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Homes of Our Own

The Texas Border region is in the throes of a housing crisis. Only one house is built for every two that are needed.1 Some 400,000 residents--nearly one in three Border workers--earn less than what it takes to afford a house or apartment, compared to one in seven non-Border workers. State housing programs have not filled the gap, because they typically lend residents funds to buy homes they could not otherwise afford, instead of promoting construction of homes workers can afford on their own.

Government-funded housing programs focus on families in extraordinarily difficult circumstances, whether along the U.S.-Mexico border or in Dallas, Lubbock, or San Antonio. Rapid population growth, lagging wages compared to the cost of housing, and the shortage of innovative approaches all contribute to the dilemma.

Opportunities are emerging, however, for tangible gains based on the simple idea of building truly affordable housing. The alternative--a Border region where more and more residents lack safe, decent, affordable homes--is unacceptable.

Harder to Own

Affordable housing has been hard to come by in the Border region mainly because the rapidly growing population remains poor. From 1995 to 2020, the area's population is expected to increase by almost 60 percent, from 4 million to 6.3 million. And the poverty rate--more than 29 percent in 1993 compared to 20 percent for the state--is not expected to fall significantly any time soon.

It might seem obvious that surging growth and poverty explain the widespread failure of residents to buy or rent quality housing. But such a simplistic assessment overlooks other key factors.

Just because many Border Texans cannot afford a conventional home does not mean they can live without a house at all. To keep a roof over their heads, Border families often forego other necessities, such as food and clothing. Others "double up" with friends or relatives. Some renters don't complain about problems for fear their rents will increase.2 And some Border residents have settled in semirural colonias.

About 1,500 colonias pepper the U.S. side of the border, with 97 percent of them in Texas.3 An estimated nine of every 100 Border Texans live in a colonia.4 The plight of the more than 340,000 colonia residents has often been a topic of state and national concern, in part because the scattershot settlements are characterized as pockets of extreme poverty on the southern edge of one of the wealthiest nations in the world.5 And frequently the colonias are held up as the manifestation of extreme housing needs.

But much of this attention overlooks the reality that the colonias are not in and of themselves the Border region's affordable housing crisis. Instead, the colonias symbolize a regional challenge--how residents struggling to make ends meet can possibly raise or acquire enough money for shelter (see Colonias: A Symptom, Not the Problem).

Colonias: A Symptom, Not the Problem
Colonias frequently lack sewage treatment facilities, utilities, and paved roads. Such features can be costly and complicated to establish after housing is in place, but building them first drives up the cost of land and housing.

Border Texans choose life in colonias because they want what other Texans want--to put a roof over their children's heads--and they insist on paying their own way.6 In steadfastly pursuing their goals, colonia residents sometimes have fallen victim to unscrupulous developers, Third World diseases, and the vagaries of state and local policies. More often than not, though, they have still acquired homes, a result often unattainable through more traditional, government-based programs. Household by household, family by family, colonia residents demonstrate an admirable and extremely practical commitment to making a home, however adequate the result. They also underline the perilous long-term stakes if government, private, and non-profit sectors fail to address the Border region's housing needs.

More People, Fewer Homes

According to preliminary research by Dr. Jack Harris of the Texas A&M University Real Estate Center, rapid population growth lies behind housing shortages throughout the Texas Border region and other parts of the state. Harris' model of housing supply and demand--comparing projected populations in large cities with the numbers of single- and multifamily building permits annually issued--suggests that El Paso faces the state's most severe shortfall and must at least quadruple its pace of construction to meet demand by 2000. San Antonio, Corpus Christi, and Laredo are cities needing to triple the local pace of construction to meet demand.7

Local housing providers and government officials hardly need a study to tell them housing is in short supply. They know it by long waiting lists for public housing. They can tell from soaring rents for scarce apartments and houses. And they see it because the supply of new houses is not keeping up with demand. In 1996, nine out of 10 of the state's large cities reported that the local demand for affordable housing was outpacing supply.8

There is a significant gap between prevailing wages in the Border region and the typical cost of a house.

Government housing programs measure affordability against income, not wages. Even someone earning low wages could afford an expensive home if he or she had another source of income such as an investment. But for many Border Texans, wages are the sole source of income. A close look at Border wages and housing prices shows why so few residents can afford to buy market-priced homes.9

Wages Trail Border Housing Costs

Border housing prices are in the same range as prices in the rest of Texas. Border cities have neither the highest nor lowest rents statewide. That's not surprising, because it costs about the same amount to build the same house in most Texas cities.10

But there is a catch.

Rents in Laredo, El Paso, and Brownsville fall in the middle third of community rents in Texas, with Corpus Christi and San Antonio in the top third, and McAllen alone in the bottom third. Home sales prices follow a similar pattern. On the single-family side, Brownsville and McAllen are in the bottom third of average sale prices in Texas cities, El Paso and Corpus Christi are in the middle third, and San Antonio is in the top third.11

Average wages in the Border region trail wages in the rest of Texas (see Table 7.1).12 As the table shows, a much higher share of Border residents earn less than the state average wage. The table shows the housing prices these wages would support--for instance, a worker earning $8 an hour could afford a $38,000 house, or $380 a month for rent. Closer analysis brings the Border housing shortage into sharper focus. In 1997, a Texan would have had to earn more than $17 an hour to buy a house for the state median price of $90,000.13 Only 13 percent of Border workers earned $17 an hour or more in 1997, compared to 37 percent of non-Border workers. Fewer than two in 10 Border workers could have afforded a house costing the state median price. In Brownsville and McAllen, only 2 percent of workers earn more than $17 an hour.14

Border housing prices are similar to prices in cities all over Texas, but wages are lower. In fact, a McAllen resident earning the local average wage would have to pay about 37 percent of his wages to afford McAllen's $73,300 median-priced home--well exceeding the ratio lenders consider prudent. By comparison, a Houston resident earning the local average wage would need to commit less than 23 percent of his wages to afford Houston's $83,000 median-priced home. In short, typical Texas homes are well out of reach for many Border workers.

Part of the challenge lies in getting workers into better-paying jobs; if they earn more, they can afford more. But many workers with below-average wages work in a wide variety of jobs, often requiring special training. Common occupations paying below the state average wage include police dispatchers, school bus drivers, bank tellers, and barbers.15

State housing programs such as mortgage revenue bond programs and the HOME Investment Partnerships Program (HOME)--a federal block grant with the goal of strengthening public-private partnerships and providing more affordable housing--would be more beneficial if they increased the number of homes workers can afford. Instead, these programs offer a limited number of income subsidies, quick shots of aid allowing some families to obtain homes they otherwise could not afford. A few families benefit, but the vast majority of working Texans are left out. The Texas Department of Housing and Community Affairs (TDHCA) estimates its housing programs will serve less than 1 percent of the moderate-, low-, and very low-income Texans needing housing assistance through fiscal 1999.16

In general, the state helps a few low- and moderate-income, first-time home buyers by funding loans at less-than-market interest rates and reducing monthly house payments. Such rate reductions, while welcome, aren't enough to make up the difference between "out-of-reach" and "affordable" for low-wage workers (see What Does "Affordable Housing" Mean?). For instance, an El Paso family with $20,000 in annual income might afford a $41,000 house at 8 percent interest or a $44,000 house at 7 percent interest. But even with the lower interest rate, it still could not pay for a $46,000 home offered by one typical El Paso builder specializing in affordable housing.17

What Does "Affordable Housing" Mean?
The yardstick of affordability--suggesting that families spend no more than 30 percent of income on housing--naturally varies from family to family. Region by region, however, it is possible to estimate how many individuals and families cannot afford housing by comparing income and wage data with local housing prices.

Millions of dollars in additional state funds might help more families, but demands would continue to outstrip available aid. A more appealing tack may cost less and benefit more families. State policy-makers could focus on encouraging the construction of houses built to be affordable for low-wage workers.

Bias Against the Border?

Government housing programs, unlike some other assistance efforts, are not "entitlements." Only a small percentage of eligible Texans receive housing assistance, and the percentage is especially small in the Border region.

Most state assistance programs have a statewide eligibility ceiling. They distribute aid to individuals and families with incomes below the ceiling, regardless of where they live. Most, if not all, of the ceilings are based on the federal government's leading indicator of household income, the federal poverty level. To qualify for welfare, for instance, a typical Texas family must have income at least 60 percent below the federal poverty level.18

But state housing programs, complying with federal requirements, set eligibility separately within each city or county based on Area Median Family Income (AMFI).19 The U.S. Department of Housing and Urban Development (HUD) determines the AMFI for every county; half the families in each county have incomes above the median, and half have incomes below it. Housing applicants may qualify for a program if they fall into one of four categories:20

Extremely Low Income, or up to 30 percent of AMFI;
Very Low Income, or up to 50 percent of AMFI;
Low Income, or up to 80 percent of AMFI;
Moderate Income, or 80 to 95 percent of AMFI.

In HUD's system, even workers with very low wages can be priced out of a program. In Dallas and Houston, the "moderate income" category historically draws in families as much as 250 percent above the federal poverty level, while in McAllen and El Paso, some members of "moderate income" families could qualify for Medicaid.21

Housing eligibility criteria are based on local incomes because nationally, housing prices vary according to local economic conditions. In places like the Texas Border, however, incomes have long lagged behind housing prices. So individuals qualifying for federal housing assistance still cannot afford homes. At the very least, the Border region's high-poverty and low-wage economy renders traditional housing programs less effective than in other parts of Texas.

Government housing programs discourage the private housing market from serving Border residents, because they offer no profit incentive for housing professionals--builders, lenders, and real estate agents--to serve low-wage workers. Program administrators acknowledge profit as an ingredient in encouraging home construction, but Texas has not made any concerted effort to factor profits into home builder incentives.

Housing providers told the Comptroller's review team that most builders would have a difficult time building houses costing buyers less than $60,000 to $70,000.22 Houses in this price range would typically be affordable to workers earning $12 to $14 an hour.23 It is difficult to build houses for a lower price because many of the construction costs, including the cost of land acquisition and development, do not depend on the size of the house built, while the sale price--and therefore the builder's profit--are completely dependent on the size of the house (see Housing Prices Reflect Production Costs).

Housing Prices Reflect Production Costs

Low-Cost Model

In 1998, the Mexican construction company Corporacion Geo and U.S.-based Beazer Homes USA joined forces to test a Mexican low-cost construction technique in El Paso, with a goal of building concrete block homes selling for $30,000 to $40,000 each. Geo, the largest affordable housing developer in Mexico, had financed many homes in Mexico through government or multilateral-sponsored programs and housing pension funds such as INFONAVIT (see INFONAVIT: Worker Housing in Mexico).

INFONAVIT: Worker Housing in Mexico
Beazer, one of the country's 10 largest single-family home builders, had operations in nine states in 1998, including Texas.24 The joint venture planned to keep costs low in El Paso by erecting on-site concrete-block factories and building one subdivision at a time, and by figuring in large downpayment subsidies financed by the Texas State Affordable Housing Corp., an arm of TDHCA. Geo's effort was expected to expand El Paso's supply of affordable housing.25

By providing downpayment assistance to low-income residents, the affordable housing corporation was clearing the way for more homeowners traditionally stymied by down-payments and closing costs. Such a barrier can be daunting, for Border and non-Border buyers alike. Even if workers can afford monthly mortgage payments, downpayment and closing costs are often unreachable. Downpayment assistance also lowers the cost of a mortgage, making the home affordable to a lower-income family.

But downpayment assistance does not encourage builders to build lower-cost homes. In fact, downpayment assistance occasionally encourages higher prices. If a builder knows a buyer will receive down-payment assistance on a house, the builder may build a more expensive home, marginally increasing the related profit.

U.S. housing programs are based on the belief that "locals know their areas best." Although HUD has regional offices across the country, federal housing dollars almost always reach families who need them via "middlemen," who can be state and local government agencies, nonprofits, or for-profit players such as banks or builders.

Under TDHCA's programs, housing funds can pass through a number of middlemen before they reach individuals. In at least some cases, Texas' housing programs could be more effective if dollars moved more directly from TDHCA to individuals who need them.

Six of seven TDHCA housing programs are federal programs. Texas has no solely state-funded housing programs except the Housing Trust Fund, which provides $1 million to $3 million annually in state housing loans and grants. TDHCA is primarily responsible for passing federal dollars through to Texas communities. In comparable states such as Florida and California with well-financed state housing programs, the state housing agency has a more visible presence, operating state as well as federal programs.

In addition to allocations from TDHCA, some communities receive federal housing funds directly. Federal guidelines allow entities such as community housing development organizations (CHDOs), large cities, and participating jurisdictions to seek dollars directly from HUD. Federal criteria for administrators of program funds, and HUD's numerous designations, such as CHDOS and participating jurisdictions, have no doubt contributed to expanding the field of housing providers.

For example, HOME federal block grant funds go to HUD-designated participating jurisdictions, which generally are city and county governments. Another portion of the grant is awarded to the state housing agency. TDHCA's job is to award HOME funds to areas of the state that did not receive participating jurisdictions status from HUD. TDHCA sets aside 15 percent of the funds for CHDOs.

TDHCA has further fragmented housing programs through extensive reliance on "subrecipients"--local groups and businesses who receive allocations of funds that they then cut into smaller portions and distribute to individuals and families. Subrecipients can be for-profit, nonprofit, or government entities. Inexorably, the subrecipient system has led to a proliferation of nonprofits and community organizations contending that they can best make available affordable housing for local residents.

Local subrecipients can play a crucial role in facilitating housing for low-income families. For instance, a nonprofit might offer home buyer education that teaches families to navigate the private mortgage lending system. However, locals sometimes perform overlapping functions. Worse, if local programs falter, they can jeopardize the state's federal funds.

The number of nonprofit groups competing for decreasing program funds will probably continue to grow. Critics contend that some nonprofit groups have done little to bolster affordable housing, feeding the bureaucracy instead. Others point out that for-profit housing professionals may be the most efficient housing providers due to their experience and expertise.26 On the other hand, nonprofit groups, such as Proyecto Azteca in Hidalgo County's San Juan and the Lower Valley Housing Authority in El Paso, have been commended for serving residents underserved by the traditional housing market.27

Some community development corporations, such as in Brownsville and El Paso, are coalitions of area business leaders and officers of key local financial institutions.

To help families unable to afford mortgage downpayments, the Community Development Corp. of Brownsville joined with six other organizations and financial institutions in 1996 to create the largest lease-purchase plan in the nation. The resulting Windwood subdivision is a 48-acre, fully developed site with a neighborhood park and 225 single-family homes selling for an average price of $49,500. As many as 60 percent of the homes were purchased by families earning incomes below the average median family income. Some earned as little as $14,500 a year. After the first two of three planned construction phases, low-income families had purchased 61 percent of the homes.28

The program's unique financing mechanism--a lease-purchase plan giving families a two-year lease on the purchase of their home--commits a portion of each monthly payment toward the downpayment and closing costs, which come fully due at the end of the two years. After the lease period, the family assumes the mortgage loan, taking on house payments amounting to $485 for buyers at median income, or $22,950 a year for a family of four. For participants below the median income, monthly payments are capped at no more than 33 percent of total income (see Proyecto Azteca: Sweat Equity).

Proyecto Azteca: Sweat Equity

Colonias' Role

Colonias offer evidence of the sacrifices residents make in the name of home ownership. While the Border rental market has steadily grown, Census data show that Border residents, even more than other Texans, have a strong preference for home ownership. Many willingly choose substandard owner-occupied homes rather than adequate rental housing.

Both statistical data and anecdotal evidence suggest the Border region needs a large, rapid infusion of housing affordable to workers earning less than the state average wage. Although housing in colonias is often substandard, it has, in fact, been affordable to families with extremely low incomes and wages. Furthermore, the colonias offer proof that even very poor families with unstable, sporadic incomes can manage regular house payments. It seems likely that families with higher incomes, such as those of workers earning $7 to $11 an hour, could handle the responsibility of more traditional home ownership.

Although nonprofit groups and community programs have worked valiantly to improve housing, colonia lots are bought and sold in the for-profit market, and so are the materials colonia residents use to build their homes. The problem is that the market presents barriers which drastically reduce housing choices for low-income families. Where possible, nonprofits should help families overcome barriers in the private market--not attempt to serve them in an alternative market.

Discussions of Border housing solutions often focus on the apparent eagerness of Border residents to build their own houses. Most of the houses in colonias are owner-built. Although owner construction is not for everyone, it can substantially reduce housing costs for families who choose it.

Owner construction can face significant obstacles, though. First, federal rules restrict the use of affordable housing funds to acquire land unless the affordable structure is to be built within a short, sometimes impractical time. Second, lenders are typically reluctant to lend funds for owner construction, because there is no collateral. Third, owner-builders may not be sufficiently skilled and may end up building substandard housing. Addressing these barriers could make owner construction a more realistic and appealing option.

Many Border residents do not seek completely new homes. Rather, they need to finish, add to, or rehabilitate homes that already exist. Some non-profit groups have taken advantage of rehabilitation loans through a program offered by the U.S. Department of Agriculture. Housing experts have said that many Border residents, including colonia residents and home owners in traditional subdivisions, could benefit from rehabilitation loans.29

To improve housing conditions in the Border region, Texas must align its housing policies and programs to focus on delivering affordable housing through pragmatic, market-based strategies. Texas should base its Border housing strategies on two principles: First, working Border Texans should be able to house their families on the wages they can earn; and second, the for-profit housing market should be the primary housing provider for the Border's working families.

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