Economic Downturn Threatens Cities’ Plans to Sell Housing Bonds

Economic Downturn Threatens Cities’ Plans to Sell Housing Bonds

Advocates fear the long-term impacts could put already struggling residents at an even greater risk.

(Photo: Jessica Furtney / Unsplash)

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During her 2017 campaign for mayor of Atlanta, Keisha Lance Bottoms promised to spend $1 billion on programs that would create and preserve affordable housing. Since she took office, the city has funded a number of developments and housing initiatives, including a small program that would help low-income homeowners make critical repairs. The administration released a housing plan last summer that got mixed-reviews from advocates, and launched an affordable-housing tracking tool earlier this year to help the public monitor the city’s progress toward the goal.

In February, the city council started talking about issuing a $100 million housing bond to fund more housing efforts. It was later expanded to $200 million — closer to the commitment that some housing advocates were hoping for.

“This was moving towards bringing in significant resources,” says Frank Fernandez, the vice president of community development at the Arthur M. Blank Family Foundation and a member of HouseATL, an advocacy coalition. “And then, as everyone knows, the world changed.”

In late April, amid expectations of devastating budget shortfalls, the Atlanta Journal-Constitution reported that the city was officially shelving the housing bond. Other cities were facing questions about housing bonds in various stages of development as well. In Raleigh, advocates were continuing to poll residents to see what level of investment — and tax increase — the city would support. A long-sought $900 million housing-bond effort in San Diego is in limbo as well. And officials in Durham, North Carolina, were delaying a tax increase to begin paying back a $95 million housing bond approved by voters last fall, according to The News & Observer.

The scope of the coronavirus pandemic’s impact on cities’ budgets has yet to be seen, but it’s sure to be destructive. In the short term, governments at all levels are facing acute shortfalls because they have extended the due dates for many types of taxes. On top of that, investors have pulled huge sums of money out of the municipal bond markets. Longer term, a recession will mean lower revenues for city and state governments overall. All those factors may make it a tough time for cities to sell bonds, says Katie Kramer, vice president at the Council of Development Finance Agencies.

“There needs to be activity in order for investors to move their money, and it’s really, really hard for state and local governments to issue bonds when they are facing declining revenues and a declining tax base and potential declines in their credit ratings,” Kramer says.

The Federal Reserve has taken some steps to help governments by buying debt. But cities are now forced to reconsider plans they made while revenues were growing. And they’re doing so while trying to manage an unprecedented health crisis.

“In addition to the economic factors at play, the quick shifting to address the extreme public health and social services needs right now has come at the expense of long-range planning,” Kramer says.

Probably because of the more pressing tasks at hand, officials in Atlanta’s finance department did not respond to requests for an interview. According to Fernandez, the city has done a good job of switching to emergency mode in terms of housing and health needs. The potential loss of the housing bond is worrisome because low-income residents in Atlanta were already in dire need of assistance, and the bond could have gone a long way toward providing it. It’s possible that a recession could end up deflating housing prices, he says, but it’s likely that the most vulnerable residents in the city will end up in situations even more precarious than before.

“All this crisis has done is brought into stark relief what we already knew, which is that the more vulnerable folks, those least equipped to deal with these shocks, are the ones who are going to feel it the most,” Fernandez says. “Making sure we prioritize and help connect those folks to resources is, to me, the number-one priority.”

In San Diego, advocates say they’ve already waited longer than they should have for a bond to address homelessness and affordable-housing shortages in the city, California’s second-largest. The San Diego Housing Federation began polling the public about a housing bond three years ago, says Stephen Russell, the group’s executive director. Through those polls it determined that the sweet spot for such a measure was around $900 million. That amount would allow the city to provide permanent supportive housing for everyone who needed it. When the group polled higher numbers, public support started to wane, Russell says.

Since the beginning, the group has sought to get the measure on the ballot by having two-thirds of the city council support it, rather than spending hundreds of thousands of dollars to collect the necessary signatures, Russell says. In 2018, the effort was sidelined in favor of an ultimately unsuccessful measure to sell bonds for an expansion of the convention center. But as of early March, Russell says, “We were on the surest footing that we’ve ever had.”

The plan to put the measure on the November ballot isn’t dead, but it’s less certain than it was a few weeks ago, as the San Diego Union-Tribune reported recently. Russell says the Housing Federation is going to do more polling in the next few weeks to measure the public’s support for the effort. Some of the uncertainty stems from the fact that the bond would be supported by an increase in property taxes, and the future of the commercial office market may look different now that people have begun getting accustomed to working from home, Russell says. In the meantime, the group is planning to keep lobbying council members to support the measure. And it will know by June whether the bond will be on the ballot.

“A lot of people have talked about how COVID-19 has really revealed the deep class and economic fissures that exist here,” Russell says. “People have deep regrets on not having acted on this sooner. I wish I could take that to the bank — unfortunately, I can’t.”

This article is part of Backyard, a newsletter exploring scalable solutions to make housing fairer, more affordable and more environmentally sustainable. Subscribe to our weekly Backyard newsletter.

Jared Brey is Next City's housing correspondent, based in Philadelphia. He is a former staff writer at Philadelphia magazine and PlanPhilly, and his work has appeared in Columbia Journalism Review, Landscape Architecture Magazine, U.S. News & World Report, Philadelphia Weekly, and other publications.

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Tags: affordable housingcovid-19atlantabonds

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