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Chris Finlay, Chairman/CEO Lloyd Jones Capital, LLC

Affordable Housing – It’s time to shake it up.

January 31, 2017

Once upon a time, not so long ago, the American dream was to own a modest home in which to raise a family. This was more than a dream; it was an assumption, an expectation. Even the lowest-income workers aimed for, and usually achieved, this dream.

Not anymore. Millions of our working families cannot even afford a rental apartment.

But that can change. I submit that we can double affordable housing assistance without increasing funding. We currently spend

$50 billion for affordable housing programs


$130 billion to assist non-low income households via tax deductions

Billions. That’s a lot of money. Where does it go?

1. Affordable housing.

Federal and state governments have literally hundreds of programs designed to provide housing assistance – $50 billion worth. This massive bureaucracy comes at a tremendous cost to efficiency, and it meets the needs of only a fraction of the very-low income population. Plus, it drives up the costs.

2. Assistance for home-owners

We spend $130 billion to assist non-low- income households through mortgage interest and real estate tax deductions. $130 billion to home-owners when we have homeless families?

I’ve just finished reading a 2015 report by the Congressional Budget Office (Federal Housing Assistance for Low-Income Households). It looks at several potential policy changes to address the problem of affordable housing: revising the composition of the assisted population, adjusting tenant contributions to the rent payment on HUD’s voucher program, and repealing and/or replacing various programs. (Just repealing the LIHTC [Low Income Housing Tax Credit] program would increase revenues $42 billion over the next 10 years per the Joint Committee on Taxation.)

This CBO report is an analysis of various options; it offers no solutions. I propose an additional option, but first, we have to address the real issue.

The real issue:

In my opinion, these options do not address the underlying problem: the massive bureaucracy inherent in any government program. Layer upon layer of bureaucracy: administration, multi-tiered approvals, pages and pages of legislative rules and regulations, legal fees, accounting fees, compliance fees – and record maintenance into perpetuity. In one of my LIHTC compliance newsletters, the writer took over 350 words to explain “simply” which income limits to use to qualify a household. If it takes 350 words to tell me which year’s income limits I must use, it’s not simple. It takes attorneys, accountants and compliance experts to understand the intricacies of each program. How many thousands of people are involved in every project? It’s very expensive to produce affordable housing. I recently read that the cost to construct a low-income housing tax credit unit is $250,000 – for one unit!! I suspect that same unit, market rate, would come in around $150,000.

My Proposal: Let’s dismantle the entire bureaucracy!

Let’s use the funds – from all sources – and provide assistance directly to the end user whose income is too low to afford a median-income rental apartment.

How many would qualify?

According to the CBO report, in 2014 the federal government provided about $50 billion in housing assistance to 4.8 million low-income households. But we have 20 million eligible households (those earning less than 50% of Area Median Income), so we still have 15 million very-low- income households that receive no assistance.

And what about those between 50% and 100% of median? Families earning $30,000 to $60,000 dollars? According to a 2015 report from Harvard’s Joint Center for Housing Studies, 20 percent of households earning $45,000–$74,999 (median area income range) were cost burdened in 2014.

The term “cost burdened” typically refers to those paying more than 30 percent of income on housing expenses, including utilities. In my opinion, that definition should be raised to 35 percent or 40 percent.

New System:

Now let’s design a system to provide funds directly to the end user– the household or person needing the assistance. Note that I said “directly.” Let’s cut out the middlemen. Let’s keep it simple. Basically, the recipient needs to prove his/her income, perhaps with an income tax return.

Households whose incomes are below national median income (adjusted for family size) will receive a stipend to supplement their incomes to the point that they can afford a median income rent (i.e. 30 percent of national median income.) This stipend will allow renters to go to any apartment in the country and rent whatever they want and wherever they want.

Assume national median income is $55,000. (In 2015, it was $55,775, per US Census.) Affordable rent for a median-income household of four is $1375 per month. ($55,000 /12 x .30)

So, let’s make sure every household can pay $1375 (adjusted for household size).

For instance, if the household earns only $40,000, it can afford $1167 without being overburdened. That household would receive a monthly stipend of $208. ($1375-$1167)

What if the household lives in a high-income area? Let’s take Dallas as an example.

Median income is $71,700, so median income rent is close to $1,800. This same household would have a choice: Stay in Dallas and pay an extra $450 out of pocket (The difference between national median rent and Dallas median rent) or move to a more affordable community. Again, it’s a choice.

The point is: instead of spending billions of dollars on bureaucracy and expensive production, give the money to the end users. Let them decide their own priorities. Proximity to work? Superior school system? Or maybe someone just likes a blue building. Whatever. The recipients may decide to spend more (or less) than 35% of their income on housing (like our Dallas household). That’s OK.

They can’t do that now with a HUD housing voucher. HUD restricts the amount they can pay, so they have no choice of lifestyle or location, or even the number of bedrooms, for that matter.

Employment- a very important issue

I’m talking here about low-income wage earners. There’s no employment requirement to receive HUD housing vouchers. In fact, the CBO report refers to studies that indicate receipt of a voucher reduces both household employment and earnings. About one-half of HUD’s housing voucher and public housing recipients are of work age and able-bodied, but only half of those count work as a majority of their income. Their other income comes from supplemental non-housing assistance.

In my plan, to receive the proposed stipend, households must show a willingness to work, preferably in a full-time capacity. But, per the report, the cost to wean recipients off housing assistance will cost about $10 billion. (more bureaucracy/administration?)

What has happened to common sense? Our voluminous legislative regulations, encouraged by special interest groups have us so tied up in “programs” that we are failing the working American family. There’s a lot of talk about adjusting programs, but I am talking about eliminating them.

Of course, my broad-brush vision is just that – a general concept. But it is based on my thirty-five years in the multifamily industry, as LIHTC developer, manager and now, investor. I think the number crunchers will show it can work. To get from here to there, however, will not be an easy task.


Christopher Finlay is Chairman/CEO of Lloyd Jones Capital, a private-equity real-estate firm that specializes in the multifamily sector. With 35 years of experience in the real estate industry, the firm acquires, manages and improves multifamily real estate on behalf of its institutional partners, private investors and its own principals. Headquartered in Miami, the firm has operations throughout Texas, Florida and the Southeast. For more information visit: lloydjonescapital.com.