclusionary zoning. Developers are given the bonus if they choose to build affordable units, but they don’t have to. Other cities have implemented mandatory affordable housing programs, where developers are required to set aside a certain percentage of their units as affordable.

Mixed-income developments are good for cities and communities. The ultimate impact of Charlotte’s new program, however, is uncertain. Since it does not target those residents that are most in need of affordable housing, it is not addressing the root problem identified by the consultants in the first place.  The city’s poorest residents will continue to be relegated to the clusters of low-income housing, and even then will continue to face a shortfall in affordable units. Also, since the new program is voluntary, developers would have to opt into this program. The density bonus may be a big enough incentive some, but it is yet to be seen whether it will it be enough to encourage affordable housing on the scale that it is needed.

Big changes ahead with Raleigh’s new development code

Raleigh’s city council may be adopting a new 300-page Unified Development Ordinance (UDO) tonight, which will set forth new guidelines for the development of the city’s urban cores. This is primarily the Crabtree Valley, Hillsborough Street, and Cameron Village areas. The idea is to encourage higher-density, walkable, mixed-use development while still preserving a neighborhood feel.

It is encouraging to see that new steps are being taking to ensure that our cities are developing in a more sustainable way. Encouraging more dense development, with shops, offices, and housing in close proximity, means that people will rely less and less on cars. In addition, this will help create a more vibrant public life– with more people out and about, walking and biking, shopping, eating, etc, there will be more activity in our urban areas.

One of the issues that such a plan raises, however, is the lack of public transportation included in the new code– a key piece for encouraging linkages between areas and reducing the use of cars. As the News & Observer reports, public transit investments rely on a half-sent sales tax increase that is supported by Wake County mayors, but opposed by county commissioners. As one councilman put it, “If it still ends up being more convenient to get in your car , it’s going to get more difficult to redevelop these areas.”

There is also the broader issue of access– who are these areas being developed for, and what will the impacts be on surrounding areas? The N&O begins by stating that these neighborhoods currently attract “young professionals.” Along with encouraging a mix of uses, will the plan also encourage a mix of people? Will there be opportunities for lower- and moderate-income people to access housing, business space, or even retail in these areas?

Even in the discussion of public transportation investments, the key is to make sure that the new transit hubs are connected to the outlying areas. As we have blogged before, low-income people are the primary users of public transit. If the urban cores of Raleigh will include opportunities for both recreation and employment, it is essential that public transit provide the connections to allow all citizens access.

It is commendable that the City of Raleigh is working to update its land-use and development codes to encourage more sustainability. However, it is equally important that city planning efforts and big investments like public transit infrastructure encourage the growth, development, and connectivity of all areas of the city.

Sequestration would cut funding for rental assistance

We’ve posted a lot about the fiscal cliff and the looming across-the-board budget cuts, known as “sequestration” that are now set to kick in on March 1. With such a broad scope, sequestration will have far reaching impacts on many different people and communities. So far we’ve talked about the impact on credit unions, on small businesses, and on Native communities. Today we’ll look at the impact on low-income families who rely on rental housing assistance.

The Center on Budget and Policy Priorities (CBPP) reports that the federal spending cuts will eliminate funds for 100,000 vouchers for low-income families, will cut homeless program funding by $100 million, and will cut public housing funding by $300 million.  In North Carolina, cuts to community development and housing programs will total almost $6 million. An important point to note is that these cuts would be on top of already reduced funding for federal housing and community development programs, which have been cut by $2.5 billion, or 6 percent, nationally since 2010.

These cuts would be devastating to the almost 10 million people who rely on federal subsidies, in the form of Housing Choice Vouchers, Section 8 Project-Based Rental Assistance, and Public Housing, to afford a place to live. As CBPP’s analysis shows, 88 percent of households in these programs in 2010 were elderly, had disabilities, worked, had recently worked, or were subject to work requirements through other programs. Forty percent were households with children.

Programs like housing assistance are critical in helping low-income families either stay out of poverty, or at least ease the impacts of poverty for their families. Back in September we re-blogged a piece also from Progressive Pulse that highlighted another CBPP analysis showing that safety net programs– housing assistance and food stamps– help to lower the poverty rate. Without these supports, many more families would fall below the poverty level.

In a struggling economy, cutting these benefits would only serve to plunge many low-income families further into distress. The ripple effects of sequestration would impact the economy overall, sending us further away from a true recovery. But unless Congress acts, these cuts will go into effect in just a few weeks.

 

 

 

New mortgage rules could help credit unions & small banks

Yesterday, we blogged about the new “ability-to-repay” mortgage lending rule announced by the Consumer Financial Protection Bureau. The rule sets forth stipulations to help ensure that borrowers can actually afford the loans that they qualify for. Again, it’s just common sense. But some in the banking industry warned that some of the stipulations, particularly those regarding “qualified mortgages” would tighten the credit market and make getting loans harder for certain borrowers like first-time buyers and  low-income people. But in fact, the new rule creates an exemption for small lenders, which may open up the market.

CFPB’s rules state that to be a certified qualified mortgage, borrowers must be evaluated on a range of criteria, including their income, credit history, debt, and others. The loan can’t have any of the more risky features like balloon payments or interest-only loans. In exchange, the lender would gain greater protection from consumer lawsuits. The biggest sticking point seems to be that the borrower must not have a debt-to-income ratio of more than 43 percent. This is a measure of how indebted borrowers are, comparing their income with the debt that they already have prior to taking on a mortgage. Banks say that this will significantly restrict the pool of eligible borrowers, and thus will tighten the credit market.

The catch is that there is an exemption for small banks and lenders with less than $2 billion in assets. If banks and credit unions that are below this threshold, and keep loans on their books rather than selling them, they could get the exemption to the stipulations laid out for qualified mortgages. Smaller lenders also have more flexibility with the types of loans that they can make.

What this means is that, while the larger banks may find that their pools of eligible borrowers shrinks, other lenders will be able to step in. This makes sense. For low-income and underserved borrowers, the type of hands-on financial counseling and training that credit unions and smaller banks and lenders provide is critical. Community banks, credit unions, community development financial institutions (CDFIs), and other lenders are better positioned to take on the risk associated with these borrowers, as they are designed to provide additional support to ensure borrowers’ long-term success. As discussed in a report we released last month, community lenders like CDFIs step in to fill gaps in lending and financial services, reaching individuals not served by the financial mainstream. With the new mortgage lending rules, these lenders will continue to do so.

So in the end it seems that the concerns expressed by some in the banking industry may be a bit over stated. The market will no doubt shift. The new rules create a new playing field that all providers will have to adjust to. But as some consumers find that they no longer can access credit at the major banks, other lenders will step in to create new pathways.

 

 

 

CFPB announces new “ability-to-repay” mortgage lending rule

Today the Consumer Financial Protection Bureau (CFPB)announced a new “ability-to-repay” rule, which is aimed at making sure that lenders do not saddle borrowers with loans that they can’t afford.  In order to qualify for a loan, the borrower must have enough assets or income to pay it back, they must provide financial information that is verified by the lender, and the lenders have to assess the borrower’s ability to pay over the long term, including both the principal and the interest. CFPB also announced a few proposals: to exempt designated nonprofit lenders and homeownership stabilization programs, and to create a new category of “qualified mortgages” for small creditors like community banks and credit unions. Qualified mortgages are meant to reduce the amount of risk in mortgage lending by eliminating risky features, such as negative amortization and interest-only mortgages, and offer borrowers more protection. In exchange, lenders that make certified qualified mortgages will be protected from consumer lawsuits.

The ability-to-repay rule seems like common sense, but the fact that it has to be spelled out points to just how far banks and lenders had gone in making loans to people who could not afford them. Lending standards had become so lax that people were qualifying for loans without even providing validation of their income, credit history, or even showing an understanding of the terms that they were agreeing to. Previous rules issued by the CFPB, which will be finalized this month, were meant to increase transparency with mortgage lenders and provide consumers with timely and accurate information. Borrowers need to be provided with the information they need to make sound decisions. This new rule, which will take effect in January 2014, will take it a step further. Now lenders and borrowers will have to provide some assurance that they will, in fact, be able to pay the loan. Here’s how the Chicago Tribune sums it up:

For all types of mortgages, to help determine a borrower’s ability to repay, lenders must look at eight factors. They include current income and assets, employment status, credit history, the mortgage’s monthly payment, other loan payments associated with the property, monthly payments for such things as property taxes, other debt obligations and a borrower’s monthly debt-to-income ratio.

Some banks have expressed concerns, particularly around the criteria for qualified mortgages. According to the rule, borrowers’ debt-to-income ratio is capped at 43 percent. The American Bankers Association says that this may be too low and might unnecessarily tighten access to credit. Banks will be encouraged to follow the qualified mortgage lending criteria due to the protections it offers, but the result, they claim, may be fewer borrower who can qualify for loans– in particular, low-income or first-time homebuyers.

Though the new rule may contain some tighter standards, the mortgage lending industry had run so amok that it is not surprising that the process of reigning it in is causing some consternation. Whether the debt-to-income ratio will have a significant impact is yet to be seen, and the industry has a year to adjust to the new regulations. The rest of the rule, however, is simply common sense. Banks and lenders should not be making loans to people who can’t afford them. For those who are excluded under the new rules, such as low-income families seeking to build up their assets, perhaps adjusting the rules and providing hands-on financial counseling to ensure their financial success can help balance out the equation.