N E W M A N LOW-END RENTAL HOUSING THE FORGOTTEN STORY IN L O W BALTIMORE’S HOUSING BOOM - E N D R E N T A L Sandra J. Newman H O U S I N G THE URBAN INSTITUTE 2100 M Street N.W. Washington, D.C. 20037 Tel: (202) 261-5687 Fax: (202) 467-5775 Web: www.urban.org FUNDED BY THE ABELL FOUNDATION LOW-END RENTAL HOUSING THE FORGOTTEN STORY IN BALTIMORE’S HOUSING BOOM Sandra J. Newman FUNDED BY THE ABELL FOUNDATION Copyright © August 2005. The Urban Institute. All rights re- served. Except for short quotes, no part of this book may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying, recording, or by informa- tion storage or retrieval system, without written permission from the Urban Institute. The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation. The views expressed are those of the author and should not be attributed to the Urban Institute, its trustees, or its funders. CONTENTS Acknowledgments . v Executive Summary . vii The Status of Low-End Rental Housing. 5 Baltimore City Renters . 6 Vacancy Rates and Abandonment . 8 Rents . 10 Affordability. 12 Housing Quality . 14 Neighborhood Quality. 19 Rental Housing Owners. 20 Federally Assisted Housing . 22 What All These Numbers Tell Us . 25 What Should Be Done? . 26 Addressing the Affordability Problem . 26 Addressing the Combined Problems of Affordability and Inadequacy with Project-Based Vouchers . 29 Addressing the Inadequacy Problem . 34 Rental Housing Rehabilitation Programs. 41 Technical Assistance for Small-Scale Owners . 52 Reforming Small-Scale Rental Property Management . 52 Neighborhood Targeting . 56 Conclusions . 60 References . 67 Appendices . 77 About the Author . 97 iii ACKNOWLEDGMENTS An embarrassingly long time ago, Bob Embry, president of the Abell Foundation, asked me to write a paper on the low-end rental market in Baltimore and what might be done about it. This seemed like a reasonably straightforward, small research task at the time, but it has turned out to be anything but straightforward or small. What happened? There is no way to address this topic competently and accu- rately without solid, hard data and, as it turned out, such hard evidence was often either nonexistent or difficult to assemble. That I was ultimately able to develop sufficient data to produce this paper owes everything to the help I received from a number of exceptional city and state staff. One unexpected benefit of car- rying out this study was working with such talented, professional individuals as Alexis Johns, Steve Janes, Brenda Davies, John Greiner, Tom Stosur, Linda B. Allen, Peter Matthews, Tim Goet- zinger, Thom Mullaney, and Michelle Thomas. This is only a partial list; everyone who provided data included in this analysis is cited in footnotes and included in the reference list, and I am enormously grateful to them all. This paper could not have been produced without the assis- tance of an able team that included two of my very talented former students: Jonathan Lo, then a Johns Hopkins undergrad- uate; and Rachel Brash, then a graduate student in our Master’s Program in Public Policy; along with David Kantor, my long- suffering data programmer; Laura Vernon-Russell, a whiz at pro- duction logistics; Felicity Skidmore, a remarkably insightful editor; and last but hardly least, Amy Robie, the best research assistant imaginable. I am delighted to have had the opportunity to work, once again, with the Urban Institute Press, which always does a mas- terful publication job. Finally, I gratefully acknowledge the Abell Foundation for sponsoring this research, and thank Bob Embry, Beth Harber, and Gil Sandler for their insights and their perseverance. v EXECUTIVE SUMMARY Recent headlines in the Baltimore Sun proclaim that “real estate’s rising tide” has hit Baltimore’s home prices.1 At the opposite end of the city’s housing market are an estimated 40,000 low-income renters who cannot afford even the modest rents on their dwellings, live in substandard housing, or both, and nearly 20,000 substandard units renting for less than the median rent. Even a sustained, geographically widespread surge in residential sales will not address the serious problems in the low-end rental market, except possibly in the very long run. These problems are wide-ranging. Half of all rental units in Baltimore rent for less than $400 a month and only 15 percent rent for more than $600.2 Low rents threaten the soundness of the stock and a healthful living envi- ronment for tenants. But because so many renters are poor, with half having incomes below $20,000, even these low rents are unaf- fordable to many. Renters are also getting poorer, with their median incomes dropping, in real terms, between 1990 and 2000. There are about two poor renters for every affordable housing unit in the city, and more than 16,000 households are on the waiting list for assisted housing. Nearly half of renter households with chil- dren are paying more than 30 percent of their income for rent, yet more than 40 percent of them are living in physically inadequate housing. More than one-third of the rental stock in Baltimore does not meet basic housing codes of physical adequacy. And with a rate of physical deficiencies 50 percent higher than that for the sur- rounding metropolitan area, Baltimore’s rental “bargains” are not luring residents from the region to relocate in the city. Many of these problems are related to the aging housing stock. In 2000, the median age of housing in the U.S. was 30-something; in central cities, it was 40-something; and in Baltimore, it was 50-something.3 1 Hopkins (2005). 2 Author’s tabulations from 2000 Census data, SF3. 3 This perspective was inspired by Listokin and Listokin (2001), 1. vii viii Low-End Rental Housing Neighborhood problems, such as crime, noise, and abandoned buildings, though widespread, are about twice as prevalent among physically substandard units with rents below the median as among higher-rent units. Added to this is the predominance of small-scale owners in the rental market who are highly unlikely to earn positive returns, leaving little or no reserves for capital maintenance and improvement; who often lack the management skills and savvy required to write grant applications for govern- ment subsidies; and who do not have the economies of scale in property management (including maintenance and repair) enjoyed by large-scale operators. Topping off this mix, the city’s Section 8 voucher program has been in the throes of a manage- ment crisis that is taking years to reverse. This, of course, also means that as many as two-thirds of rental units—including low-rent units—are estimated to be physically adequate. Another potentially encouraging finding is that up to a third that fall below code do so solely because of interior prob- lems that might be inexpensive to repair. There are an estimated 11,000 rental units in this group, with somewhere between one- half and two-thirds rented by low-income households.4 This paper disaggregates the range of problems besetting the low-end rental market and identifies specific initiatives (both public and private) that could reduce the problems. Among these are the federal Section 8 voucher program and the project-based voucher program. These were designed to address the problems of housing affordability and physically inadequate housing, either separately or in combination. They are essential programs to the city of Baltimore. Every effort should be made to ensure that the city receives its fair share of these resources from HUD, and that it manages these programs expertly so landlords begin to trust the programs enough to participate and the maximum number of needy tenants are assisted. If the city continues to face difficulties in managing the Section 8 voucher program, it should consider contracting out the program, as other cities have done. 4 The lower-bound estimate defines low income as below the median income of city renters. The upper-bound estimate uses the U.S. Department of Housing and Urban Development’s income cutoff of $25,000 for a three- person household in the Section 8 voucher program. Low-End Rental Housing ix The city currently addresses the problem of physically inade- quate low-income rental housing in three ways: code enforce- ment, lead-based paint abatement, and rental rehabilitation programs. These are all valuable. But each operates auton- omously, reducing its potential effectiveness. Also, small-scale properties—where the bulk of low-rent units (40–50 percent) and low-income renters are concentrated—are excluded from both the code and rehab components, vastly reducing the programs’ abil- ity to remediate the problems they are designed to address.5 Alter- native approaches to linking these programs and filling current gaps could be tested through a demonstration program. An estimated $95 million from federal, state, and city sources was spent in the city of Baltimore on rental rehab between 1999 and 2003. But essentially none of this funding is accessible to properties with fewer than five dwelling units, despite the fact that over three-quarters of the city’s rental units with physical in- adequacies are located in small-scale properties, and more than 60 percent of its low-rent units are located in these smaller struc- tures. One alternative is for the city to reconsider creating its own housing trust fund,6 comparable to the Maryland Affordable Housing Trust created by the state in 1992.7 The goal of such trust funds is to earmark dollars specifically for investment in affordable housing.