Environment, Energy and Transportation Program

State Roles in the Future of Affordable Housing -- Some Recommendations by the Millenial Housing Commission

June 2003

By Cathy Atkins, Program Principal

Congress enacted legislation in 2000 establishing the bipartisan Millenial Housing Commission (MHC) to study the nation's housing issues. The MHC was charged with examining, analyzing and exploring:

The importance of housing, particularly affordable housing, which includes housing for the elderly, to the infrastructure of the United States.
The various possible methods for increasing the role of the private sector in providing affordable housing, including the effectiveness and efficiency of such methods.
Whether the existing programs of the Department of Housing and Urban Development (HUD) work with one another to provide better housing opportunities for families, neighborhoods and communities, and how such programs can be improved.

As the MHC began studying housing affordability, the MHC expanded these three elements by including an assessment of the unmet housing needs in the United States and whether these needs could be met by existing programs or whether new initiatives were required.

The MHC held meetings, received testimony, and gathered information. MHC's final report to Congress, Meeting Our Nation's Housing Challenges, released in 2002, made 13 principal and 15 supporting recommendations. Principal recommendations were divided into three categories: new tools, major reforms of existing programs and streamlining of existing programs. Each recommendation was designed to strengthen communities, devolve decision making, involve the private sector and ensure sustainability. Many recommendations also focused on the roles of states in affordable housing. The principal recommendations emphasized that:

The links between housing and the community in which it is located should be strengthened.
Authority and responsibility for making decisions about housing should remain in the hands of state and local governments.
The role of the private sector in producing affordable housing should be enhanced.
The goals of sustainability and affordability should be placed on equal footing so that continued affordability is no longer the enemy of proper physical maintenance.

Some of the recommendations that could have a major effect on states include:

Devolution of decision making to states and local governments but within a framework of federal standards and performance objectives.
The MHC states in its report that "states -- working closely with localities -- can best address certain key challenges." The report emphasizes that housing needs exist in a "broader context of job and commercial development, smart growth initiatives, health care delivery challenges, and other community development issues that require statewide leadership, planning and administration." MHC also said that states should "administer and allocate a portion of the funds because they can coordinate housing resources with the other federal funding streams they already manage, and they can carry out strategies that extend across jurisdictions."
Allocation of a flexible new tax credit to stimulate production of affordable properties suitable for homeownership.
The MHC indicated that state housing finance authorities could choose to use tax credits to increase affordability for low-income homebuyers "by tackling the primary barriers to homebuying: insufficient income to support monthly payments and insufficient savings to cover downpayments and closing costs." States also should be able to use the new homeownership tax credits "to address both income and wealth constraints by auctioning off credits to lenders in return for commitments to reduce borrowing costs, downpayment requirements, or both."
Implementation of exit tax relief to encourage preservation of affordable housing
Previous changes to the federal tax laws created a situation in which property owners who want to sell economically marginal properties are unable to do so because of taxes due. This may lead to the deterioration or abandonment of these properties. The MHC recommended the establishment of "preservation entities" that could buy such properties and preserve them as affordable housing. Sellers would be eligible for exit tax relief making it more attractive for them to sell to preservation entities than to hold onto or abandon the property. States would be allowed to determine who is eligible for such tax relief and establish specific criteria for a preservation entity and a preservation transaction.
Expansion of states' ability to use the Mortgage Revenue Bond (MRB) program.
MRB proceeds generally are required to be used to generate additional mortgages; however the "10 Year Rule" requires that principal payments received after 10 years from the date of bond issuance must be used to pay off the bonds. The MHC recommends that the 10 Year Rule be repealed by Congress to allow more of the MRB proceeds to be used to issue more mortgages. The MHC also recommends raising the $15,000 cap on the financing of home improvement loans.
Streamlining of state planning requirements for community development programs.
The MHC recommended that Congress eliminate the narrow and prescriptive federal planning requirements for the various funds used for housing and community development and, instead, allow states "to develop plans that establish basic principles such as the importance of sustainability, define housing needs and target areas, list priorities, . . . outline a menu of resources and request project proposals that offer solutions." MHC also suggested "states that successfully develop a comprehensive strategic plan should be able to request a waiver of standard program planning requirements."

The complete report of the MHC as well as information about its mission, composition, recommendations, meetings and hearings is available online at http://www.mhc.gov/.

Resources:

Fannie Mae Foundation Knowledgeplex database on housing issues, www.knowledgeplex.org

Fannie Mae Foundation Web Site, www.fanniemaefoundation.org

Meeting Our Nation's Housing Challenges, Report of the Bipartisan Millennial Housing Commission Appointed by the Congress of the United States, Washington, D.C., Government Printing Office 2002.

Millenial Housing Commission Web Site, www.mhc.org

National Housing Conference Web Site, www.nhc.org

NCSL Housing Web Site, www.ncsl.org/programs/esnr/HOUSING.htm

P.L. 106-74 §206, Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act, 2000

The "NCSL/Annie E. Casey Project on Strengthening Families and Neighborhoods" Web Site, www.ncsl.org/programs/sfn/sfn.htm

U.S. Department of Housing and Urban Development Web Site, http://www.hud.gov/

Key Contacts:

Cathy Atkins, National Conference of State Legislatures (cathy.atkins@ncsl.org)

Conrad Egan, Executive Director, Millenial Housing Commission; President & CEO, National Housing Conference (http://www.nhc.org/)

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