By S. Kelley Henderson, Chief Executive Officer, Action Ministries
Recent headlines have shed light on what many are describing as the “affordable housing crisis” in the Greater Atlanta area. Our reputation as a destination city has been tarnished with renewed attention to the income inequality that seems entrenched, along with a runaway train in rising rental prices. If you combine the two phenomena, the scenario quickly becomes untenable…especially for lower income households.
Over the next few weeks, I would like to unpack the term “affordable housing,” and hopefully talk about practical solutions that exist in our community to improve the situation for families struggling to pay their rent. Affordable housing as a catch phrase has been used so much in recent months around Atlanta, that I wonder if we have become anesthetized to its meaning. The US Department of Housing and Urban Development (HUD) defines affordable housing as housing cost at 30% or less of income. In other words, you spend no more than 30 cents on housing for every 70 cents spent on other living expenses. Perhaps you remember buying your first home, and the banker introduced you to your debt ratio. Your qualification was determined based on your ability to pay the mortgage at a similar percentage. For renters, many landlords use as high as 50% to qualify you as a viable tenant.
According to a July 2018 study of the housing affordability 77% of Georgia’s low-income populations (those earning <50% of AMI) are housing cost burdened, meaning they pay a large percentage of their income to cover rent. Another way of looking at this using the same report, is to measure the number of available affordable units per 100 tenants. In Georgia we had 52 units available for every 100 tenants who earn at or below 50% of AMI, with only 47 in the Atlanta area. This improves to 97 units per 100 (98 in Atlanta) for those earning 80% of AMI, suggesting that the “workforce” segment is closer to parity. If we crunch the numbers further, we see a need for just over 496,000 new affordable units to reach parity in Georgia, or 161,000 for the Atlanta area (Rental Housing Affordability in the Southeast, July 2018, pp. 15-25).
The problem is not just that existing units are too expensive, the problem is that builders are not producing enough units to satisfy demand on the lower income end of the spectrum. Why is that? If I can bring back the infamous phrase that cost George H.W. Bush his re-election in 1992… “It’s the economy, stupid!” Yes, the market for multi-family properties has been white hot since the Great Recession. Developers have built many more luxury units due to higher margins, compared to units on the lower end of the rental range. There are scenarios that incentivize “mixed-income development,” most driven by tax credits. So, why are more of these properties not being developed? Perhaps the incentives are not keeping up with the needs of the private sector, and it is time to innovate. For the 161,000 tenants in the Atlanta area who feel left behind…that time is now.
Over the next few weeks, I will breakdown some of the different models for affordable housing development…some have worked, some have not. Whether public, public/private, mixed income, or alternative housing, we have a lot of tools in the toolbox that could be deployed to right size our housing economy before the unintended consequences of housing insecurity derail the next generation of Georgia’s workforce.