Gov. Phil Murphy’s new proposed budget has reignited the controversy regarding the practice of diverting state Housing Trust Fund revenues for purposes other than affordable housing — something previous governors of both parties had done, but which he pledged not to do. The proposal would divert up to $47 million.
The administration defended this action, noting that unlike past diversions reprogrammed funds will continue to support housing activities. However, advocates for lower-income groups have responded that the HTF was established to address the needs of low- and moderate-income households and the proposed diversion would principally benefit those with higher incomes. Of particular ire is the proposed use of $22 million for a down-payment assistance program benefiting those with incomes of 80%-140% of the area median income.
Less discussed, but perhaps more important over the long term, is that the down payment program as proposed:
- Fails to promote (and may well work against) other purported goals of the administration;
- Is unnecessary because the state can provide this type of help without using HTF revenues;
- Is not very useful as an affordable housing strategy even for those who receive this grant.
In conflict with other administration goals
Presumably, this down-payment assistance program, like past New Jersey Housing and Mortgage Finance Agency down-payment assistance efforts will lack targeting beyond basic income guidelines. As such, this program will fail as a housing, community, economic development and environmental protection activity. For example:
- Are the homes financed an engine of smart growth or sprawl, or gentrification and displacement? By not having locational requirements, any of these outcomes are possible, most of them undesirable and counter to other administration goals.
- Are communities that have not made progress in meeting their Fair Share affordable housing obligations benefiting? The HTF was created to facilitate affordable housing opportunity. Access to funding in communities that continue to evade affordable housing responsibilities is unconscionable.
- Is funding furthering substantial economic growth by supporting construction and rehab or will the effort largely be used to purchase some house on some street? The real estate agent industry does not need additional subsidy, but an effort targeted around rehab and even new construction could support small businesses and new job training efforts, both articulated state goals.
- If new construction or rehab is financed, will it support the state’s “green” agenda? The state is preparing to spend vast sums on green energy, energy conservation and climate change readiness. The state could require that this effort support these and related goals.
- Does the program support other economic initiatives? For much of the past year stories about teacher and health care heroes and the low wages many in these sectors earn have abounded. Why not make serving these workers a priority while helping to stabilize communities in which they work (and where they could live, thus shortening public and private commuter burdens and improving worker reliability)? Poor school districts that have trouble recruiting and retaining teachers could use this tool to overcome these difficulties. Not using funds in this way misses a costless chance to help struggling school districts and communities. Similarly, this program could be used to help attract and retain employees for other industries where the state already has, or is about to make, substantial investments. For example, is the South Jersey housing market ready to serve and be affordable to those who will work in the wind energy industry? Are workers in new Camden jobs able to find appropriate housing there? Are high-tech employers in the New Brunswick-Princeton corridor able to attract young, skilled, college-debt-burdened talent that is largely rootless upon college graduation and capable of moving out of state?
The use of HTF dollars is unnecessary
It is unclear what problem this program is supposed to address — the lack of sufficient down-payment savings among potential buyers or the need to decrease the amount borrowed to reduce borrower monthly carrying costs. In either case, the New Jersey Housing and Mortgage Finance Agency has historic experiences and powers to address either of these concerns without the use of HTF dollars. Some examples:
The agency could provide 100% financing eliminating the need for a down payment. Similarly, HMFA could guarantee that portion of a mortgage not insured by the Federal Housing Administration or a conventional lender. Either approach would enable borrowers to achieve 100% financing or something near that. During the era when the HMFA and Housing Trust Fund laws were enacted there was discussion, but no action, regarding the creation of a state mortgage insurance entity to underwrite nonconforming (nonstandard) mortgages as other states had done. Interestingly, the governor’s diversion agenda includes using $10 million for a new multi-family mortgage insurance product. It would seem the time is ripe for revisiting the idea of creating a broadly charged insurance entity for nonconforming housing and economic development loans.
Lease-purchase financing could address the buyer’s need for a larger down payment in order to manage the monthly costs of homeownership. This type of financing is specifically authorized in the HMFA statute. Shared-equity financing would enable the buyer to own a portion of the home immediately and use home appreciation over a period of years to accumulate equity enabling the refinancing of the home conventionally. HMFA could create a sub-corporation to be the holder of a portfolio of shared equity loans as could a New Jersey public bank, the creation of which is currently being discussed. A less good approach might be to make HTF funding a delayed rather than forgivable loan, with repayment after five or ten years via buyer savings or a required refinancing that took advantage of home appreciation enabling the home to be safely refinanced.
As a strategy for reducing monthly costs, both lease-purchase and shared equity financing would generally offer more aid than reducing the amount borrowed by $10,000. On a $300,000 home (if one can find that) the $10,000 not borrowed would result in a yearly savings of about $550, depending on the interest rate with a 30-year mortgage. Years ago, when rates were much higher, interest rate “buy-downs” were a common financing practice, where fees were paid at closing to lower the interest rate. Assuming a base mortgage interest rate of 3.5% on that $300,000 home, for $9,000 one could buy down the interest rate by more than $1,200 annually, more than twice the benefit of the proposed program at only 90% of the cost.
HMFA could also seek to create a new generation of employer-assisted housing partnerships. HMFA was among the first state housing agencies to participate in employer-assisted housing programming. It could do so again. Large, institutional, and public agency employers could provide guarantees of down payments on mortgages made by HMFA (as was done in the past), or the state could seek to leverage and offset its cash costs by having a matching grant program with employers. This would be particularly useful if the program were tied to state economic development efforts, and it is an approach many employers have historically supported.
New Jersey’s bigger problem
The proposed diversion has been criticized as the breaking of a commitment to the state’s most housing-vulnerable residents. Whatever the merits of the general policy, it is also clear that the proposed implementation is flawed in its needless reliance on Housing Trust Fund money and in its failure to use diverted or alternative funding in ways that would support other professed housing, community and economic development goals and environmental efforts. In considering this proposal the Legislature should closely examine these issues.
As an outsider, in general it does not seem that the administration’s principal goal has been to make it harder for poor people to find suitable housing, a change from past administrations of recent decades. If this is true, then the conclusion may be that after 30 years of governors fighting affordable housing efforts, the state’s housing bureaucracies no longer know their own histories and capacities and are unable to make thoughtful, innovative decisions on affordable housing programming. Moreover, the policy silos in which housing, economic development and other decisions are made may be so ossified and unaccustomed to considering how better housing policy can advance other interests that they are incapable of working together to create new innovative, integrative policies and programs. If so, New Jersey would seem to have a more serious problem than how best to spend $47 million. Rather, New Jersey needs to figure out how to create modern, reinvigorated institutions capable of innovatively and effectively tackling the persistent problem of inadequate, inappropriate and unaffordable housing.