Testimony of Jenny Reed, Policy Analyst, at the Public Hearing on the Fiscal Year 2012 Budget Oversight Hearing for the Department of Housing and Community Development

Chairman Brown and members of the Committee, thank you for the opportunity to speak today.  My name is Jenny Reed, and I am a Policy Analyst with the DC Fiscal Policy Institute.  DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that affect low- and moderate-income residents.

I am here today to ask the Council to reject the Mayor’s significant proposed cuts to the Housing Production Trust Fund (HPTF), which is managed by the Department of Housing and Community Development.

DC residents have been finding it harder and harder to secure affordable housing in the District.  A recent DCFPI report showed that since 2000, DC rents have risen faster than in most major cities and have outpaced the incomes of most DC households. [1] At the same time, our report showed that DC lost over one-third of its low-cost rental units, and two-thirds of its low-cost owner-occupied units.  With that huge loss of affordable housing it’s not surprising that the number of renters who have severe housing affordability problems, or who pay more than half of their income towards housing, has risen 40 percent from 2000 to 2009.[2] When people pay more than half of their income on housing, it leaves little left for other basic necessities like food, clothing, and transportation.

The District has created a variety of affordable housing tools, each serving a specific purpose and each critical to make housing available all along the continuum of affordable housing needs ‘ from homelessness to homeownership ‘ for DC’s low- and moderate-income residents.  As a result of the Great Recession, the city’s affordable housing tools have been largely dormant and funding has been used to maintain most programs at their prior-year levels.  The exception is the Housing Production Trust Fund’ DC’s main source for affordable housing construction, renovation, and tenant purchase’ where resources fell significantly when the recession hit and have remained low for some time.

HPTF is supported by 15 percent of DC’s deed recordation and transfer taxes, which dropped sharply in the downturn (see figure 1).   In FY 2012, total resources for the HPTF would jump higher, but this expected increase would be wiped out by the Mayor’s proposed FY 2012 budget.  In addition, $18 million would be cut from the HPTF each year through at least FY 2015.  These cuts would come at a time when the city is starting to recover from the recession and the housing market is likely to heat up.

The drop in funding into the HPTF is concerning.  Since 2000, the HPTF has supported the construction or rehabilitation of 6,700 affordable homes ‘ with another 1,600 underway.  As I mentioned earlier, a DCFPI analysis shows that DC lost over 24,000 (or one-third) of its low-cost rental units from 2000-2007.  These losses would have been much larger had the HPTF not been creating affordable units over the same time period.

The Trust Fund went through a rapid decline in recent years and tens of millions of dollars of affordable housing projects were stuck in the development pipeline as a result.  The proposed 2012 budget would likely allow DHCD to fund all projects that are left in the pipeline, but because of the proposed demands on the HPTF in FY 2012 and future years, the District’s capacity to finance the development of affordable housing and provide funds to help support tenants wishing to exercise their right of first purchase would be greatly restricted (see table 1, next page).

Additionally, because funding for the HPTF has been so volatile, trying new programs that require ongoing subsidies each year to the HPTF ‘ as is being proposed in Mayor Gray’s FY 2012 budget ‘ puts funding for those efforts at risk and makes it possible that in some years, no funds could be available for core HPTF purposes.

Now that the Great Recession has loosened its hold on the economy, it is very likely that the rental housing market will get much tougher for everyone but especially low- and moderate income residents.  A recent study from the Harvard University Joint Center for Housing Studies noted, with the housing market still on shaky ground, more people’ including many higher income households that might typically gravitate toward homeownership’ are turning to the rental market.[3] That shift is likely to drive down rental vacancy rates and put upward pressure on rents, making it even harder for low- and moderate-income families to find affordable units.

With DC’s affordable housing problems likely to get worse, the HPTF needs the additional resources it was expected to receive and a new funding mechanism going forward in order to remain a viable affordable housing tool for the District.  DCFPI suggests that going forward, the HPTF be funded either: through direct appropriation, tied to a more stable source of funding, funded through a specific amount of deed taxes, or funded by dedicating a minimum floor of deed taxes.[4] In FY 2009, the Council passed a bill supporting the latter goal, but it was never funded.  In addition to a new funding mechanism, the Council should consider adding a one-time appropriation to the HPTF to help move along some of the projects ready to be built in the HPTF development pipeline.

With affordable housing problems growing worse, and the affordable housing stock shrinking, now is not the time to scale back the District’s capacity to preserve and produce affordable housing.

Thank you again for the opportunity to testify. I am happy to answer any questions.

[1] DC Fiscal Policy Institute, Nowhere to Go: As DC Housing Costs Rise, Residents are Left with Fewer Affordable Housing Options.  February 5, 2010.  Available at: www.dcfpi.org

[2] A “˜severe housing affordability problem’ is defined by the U.S. Department of Housing and Community Development as a household paying more than 50 percent of their income on housing.

[3] Harvard Joint Center for Housing Studies, “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” available at: http://www.jchs.harvard.edu/publications/rental/rh11_americas_rental_housing/index.html

[4] For more detail on these suggestions, see CNHED and DCFPI, Affordable Housing in the District Depends on a Stable Housing Production Trust Fund October 20, 2008.  Available at: http://www.dcfpi.org