An Increase In Inventory

For the first time in a very long time the District’s housing inventory is slowly creeping towards meeting its extremely high levels of demand. For the sixth consecutive month in a row, the inventory of listings for sale in the DC area increased compared to the previous year, according to research from the Real Estate Business Intelligence released last week.

There were 7,604 active listings in the DC area at the end of March, a 21 percent increase over March 2013. Condos were the fastest growing of the various housing options. Supply increasing 35.1 percent (or 519 listings); townhouses came in close second rising 34.6 percent or 344 listings. Although this increase in housing stock is welcomed news, this doesn’t paint a full picture, and the District’s housing crunch is still a very real issue for at least the foreseeable future.

First, there is an increase in available housing stock in the District, but housing less than 300k has significantly dropped. According to data from home sales of the first quarter of 2014 compared to that of Q1 2013, home sales under the 300k mark are down 45%; condos in this income category are down 6%, while condos under 150K are down 43%. Across the board, housing options under 300 K have decreased 15%. This shows that while the city is beginning to increase its housing stock, housing options for low-to-moderate income individuals is significantly shrinking, while demand for that category of housing is steadily increasing.

Second, people are also continuing to move to the District at an unprecedented rate; demand has consistently remained above supply, resulting in the astronomical housing prices we see today. If the city continues to focus on primarily addressing the housing needs of its more affluent residents, tragic issues like this past winter’s homeless crisis will only be the tip of the iceberg.  All of these things makes it that much more important to support initiatives that address the entire continuum of housing options in the District. The Continuum meets individuals where they are, assisting them down a path potentially ending in homeownership. Only time will tell if the District’s efforts to meet demand will be successful, but funding initiatives that supports housing options for all of its residents is something the city can do now.

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Momentum on the Minimum

Around the nation momentum for a higher minimum wage continues to increase. In the Robert Reich film “Inequality for All”, the author outlines how the growing wealth/asset gap will have detrimental effects on our economy. In his film, Reich hits two very simple but critical points: 1) What is a good society? and 2)What role does the widening income gap play in the deterioration of the nation’s economic health? One of the biggest contributors to the growing wealth gap is the stagnation of wage increases over many, many years. If the national minimum wage of 1968 had simply increased with inflation, it would be more than $10.56 an hour rather than $7.25. This is especially critical because most low wage workers are not teenagers, but rather heads of households who carry the bulk of the financial burden. Increasing the minimum wage is simply a common sense solution.

Currently, the American people subsidize corporations like McDonalds and Walmart who refuse to pay their employees a fair wage. When employees are forced to rely on government assistance because they don’t earn a living wage, the taxpayer foots the bill while the corporation reaps the profits. Paying employees a higher wage benefits the entire economic system. Not only do workers have more income to spend on good and services, but providers have a more sustained customer base.

With an eye on bridging the asset gap and helping families move up the economic ladder, there must be more funding for the entire Continuum of Housing, including programs that allow folks to move into homeownership while also paying back what they have received.  Homeownership continues to be one of the few avenues low-to moderate income individuals have to build wealth. The District collects billions in taxes and revenue from its constituents – it would be in the best interest of the District government to reinvests those funds into the development and wealth building of its residents, otherwise it will have contributed to an economic cycle that cannot support itself, only benefiting those with much. Funding programs like the Home Purchase Assistance Program (HPAP) and the Housing Production Trust Fund are only the first steps in growing a city that provides homeownership opportunities for its residents and promotes equality for all.

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Movement Over A Mayor

It’s Election Day here in the District of Columbia and all of the political hopefuls have been burning the midnight oil campaigning for those last few votes. This election cycle has proven to be one of the more interesting ones for several reasons. First, there are so many challengers in the ring. Everyone from a mentee of an ex-mayor to a former state department aide has decided to take part in the rat race that has been the 2014 mayoral election. Second, there is no clear cut favorite. This year’s mayoral race has seen its fair share of storylines and characters, enough to write a novel, but the one thing that has been missing is a clear cut favorite, a leader that has distinguished them self from the pack. Amid all the political warfare, something that typically gets lost as we get down to the wire is “Who will provide the greatest opportunity of long term success for all District residents?” Affordable Housing, a hot button issue on everyone’s radar, has been claimed and supposedly championed by each candidate, but something as important as affordable housing options for the District requires a sustained movement.

In North Carolina, change is coming – The Forward Together Movement, a “fusion movement” of over 150 groups fighting for progressive causes, has steadily been making waves in the South. In February, over 80,000 people organized outside of the North Carolina Statehouse to fight causes from income inequality to the redistricting of schools. The message behind this movement stands so much taller than the tens of thousands of individuals who came out to support it. A movement will always be stronger than a few moments. No matter the elected official or political climate, a strong movement will continue to surge.

This is the same kind of movement DC’s affordable housing community must undertake, at all ends of the housing continuum. We must be a force rooted in our cause, no matter who wins the election. A movement that meets people where they are and understands that the District has an obligation to all of it residents, not only the privileged. In order for the District to truly become a world class city, we must choose a movement over a mayor.

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An Education: Student Loan Debt Widening the Wealth Gap

It is no secret that getting a higher education takes a lot of work, and a lot of money, something experts say is heavily contributing to the growing wealth and asset gap in America.  Students who graduate from institutions of higher education with student loan debts, currently 37 million Americans and equaling 1 trillion in debt, don’t have the opportunity to start building wealth as early as their wealthy counterparts. William Elliott III, director of the Assets and Education Initiative at the University of Kansas says, “If you graduate with a B.A. or doctorate and you get the same job at the same place, you make the same amount of money, but that money will actually mean less to you in the sense of accumulating assets in the long term.” Those students who are able to complete their studies debt free are not able to immediately invest in their futures. Gregory Zbylut, an accountant-turned-attorney in Glendale, Calif, has been chipping away at nearly $160,000 in student debt since graduating in 2005 from law school at Loyola University in Chicago. Now 48, the tax attorney estimates he could have $150,000 to $200,000 in a 401(k) had the money he’s paid toward loans gone there.

 

This direct correlation with the inopportunity of wealth building for individuals from less wealthy backgrounds speaks volumes to the importance of asset and wealth building for low-to-moderate income individuals. In a study done by PEW’s economic mobility project entitled: Housing Wealth and Higher Education, Pew’s research directly connects the dots between access to higher education and homeownership. One especially telling statistic states, “Participation in Higher Education rose 24% for low-to-moderate income students whose families saw increases in home appreciation during college years.” Another study by PEW entitled Moving Up further strengthens this argument by citing that individuals who start at the bottom of the economic ladder quadruple their chance of moving up with a college degree. Homeownership has historically been one of the very few tools geared towards helping low-to-moderate individuals achieve upward mobility. If economic mobility and making sure all of its constituents have access to a bright future are things of importance to the District, investment in homeownership opportunities is essential.

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Ending Homelessness for the youth

In an effort to address the grave situation facing one of the city’s most at-risk populations, Councilmember Mary Cheh, along with Councilmembers McDuffie and Jim Graham and supported by the D.C. Alliance of Youth Advocates (DCAYA), introduced the End Youth Homelessness Amendment Act of 2014. This bill would amend the Homeless Services Reform Act to require the Interagency Council on Homelessness to prepare a comprehensive plan to end youth homelessness by 2020 and submit it to the Council. This piece of legislation is especially important after the District faced one of the harshest winters in recent years, exposing a rapidly increasing homeless population and the city’s inability to provide shelter for them. This has placed the District between a rock and a hard place. On one end of the spectrum, the city is seeing an unprecedented rise in growth and development as well as a rise in wealth, but the other end of the spectrum shows an economically stratified city, one that is leaving longtime residents in the dust. The District must continue to fund the development of housing that meets people at all levels of the Continuum. In addition, this legislation would also require the Interagency Council on Homelessness to include unaccompanied minors in the winter hypothermia plan, which guarantees shelter to all residents, and require the Department of Human Services to establish a grant program to fund street outreach and conduct an extended youth count.

Key Points of DCAYA’s Plan

•  Implement evidence-based family reunification projects

•  Jumpstart a citywide host-home program

Rapid Intervention

•  Increase capacity for emergency shelter and low barrier transitional housing

•  Implement a coordinated entry for youth which includes street outreach

•  Create two drop-in centers for youth engagement, respite, and referral

•  Systematize cultural competency trainings to serve the needs of diverse youth

Evaluation

•  Conduct an extended point-in-time study

•  Systematically track outcomes, utilization rates, and turn-aways across services

•  Adjust emphases and funding levels based on need/capacity gaps

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Let the Madness Begin!

To commemorate the beginning of March Madness and the first day of spring, I want to take a look at the components of sound homebuyer education and financial literacy. You may be wondering to yourself, ”How does an annual college basketball tournament and the first day of spring parallel with sound financial education?” Well, I’m so glad you asked. This question has two answers. First, on the surface, all of these things represent a fresh start. For all the teams that have advanced to the big dance, essentially they are given a clean slate and are in control of their futures. Spring provides a breath of fresh air and a fresh start from the cumbersome weather that accompanies the winter months. In the same way, a trip down financial literacy lane can provide a fresh start towards financial security. The second answer is that these events all provide a great opportunity for fundamental change. We’ve all heard about the Cinderella stories: Davidson in 2008 reaching the elite eight, George Washington in 2006 advancing to the final four, teams faced with insurmountable odds that focused in on that small chance of success reaching new heights, etc. That change, that opportunity to fundamentally alter one’s course for the better, is how these three very different things all relate.

Manna’s Homebuyer Club, a financial literacy/ homeownership preparation program that seeks to meet individuals where they are, uses a two stage approach to reaching this fundamental change.

During the first stage you:

  • Study budgeting
  • Set your financial goals
  • Begin working and saving to meet them

At the second stage you:

  • Continue to save for a down payment
  • Pay off bills
  • Work on past credit problems
  • Learn about the process of buying a home

These are all very important small things that add up to a bigger picture. The same can be said about spring and success in the NCAA tournament. Little things like unselfish play, sound defense, and working together can turn a small unknown program into a national powerhouse; and the simple progression of time brings about the change in season. However, just like homebuyer education, the investment must be put in. Like the great Michael Jeffrey Jordan once said, “There are no Cinderellas”.

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An Economy at ARM’s

In case you haven’t had your fill of cringe-worthy decisions made by Wall St. that lead to even more devastating results for consumers, this may very well put you over the edge.  The Wall Street Journal reports that Adjustable Rate Mortgages and Interest-Only Adjustable Rate Mortgages are back in style. Adjustable Rate Mortgages (ARMs) are mortgage loans with low initial rates, but those rates are subject to change every five years, making the future a gamble. This was very significant in fueling the housing crisis, because not only did you have some people with loans who simply couldn’t afford them, but when interest rates rose their problems and loss of wealth multiplied tenfold. These types of mortgages were especially popular prior to the financial crisis, because they allowed individuals to purchase or refinance at lower rates than the ones that accompanied 30 year fixed rate mortgages, something banks and brokers used to make the product very popular. “The tactics are reminiscent of the period before the 2008 crisis, when ARMs exploded in popularity as banks and mortgage brokers touted their low initial rates to consumers,” wrote Anna-Maria Andriotis and Shayndi Raice of the Wall Street Journal.

In their defense, banks have said that they are being especially careful this time around and are primarily offering this type of loan to higher income borrowers. For the fourth quarter of 2013, of all loans originated, ARMS made up only about 10 percent of mortgages under $417,000, but shoots up to 31 percent for loans between $417,000 and $1 million and then jumps even further to 61% for loans over $1 million dollars. In a city where homes values are rapidly rising such as Washington, DC, these statistics are troubling because there are likely a large number of loans in the city above $417,000.

This continuing trend of irresponsible banking for the purpose of pocket stuffing speaks volumes to the importance of financial counseling and housing counseling, as well as the requirement of fixed-rate mortgages when someone is using a home purchase assistance loan. Even national organizations and agencies have begun to notice the importance preventative education has. In addition to homebuyer education courses provided by local organizations like Manna, Inc., Latino Economic Development Corporation, Housing Counseling Services and University Legal Serrvices, The Department of Housing and Urban Development announced that later this year it will begin testing out pilot programs that pair the home buying process with home buyer education, providing financial incentives for those who complete the courses.

Like the Wall Street Journal points out, when originating ARMs, the bank is betting against you that interest rates will go up. And if we learned anything from the financial crisis it’s that when banks gamble, they usually win. Do yourself a favor – sound home buyer education is one of the few things you can do to tip the scales in your favor.

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A Population On The Rise

As the cold winter weather continues to drag on here in the District, the city’s homeless population continues to explode.  This explosion in the city’s homeless population is a direct response to the lack of affordable housing options in the city, which is a compounding problem because the city’s lack of affordability keeps families in shelters, while adding more families at the same time. There is a need for a strong continuum of affordable housing, starting with housing and services for homeless families and supporting families as they are able to move along that continuum to more stability and growth. Currently, Mayor Vincent Gray has unveiled the plan “500 families in 100 days” - this plan seeks to place 500 homeless families into rapid rehousing or permanent supportive housing between now and June; there are also long-term plans in the works for ending chronic homelessness. At the end of the continuum is homeownership, and some DC residents have traversed and continue to traverse that path from homelessness to homeownership.

Historically, homeownership has been one of the very few tools the majority of Americans have had access to for asset building and wealth generation, but in a city with very few affordable homeownership options, this tool is increasingly becoming a thing of the past. Advocates from all over the city agree that affordable homeownership options need to increase through actual production and home purchase assistance loans, but the focus of the production option is where the vote is split. The two diverging foci are the preservation of the unit or the transformation of the family. Because demand is so high, and stock is so low, some advocates have become enamored with preserving affordable ownership units at all cost. A valiant effort, but one that fails to take into consideration the purpose of the tool in the first place.

Homeownership, supported by good loans, is meant to bring fundamental change to a family, creating future generations of homeowners. The commitment to neighborhood and community, as well as the potential opportunity for wealth generation from market appreciation are just a few of the benefits that come along with homeownership, as well as a host of responsibilities. But when unit preservation is the focus, you tend to strip individuals of the benefits of homeownership (access to market appreciation and flexibility to deal with life changing circumstances and emergencies) while leaving them with all of the responsibilities. Preservation is key across the majority of the continuum of housing, but for a smaller percentage of affordable homeownership units, the families’ opportunity for fundamental change is essential.

A recycle/ recapture method allows fundamental change for a family by allowing access to equity within a reasonable time frame, but also recapturing pre-existing equity and subsidies in a development to produce more opportunities for families all across the city. It wouldn’t be productive to purchase a pair of tennis shoes for training purposes, and become so enamored with them that you would refuse to train in them. The same can be said about affordable homeownership. If the purpose of providing affordable homeownership opportunities to city residents is to help low-to-moderate income individuals generate wealth and bring fundamental change to families, simply focusing on preserving the tool would essentially defeat the purpose of the tool.

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Wage Warriors

The District’s economy is recovering, but only for a select few.  In an enlightening report entitled “Falling Short: The District’s Economic Recovery Is Leaving Several Groups Behind” Jenny Reed and Jasmin Griffin of the DC Fiscal Policy institute  take a hard look at the realities facing our city. To the surprise of no one, wages have been stagnant or falling since 2008 for the District’s low-wage workers, those without a college degree, African-American, and Hispanic residents. Unemployment also remains very high for these groups and has not fallen below pre-recession numbers. One telling piece of information from this study is the disparity between those with college degrees and those without. Unemployment rates have fully or nearly recovered to pre-recession levels for residents with a college degree and white, non-Hispanic residents. And wages for middle- and high-wage workers have increased significantly. These are telling signs of the growing level of inequality between workers.

One tool that has consistently countered the effects of inequality has been homeownership. Homeownership has been proven to have a significant role in the affordability of higher education as well, by equipping low to moderate income individuals with the resources needed to pursue economic mobility. Homeownership has been known to provide stability and a long lasting sense of community, but it has also been linked to student confidence in choosing a place of higher education. A study done by PEW Charitable Trust’s Economic Mobility Project states: Low-and middle-income students whose families experienced increases in housing wealth just before reaching college age were more likely to attend college, more likely to attend higher-quality universities, and more likely to graduate. This is why supporting sound affordable homeownership opportunities are essential for the sustained growth of the city. Homeownership is much more than a roof over someone head, it is potential access to equity that can be used to send children to college or even start a business. As the District’s high skilled job market and real estate markets continue to grow, affordable homeownership opportunities will continue to be an ally of equality.

 

Additional Statistics

-The unemployment rate for residents with a high school diploma stood at nearly 20 percent in 2012, far higher than the 12 percent unemployment rate in 2008.

-Some 21 percent of residents without a high school diploma were unemployed in 2012, compared with 16 percent in 2008.

-Even residents with some college education (but no complete bachelor’s degree) have faced stubborn unemployment increases since the recession. Some 14 percent of these residents were
unemployed in 2012 and the unemployment rate has not seen any drop since the end of the recession.

-Residents with college degrees were not as greatly affected. Unemployment for these residents increased to just 4 percent in 2012, compared with 3 percent in 2008.

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Part 2: The Next Housing Crisis

In part 1 of the next housing crisis, we outlined a plan currently in the works where Wall Street is getting ready to sell financial products/bonds backed by rental agreements. This product would be very similar to the mortgage-backed securities that fueled the financial crisis of 2008, but with the potential to be far more devastating. More than 75 consumer and housing advocacy groups have called for the regulation of these financial instruments. The development of products like mortgage-backed securities or even rental agreement-backed securities speaks to a larger issue facing our financial systems. We have become enamored with creating wealth for those who already have much, so much so that wealth creation is actually wealth manipulation.  For example, when a new product like the internet or new type of running shoes is created and sees profits, wealth is created because that value had not previously existed. But when you create financial products that are based on a derivative, such as a mortgage-backed security, what you’re actually doing is taking the original value created by the home and passing it around like hot potato, benefiting anyone who touches it along the way. However, like hot potato, when the music stops, someone at the end of the chain is left to burn because no new value was ever created the value was simply passed around.

The music could stop when a debtor is unable to pay or any other series of financial downturns happen as a bi-product of the game – like investors rushing to buy properties and rent them in order to produce more of these bonds, creating a rental bubble and stripping individuals of the opportunities of homeownership.

Historically, banking origins were rooted in community development, but they have strayed away from these honorable beginnings. Introduced by Councilmember Jack Evans, the Community Development Act of 2013 seeks to hold banks accountable for serving all of the District’s communities, by leveraging the city deposits and financial contracts. It’s about time we moved away from schemes like wealth manipulation and go back to wealth creating programs like homeownership. Supported by Manna, Inc. and CNHED, the East of the River Homeownership Campaign looks to pair financial education and all of the District’s homeownership resources so that its residents can work toward true wealth building and economic mobility.

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