Middle-Income Housing Is Vanishing. What Can Be Done?
Policy expert Tia Boatman-Patterson discusses the urgent need for stakeholders to work closer together, particularly in such high-cost states as California.
In a period marked by escalating housing costs and widening socio-economic disparities, affordable housing has gained prominence as a critical concern for policymakers, economists and communities at large, particularly in high-cost states like California which are experiencing a severe crisis. Amidst discussions centered primarily on low-income housing solutions, the middle-income segment seems to be an overlooked side of the issue.
“Middle-income housing provides a necessary elasticity and resilience factor to the economy,” said Tia Boatman-Patterson, the president & CEO of California Community Reinvestment Corp.
With an extensive and diverse background—serving as the executive director of the California Housing Finance Agency, on the CalHFA Board of Directors and as a General Counsel for the Sacramento Housing and Redevelopment Agency—Boatman-Patterson is a seasoned housing policy expert. Recently, she worked for the Biden administration as the associate director for housing, treasury and commerce in the Office of Management and Budget.
In an exclusive conversation with Multi-Housing News, she talked about the economic diversity that comes with middle- and low-income housing, and the growing concerns around the diminishing housing supply for middle-income Californians and Americans, in general.
What’s your view on the interdependence between middle-income and low-income housing? How does the scarcity of one impact the other?
Boatman-Patterson: With an insufficient supply of housing and the continual displacement of Californians into economic peril through rising costs and job insecurity, the competition for sparse housing resources pits middle- and low-income communities against each other. And when middle- and low-income communities vie for the same housing opportunities, vulnerable people in either demographic end up subject to displacement, instability, and homelessness. It is only through a commitment to housing for all, at all levels, that this zero-sum game ends.
What specific financial incentives or programs are available to developers who focus on building housing for middle-income residents?
Boatman-Patterson: The incentivization of middle-income housing programs typically occurs in four spheres, according to research from SPUR: property tax abatement, property tax exemption, tax credit, and financing. Abatement and exemption differ in what they contend with—abatement directly adjusts the amount of property tax owed, while exemption adjusts the value of the property to lessen the property tax owed indirectly.
In October of 2022, the U.S. Treasury updated the guidelines for income averaging in 4 percent LIHTC. The updated guidelines for income averaging make it easier to serve a broader range of tenants with a mix of incomes, thus serving a missing middle population often not served by affordable rental housing programs. Finally, various grants and deferred loans available for down-payment assistance help first-time homebuyers with homeownership opportunities.
New York’s now-inactive Mitchell-Lama Program was one of the earliest attempts at middle-income housing incentivization in the country, lasting from 1955 to 1981 and providing developers abatement, low-interest mortgage loans, and guarantee of return. Over 10,000 units were subsidized within this program. Oregon has also committed significant policy resources to middle-income housing, including HB 2705, a middle-income property tax exemption for multi-unit rental housing that increases in alignment with the percentage of units committed to households earning up to 120 percent of the area median income.
READ ALSO: How LIHTC Bill Could Ease the Affordable Housing Crisis
In your view, how does investing in the development of middle-income housing impact the broader Californian society?
Boatman-Patterson: I think all hands should be committed to solving California’s urgent housing crisis, especially with respect to the rapidly increasing rate of houselessness throughout the state. Restoring agency, autonomy, and freedom of movement to a demographic that has failed due to a lack of reliable options helps society in many ways.
Substantial middle-income housing not only prevents displacement and keeps people in the communities they are local to, but it also allows the stability and security for middle-income community members so they are not one economic shock away from disaster.
Tell us more about the health and stability that middle-income housing can bring to Californian communities.
Boatman-Patterson: Economic diversification is fundamental to ensuring long-lasting economies capable of growth, resilience, and resistance to shocks. The development of California has, in some ways, been marred by an aversion to this diversity, and the divisive infrastructure we see in place today harms community health and sustainability efforts.
When cities are developed with the intention of serving only high-earning mansion barons, we see low- and middle-income community members having to commute to these cities to fill crucial jobs and roles. Longstanding narratives on middle- and low-income housing have painted the picture that they are destructive to communities when that could not be further from the truth. Communities themselves have already been destroyed by the endless supplanting of the workforce due to displacement. The economic diversity that comes with middle- and low-income housing allows communities the potential for lasting stability.
Why is it so difficult to develop housing for middle-income households?
Boatman-Patterson: Middle-income housing solutions are under-researched…However, the evidence-based assumption of middle-income housing is as follows: Currently, the biggest program supporting affordable housing is the federal low-income housing tax credit granted to developers if they devote a portion of their units to affordable housing. This program could serve or finance housing at an extremely low-income level up to people who earn 80 percent of the area median income.
However, a developer of a LIHTC project can continue to rent to someone who becomes over income. The unit will qualify for program compliance, and the developer will continue to get a property tax exemption or tax abatement on that unit. Under the federal program, the unit continues to qualify for the property tax exemption until the renter’s income is at 140 percent of the AMI. The question then becomes, what incentive does that developer or tenant have to move out to make space for a low-income family, especially if there is no entry-level affordable middle-income housing on the market or being produced?
Some of the biggest housing finance programs do not incentivize movement upwards. The system needs to support a continuum of affordable housing to free up-regulated low-income housing and allow upward mobility. This is difficult to do when entry-level move-up middle-income housing is not being produced. Incentivizing middle-income housing solutions allows for a broader range of affordable housing, so there is room to move up and make regulated affordable housing available to those who need it.
The Bay Area has a story of income and housing affordability that speaks to the interconnectivity of low- and middle-income housing affordability. As median incomes have risen, costs of housing have also risen disproportionately, prohibiting all but the wealthiest from homeownership and creating intensive cost burdens for even middle-income renters. Funneling middle-income communities into dependence on programs designed for low-income communities harms the ability of low- and very low-income people to access these resources and neglects the need for middle-income-oriented resources.
In a situation where both low- and middle-income communities are being priced out for only the highest-earning populations, it is a combination of low-income and middle-income housing strategies that will alleviate displacement pressures, not one or the other.
READ ALSO: Paving the Way for Equitable Solutions in Affordable Housing
Can you speak to any potential spillover effects of addressing the middle-income housing shortage on other aspects of urban development, such as transportation infrastructure or environmental sustainability?
Boatman-Patterson: Certainly. The aforementioned data shows that lack of housing supply has pushed people to further and further commutes for employment, causing increased traffic on major freeways as well as heightened vehicle greenhouse gas emission rates. We see that a lack of middle-income housing also has horrific effects on natural disaster resilience. Unhoused community members are disproportionately at risk of climate change-dependent disasters, including heatwaves and other weather-based fatalities. Especially in California, there is also extreme vulnerability to property destruction through wildfires.
With the inaccessibility of ‘entry-level’ homes for middle-income families, housing-destructive disasters are more likely to be devastating. Middle-income housing provides pervasive benefits to urban development, from alleviating transportation pressure to providing disaster resilience.
Are there any specific groups that are particularly underserved in terms of middle-income housing?
Boatman-Patterson: A study of middle-income demographics in California found that 60 percent of all middle-income Californians are BIPOC. Further, the population of middle-income Californians shrunk dramatically by around 1 million between 2000 and 2019. There is not enough data to this point to draw country-wide conclusions, but even using California as a case study, we can see that the crisis of housing has always inexorably been tied to race.
Building middle-income housing reifies the autonomy of systemically marginalized BIPOC and works against decades worth of segregationist infrastructure. Every year that passes without comprehensive strategies for middle-income housing development pushes more Black, Indigenous, Latino and other racially or ethnically marginalized community members to poverty.
Given your experience at both federal and state levels, what do you see as the most promising policy approaches to tackle the affordable housing crisis in the U.S.?
Boatman-Patterson: The federal risk-sharing program, 542(c) Housing Finance Agency Risk-Sharing Initiative, was just recently extended indefinitely by the Biden-Harris Administration. This program provides cost-effective capital to state and local housing finance agencies, financing housing for low-income families, seniors and persons with disabilities.
Since 2021, the risk-sharing program has financed nearly $2 billion for affordable housing developments. While this has already done substantial work in mitigating the housing crisis, several groups have seen the potential to bring nonprofits into the program, as well. If this policy were to be extended to qualified community development financial institutions, the resources that pro-housing CDFIs already have access to would facilitate increased housing production.
Mobilizing all pro-housing jurisdictions and housing finance agencies to support affordable housing development that serves extremely low-income to middle-income in proportion to the unmet need, using the power of deregulation and resource efficiency, is a surefire way to move the needle in the housing affordability crisis.
Looking ahead, what should policymakers and stakeholders prioritize to address the interconnected challenges of creating more middle-income and affordable housing options?
Boatman-Patterson: Too often, the strategies to create more housing are disconnected at state, local and federal levels. What we see is that incredibly creative, forward-thinking policy gets underfunded and whittled down to what amounts to nothing due to a lack of comprehensive collaboration efforts between all housing-minded entities. If all these agencies were to work together, including nonprofit pro-housing organizations, to create and sustain housing, as well as nourish the people who utilize these housing solutions, there would be meteoric successes.
The end goal is not to keep producing piecemeal strategies that create momentary influxes of developments but to successfully zone, permit, fund and develop long-lasting infrastructure for the future of the nation.
