Prepared for
Community Economic Development Association of Michigan

Executive Summary

Even in the aftermath of the longest economic growth period in American history, the need for affordable housing remains acute. In a contracting economy, Michigan is faced with difficult choices in allocating scarce resources. This paper analyzes whether Michigan should invest public resources in affordable housing. Public Sector Consultants (PSC) reviews Michigan’s affordable housing situation; examines housing trust fund and tax credit options; identifies current state programs for low-income residents; summarizes job, wage, and tax data on low- and middle-income housing construction; and assesses the economic and noneconomic benefits of low-income housing.

The U.S. Department of Housing and Urban Development (HUD) defines affordable housing as housing which costs no more than 30 percent of household income. New construction and adequate existing housing are not affordable for many middle-income and most low-income families. It is difficult for low- and middle-income families to find decent, quality, affordable housing. The Michigan State Housing Development Authority (MSHDA) estimates that almost 750,000 residents have housing affordability problems. These households include many city, suburban, and rural Michigan residents.

Despite Michigan’s high marks in many areas of public policy, when it comes to spending on housing, Governing magazine’s 2001 Source Book on state and local governments ranks Michigan 48th and 49th among the states on per capita spending and spending as a percentage of personal income (Governing 2001, 93).

Housing trust funds and housing tax credits are the primary options employed to address affordable housing in the United States. Currently, 37 states are investing in housing trust funds; 34 cities have created housing trust funds (only Ann Arbor in Michigan); and 39 counties (none in Michigan) have housing trust funds to help low-income families. The federal Low-Income Housing Tax Credit is used in all states to provide affordable housing (Brooks 1997).

MSHDA and the Family Independence Agency (FIA) operate the majority of Michigan’s housing programs. These programs contribute to the economy by creating jobs and increasing the tax base. In addition, affordable housing programs help to stabilize families, leading to improved school attendance, increased academic performance, better health for children, and less domestic violence.

PSC concludes that the economic impact of affordable housing can be shown in the following four areas:

  • By leveraging additional funds, most housing trust funds generate at least five dollars of public and private money for every dollar from the trust fund
  • On average, 36 jobs are created per $1 million of new residential construction
  • Increased permanent, quality, affordable housing can save millions of dollars in reduced emergency care for the homeless
  • Increased wages, sales, and property tax values would raise tax revenues in cities and the State of Michigan

While the current political climate is not conducive to new funding measures, further review of funding options for an affordable housing trust fund is warranted. These include the use of the Single Business Tax, Budget Stabilization Fund, or a .03 cent cigarette tax increase. All of these options could generate about $25 million for at least several years. Now is the time to lay the groundwork for an affordable housing plan in Michigan, in order to be prepared when the economy improves and a new administration takes office in 2002–03.

A copy of the full report is available below.