Housing Policy: 2015 Review and 2016 Outlook

In many ways 2015 was a significant year for NLIHC's policy agenda, even with a Congress generally characterized as “do-nothing.” As the country begins a presidential election year and extreme partisanship continues to reign in Washington, much work remains to protect, improve, and expand low income housing programs.

The House began the second session of the 114th Congress on January 5, and the Senate will gavel-in for 2016 on January 11. Intermittent work weeks are the norm until April, after which both the Senate and House plan to be in session regularly until mid-July.

National Housing Trust Fund

Just prior to the start of 2015, Federal Housing Finance Agency Director Mel Watt lifted the temporary suspension on the 4.2 basis point assessment on the new business of Fannie Mae and Freddie Mac designated for the National Housing Trust Fund. With Fannie Mae and Freddie Mac required to set aside funds for the NHTF beginning on January 1, 2015, HUD published the long-awaited regulations implementing the NHTF on January 30 (proposed regulations were published on October 29, 2010).

Reaction from NHTF opponents in Congress was swift, but the NHTF campaign managed to fend off all attempts to raid the NHTF or otherwise prevent HUD from implementing it. We open 2016 with a clear path forward to implementation.

Funds set aside for the NHTF will be transferred by Fannie Mae and Freddie Mac 60 days after January 1, 2016. HUD will use the statutory formula to determine how much of those funds to transfer to each state, the District of Columbia, and the territories (grantees), and then publish a notice in the Federal Register. NLIHC’s unofficial estimate is that the total NHTF allocation will be around $200 million.

Once that notice is published, the grantees will begin the formal process of engaging the public and preparing their NHTF Allocation Plans. HUD is supposed to issue sub-regulatory implementation guidance regarding the Allocation Plan, maximum per-unit subsidy, and use of NHTF resources for operating assistance in the spring. Grantees will submit their Allocation Plans to HUD.

HUD Secretary Julián Castro has stated he wants to be able to distribute the funds during the summer of 2106, setting a tight timetable for advocates to influence their states’ Allocation Plans.

Meanwhile, NLIHC continues to work on other more robust sources of funding for the NHTF through housing finance reform and mortgage interest deduction reform.  In housing finance reform legislation, the goal is to make sure that the NHTF is protected and well-funded in whatever housing finance reform legislation eventually emerges. While there have been a few bills introduced to reform the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, only one offers a comprehensive proposal for reform. No hearings held in either chamber in 2015 to discuss reform measures.

The one bill that laid out a comprehensive approach to reforming the GSEs was introduced by Representatives John Delaney (D-MD), John Carney (D-DE), and Jim Himes (D-CT). H.R. 1491, “The Partnership to Strengthen Homeownership Act,” would, if enacted, provide more than $4 billion annually to the NHTF.

Several measures introduced in 2015 would end the Treasury’s sweep of Fannie and Freddie’s profits and allow the GSEs to recapitalize. The Obama Administration opposes recapitalizing the GSEs, and the bills stand little chance of being enacted in 2016.

The omnibus FY16 spending bill contained an amendment from Senators Bob Corker (R-TN) and Mark Warner (D-VA) that is meant to “jump start” the debate around housing finance reform. The amendment prohibits the Department of Treasury from selling any Fannie Mae and Freddie Mac stock options without Congressional approval, blunting efforts by hedge funds and some civil and consumer rights advocates to convince the Administration and the Federal Housing Finance Agency to recapitalize Fannie and Freddie. NLIHC supports the prohibition on the sale of stock and recapitalization of the GSEs, and continues to support comprehensive housing finance reform because such reform offers the best opportunity to secure substantial new non-appropriated funding for the NHTF in the coming years.

Senators Corker and Warner, members of the Senate Banking Committee, and key proponents of housing finance reform have stated that reform of the GSEs is unlikely to occur in 2016.  However, the amendment to the omnibus spending bill may prime the legislative environment for reforms in the future.

NLIHC continued to pursue major funding for the NHTF through federal tax reform. Modifications to the mortgage interest deduction (MID) are the basis of the United for Homes campaign to fund the NHTF and H.R. 1662, the “Common Sense Housing Investment Act” introduced by Representative Keith Ellison (D-MN). At the end of 2015, there were six cosponsors of H.R. 1662. The Ellison bill serves as a marker for how to reform the MID when comprehensive tax reform takes place, which is highly unlikely to occur in 2016.

At the beginning of the 114th Congress, the Senate Finance and House Ways and Means Committees set their sights on comprehensive tax reform. These efforts stalled during the summer of 2015 and neither committee has introduced legislative proposals for reform of the tax code. The Senate Finance Committee established working groups early in 2015 to examine overhauling the tax code and to draft reports with policy recommendations. In response to the Committee’s request for comments from stakeholders and members of the public, NLIHC submitted the United for Home’s proposal to reduce the portion of a mortgage eligible for tax relief from $1 million to $500,000 and to convert the mortgage interest deduction to a nonrefundable tax credit. The final Senate Committee working group reports fell far short of the scope and detail originally expected, and did not mention reform of the mortgage interest deduction.

FY16 Federal Budget

In 2015, Congress raised the sequester spending caps for both FY16 and FY17. The new caps provided enough fiscal relief to allow enactment of an FY16 omnibus appropriations bill on December 18. HUD programs fared better than they would have had the caps not been lifted, but funding levels for all HUD programs are still far below what is needed. Noteworthy is that the HOME program received an increase over FY15 in the final bill, after being all but eliminated in an earlier version of the HUD appropriations bill.

The new spending agreement provides flat funding for nondefense discretionary (NDD) funding from FY16 to FY17.  If the sequester spending caps had not been raised, the FY17 NDD spending limit would have been $503.5 billion.  The agreement to lift the caps raised FY17 NDD spending to $526.5 billion, equal to the total NDD funding level for FY16. According to the Center on Budget and Policy Priorities, NDD spending for FY17 would be its lowest level as a share of the economy since 1962, when reliable data began to be recorded.

President Barack Obama will submit his FY17 request for federal spending to Congress on February 9, marking the start of federal wrangling over discretionary spending levels. House Budget Committee Chair Tom Price (R-GA) has said he hopes to have the FY17 budget resolution enacted by mid-March when House Speaker Paul Ryan (R-WI) hopes to start moving appropriations bills on the House floor. Speaker Ryan wants to complete all appropriations work by the start of the new fiscal year on October 1.

Complicating efforts to complete FY17 bills on time, in addition to the flat spending caps for FY17 and that 2016 is an election year, is last year’s enactment of legislation to make a variety of tax breaks permanent. The new tax extender law is projected to add about $680 billion to the deficit by 2025. These tax expenditures were not offset with new revenues or other spending cuts and will therefore make more difficult Congress’s commitment to balance the budget in 10 years.

Fair Housing

2015 was a banner year for fair housing in the United States.

On June 25, the U.S. Supreme Court upheld of the disparate impact standard in housing discrimination in a 5-4 decision on The Texas Department of Housing and Community Affairs v The Inclusive Communities Project. The Inclusive Communities Project (ICP) sued the Texas Department of Housing and Community Development over the siting of most Low Income Housing Tax Credit properties in predominately low income, black communities. At issue was whether the Fair Housing Act of 1968 bars not just intentional discrimination but also policies and practices that have a “disparate impact,” i.e., that do not have a stated intent to discriminate but that have the effect of discriminating against the Fair Housing Act’s protected classes of race, color, national origin, religion, sex, familial status, or disability.

On the heels of the landmark Supreme Court decision, HUD released the long-awaited final rule implementing the Fair Housing Act of 1968’s obligation for jurisdictions receiving federal funds for housing and urban development to affirmatively further fair housing (AFFH) on July 16. The Fair Housing Act not only makes it unlawful for jurisdictions to discriminate; it also requires jurisdictions to take actions that can undo historic patterns of segregation and other types of discrimination, as well as to take actions to promote fair housing choice and to foster inclusive communities. Congressional attempts to thwart implementation of AFFH in the FY16 appropriations process failed.

On the last day of 2015, HUD published the final AFFH Assessment Tool that local governments must use in order to submit an Assessment of Fair Housing (AFH) under the new AFFH regulations. HUD also issued a 219-page Affirmatively Furthering Fair Housing Rule Guidebook, launched the AFFH data and mapping tool, and redesigned its AFFH webpage.

The new AFFH rule’s obligation to submit an Assessment of Fair Housing (AFH) will officially commence when 22 jurisdictions will be required to submit an AFH in 2016. Only 105 jurisdictions will have to submit an AFH in 2017, with the majority following in 2019. However, nothing prohibits a jurisdiction from complying with the new AFFH rule before its required start date.

In other Fair Housing actions,  HUD issued Notice H 2015-06 on July 13, which provides guidance on how the Equal Access Rule applies to HUD Multifamily-insured and assisted housing. The Equal Access Rule, published on February 3, 2013, is intended to ensure that housing across all HUD programs is open to everyone regardless of actual or perceived sexual orientation, gender identity, or marital status. The rule applies to owners or administrators of HUD-assisted or HUD-insured housing, lenders in FHA mortgage insurance programs, and other recipients or sub-recipients of HUD funds. The Notice reiterates key features of the Equal Access Rule, including prohibiting asking people about their sexual orientation or gender identity for the purpose of determining eligibility or otherwise making housing available.

On October 21, HUD published proposed amendments to its fair housing regulations intending to protect individuals who experience harassment in housing. The courts and HUD have long considered harassment based on race, color, national origin, religion, sex, family status, and disability to be prohibited under the Fair Housing Act. The proposed rule would add definitions of the terms “quid pro quo” (“this for that”) harassment and “hostile environment” harassment to the existing regulation, provide examples of such harassment, specify how HUD would evaluate complaints, and clarify standards for direct liability. Quid pro quo harassment occurs when a person is subjected to an unwelcome request or demand because of the person’s protected characteristic and when acquiescing to the request or demand is either explicitly or implicitly made a condition related to the person’s housing.

Finally, HUD released a proposed rule on November 20 that would allow transgender people or those who do not identify with the sex they were assigned at birth to access HUD-supported programs, benefits, services, and accommodations in accordance with their gender identity.

Public and Assisted Housing

The only legislative activity in 2015 on public and assisted housing was H.R. 3700, the “Housing Opportunity through Modernization Act of 2015.” The bill was introduced on October 7 by Housing and Insurance Subcommittee Chair Blaine Luetkemeyer (R-MO) and currently has 11 cosponsors including Subcommittee Ranking Member Emanuel Cleaver (D-MO) and two other Democrats.  This sweeping assisted housing reform bill was considered and passed by the House Committee on Financial Services on December 10.

The bill met little opposition until it reached mark-up in Committee on December 9, when Committee Ranking Member Maxine Waters (D-CA) voiced strong opposition to the bill’s provisions to change medical care and child care expenditure deduction policies. During the Committee’s final vote on the bill, which was amended to protect residents who might be affected by the deduction policy changes, ten Democrats opposed the bill. House floor consideration of the bill could come as soon as late January or early February.  Action by the Senate is unknown.

On the regulatory side, HUD published a substantially revised Rental Assistance Demonstration (RAD) Notice on June 15. The revision, PIH 2012-32 REV-2, incorporates changes authorized by the FY15 Appropriations Act, including increasing the number of public housing units that can be converted through RAD from 60,000 to 185,000 units.  The revised Notice refines the meaning of “ownership and control” of post-conversion projects, an improvement that has the potential to address concerns expressed by many residents that their public housing homes could be privatized after RAD conversion. The revised Notice also presents fair housing features upfront. In December, HUD announced that it had reached its Congressional cap of 185,000 public housing units receiving preliminary approval for conversion under RAD.

HUD staff now are working to update RAD guidance. The goals are to provide upfront civil rights reviews, provide better tracking of residents temporarily relocated while their homes are being renovated so that they do not become “lost” and therefore unable to return, and review requests for new construction to ensure that new developments do not change income mixes or occupancy types. In addition, HUD will be a RAD Resident Toolkit and will seek comments before final publication.

On August 20, HUD published the long-awaited final rule amending the Housing Choice Voucher (HCV) portability regulations. The purpose of the amendments is to clarify existing requirements, streamline the portability process for public housing agencies (PHAs), and make it easier for families with vouchers to relocate to areas that may offer greater opportunities. Portability allows a family with a voucher to use it to rent a home anywhere in the country where a PHA operates a HCV program.

On November 12, HUD issued a proposed rule that would require all PHAs and public housing properties to be smoke-free within 18 months of a final smoke-free rule. The proposed rule would require PHAs to prohibit lit tobacco products in all living units, indoor common areas, and in PHA administrative office buildings. PHAs could choose to restrict smoking to outdoor dedicated smoking areas or to make their grounds entirely smoke-free.

HUD’s fall 2015 Regulatory Agenda lists rules on public housing demolition/disposition, forming public housing agency consortia, and using small area fair market rents (SAFMRs) as expected in 2016

Housing Plus Services

On homelessness, efforts were made in the Senate to pass the “Runaway and Homeless Youth and Trafficking Prevention Act” (S. 262) that would reauthorize the Runaway and Homeless Youth Act (RHYA) and add new provisions. Authorization for RHYA expired on September 30, 2013. The bill’s authors, Senators Patrick Leahy (D-VT) and Susan Collins (R-ME), recently offered S.262 as an amendment to a broader human trafficking bill, but the amendment failed to pass by four votes. Homeless advocates will continue to push for passage of S. 262 in 2016.

On December 4, HUD issued a final rule on the definition of “chronically homeless” used in the Continuum of Care Program and in the Consolidated Plan. The final rule made changes to the July 31, 2012 interim rule, intending to align the period of time of those experiencing occasional homelessness with that of those experiencing continuous homelessness.

On jobs, HUD’s Office of Fair Housing and Equal Opportunity published proposed changes to the Section 3 regulations on March 27. The purpose of Section 3 of the Housing and Urban Development Act of 1968 is to ensure that when HUD assists housing and community development projects, preference for some of the new jobs, training, and contracting opportunities that are created go to low income people and to the businesses that hire them, “to the greatest extent feasible.” Advocates have long urged HUD to revise the Section 3 regulations in order to make them more effective and the proposed changes to the regulations attempt to achieve such improvements. Final regulations are expected in 2016.

On April 1, HUD published proposed regulations implementing the “Violence Against Women Act Reauthorization of 2013” (VAWA 2013). As originally enacted in 1994, VAWA did not apply to HUD programs. When VAWA was reauthorized in 2005 (VAWA 2005), the public housing and Section 8 programs became subject to the law. VAWA 2013 would apply VAWA protections to most other HUD programs. Again, final regulations are expected in 2016.

Low Income Housing Tax Credit

Advocates of the Low Income Housing Tax Credit (LIHTC) Program received good news at the end of the year when President Obama signed into law a broad tax extenders bill that included a provision permanently extending the 9% credit floor for new construction or substantial rehabilitation projects that receive tax credits. Without the extension, LIHTC projects would have continued to receive a floating tax credit rate based on the federal cost of borrowing. The bill did not establish a minimum fixed 4% tax credit rate for acquisition projects.

In 2016, LIHTC advocates are likely to continue to urge Congress to establish a minimum 4% credit rate for acquisition projects and to expand the supply of credits available to housing developers. NLIHC will continue to push our proposal that would allow for a third income targeting criterion to allow developers to better utilize cross subsidization.  The new income targeting option would require at least 40% of the units in a project be occupied by residents with incomes averaging no more than 60% of the area median income (AMI), with at least 30% of the units rent-restricted and occupied by tenants with incomes at or below 30% of AMI. No rent-restricted units would include households with incomes above 80% of AMI. NLIHC’s proposal recommends that properties that choose this option receive a 50% basis boost.

Criminal Justice Reform

In November 2015, the Obama administration announced new actions to promote the rehabilitation and reintegration for formerly-incarcerated inmates, including new pilot efforts to house people coming out of prison. These new programs will examine cost-effective ways to help people cycling between the criminal justice and homeless services systems, make new permanent supportive housing available for the reentry population, and help eligible public housing residents under the age of 25 expunge or seal their criminal records.

Along with this announcement, HUD released new guidance to Public Housing Authorities (PHAs) and owners of HUD-assisted housing that clarifies the use of arrest records to determine who can live in their properties. The guidance makes clear that HUD does not require PHAs and other housing owners to adopt or enforce “one strike” policies that deny admission to anyone with a criminal record or that require families to be automatically evicted any time a household member engages in criminal activity in violation of the lease.

Criminal justice reform has become an increasingly bipartisan issue in recent years, and Congress could agree on legislation in 2016. Both President Barack Obama and Senate Majority Leader Mitch McConnell have highlighted criminal justice reform as a priority for this year. Goals include reducing mandatory-minimum sentences for drug offenders and helping prisoners integrate successfully into their communities to reduce recidivism rates. Any reform efforts must address the housing needs of the returning prisoners that ensures they do not become homeless or recidivate.