A Plan for Affordable Housing in Baltimore

We all know there’s a housing problem in Baltimore City — it’s becoming increasingly difficult for middle-income renters to find housing that’s both safe and affordable, and nobody should have to make that choice.  With a median income of only $40,0001, Baltimore is quickly losing a solid middle-class, and is becoming a city of rich and poor — not unlike many cities across the country.

What does make Baltimore unique, in some ways, is the surplus of housing stock we have, and not just in distressed neighborhoods.  Between vacants and foreclosure/walk-aways, we have a lot of empty homes in moderate- to lower-income neighborhoods that could be developed as moderate-income rentals, if there was a plan in place to do it.  I’ve written about it a few times, and have talked myself blue in the face about it — so why not start a larger conversation about the topic and get more feedback?

The Numbers

33.2% of Baltimore City residents earn between $25,000 and $60,000 annually, making Baltimore an increasingly unaffordable city, when residents need to rent a home or apartment. The median household income is approximately $40,000 , while the US Department of Housing and Urban Development (HUD) “Fair Market Rent” on a two-bedroom home is $12522 . Even for a couple with no children, or a single parent with one child – that rent falls outside the accepted 25% to 30% of net monthly income someone should pay each month for housing. Many rental properties in Baltimore are priced much higher, even in marginal neighborhoods with few amenities and higher-than-average crime rates.

This problem is not unique to Baltimore. After the collapse of the mortgage industry, many homeowners were forced to rent, as they lost their homes to foreclosure. As a result, rents climbed out of reach for many. Nationwide, approximately half of all rental households are spending more than 30% of their income on rent3 – a slippery slope for an already over-burdened middle class.

Let’s look at what two random Baltimore taxpayers bring home4:

  • “Joe ” makes around $43,000 a year. Twice a month he receives $1675 for a total monthly gross salary of $3350. Each month, Joe pays a total of $731.18 in state and federal income taxes, and FICA (Social Security and Medicare). This leaves Joe with a net monthly salary of $2619. Let’s assume for a moment that Joe has no 401K or insurance deductions. Joe can afford to pay no more than $873 a month in rent – far below the $1252 Fair Market Rent set by HUD for a two-bedroom, and also below the FMR of $1001 for a one bedroom. The most he would be able to afford is a fair-market rent efficiency at $847.
  • “Jenny” is a single mom with one child, and makes $39,242. Twice a month, Jenny receives a gross salary of $1435 for a total of $2870. She pays a combined monthly total of $864 in state and federal income taxes, and FICA. This leaves her with $2,006. The current FMR is far out of her reach for an efficiency, a one-bedroom, or a two-bedroom. Where is Jenny going to live for $669 a month? Currently, she’s risking her financial well-being by paying more than 30% of her income on housing — a situation that won’t last long, given the high cost of utilities and food.

The Problem

Many of our hardworking Baltimore residents are unable to meet their basic shelter needs without putting themselves at risk for financial ruin, as housing costs, particularly for renters, has increased exponentially since 2007. Not everyone can, or wants to, own a home – therefore, we need to meet the demand for reasonably-priced housing for our middle-income renters, at a price they can afford, while developing the stability and sustainability of our “Outer Harbor” neighborhoods.

While millions of tax dollars have been spent in the form of incentives for development in the Inner Harbor, downtown, and Harbor East, many of our neighborhoods have been left by the wayside, and have not received the attention or development dollars of some of our wealthier communities. As a result, these “on the cusp” areas have not developed to their full potential. In fact, some have started a decline with increased vacancy levels, as residents are pushed out by increasing rents, with no new tenants to take their place. This problem is affecting landlords, property owners, neighbors, and the city as a whole.

The Solution and the Logistics

The Outer Harbor Initiative, introduced in 2009 by Councilman William Cole, IV (District 11) would provide tax incentives and other development assistance to local companies interested in redeveloping homes in neighborhoods where the potential for sustainable revitalization is the greatest. Ideally, choosing neighborhoods that are adjacent to stable communities and working outward, would be the way to progress.

The advantages to the plan:

  1. Increasing the number of homes sold through the City’s “Vacants to Value” program
  2. Better vetting of development partners would mean better accountability and transparency for residents and government alike
  3. Retaining and attracting middle-income residents means an increased tax base
  4. Increased business revenue over the long term.

How the plan works, in a nutshell:

  1. For every million dollars spent in Tax Increment Financing (TIFs) in high-income communities, X-percent would have to be set aside for middle-income rental housing financing in an adjacent neighborhood.
  2. Vetted developers would purchase vacant homes in these neighborhoods, rehab them, and offer affordable rent for a period of X years (most I’ve spoken to agree that five years5 would be ideal) – at the end of the five years, the tenant has the option to either purchase the home, or pay market-rate rent. The TIF would supplement the difference between what the developer is charging for rent vs the market rate.

Obviously, some of the plan still needs to be fleshed out. Some questions for discussion and further review:

  1. Where would the TIF and other financing/money be held?
  2. Who would manage the plan and provide oversight?
  3. What would the vetting process for developers and tenants look like?

Notes and Sources:

  1. Source: BNIA Vital Signs 11: http://www.bniajfi.org/uploaded_files/VSChapters/Census%20Demographics.pdf
  2. Source: US Dept. of Housing and Urban Development (HUD) FY2014 FMR Geography Summary for Baltimore city, Maryland
  3. Source: Bipartisan Policy Center, “The State of Housing in America”, February 25, 2014
  4. Names of taxpayers have been changed, taxpayers were chosen at random and revealed actual information on their paystubs. Income information is for illustrative purposes only.
  5. I initially picked five years, assuming that most people would know whether they’re going to be staying in a home (or a neighborhood) after living there for five years. Also, to give the person time to progress salary-wise, so at the end of the five years they would be able to afford to purchase the home or pay the market-rate rent, if they chose to stay. The lease would be a one-year lease, renewing at the affordable rate for a period of five years.