Affordable Housing Lessons from Abroad
Written By Ricardo Álvarez-Díaz
ABOUT THE AUTHOR | Ricardo Álvarez-Díaz is the founder and principal of the architectural firm Álvarez-Díaz & Villalón, with offices in Miami and San Juan, Puerto Rico.
How Other Countries Are Tackling Their Affordable Housing Problem
While the U.S. continues to experience a stubborn housing crisis, it could learn a thing or two from other countries that are managing their affordable housing issues more effectively.
Unaffordability in the U.S.
An increasing number of Americans are struggling to pay the rent, an estimated 2.5 million of them getting evicted each year. Evidently, government programs designed to help low-income folks get adequate, affordable housing are failing or not doing enough to put a dent on the affordable housing crisis.
One such program is the Low Income Housing Tax Credit through which the states get billions of dollars in tax credits that they pass on to developers, who then sell the credits to banks and other investors and use the funds to build low-income housing units. The $8 billion-a-year program should work in theory, but according to industry experts, it is failing to increase the affordable housing stock.
A new report by the Urban Institute, "The Housing Affordability Gap for Extremely Low-Income Renters," found the crisis has hit every county in the U.S., from upscale urban areas to small towns and rural areas. The UI estimates 21 inexpensive and livable housing units—46 if you factor in federal housing assistance—available for every 100 extremely low-income (ELI) renter households (whose income is no greater than 30 percent of their area median income). More than half of these units were made affordable through federal subsidies.
According to the National Low Income Housing Coalition's 2016 "The Gap: A Shortage of Affordable Homes" report, more than 11.4 million ELI renter households in the U.S. face a shortage of 7.4 million affordable and available units, and the shortage exists in every state and major metro area. Most, 71 percent, of ELI renter households are severely cost-burdened, spending more than half of their income on rent and utilities.
Another study, "Rent Burden and the Great Recession in the USA" by Gregg Colburn and Ryan Allen at the University of Minnesota, found that over 50 percent of U.S. renters were severely cost burdened and spending more than half their incomes on rent and utilities.
Efforts Outside the U.S.
Rising real estate prices and rents throughout the world have low-income individuals and families struggling to find adequate, affordable housing. Many have resorted to renting or buying homes outside urban areas, wasting their time and human potential in long commutes and spending too much on transportation.
Affordable housing programs have produced mixed results, with some failing and others succeeding. Take Singapore, for example. The Asian city-state went from having one of the worst housing shortages in the world to 90 percent home ownership.
Let’s take a quick look at a few measures other nations have implemented to tackle their affordable housing issues.
1. Singapore
Singapore is one of the least affordable places in the world, yet 90 percent of its citizens are homeowners thanks to extensive land buying in the 1960s, a compulsory pension, and numerous government programs or schemes (below) that facilitate home ownership across a variety of demographic groups.
Housing and Development Board (HDB) loan equity: Offers loans to apartment buyers that qualify.
Home Protection Scheme (HPS): Helps ensure that dependents of an apartment owner do not lose the home if unable to pay the loan in the event of the death or permanent incapacity of the sole breadwinner.
Central Providence Fund Housing Grants (CPF): Eligible first-time apartment buyers can use these grants to make the initial payment or reduce the mortgage loan.
Parenthood Priority Scheme (PPS): A percentage of the apartments under the Build-To-Order (BTO) and the Sale of Balance Flats (SBF) plans are set aside for first-time buyer families, including divorced and widowed parents, with at least one child who is a Singapore citizen under 16 years of age.
Parenthood Provisional Housing Scheme (PPHS): Provides temporary housing while families wait for their apartments.
Married Child Priority Scheme (MCPS): Sets aside up to 30 percent of the apartments for first-timer parents with married children and up to 15 percent for second-timer families.
Step-Up CPF Housing Grant: Helps families in non-mature estates upgradefrom subsidized two-room apartments to three-room standard apartments.
Multi-Generation Priority Scheme (MGPS): Priority allocation is given to parents and their married children who submit a joint application to buy three-generation apartments.
Single Singapore Citizen Scheme (SSC) or Joint Singles Scheme (JSS): Helps eligible singles buy new or sub-sale apartments from the open market. Up to 30 percent of the two-room BTO apartments offered in non-mature estates are allocated to singles. Singles also can use CPF grants.
Studio Apartment Priority Scheme (SAPS): Helps people 55 years of age and older buy studio apartments equipped with elderly-friendly features and customized for independent living.
2. Vienna
Vienna uses a complex arrangement of land sales, loans and low-cost developments to ensure mid-income residents have a place to live. Its post-WWI socialist government built a huge public housing system that is maintained by the national and local governments. The city reportedly owns 25 percent of the housing stock, mostly built in the 1920s and 1930s, and influences another 20-plus percent of the stock. The rent in Vienna is about half that of cities such as Zurich and Berlin.
Vienna encourages mixed-class tenancy by not restricting public housing to low-income residents. While city-owned stock goes to lower-income people, households making more money are not kept from public housing, thus creating mixed-income neighborhoods instead of ghettos. Because public housing is mixed, there is greater political support and more funds for it.
3. Hong Kong
Hong Kong recently was named the least affordable city on Earth for the 7th year in a row by the Demographia International Housing Affordability Survey, a study of 406 cities in the world. The city's apartments cost 18.1 times the gross annual median income.
The government has introduced multiple taxes to fight its affordability crisis and doubled its ad valorem stamp duty to target non-residents and residents who already own property, but while the measures have slowed down construction of new apartments, they have not significant improved housing affordability.
Public housing is big in Hong Kong. Nearly half of its 7.8 million population lives in public housing. Public rental housing is rented at discounted rates to low-income residents and managed by the Hong Kong Housing Authority or the Hong Kong Housing Society.Here are some of Hong Kong's housing schemes:
Home Ownership Scheme (HOS): Subsidized-sale public housing estates that are earmarked for low-income qualifiers at prices that are heavily discounted from market value. Mortgage and resale of these units in the second-hand market are restricted to eligible low-income residents.
Tenants Purchase Scheme (TPS): Allows tenants in rented public housing estates to purchase their apartments at below market prices.
Flat-for-Sale Scheme: A housing development scheme in which apartments are for sale at concessionary price.
Sandwich Class Housing Scheme (SCHS): Built for sale at slightly below market value to lower-middle and middle-income residents, known as the sandwich class, who do not qualify for low-income public housing under HOS but still have trouble affording private housing.
Interim Housing (IH): Temporary public rental housing for people awaiting placement in public housing estates or not immediately eligible for apartments. IH accommodates residents who have been displaced by disaster, fire, redevelopment or other reasons.
Political, economic and socio-cultural factors typically are the reason affordable housing initiatives fail in the U.S. It need not be so. Success stories from abroad prove there is hope.
It is extremely difficult to address housing affordability on a national scale when each U.S. state faces similar yet unique challenges. That governments, real estate developers, banks, housing advocates and community groups need to work together rather than against each other is a no brainer. Yet, isn't that what often happens? What will it take?
Data Sources
HUD, Urban Institute, National Low Income Housing Coalition, NPR, PBS, iMoney.my, Next City, London School of Economics and Political Science, Canada Mortgage and Housing Corporation, Demographic International Housing Affordability Survey