A snapshot of affordable housing in Chattanooga

Housing is one of the most basic and important needs, but also one of the most complicated urban issues. A decade after the onset of the Great Recession, which devastated the housing market nationally, many cities are still reeling from its effects. Chattanooga was not spared the impact of the Great Recession, but its rebound has compared auspiciously with other small- to midsize cities in the U.S. While the city has been prospering in many ways, seeing new job growth and real estate development on the rise since 2009, these benefits have not been shared by all Chattanoogans. In terms of affordable housing, needs have continued to persist or even worsen.

Affordable housing can be very difficult to define, and it can vary widely even within a single city or county, never mind a country or across the globe. So what constitutes “affordable” housing? Affordable for whom? Affordable where?

Understanding what is meant by “affordable housing” is the first step in addressing the complex issue that impacts and is impacted by not only housing but also workforce and economic development.

So what is affordable housing?

The term affordable housing is used to describe housing, rental or owner-occupied, that is affordable no matter one’s income level. In the U.S., the most common definition is the one used by the federal government; this defines affordable housing as housing and related expenses (mortgages, utility bills, homeowners’/renters’ insurance, etc.) that do not exceed 30 percent of a household’s income. Any household paying over that 30 percent marker is considered overburdened. This standard can generally be applied across the U.S., and is even generally comparable to some other countries, such as Australia, Canada, and the United Kingdom.

In Chattanooga, the gross household income is $48,248 per year ($4,021 net pay per month). Additionally, the median rent in the city is $745 a month. This means that a household making less than $2,523 a month would be considered “rent-burdened” when renting an apartment at or above the median rent. In Hamilton County, approximately 47 percent of households are renters, and currently, about 46 percent are considered rent-burdened¹. One reason that we look at rental rates is because renters tend to be the most housing-insecure population in the county, especially as this group has seen rents steadily increase. Housing costs—meaning mortgage payments and utilities for owners and rent and utilities for renters—have steadily decreased for owners while rising for renters in Chattanooga since 1990. Between 1990 and 2014, housing costs for renters increased by about 57 percent, while the median income only increased about 3 percent. Housing costs for homeowners in Chattanooga have fluctuated over the past two decades but have overall not increased (National Resource Network Team 2016). This is not to say that housing costs have not increased at all for homeowners, but they have kept pace with median incomes, with mortgages increasing only about 1 percent.

So how big of a problem is this in Chattanooga?

According to the study conducted by the National Resource Network Team in 2016, these higher costs, especially these higher rental costs, have resulted in 35 percent (25,130) of Chattanooga’s households living with cost burdens (i.e., paying over 30 percent of their household income toward housing costs). Chattanooga has seen a 6 percent increase in cost-burdened households since 2009, yet between 2009 and 2014, the number of cost-burdened owner households fell by 729, while the number of renter households increased by 1,667. Furthermore, in 2014, 18 percent of households in Chattanooga (12,197 households) were considered “housing-insecure,” which means they were spending 50 percent or more of their income on housing costs (National Resource Network Team 2016). Yet again, this impacts renters more severely than homeowners.

Geographically, this study found that both cost-burdened and housing-insecure renters tend to live close to downtown Chattanooga, thus putting them at an increased risk for displacement due to gentrification trends in those areas.

But aren’t there housing assistance programs to address this problem?

Many low-income residents do not qualify for public assistance programs or are on waiting lists for assistance. To qualify for an affordable housing program, a household’s eligibility is determined by their income. Each household’s income is compared to the incomes of all other households in the area. This is done using a statistic established by the United States Department of Housing and Urban Development (HUD) called the Area Median Income (AMI). In Chattanooga, the AMI is calculated for all households within Hamilton County. The idea behind this is that those searching for housing will typically look beyond just Chattanooga, though it does not take transportation costs into account. Currently, HUD calculates the AMI for a family of four in Hamilton County as $59,500 (Affordable Housing Online 2017).

There is a variety of affordable housing assistance programs, though many have long waiting lists and prove difficult to help gain access to assistance or affordable homes. There are three main rental assistance programs:

• Privately owned subsidized housing: HUD assists apartment owners to offer reduced rents to low-income tenants
• Public housing: Affordable apartments for low-income families, the elderly, and persons with disabilities
• Housing Choice Voucher Program (Section 8): Low-income renters find their own housing and use the voucher to pay for all or part of the rent

Eligibility for these programs is based on a household’s AMI, but there are frequently not enough available units for the number of people who meet the programs’ criteria. For example, the Mai Bell apartments, which opened in the Highland Park neighborhood this summer, have 11 of the 49 units income-restricted for lower-income households. Monthly rent for income-restricted units starts at $462. The 11 income-restricted units had 80 applicants, and Chattanooga Neighborhood Enterprise (CNE) had to choose 11 residents randomly through a lottery. This is just one example of the numbers of people who qualify for income-restricted apartments based on their income yet struggle to access a subsidized unit, since often there just aren’t enough of them.

There are also resources, both through HUD and local state programs, as well as nonprofit programs, to assist low-income families buy and maintain their homes. For example, in Tennessee, the Tennessee Housing Development Agency (THDA) has homeownership programs that are designed for low- and moderate-income borrowers, some of which include down payment assistance programs. THDA also offers a Housing Voucher (Section 8) to Homeownership Program; this allows low-income voucher holders who meet the program guidelines to be able to use their Housing Vouchers to purchase a home. Additionally, CNE, a local nonprofit organization that provides education and counseling for low- and moderate-income first-time homebuyers, also offers home financing and improvement programs.

What is the state of Chattanooga’s housing supply for low-income residents?

Compared to many other cities, Chattanooga’s housing supply is moving in the right direction, with the number of affordable rental units and, specifically, subsidized rental units increasing, and there are several federal and local programs that are trying to maintain and increase the number of available affordable homes. That being said, there is still a housing shortage, especially for the lowest-income residents.

There are two main types of government-subsidized housing: public housing and the Section 8 program. Both types of housing are overseen by HUD. There are local housing authorities that manage the public housing units, which are offered at rents that are affordable to low-income households. In these cases, the units themselves are offered at reduced rental costs so that those with lower incomes can afford to live there. The Section 8 program provides vouchers to low-income families to make up the difference between the rent and what the families can afford.

In Chattanooga, there are 70 low-income housing apartment complexes that contain 6,111 affordable apartments for rent, and approximately 4,939 of these apartments set rent based on the households’ incomes. There are also 1,311 Section 8 subsidized apartments in Chattanooga. Finally, there are 1,745 other low-income apartments that don’t offer rental assistance but are still considered to be priced affordably for low-income families².

The National Resource Network Team found that there is a mismatch between what is available to renters and who can access these units. Surprisingly, Chattanooga had an oversupply of rental units for low-income households—those making 51–80 percent of the AMI and thus can afford monthly rents between $298 and $794. While there is an oversupply of these units, about 32 percent of these units are occupied by a household at a higher income, making them inaccessible to low-income renters. Additionally, Chattanooga is lacking enough units for households that are considered extremely and very low-income—those making 0–50 percent of the AMI. These households require support services or subsidies and are generally reliant on housing provided through the Chattanooga Housing Authority (CHA), the largest provider of affordable housing in Chattanooga.

Public housing authorities, which traditionally have been funded by the federal government, have seen their funding steadily decreased over the years. In Chattanooga, as of March 2016, the CHA managed 3,633 active Housing Choice Vouchers; people with housing vouchers are eligible to pay only a third of their income for rent. If they have no income, then they pay no more than $50 a month for rent and the federal government pays the rest of the rental cost. Applicants must pass criminal background, income, and immigration status checks before they can receive housing vouchers. As federal funding has decreased, it has made it more difficult to provide vouchers to the lowest-income population. On March 27, 2017, the CHA opened the Housing Choice Voucher waiting list for one day only; applicants had to apply online, and then the CHA randomly selected 1,000 applicants using a computer lottery system. The housing vouchers have long waiting lists that make it difficult for low-income families who are eligible for this type of assistance to access it.

In addition to housing vouchers, there are also subsidized, or “income-restricted,” units. As stated previously, there are approximately 4,939 HUD-funded and CHA-managed public housing apartments where the rents are set based on the household’s income. One major concern regarding the supply of Chattanooga’s affordable units is that the subsidized or “income-restricted” units have provisions to keep them affordable, but only for a specific length of time (generally between 5 and 30 years, depending on the subsidy). This includes Section 8 vouchers, lot-income housing tax credits, HOME Investments Partnerships Program (HOME), and HUD-insured properties. According to the National Resource Network Team (2016), there are 2,108 federally subsidized units that are at risk of expiring by 2030, and the majority will expire between 2016 and 2025, putting more families at risk of losing their homes, and soon. Since the publication of the National Resource Network Team’s 2016 report, over 100 units’ subsidies have already expired.

Current strategies to address housing supply shortages

There is no easy solution to the issue of affordable housing, especially as it is being squeezed further with downtown development and changing residential patterns of middle-class households. In addition to the subsidy and housing voucher programs, at the federal level, the Office of Affordable Housing Programs (OAHP) administers two grant programs that are designed to increase the amount of affordable housing stock available to low-income households.

• HOME is the largest federal block grant to state and local governments designed to exclusively create affordable housing for low-income households. HOME provides federal funds to state and local governments to carry out multiyear housing strategies. These strategies include acquisition, rehabilitation, and new construction of housing units, in addition to tenant-based assistance. In Chattanooga, these projects are typically carried out through partnerships with local nonprofit housing organizations, homeless service providers, and other assistance providers.
• The Housing Trust Fund (HTF) was established in 2008 to support the acquisition, new construction, reconstruction, and/or rehabilitation of rental units for extremely low- and very low-income households, including homeless families.

In Chattanooga, several local initiatives have been introduced to increase the number of affordable units in attempts to combat the number of units that will be expiring over the next two decades.

Housing PILOT Program

A PILOT, or Payment in Lieu of Taxes, is an investment incentive negotiated between a taxing authority (typically a municipality) and a developer. The program is a financial incentive that is designed to encourage multifamily rental development, while also promoting the construction of affordable units. This is done by freezing property taxes at the predevelopment level for a predetermined period. In essence, the municipality agrees to accept a lower amount of property tax revenue in exchange for other economic benefits that come from the new development, while also developing units for low-income renters.

In 2016, Chattanooga amended their Housing PILOT Program to increase the number of affordable rental units across the city. The previous Housing PILOT Program exclusively served the downtown, North Shore, and Southside areas. This program required developers to mark, at minimum, 20 percent of their units as affordable housing units in the residential developments. The 2016 changes expanded the program to encompass the entire municipality and now requires a minimum of 50 percent of the residential units be earmarked as affordable housing units. The 2016 changes to the PILOT program have produced far more units than the previous iteration, and it has been widely acknowledged that these changes have resulted in real improvement over the previous program, though Chattanooga still lacks the quantity of the necessary units to provide for its low-income population.

Form-based code adoption

In 2016, Chattanooga’s City Council approved the replacement of the old zoning code with form-based code for the following downtown neighborhoods: North Shore, Riverfront, City Center, M.L. King, and Southside. The adoption of form-based code provides the opportunity to diversify the housing stock. Chattanooga’s current housing stock is primarily single-family homes or midrise or large-scale apartment buildings, with limited options for smaller-scale housing types. The shift to form-based code in downtown neighborhoods allows for the expansion in the range of housing types that can be built without the need for special approvals, provided they meet the code site and building design requirements. Diversifying the housing stock can allow for increasing middle-income housing, thus freeing up apartments priced for lower-income residents. This could help address the oversupply of low-income housing for those between 50 and 80 percent of the AMI, which is currently being occupied by households making over 80 percent of the AMI.

Establishment of the Chattanooga Land Bank Authority

The Chattanooga Land Bank authority was established by the City Council in the spring of 2015 as a 501(c)(3). Land banks are governmental entities or nonprofit corporations that are focused on the conversion of vacant, abandoned, and tax-delinquent properties into productive use. The land bank’s primary objective is to act as the disposition agent for the city, meaning that they can acquire, manage, and sell blighted or vacant properties to return to the market for residential or commercial use.

Generally, legislation grants land banks the following powers:

• Obtain property at low or no cost through the tax foreclosure process
• Hold land tax-free
• Lease properties for temporary uses
• Negotiate sales based not only on the highest bid but also on the outcome that most closely aligns with community needs, such as workforce housing, a grocery store, or expanded recreational space

In many other municipalities, land bank authorities also have the power to clear land titles and/or extinguish back taxes, but due to current state law, Tennessee land banks do not have this power.

While land banks are not a “silver bullet” for communities struggling with blight, vacant housing, or a lack of affordable housing, they are uniquely designed to help reduce these problem properties. It is important that land banks’ activities must complement other community strategies and activities to improve the affordable housing stock, promote smart planning and community development, and develop economic activities.

The path forward

Several initiatives under the current Berke administration have attempted to alleviate the crisis, but more efforts are still needed. Providing a sustainable and ample supply of affordable housing isn’t easy, and while there’s no one answer, it is critical that Chattanooga address its housing challenges head-on. That means building on the strategies the Berke administration has already adopted and working to aggressively expand the number of affordable units for residents earning less than 50 percent of the AMI. Over the coming weeks and months, we are launching an ongoing effort to profile and detail strategies and initiatives that have been successful in cities across the U.S. in developing long-term affordable housing.

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Footnotes