Affordable Housing: How Shifting FSS Policy Dynamics Could Help
MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.
The issue of affordable housing in the U.S. has seen no shortage of recent conversation: A rising number of U.S. citizens express their concern about the availability of affordable housing in their local communities.
As indicated by a survey in October 2021, almost half (49%) of Americans viewed the perceived lack of affordable housing as a significant problem, witnessing a 10% increase from early 2018.
U.S. housing issues are evident, with 70% of Americans stating that young adults today face more difficulty in purchasing a home than their parents' generation did.
Affordable Housing Reduced by Macro Factors
Several factors have shaped the financial challenges faced by American homeowners and renters in the U.S. housing market. These include stagnant incomes despite rising housing costs and a slowdown in housing construction.
A surge in homebuying fueled by record-low mortgage interest rates amid the COVID-19 pandemic has further stressed the availability of affordable housing in the U.S.
Exploring Key Measures of Affordable Housing and U.S. Housing Policy
The Pew Research Center has analyzed housing affordability in America, utilizing data from Center surveys and external sources such as the Federal Reserve Bank and the U.S. Census Bureau. This analysis highlights key measures of the U.S. housing affordability crunch and the reasons behind it, including the influence of U.S. housing policy.
Specifically, the analysis shows a dwindling supply of homes as sales increase, leading to a surge in median home sale prices. Active housing listings in the U.S. hit a five-year low in January 2022, with only 408,922 listings on the market.
This is a significant drop of 60% from about 1 million listings in February 2020, before the coronavirus recession hit the U.S. Concurrently, the national median sale price for a single-family home skyrocketed by 25%, from $327,100 in the fourth quarter of 2019 to $436,800 in Q1 2023.
Limited Supply and High Demand: Potential U.S. Housing Crisis
The squeeze on housing availability is further intensified by a record increase in the number of American homeowners in 2020. The Pew Research Center's analysis of U.S. Census Bureau data further confirms this.
In addition, housing vacancy rates have dropped significantly in the last decade. Rental unit vacancy rates fell from approximately 10% in 2010 to 5.6% at the end of 2021, and selling a house as-is requires an excellent counterparty. Owner-occupied units' vacancy rate is down from around 2.6% in 2010 to 0.9% in 2021.
Affordable Housing Issues No Longer Contained Geographically
The problem of affordable housing is no longer limited to major coastal cities. As Americans have moved more since the pandemic, smaller cities and towns are also feeling the pinch.
Once largely a blue-state, coastal city issue, the affordable housing crisis has become a nationwide problem, with profound implications for American families' quality of life, the national economy, and the future of U.S. housing policy.
One Underutilized Affordable Housing Solution: The U.S. Family Self-Sufficiency (FSS) Program
The Family Self-Sufficiency (FSS) program, a HUD program extant since 1991, consolidates public and private resources to support those involved in various affordable housing programs, including the housing choice voucher program, public housing, and the Section 8 Project-Based Rental Assistance (PBRA) program.
The objective is to help families secure employment and achieve financial independence, reducing reliance on welfare and rental subsidies. Administered by public housing agencies with program coordinating committees, the FSS program now allows multifamily property owners to implement it as a more profitable option.
How New Guidelines Lead to More Affordable U.S. Housing
Funding for FSS coordinators can now be sourced from residual receipt accounts. An agreement is established, usually lasting five years with the potential for a two-year extension, between an agency/owner and an adult family member, outlining a specific training and services plan.
Participating families are granted an interest-bearing escrow account, which is now funded by HUD even in multifamily communities. The program undergoes regular updates, reflecting new regulations and best practices, as seen in the recent January 2023 guidebook and the regulations instituted after the FSS Final Rule issued in May 2022.
To participate in the initiative, families are required to reside in cost-effective housing supported by a public housing agency or a unit providing rental assistance managed by a private multifamily landlord.
The rent these families pay each month is proportionate to their income, implying an increase in salary would lead to a surge in living expenses. Under the new FSS guidelines, multifamily landlords are incentivized to encourage enrollment in the program.
Prior to these, participating multifamily landlords had to fund escrow accounts themselves, whereas today HUD funds them, making way for greater multifamily landlord participation in providing affordable housing.
Summing Up: U.S. Housing Policy Should Soon Enhance Affordable Housing Availability
The shortage of affordable housing in the U.S. has had far-reaching impacts. While U.S. housing policy continues to evolve in response to these challenges, it is clear that addressing this issue requires a comprehensive, multi-faceted approach.
As the U.S. navigates this affordability crisis, the importance of affordable housing, U.S. housing trends, and the role of U.S. housing policy will remain critical areas of focus.
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