Ben Weyl, Editor

MORNING TAKE
8:56 a.m. Dec. 9, 2013

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Affordable Rental Housing Grows Out of Reach

by Ben Weyl, CQ Roll Call

In today's Take, more families are struggling to pay rising rent amid stagnant wages; a budget deal is near, and some fear Fannie Mae and Freddie Mac may again be tapped for savings; it's a big week for financial policy, with the Volcker rule's unveiling; an FSOC meeting; and key congressional hearings on housing finance and the Federal Reserve and with an appearance by the Treasury secretary. The United States is facing a growing rental affordability crisis, as renters income fails to keep pace with rising housing costs. With lawmakers mulling the limits of homeownership as part of a housing finance overhaul, the issue may become of even greater concern. For the first time, at least half of U.S. renters are spending 30 percent or more of their income on rent a 12 percentage point rise from a decade earlier, according to a new report from the Joint Center for Housing Studies of Harvard University. Fully 27 percent of renters spend more than half their income on rent, up from 19 percent 10 years ago, according to the report, Americas Rental Housing: Evolving Markets and Needs, which was unveiled Monday and is published every other year. The gravity of the situation for the large proportion of renters spending so much of their incomes on housing is plain, said Eric Belsky, managing director of the center. We are losing ground rapidly against a chronic problem that forces households to cut essential spending.

Belsky said the severe cost burden leads low-income renters to spend less on food, health care, clothing and savings. The report will be formally unveiled at an event at the Newseum Monday, which can also be seen via webcast from 11:30 a.m. to 4:30 p.m. Secretary of Housing and Urban Development Shaun Donovan will be speaking, as will Gov. John Hickenlooper, D-Colo., Sen. Mark Warner, D-Va., and Michael Stegman, counselor to the Treasury secretary for housing finance. The number of renters has climbed significantly after the financial crisis because of the millions who lost their homes to foreclosure, some disillusionment with homeownership and a simple inability to afford a house in the midst of sustained unemployment. In 2004, 31 percent of all households were renters; in 2012, it was up to 35 percent, representing 43 million households. With higher demand, rental vacancies have fallen and rents have risen. Income, however, has not kept up. Between 2000 and 2012, the report found, real median rents nationally (adjusted for inflation) increased by 6 percent, while over the same period, the real median income of renters dropped by 13 percent. Things are particularly dire for extremely low-income families, or those earning at most 30 percent of an area's median income. Chris Herbert, research director at the Harvard Joint Center for Housing Studies, said the shortfall in the number of units affordable for such households more than doubled from 1.9 million in 2001 to 4.9 million in 2011. For many low-income families, the rental housing affordability crisis is like a game of musical chairs in which there is never a chair left for them, said Herbert. Assistance efforts have failed to keep pace with escalating need, undermining the nations long-standing goal of ensuring decent and affordable housing for all. Sequestration has also sliced the number of families receiving rental housing

assistance by tens of thousands. As Congress and the Obama administration look to overhaul the housing finance system and weigh how broadly homeownership should ultimately extend, the issue of rental affordability and the national housing trust fund may take an increasingly prominent role. Senate Banking Committee leaders are worried that such an overhaul could be threatened if Fannie Mae and Freddie Mac are used as part of a budget deal to ease the pain of sequestration that looks increasingly likely to be unveiled this week. As first reported by The Wall Street Journal, Chairman Tim Johnson, D-S.D., and ranking member Michael D. Crapo, R-Idaho, sent a letter Friday to budget negotiators urging them not to increase the mortgage giants guarantee fees to pay for higher appropriations. Each time they are increased and diverted for unrelated spending, homeowners are charged more for their mortgages and taxpayers are exposed to additional risk, they wrote (PDF). Also, each of these offsets makes reforming Fannie Mae and Freddie Mac more difficult because it increases the price tag of any legislation. Its unclear if the senators sent the letter because House Budget Chairman Paul D. Ryan, R-Wis., and Senate Budget Chairwoman Patty Murray, D-Wash., are seriously considering tapping Fannie and Freddie for cash, or if they are simply trying to curry favor with the housing industry, which also strongly opposes toying with the G fees. In an interview, David Stevens, president and CEO of the Mortgage Bankers Association, acknowledged there has been no explicit move in that direction yet but said he was concerned after lawmakers began talking up the use of Transportation Security Administration fees as offsets. Its happened once, Stevens said, citing the 2011 payroll tax cut extension. There was an attempt to make it happen again on a different piece of legislation, and theres been discussion publicly about some members of Congress of using fees to pay for programs.

Stevens did say the industry was rooting for a budget deal, as long as housing was untouched. Weve been living on continuing resolutions for far too long, he said. Meanwhile, the Banking Committee will continue its work to restructure the mortgage market this week, as the clock ticks down on a year-end goal to reach a bipartisan consensus. The panel will hold a hearing on Tuesday on the fundamentals of transferring credit risk in a future Housing Finance System. Johnson and Crapo will also speak at a Bipartisan Policy Center forum on Wednesday on the role of private capital in a revamped housing finance system. While the committee leaders have been making progress toward an agreement, its unlikely theyll mark up legislation before the end of the year. That was always going to be a difficult deadline to meet, but the government shutdown also threw a wrench into their plans. If Johnson and Crapo are ultimately able to reach a deal, it could be unveiled in the first months of 2014. Also, for your radar this week:

The Financial Stability Oversight Council meets in open session Monday. The council will discuss, among other topics, cybersecurity and receive a presentation from the Office of Financial Research on financial market developments, according to Treasury.

Regulators will take a long-awaited vote to finalize the Volcker rule on Tuesday. Regulators are saying it will be a tough ban on banks' proprietary trading, but activists are ready to push for new restrictions if they believe the rule falls short. Industry, meanwhile, is already prepping a lawsuit to throw out the rule.

The House Financial Services Committee holds a hearing on Wednesday featuring Treasury secretary Jacob J. Lew and a hearing on Thursday on the Federal Reserve, which is again weighing whether to taper its bondbuying program later this month after strong November jobs numbers.

Let me know your thoughts, concerns or news tips at bweyl@cq.com or 202650-6730. On Twitter, I'm @benweyl.