Housing Trusts Help Increase Supply of Low-Cost Homes

As the federal government has slashed funds to programs that provide housing to needy people, cities and states

have turned to a new method to garner tax dollars for low-cost homes. By creating housing trust funds, local and state governments have been able to gather money from special taxes and fees, then use it to build or rehabilitate homes.

So far, some regions can point to large gains in their supply of low-cost housing because of the involvement of housing trusts. For example:

• In Chicago, more than 11,000 low-rent apartments have been subsidized by a housing trust. More than $37-million has been invested in low-cost-housing programs backed by the trust fund.
• In Washington State, a housing trust has spent $159-million in the past decade to build or rehabilitate 11,500 low-cost homes.
• In Maryland’s Montgomery County, $47-million has been spent to preserve or build 3,900 units.

More than 200 of the 280 trust funds across the country have been started in the past decade, as towns, cities, counties, and states began to see them as a viable method for collecting and spending tax dollars on low-cost housing. So far, more than $750-million has been raised through the trusts, aiding the development of more than 250,000 new and rehabilitated low-cost housing units.

Special sales taxes, document-recording fees, and real-estate-transfer taxes have been used to raise money for trusts, most of which are run by government housing agencies.

“Housing trusts are another way of raising government money outside the usual appropriations process,” says Sheila Crowley, president of the National Low Income Housing Coalition, in Washington, an advocacy group that is lobbying for a nationwide housing trust fund. “The principal value of housing trust funds is that there is a dedicated source of funding created just for the trust.”

Lobbying for Trusts

With the help of foundation grants, nonprofit groups have successfully lobbied for legislation to create the housing trusts, then have urged governments to find a new, steady stream of money to pay for them. Through use of the trust funds, housing groups believe they can speed up the pace of low-cost-housing construction. A nationwide slowdown in the low-cost-housing industry has led to more homeless people and higher rents for those with low incomes, some advocates say.

Advocates say that trust funds are a cost-effective way for governments to become involved in building housing, because only one dollar comes from trust funds out of the eight dollars it takes to construct a development for needy people. The rest comes from other, primarily private sources. Without the lure of government dollars, advocates say, private money for low-income developments is harder to come by.

Promoters of the trust-fund concept add that developments partially paid for by trusts have spawned innovations in energy efficiency and in devising housing for the disabled and other people who face special challenges. In North Carolina, a trust fund was used to finance $10-million in housing for people with mental illnesses or physical impairments, as well as those recovering from substance abuse.

“Local trust funds have benefited from not having to deal with some of the cumbersome regulations that accompany federal dollars,” says Jerry Jones, a public-policy specialist at the Center for Community Change, a social-justice advocacy group in Washington.

But some local trust funds have faced troubles from cash-strapped governments. Despite promises of funds, the city of St. Louis turned over to a statewide housing trust only half of the funds recently collected from a city tax on luxury purchases made outside of Missouri. In Tennessee, a trust fund was disbanded because of a shortfall in the state’s budget. Still others remain threatened. In Florida, Gov. Jeb Bush has introduced legislation that would take money earmarked for the state’s housing trust fund and roll it into the general fund before some of it is handed out to housing programs. Housing advocates say millions of dollars to build low-cost housing in the future would be lost if the law is passed.

A National Campaign

Some housing advocacy groups are now lobbying Congress to create a trust fund on the national level. Their goal: to use $26-billion in funds from a federal mortgage-insurance program to provide 1.5 million low-cost housing units over the next 10 years. The money would be distributed by the federal Department of Housing and Urban Development to states, cities, and towns, which would then ask developers to submit proposals to build low-cost housing.

The trust fund would partly counteract a decades-long downward trend in federal support of housing. In 1976, the Department of Housing and Urban Development budgeted $84-billion (adjusted for inflation) for housing programs; by 2002, that number had fallen to $34-billion. Activists say that by tapping a federal mortgage program for trust-fund dollars, they will be recouping some of the subsidies the government gives homeowners in the form of mortgage-interest deductions.

So far, lobbying by the groups has failed to sway leaders in Washington. Although advocates say that they and the 3,500 organizations that have endorsed the campaign have won some bipartisan support, the idea does not have the backing of the Bush administration and federal housing agencies.

“We believe there are better ways of providing affordable housing,” says John C. Weicher, assistant secretary for housing at the U.S. Department of Housing and Urban Development. The department will dole out $2.3-billion this year, a $100-million increase over 2002, for construction of 30,000 low-cost rental apartments, and the rehabilitation of 30,000 others, Mr. Weicher adds.

Earmarking $26-billion from the Fair Housing Administration’s loan fund wouldn’t be a responsible use of the funds, Mr. Weicher says. “That’s money we’ll need to pay the claims we’ll receive in foreclosures for the next 30 years” on federally underwritten home mortgages, he adds.

The national trust-fund plan hasn’t caught on with Congressional leaders, either. Sen. Richard C. Shelby, an Alabama Republican, and chairman of the Senate Committee on Banking, Housing, and Urban Affairs, says the federal government should maintain its emphasis on increasing homeownership — not on creating a fund for rental housing.

“We need to continue to pursue new and innovative ways of increasing homeownership for low- and moderate-income Americans,” Mr. Shelby says, adding that eliminating taxes on stock dividends would help the economy support prospective home buyers.

Large Cities Create Trusts

Faced with federal leaders’ opposition to a national housing trust, advocates have continued to push for more trusts at the state and local level. Some have been created in the country’s most populous jurisdictions. Columbus, Ohio, plus the District of Columbia and Minneapolis, have enacted trust funds in the past two years.

And Los Angeles last year started a trust to help the 20 percent of its residents who live below the poverty line. Lobbying for the trust began five years ago, when the Southern California Association of Nonprofit Housing, an advocacy group for nonprofit developers, encouraged others who wanted to spur the construction of low-cost homes to join forces.

“We could see that the city was spending nothing but the few federal dollars it got for housing, despite this great need,” says Jan Breidenbach, the group’s executive director.

Ms. Breidenbach and her colleagues built a coalition of labor, religious, and housing groups; hired organizers to run a campaign to drum up public support; and began tapping foundations and individuals for money to bankroll it all.

The coalition, Housing L.A., spent more than three years and $300,000 convincing the Los Angeles city government to earmark $100-million annually to housing causes. Although the city, beset by a budget crunch, has yet to decide how to regularly fill the trust fund’s coffers, the city government in March committed $18-million to the trust. The money will soon be used in tandem with $41-million in state and federal funds to build 700 low-cost housing units in Los Angeles.

A handful of foundations contributed to the organizing campaign. The Butler Family Foundation, in Washington, made a total of $45,000 in grants to help kick off the trust-fund campaign and help it start operating. One of the foundation’s leaders says that financing part of Housing L.A. represented a good use of grant money.

“To get $100-million from that amount in grants makes it a very good investment for a foundation like ours,” says Martha A. Toll, the foundation’s executive director.

Role for Foundations

The Butler Family Foundation, which made $1.4-million in total grants last year, has also made similar-size grants to the local trust fund movement in Washington, as well as to the National Low Income Housing Coalition, for its campaign to start a national housing trust.

“There is no mad rush to getting this done, as far as foundations are concerned,” Ms. Toll says. “But we think the more foundations know about this and other housing issues, the more they’ll see trust funds as solid investments.”

Ms. Crowley, of the National Low Income Housing Coalition, says that foundations can only do so much, however. The coalition has benefited from grants, earmarked for national trust advocacy, from Butler; the Melville Charitable Trust, in Providence; the Fannie Mae Foundation, in Washington; and several other grant makers. But building the five million units of housing needed for the poor over the next 20 years will be beyond the ability of foundations. “We’re not going to solve the housing crisis solely through philanthropy,” Ms. Crowley says.