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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 environment for tenants. But because so many renters are poor, with half having incomes below $20,000, even these low rents are unaffordable 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 children 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 surrounding 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
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 government 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 management 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 problems 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.
The city currently addresses the problem of physically inadequate low-income rental housing in three ways: code enforcement, lead-based paint abatement, and rental rehabilitation programs. These are all valuable. But each operates autonomously, 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' ability to remediate the problems they are designed to address.5 Alternative 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 inadequacies are located in small-scale properties, and more than
60 percent of its low-rent units are located in these smaller structures. 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. Baltimore might consider earmarking a fraction of its revenues from the transfer and recordation tax to seed the fund, since these sources have increased as a result of the upsurge in home prices and sales.8
An additional, fundamental obstacle to shoring up the physical integrity of the low-end rental market stock is its ownership—more than 80 percent owned by Mom and Pop owners, often undercapitalized and lacking real estate financing and management savvy. It is hard to see how Baltimore can improve its low-rent properties significantly until the ownership challenge is addressed. Options here range from modest changes, such as providing technical assistance, to a radical restructuring of ownership, such as by transferring property from individual to institutional ownership through a small multifamily real-estate investment trust (or S-REIT).9
Two vital assets would help the city grapple with its low-end rental housing market. The first is timely and accurate data that would allow program designers and policymakers to better understand this market and to answer critical questions about underlying problems, not just symptoms. The second vital asset is program evaluation. If the city wants to make sure every dollar
it ultimately invests in the low-end rental market counts, there is no short-cut around careful evaluation of its initiatives. To get the most policy value out of evaluations, they must be planned alongside the initiative right from the start, and must last long enough that effects can be measured after the program has worked out its kinks and is in steady state.10
Notes from this section
1 Hopkins (2005).
2 Author's tabulations from 2000 Census data, SF3.
3 This perspective was inspired by Listokin and Listokin (2001), 1.
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 threeperson household in the Section 8 voucher program.
5 Low-rent units are either below median rent or rented by households
with below median income for renters.
6 Center for Community Change (2003); Soifer (2001). On April 20, 2005, Councilman Jack Young presented his proposal for a city housing trust fund with revenues from in-lieu housing fees and a share of equity from home sales (Young 2005).
7 Maryland Department of Housing and Community Development (2003).
8 Office of the Mayor (2005).
9 Narasimhan (2001).
10 See Thornton et al. (1999) for a useful discussion of the policy value of
evaluation research.
Note: This report is available in its entirety in the Portable Document Format (PDF).
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