[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                  HOUSEHOLD INCOMES AND HOUSING COSTS:

                  A NEW SQUEEZE FOR AMERICAN FAMILIES

=======================================================================

                             FIELD HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 4, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-20

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York         DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York           STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas                 DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts    WALTER B. JONES, Jr., North 
RUBEN HINOJOSA, Texas                    Carolina
WM. LACY CLAY, Missouri              JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York           CHRISTOPHER SHAYS, Connecticut
JOE BACA, California                 GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts      SHELLEY MOORE CAPITO, West 
BRAD MILLER, North Carolina              Virginia
DAVID SCOTT, Georgia                 TOM FEENEY, Florida
AL GREEN, Texas                      JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri            SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois            GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin,               J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee             JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey              STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire         RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota             TOM PRICE, Georgia
RON KLEIN, Florida                   GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida                 PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio                 JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut   MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida               KENNY MARCHANT, Texas
JIM MARSHALL, Georgia                THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel








                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 4, 2007................................................     1
Appendix:
    April 4, 2007................................................    31

                               WITNESSES
                        Wednesday, April 4, 2007

Anthony, Amy, President, Preservation of Affordable Housing, Inc.     6
Baker, Charles D., President and CEO, Harvard Pilgrim Health Care    26
Bluestone, Barry, Dean of Social Science, Urban Affairs, and 
  Public Policy, and Director, Center for Urban and Regional 
  Policy, Northeastern University................................    10
Brooks, Tina, Undersecretary, Department of Housing and Community 
  Development, Commonwealth of Massachusetts.....................    13
Dubuque, Stephen, Executive Director, South Shore Housing 
  Development Corporation........................................    16

                                APPENDIX

Prepared statements:
    Anthony, Amy.................................................    32
    Baker, Charles D.............................................    48
    Bluestone, Barry.............................................    52


                  HOUSEHOLD INCOMES AND HOUSING COSTS:



                  A NEW SQUEEZE FOR AMERICAN FAMILIES

                              ----------                              


                        Wednesday, April 4, 2007

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in the 
Brookline, Massachusetts, Town Hall, 333 Washington Street, 
Brookline, Massachusetts, Hon. Barney Frank [chairman of the 
committee] presiding.
    Present: Representatives Frank, Capuano, and Lynch.
    The Chairman. Good morning. This is a hearing of the House 
Financial Services Committee, which is the committee in the 
U.S. House that has jurisdiction over all housing programs, all 
the programs of the Department of Housing and Development, and 
I'm joined by my colleague who is a member of the committee, 
Michael Capuano. We will be joined shortly by our other 
Massachusetts colleague who sits on the committee, Stephen 
Lynch.
    The Republican side is represented by the staff director on 
the Republican side, who is the chief assistant to the ranking 
minority member, as we call them, and I'm pleased to say that 
this is a committee in which partisanship does not get in the 
way of cooperation. We have legitimate differences, which is 
why we have two parties, but we also have some common goals, 
and our differences have never gotten in the way of reasonable 
cooperation, so we're glad to have them here.
    The purpose of this hearing is to focus on the full 
dimension of the housing crisis that faces the country and in 
particular those of us here in Massachusetts. The social 
dimensions of the housing crisis are, of course, well known--
people unable to live the kind of lives they would like to be 
able to live because they cannot get decent housing at prices 
that they can afford. So you have some people paying so much 
for the housing that their ability to meet other needs is 
diminished, or you have people living in very inadequate 
housing, and so we are going to be discussing that national 
issue and its impact here in Massachusetts.
    Before we do, I want to express my appreciation to the Town 
of Brookline for hosting us and I'd like to ask the chairman of 
the board of selectmen, Robert Allen, at this point to come 
forward and accept our thanks and say a few words.
    Mr. Allen. Thank you, Congressman Frank. I'll stand this 
way so I don't have my back to everybody. Fortunately, my voice 
usually resonates and people don't have trouble hearing me 
speak, but I'm just thrilled that the Congressmen, all three 
Congressmen came here today. We really appreciate seeing the 
committee come here. This is a very important issue to 
Massachusetts and certainly to the Town of Brookline and we're 
very fortunate that they chose to come here today to speak 
about this issue.
    Since I don't have the opportunity to have the ear of so 
many distinguished people that often, I would like to say a 
couple of words, if you don't mind, Mr. Chairman. Just very 
briefly, because I assume people didn't come here to hear me 
speak. But I want to talk a little bit about some of the 
changes I've seen, being on the board of selectmen for 7 years, 
the last 3 years as chairman.
    I grew up in Brookline; I remember growing up in town. My 
father was a police officer, and I would say about 90 percent 
of our town employees lived in Brookline. Now, probably only 
about 30 percent of our town employees live in Brookline, and 
my guess is that most of that 30 percent are people who have 
been here for about 30 years and continue to have their homes.
    I also remember firsthand on the board being involved in 
some interviews for some staff or for directors. We had a ton 
of resumes come in. Brookline is a wonderful municipality to 
work. I like to believe we take good care of our employees and 
we also saw a large response from applicants.
    Lately, I've seen the number of interested resumes coming 
in for some very good jobs really reduced. I'm sure housing 
costs have a lot to do with it, but even more so than housing 
costs in the geographical circle around Brookline, commuting 
costs have increased so much that I believe it's actually 
affecting the ability of municipalities to get the quality 
employees that they need. It also could be affecting the public 
sector because people have to live further and further away 
from their municipalities.
    Clearly, there's an interest in every municipal town or 
city to have its employees live in town or the city. That's 
unrealistic in the Town of Brookline, and that's a shame. We 
have one area in town; we used to call it Button Village. It 
was called Button Village because every fireman and police 
officer lived in that particular neighborhood. I was informed 
recently that it's now called Button Wood Village, and my guess 
is that a lot of lumberjacks didn't move in there, but rather 
that it's changed, and maybe there's a certain stigma, but it's 
really a shame.
    I just want to give some statistics so you understand and 
the housing director, Fran Price, was kind enough. During the 
past 15 years, the median price of a condominium increased 242 
percent, from $131,000 to $449,000. That's 3 to 4 times the 
increase in the median income for the Boston area which 
increased by only 68 percent. I say only 68 percent. In 1991, a 
typical buyer, a family of three in the Boston area with a 
median income, could afford a condominium at 78 percent of the 
median price of last year. In 2006, that typical family could 
have bought a condominium which cost 48 percent of the median 
sales price. The affordability gap for the typical family 
seeking to purchase a typical condo grew from $28,000 to 
$232,000 during this 18-year period. That's an incredible gap 
increase for this time period. We're not talking about luxury 
houses here. We're talking about median condo here in 
Brookline, so clearly this is a very important issue here for 
this community and Congressman Frank has been very great, as 
has the rest of the delegation, about working with us to try to 
find solutions, and to try to take the stigma away from 
creating new affordable housing. We appreciate all their help 
and Congressman, I really appreciate the time you allowed me to 
speak.
    Welcome to the Town of Brookline.
    The Chairman. Thank you, Mr. Chairman. Let me just note the 
presence of another very important official, Representative 
Kevin Honan, who is the chair of the--we have joint chairs for 
the committees in the legislature. He's the house chair for 
housing. So Representative Honan, we're delighted to have you 
join us and we look forward to working together with you.
    The social component to this problem is well known, but 
Selectman Allen talked about another aspect that we want to 
discuss and that's the economic problem. We have a situation 
here in Massachusetts where the very high cost of housing is 
not just a problem for the quality of people's lives; it's a 
problem for our economy. One of the major sources of employment 
here are institutions--hospitals and universities. They have a 
problem because of high housing costs.
    Private businesses have a problem. If you have high housing 
costs, when you go to attract the kind of employees you want, 
you have to raise salaries to make up for those housing costs 
or you don't get the employees you want. So when we talk about 
trying to alleviate the high cost of housing here in 
Massachusetts, we are talking about doing something that's 
economic as well as social.
    And what we will be talking about today is: one, 
documenting that problem; and two, what we can do about it. 
Because the committee on which we serve is the committee that 
initiates housing law, we've already begun to address that. We 
just passed out of our committee the bill that would re-
regulate Fannie Mae and Freddie Mac. Two pieces of that bill 
are directly relevant. One, we are trying to change the 
national policy which puts a dollar limit on the amount of a 
mortgage that can be bought in the secondary market by Fannie 
Mae or Freddie Mac or can be insured by the FHA. We now use a 
single dollar amount for the entire country.
    Housing prices vary by geographical region; it makes no 
sense to set the same dollar price for Nebraska and for 
Mississippi and for Massachusetts. That freezes us out, and we 
have dealt with that.
    We also have given Fannie Mae and Freddie Mac new goals for 
them to achieve when they buy secondary mortgages and we 
include in that rental housing. And one of the points that I 
keep stressing is that I believe part of the problem we have in 
this crisis of people having bought homes and not being able to 
keep them up is that we have denigrated rental housing and 
treated people as if only people who own their home were living 
decently or could live decently. And we have pushed people who 
are not economically able to do that in certain parts of the 
country, in particular, into homeownership. What we need to do 
is, yes, help people who are able to afford homeownership to do 
it, but to also have adequate rental housing.
    As people here know, one very important source of rental 
housing in Massachusetts, certainly very relevant in the 
districts of both of my colleagues here, are the three deckers, 
and owner-occupied three deckers are an important source of 
rental housing. Congressman Lynch sponsored an amendment to the 
bill last week which made it explicit that Fannie Mae and 
Freddie Mac would have the goal of trying to do financing for 
owner-occupied three deckers so that we would have a further 
source of income into this very important source of rental 
housing.
    Congressman Capuano, I know, has taken the lead on one of 
the issues that Selectman Allen talked about, namely trying to 
provide particular assistance for municipal employees so that 
they would be able to live in the towns in which they work. As 
a former Mayor, he's very aware of that. So all three of us 
have worked on things specific to Massachusetts in the context 
of the important and general issue and we do want to say this 
is one. Sometimes we're told well, you're pursuing a social 
goal, but that would come at the cost of economic 
competitiveness. Reducing the excessive cost of housing here 
and in much of the rest of the country is a case of pursuing 
social benefit and enhancing economic competitiveness. It's a 
situation where these goals reinforce each other. They do not 
conflict.
    I'll now turn to my colleague, Mr. Capuano.
    Mr. Capuano. I don't have much to add to what the chairman 
has already said. It's nice to be back in another--I know it's 
a town, but feels like a city to me, another town hall. I will 
also thank the people that I know in this room. Most of you, I 
think I already know, who have been working in this field for a 
long time.
    I just want to reiterate what the chairman said earlier. 
Just last week we had a bill where there was an amendment to 
strike a provision that would address some of the pricing 
disparities and when the author of that provision has his 
discussion, he was invited by many of us who live in expensive 
housing areas to try to come and live here on the basis of his 
numbers. Of course, he didn't take us up on that and I actually 
wished he would. I hope he moves to Steve Lynch's District so 
maybe if he wants to run as a Republican--
    [Laughter]
    Nothing personal, Steve, of course.
    Mr. Lynch. I know.
    Mr. Capuano. But I'll also say very clearly that when the 
vote on that amendment came, it was a bipartisan vote to defeat 
that amendment, so it is not a partisan issue. There are 
expensive housing markets in this country that don't fit the 
mold, at least according to some.
    With that, I look forward to hearing the testimony by the 
people that I know who have been doing this for a long time and 
know more about the issue than I do.
    The Chairman. And now I'll turn to the third Massachusetts 
member of the committee, a colleague from South Boston, Mr. 
Lynch. I should add, by the way, that we are here to draw up an 
agenda, one that will particularly focus on what we need in 
Massachusetts and we will be aided in this, not just by the 
fact that the three of us serve on this committee, but the 
chairman of the Appropriations Subcommittee that votes the 
funding for housing is our colleague from the west, John 
Oliver, so Massachusetts is very well represented in this area, 
not surprisingly given our needs.
    Mr. Lynch?
    Mr. Lynch. Thank you, Mr. Chairman. I, too, want to thank 
the Town of Brookline, Representative Honan and Bob Allen for 
their kindness this morning.
    I guess I've had an opportunity to witness the whole 
spectrum of housing problems that we have in this country. I 
grew up in a public housing projects in South Boston. When I 
was a new attorney, one of the first things that the firm I was 
with required me to do was to volunteer my time pro bono in 
some area of interest that I had and so what I chose was to go 
back to the housing projects that I grew up in to represent 
families who couldn't afford an attorney on issues from 
asbestos in the home, lead paint, people being underhoused, you 
know substandard housing, so did a lot of that. And now it's 
just breathtaking the scope and breadth of the problems that 
we're seeing in housing policy nationally.
    As a former tenant of public housing, someone who cares 
deeply about it, it was a good day when Congressman Barney 
Frank became chairman of the Financial Services Committee and 
is now the chairman over housing policy in the House. It was a 
good day. And it was then an even better day when he appointed 
me to this committee.
    [Laughter]
    So my thanks to him as well and he gets it. He gets it. The 
issue around three deckers, while some people saw that as a 
housing issue, I was that as an election issue because so many 
of my votes and so many of my families are in those three 
deckers and if there weren't some type of recognition by 
national housing policy to help people in that situation to 
preserve the ever shrinking number of rental units in those 
three deckers, we would be hard pressed to preserve the quality 
of life for a lot of people, not only in Brookline, but across 
the country as well.
    I would differ with the chairman on one point. He stressed 
the bipartisanship of this committee. And I think that's true. 
I think that's true. But this Administration and previous 
Administrations from the other party have not, in my 
estimation, treated housing as a valid and credible priority 
for our national government. I would say what we are doing now, 
and what the chairman is doing, is because of a lack of funding 
and resources that have been given to the area of housing, 
affordable housing, what we are doing now, what Congressman 
Capuano joins us in doing, is what I would describe as triage. 
We're trying to use our resources, marshall our resources to 
provide the best opportunities for as many families as we can 
help.
    The Republican approach to housing has been euthanasia. 
They've been trying to put everybody out of business and 
really, I think effective disinvestment in affordable housing 
around this country. So we're struggling with that and it's a 
great opportunity to work with Congressman Frank and I 
appreciate the intelligence and energy he brings to this issue 
and I think there will be a good result in the end for people 
whose communities rely so desperately on availability of 
affordable housing and I yield back, Mr. Chairman. Thank you.
    The Chairman. I thank my colleague. Let me just say, we do 
agree on this. In fact, one of the frustrations I had in 
previous Congresses, when we were the minority, was that we 
came to some semi-agreement with our Republican House 
colleagues on some issues and they were overruled by the 
Administration and the Republican congressional leadership. So 
that is true, there are ideological differences there.
    I did want to note that one of the things we want to do, 
and obviously we support homeownership in many ways, but we 
also believe that there's been a serious lack of attention to 
the need for decent rental housing. I think it's not an 
accident that we talk about South Boston or Brookline or 
Cambridge or Somerville; you're talking about communities that 
have always had a significant rental housing population and I 
think that's why all three of us are especially sensitive to 
that and why we are determined to reverse the policy. It's 
really doing great harm, allowing great harm to be done to 
rental housing.
    We will now begin. We have our panel of witnesses. We're 
going to be joined later by Charles Baker, the president of 
Harvard Pilgrim Health Care, who will obviously be talking from 
the standpoint of an employer who has encountered serious 
difficulties with housing costs. But we'll begin Amy Anthony, a 
former secretary of community development of the Commonwealth 
of Massachusetts, and now president of the Preservation of 
Affordable Housing, Incorporated.

STATEMENT OF AMY ANTHONY, PRESIDENT, PRESERVATION OF AFFORDABLE 
                     HOUSING, INCORPORATED

    Ms. Anthony. Thank you, Mr. Chairman. Good morning to you 
and the members of the committee, and thank you very much for 
the opportunity to appear before you to discuss the housing 
squeeze in our country.
    As you noted, I'm the president of Preservation of 
Affordable Housing, Inc., or POAH. Based in Boston, POAH is a 
national nonprofit which is focused exactly, as our name says, 
on the preservation of affordable housing. We have been in 
existence for just over 5 years, and currently own and manage 
nearly 4,000 affordable rental homes in eight States and the 
District of Columbia. The more than 10,000 residents who live 
in POAH-owned homes generally are low-wage workers and their 
children, or seniors on fixed incomes, or the disabled; in 
short, among the most vulnerable of our citizens.
    My background includes more than 30 years in affordable 
housing. During my tenure as cabinet secretary, we produced 
more than 25,000 homes, so I come to this discussion with a 
wide ranging perspective on the problems, the challenges, and 
the opportunities.
    You are hearing this morning from a number of highly 
skilled professionals in the housing industry. Each of them 
will reference both experience and research to confirm the 
premise of your hearing this morning, that American families at 
all income levels are being squeezed by the cost of housing.
    I would like to use this platform to direct your attention 
to the very specific and urgent reality of one facet of the 
affordable housing dilemma, which is the imperative need to 
protect and preserve the stock of already built affordable 
housing. I am specifically referring to existing, privately-
owned rental housing, apartments which have deep public subsidy 
to make them affordable, even to renter households earning as 
little as $16,000 a year or less. This category of housing is 
disappearing in every State in the country. It is lost in 
strong markets to upscale conversion and condominiums. It's 
lost in weak markets to neglect and deterioration. However we 
lose it, the pressures ripple across the housing spectrum and 
squeeze the entire system even tighter.
    I would like to talk with you this morning about the 
preservation opportunity, its human face, the policy arguments 
that buttress our call for preservation and the action steps 
which are available to us today.
    Between 1965 and 1990, $60 billion in Federal funding was 
invested across America to create affordable homes through the 
private sector. These homes were built in big cities, small 
towns, and rural areas. They were multi-story high-rises and 
single family bungalows. But all were built according to the 
same premise, that the government would provide funds to 
underwrite construction and operating costs and in return 
owners would promise that rents would be affordable to low-
income families and seniors for the duration of the fixed 
financing period.
    Now the financial notes which built this housing are 
reaching ``paid in full'' status. With the expiration of each 
financing agreement, the leverage for keeping rents affordable 
is lost. Our enormous national investment in affordable housing 
is maturing and, in many cases, vanishing.
    Even in Massachusetts, with one of the strongest traditions 
of support for preservation, 5,000 units have been lost. At the 
same time, new Federal resources providing deep rental 
subsidies and other financial support to this population are a 
shadow of our prior investment. This committee knows full well 
the year over year assault on the HUD budget. You, Mr. 
Chairman, have consistently cautioned your colleagues and the 
Administration on the long-term effects these budget decisions 
are having on the supply of affordable housing, the broader 
economics of our communities, and the daily realities of our 
most defenseless citizens. The HUD budget for the current 
fiscal year is only 9 percent larger than the Agency's fiscal 
2004 budget. During those same years, the rate of inflation was 
9.3 percent. Obviously, HUD's financial capacity is eroding 
significantly.
    When the discussion is workforce housing, it's not only 
young engineers or scientists or physicians for whom finding 
housing in markets like Massachusetts is daunting. We should be 
mindful that without maintenance staff, data entry clerks, and 
nursing aides, neither our laboratories nor our financial 
institutions nor our hospitals will function. The reality of 
the housing squeeze for low-wage workers faced Mayor Clare 
Higgins of Northampton several years ago when she launched a 
determined campaign to preserve Meadowbrook Apartments. Mayor 
Higgins fought for 3 years to pressure the owner of Meadowbrook 
to abandon his plans for condo conversion. She knew full well 
that the 222 low-income families at the development would have 
few options available if their homes were lost. The residents, 
in fact, were her great allies, creating the ``Save Our Homes 
Tenants Association'' and picketing, leafletting, and speaking 
out for their own cause. Our single transaction saved more than 
20 times the number of new affordable homes built in the prior 
10 years. POAH's purchase was only possible with State funds 
allocated especially for preservation, and the outcome is a 
good one. Those homes have been preserved and the families who 
reside there have a more secure future as a result.
    Similarly in Salem, Massachusetts, POAH purchased the 235-
unit Salem Heights development in 2003 after the mayor 
intervened in court to delay a market conversion. That one 
property constituted 10 percent of the affordable housing stock 
of the city where there had been no new affordable housing 
produced at all over the prior decade. During those same 10 
years, 495 previous rental units were converted to 
condominiums.
    Why preserve this housing? There's no question of the need. 
But the calculus is far broader. Preservation is responsible. 
It is good stewardship. It is environmentally friendly. It 
wastes less and conserves more. Billions of taxpayer dollars 
were invested to create and sustain these homes and there is a 
fiduciary responsibility to their care. Losing these homes 
diminishes supply, drives up demand, raises prices and further 
divides the housed from the unhoused. Losing these homes to a 
lack of will or foresight is the worst kind of waste.
    Preservation is also realistic. In many communities here 
and around the country, housing that was built 20 or 30 years 
ago is unlikely to be duplicated. For both zoning and financial 
reasons, most new affordable housing production is on a 
significantly smaller scale and it's sited in communities with 
very little economic opportunity. That is the tide of resource 
allocation that preservation seeks to stem.
    The other compelling reason is basic common sense: 
preservation costs less. POAH's experience in high-cost markets 
like Massachusetts is that new construction can be as much as 3 
to 5 times the cost of preservation. In Northampton, for 
example, we spent about $30,000 of public subsidy to upgrade 
each unit while similar per-unit new construction was averaging 
$80,000 to $100,000.
    At Salem Heights, $6,000 per unit of soft funding was 
required to preserve and rehabilitate the project compared to 
an average of $120,000 per unit of soft funding for new 
affordable housing construction in the area.
    In the face of this urgent need, there are small pockets of 
exciting developments. More than 40 States have taken action in 
support of preservation, like the ``donation tax credit'' 
available in Missouri and Illinois. New York and other cities 
have negotiated agreements with HUD giving them right of first 
refusal before nonperforming properties are put up for sale at 
open auction. Other local governments like Northampton and 
Salem have also recognized the importance of saving housing 
which serves very low income families and the elderly. We have 
worked closely, for example, with town leaders in tiny 
Narragansett, Rhode Island, population 16,361, to preserve 160 
homes all located on parcels near the ocean which would have 
been exceptionally attractive to private developers for luxury 
apartments or condominiums.
    These are important, but modest, steps against a rapidly 
rising tide. There is so much more which all levels of 
government can do, but especially the Federal Government. And 
while all of us here today can identify where more Federal 
dollars would help, and certainly, Mr. Chairman, the GSE 
legislation is a very important bright spot, money is not the 
single solution. First, there must be the will and the 
determination to act and to act quickly. We need visionary 
public policy which recognizes the vulnerability of this asset, 
and commits to its protection. We need investment incentives 
and regulatory improvements and we need predictable resources, 
both dollars and policies, to engage all parties in the 
outcome.
    Some specific examples for the committee's consideration 
might include: first, predictable policies, in effect 
nationwide, to encourage preservation. The apartments that need 
to be preserved were created by a partnership between HUD and 
private developers in which HUD set clear rules and provided 
clear incentives. For that same housing to be preserved, HUD 
will again need clarity of message and committed partners with 
effective incentives.
    While there have been signs of a can do attitude from HUD, 
specifically from its Office of Assisted Housing Preservation, 
more often HUD is merely calling balls or strikes and even then 
from an unclear rule book. As a result, too many of our 
suggestions today seek to correct passive HUD behavior which 
fails to understand the urgency or to express the priority we 
feel preservation demands.
    Second, financial incentives and tax policies to encourage 
owners to preserve long-term affordability. There are many 
regulatory and policy impediments to transferring ownership of 
subsidized housing to owners like POAH which pledge long-term 
affordability. Exit tax relief would be a good incentive for 
the right disposition by existing owners.
    Third, recognition that the first priority is preserving 
affordable housing, not replenishment of the HUD treasury. HUD 
regulations should be lifted that restrict nonprofit owners 
from using proceeds of transactions or of operations for the 
improvement of the property or for the organization's mission. 
Where a State has committed resources to a development's 
preservation, HUD should not be standing at the table with its 
hand out, rather, it should be welcoming the States' 
participation, not only for its economic assistance, but for 
its implicit confirmation that housing is an asset for the 
community and for the State.
    Fourth, a commitment to project-based rental subsidies. HUD 
and the current Administration have historically sought to 
phase out project-based subsidies in favor of vouchers for 
tenants. When rent vouchers are portable, tenants may have the 
opportunity to find alternative housing, although in tight 
markets voucher holders often simply cannot. Even where they 
do, however, the long-term affordability of their current home 
is lost. One generation of turnover in a building which 
converts from project-based subsidy to tenant voucher subsidy 
eliminates that entire building from the affordable stock, 
forever.
    In terms of legislation, I also want to support 
specifically the enactment of the Mark-to-Market program 
amendments which failed to pass with its renewal earlier this 
year, with specific ``refresher'' language empowering nonprofit 
preservation purchasers; the proposal that project-based 
Section 8 contracts remain in force on foreclosed properties; 
perfecting amendments to make workable Congress' efforts to 
allow transfer of Section 8 project-based subsidies to other 
sides; re-establishing the right of owners to convert rent 
supplement and RAP subsidies to project-based Section 8 
assistance; authorization to allow Section 8 moderate rehab 
properties to benefit from Low Income Housing Tax Credits; and 
allowing enhanced vouchers to be project-based when a 
refinancing is undertaken in order to preserve the property.
    Preserving affordable housing is what we at POAH do. It's 
what we believe in. We believe in it because it's necessary, 
it's sensible, and it makes a difference in people's lives. We 
are joined in this work by national, regional and local 
colleague organizations, by State and local governments, by 
foundations, and by private lenders. We look forward to a day 
when we will again have the Federal Government as an active 
partner and a supporter. We are grateful to this committee for 
your work in bringing that day closer, and we look forward to 
many opportunities to work with you to that end in the months 
and weeks ahead.
    Thank you for the opportunity, and Mr. Chairman, thank you 
for giving hope to many of us in this field.
    [The prepared statement of Ms. Anthony can be found on page 
32 of the appendix.]
    The Chairman. Thank you. We will be discussing a lot of 
these points as we get to questions. Our next witness is 
Professor Barry Bluestone, who is dean of social science, urban 
affairs, and public policy, and director of the Center for 
Urban and Regional Policy at Northeastern University, and a 
long-time advocate for fairness, so Dr. Bluestone.

  STATEMENT OF BARRY BLUESTONE, DEAN OF SOCIAL SCIENCE, URBAN 
AFFAIRS, AND PUBLIC POLICY, AND DIRECTOR, CENTER FOR URBAN AND 
            REGIONAL POLICY, NORTHEASTERN UNIVERSITY

    Dr. Bluestone. Thank you, Mr. Chairman, and committee 
members. I very much appreciate the opportunity to testify 
before your committee on the question not only of housing, but 
of household incomes. I'd like to briefly address trends in 
household income in the United States and Greater Boston and 
their relationship to trends in rents and housing prices in the 
local region. But I think the major point I want to leave you 
with is that because of the combination of spiraling housing 
costs and stagnating household income, the housing 
affordability gap has skyrocketed. Housing affordability has 
now become a serious concern in many parts of America, not only 
for low income families, but for a growing proportion of 
working families and an increasing share of the middle class. 
In regions like Greater Boston, assuring the availability of 
affordable housing must now be seen not only as a moral 
obligation, as the chairman has said, but an economic necessity 
if we are to remain competitive in the new global economy.
    What we have found in Massachusetts we are also now finding 
in other parts of the country, particularly on the East and 
West Coast. So it is a national problem in many areas, not just 
here in Boston.
    Let's begin our brief inquiry by looking at family incomes. 
If you look at the period between 1947 and 1973 when some of us 
were growing up, we experienced what my late colleague Bennett 
Harrison and I once described as ``America's Glory Days.'' 
Inflation-adjusted median family income virtually doubled in a 
single generation, growing by 104 percent or 2.8 percent a 
year. As a result of this strong income growth, tens of 
millions of Americans were able to secure a home of their own. 
Between 1940 and 1970, the homeownership rate increased from 44 
percent to 63 percent, much of this increase occurring between 
the end of World War II and 1960 as a result of the GI Bill.
    The period after 1973 was nowhere near as prosperous. 
Between 1973 and 1979, family income increased at only 1 
percent a year, a third of the rate of the previous generation. 
In the following decade, during the 1980's, income growth 
continued to slow to only six-tenths of one percent per year. 
And not until the second half of the 1990's, in the second 
Clinton Administration, did we experience anywhere near the 
family income growth of those Glory Days.
    Yet since the year 2000, each year family income has 
stagnated or declined in America. Between 2000 and 2005, median 
family income actually declined at a half a percent a year. For 
younger and middle-aged families, the story was even worse. 
Median family income fell by 1.3 percent for families with 
householders under the age of 25; fell by 1.2 percent for 
families with a householders 25 to 34 year olds; fell by 9/
10ths of a percent for 35 to 44 year olds; and fell by 1.1 
percent for those who are headed by householders of 45 to 54. 
In fact, only older families with householders over the age of 
55, the Baby Boom generation, experienced an increase in 
inflation-adjusted income since 2000.
    What is most disconcerting, however, is that figures on 
median income fail to capture the income losses of those at the 
bottom of the income distribution. Real income for the poorest 
one-fifth of U.S. families fell by nearly 8 percent between 
2000 and 2005, nearly double the rate of the second-lowest 
fifth and more than 8 times the rate of the top fifth. Today, 
the typical family in the top 5 percent of the income 
distribution makes nearly 21 times the income of the typical 
family in the lowest 20 percent. As late as 1979, that ratio 
was 11 to 1, not 21 to 1.
    If we look at Massachusetts, we find that median family 
increased by 2.4 percent between 1979 and 1989. It actually 
outperformed the rest of the country. But since 2000, that has 
not been the case. Median household income has fallen by 2.8 
percent in the Commonwealth and by 1.9 percent here in Greater 
Boston.
    The story about rents and housing prices is somewhat 
different from these trends in income. Average rents in Greater 
Boston exploded between 1990 and 2000, rising from $825 per 
month to $1,500. This was in response to a substantial increase 
in population unmatched by an increase in new rental housing 
production.
    Single family housing prices in Greater Boston actually 
declined during this time, making housing more affordable 
between 1986 and 1992, but then they began their enormous 
upward trend that continued all the way to 2005. In nominal 
terms, home prices more than doubled between 1998 and 2005 in 
Greater Boston. Only after this breathtaking run-up in home 
prices was there a minor correction of less than 5 percent 
since 2005.
    There's another way to view this home price escalation and 
that is to ask the question, how many of the 161 communities in 
Greater Boston had a median single-family sales price under 
$300,000 in 2005 and compare it with 1998. Back in 1998, not 
that long ago, 85 percent of those 161 towns and cities had 
median selling prices below $300,000. In 2005, only 4.4 percent 
of them had median selling prices that low. The proportion with 
median selling prices of a $500,000 or more rose from 2.5 
percent in 1998, to 27 percent, in more than one in four 
communities.
    According to Freddie Mac data, its home price index in 
Greater Boston based on data from conventional mortgage loans 
increased by 128 percent between 1998 and March of 2006. That's 
more than a doubling. This far eclipsed the U.S. rate of 90 
percent. The key point is that real median housing price in our 
region, after controlling for inflation, rose by 50 percent 
between 1989 and 2005 in the face of virtually no improvement 
in real household income. Real household income up zero 
percent, real housing prices up by 50 percent.
    If we look at the 161 Greater Boston communities, we could 
ask the question, how many of these 161 communities have median 
home prices that would be affordable by the median income 
homebuyer in that community? Back in 1998, the median household 
could afford the median home in 148 of our 161 communities, 92 
percent of them. In 2005, this was true in only 19 communities, 
12 percent of them. And what about first-time homebuyers? Back 
in 1998, a first-time homebuyer with an income of 80 percent of 
the community's median income could afford to purchase a home 
valued at 80 percent of that community's median home price in 
116 towns and cities in the region. In 2004, such affordability 
remained in only one town, the little town of Millville, and 
even that last town disappeared as ``affordable'' to the first-
time homebuyer last year.
    What has made the affordability problem even harsher is 
that home prices have increased at a faster rate in lower 
income communities than in higher income communities. Those 
communities in Greater Boston with a median income under 
$50,000 experienced a 3-year price increase in excess of 30 
percent. Those median communities with median household income 
of $75,000 saw their housing prices grow by 10 to 20 percent 
over 3 years. The most tony of our communities, those with 
median household incomes over $125,000, saw their prices rise 
by 10 percent. This was the natural outcome of households 
bidding for homes in communities that they thought they could 
afford. Unable to bid on homes in cities and towns where prices 
had reached the $400,000 range, homebuyers bid up prices in 
communities where the median home price had been between 
$150,000 and $250,000. Mr. Capuano knows this quite well, 
because Somerville is one of those.
    The problem, again, is that we are now at a stage, because 
of our national economic policies, where housing prices are 
soaring while family incomes are stagnating or falling. This is 
a cataclysmic combination of bad news. What remedies we have 
before us are being considered by your committee and here in 
the Commonwealth, both by our new Governor and his 
administration and by our leaders in the legislature. Here in 
Massachusetts, we passed Chapter 40R and 40S to try and help 
encourage communities across the State to rezone land where 
more affordable housing that is transit-oriented could be 
built.
    Soon we will be working with the legislature and the 
administration to try to develop an amendment to that law which 
will deal with starter homes for young families. But we also 
need help from the Federal Government. We need to make sure 
that on the labor side we are dealing with the question of 
raising the minimum wage. We need to deal with the question of 
trade. We need to deal with the question of increasing the 
ability of our workforce to compete internationally. And in 
housing, we need to make sure that we have a Federal Government 
that works closely with the State to help us deal with the 
housing affordability crisis that we now face.
    Thank you very much for the opportunity to testify before 
this committee, and I look forward to the work of this 
committee in the coming year.
    [The prepared statement of Dr. Bluestone can be found on 
page 52 of the appendix.]
    The Chairman. Thank you very much, Professor Bluestone. And 
next, we are very pleased that the Governor, at our request, 
has sent Tina Brooks, the undersecretary for housing and 
community development for the Commonwealth, to represent his 
administration here.
    Ms. Brooks.

STATEMENT OF TINA BROOKS, UNDERSECRETARY, DEPARTMENT OF HOUSING 
    AND COMMUNITY DEVELOPMENT, COMMONWEALTH OF MASSACHUSETTS

    Ms. Brooks. Chairman Frank, Congressman Capuano, and 
Congressman Lynch, thank you so much for permitting testimony 
from the Commonwealth of Massachusetts on these important 
issues. Thank you also for holding your hearing in 
Massachusetts' Fourth Congressional District.
    I'm Tina Brooks and I serve Governor Deval Patrick as 
undersecretary for housing and community development in the 
executive office of housing and economic development.
    Years and years of an overheated housing market have taken 
their toll in Massachusetts, as we've just heard. While the 
rental and ownership markets have cooled in the past 12 months, 
the effects on rents and sales prices has been mainly at the 
high end. And the middle segment of the market and that is the 
segment that matters most to working families, sale prices have 
dropped, but the primary effect of the slow down is in the 
length of time that inventory stays on the market. 
Massachusetts homes are selling more slowly, but we have 
experienced no dramatic price reductions.
    Massachusetts is the third most expensive market in the 
Nation for renters. The full-time hourly wage needed to pay 
rent on a relatively modest two-bedroom apartment in our State 
is over $22 per hour; only Hawaii and California have a higher 
wage-to-rent calculation, and the average for all States is $14 
per hour.
    Clearly, the disparity between income and rent places the 
greatest burden on very low-income households, who have far 
fewer housing choices than higher wage earners. The impact on 
very low-income people is well understood and has received 
attention. Homelessness, after all, is a highly visible 
phenomenon, and certainly one that we are addressing. But what 
is not so well known is that the high cost of homeownership is 
significantly affecting the Massachusetts middle class, the 
heart of the workforce. The current median sales price for 
single family homes statewide is $325,000; the median sales 
price for condos is $276,000. But the prices in certain 
communities, especially in metropolitan Boston, are much more 
daunting, over $900,000 for single family homes in some of the 
most desirable western suburbs.
    The American dream is not renting a great apartment. The 
American dream is to own a home and the middle class believes 
that the American dream is its birthright. Some of you in the 
room today remember an old campaign slogan, ``Making it in 
Massachusetts.'' And in 2007, thousands of middle-class workers 
are no longer making it in Massachusetts. The outstanding 
colleges and universities of this State produce thousands of 
promising young professionals each spring and thousands of 
these graduates eager to enter the workplace are forced to 
leave the State because they literally can't afford to live 
here. Older working families may manage to pay substantial 
monthly rents but, even with two incomes, can't save enough for 
a downpayment on a condo or a house. Many of these households 
literally pull up stakes and move to other locations, to States 
with more jobs and housing affordable to the workforce.
    Two years ago, we were the only State that lost population. 
And last year, the population grew by a statistically 
insignificant amount, about 23,000 people.
    Massachusetts is at risk of losing its workforce. When the 
workforce is endangered, we can't attract new businesses and 
new employers and the employers who are here won't undertake 
costly expansions. Unless we realize both population growth and 
workforce expansion, we will not be competitive in the 21st 
century. The cost of our housing could be our ruin.
    The impact on employers and employment growth in 
Massachusetts cannot be overstated. Here's a particularly 
disturbing fact: During the past 4 years, the Commonwealth of 
Massachusetts lost 150,000 jobs. The job loss occurred despite 
Governor Romney's declared interest in attracting new employers 
to the State and in helping current employers expand. The job 
loss occurred in large part because of housing costs. As the 
Deval Patrick administration begins, one of the Governor's top 
priorities is replacing the 150,000 lost jobs, and the Governor 
recognizes that success is tied to fixing our housing problem.
    We seek to produce thousands more units each year, both 
multi-family and homeownership at rents and prices affordable 
to Massachusetts wage earners. The goal is not easily in reach, 
but the Patrick Administration is hard at work. One step we 
must undertake immediately is deepening the public 
understanding of the issues and the potential long-term 
consequences to the State. It's very clear that the public 
currently does not understand the connection between an 
adequate supply of workforce housing and the State's long-term 
economic health. We need leadership in delivering the message.
    The broad transition in local leadership has disrupted 
public understanding and many smaller cities and towns, the 
social compact between major employers and the community has 
lost strength over time. Even 20 or 30 years ago, the main 
streets of our smaller towns featured locally-owned drug 
stores, hardware stores, and banks. These key employers often 
lived in town and were civic leaders, deeply involved in 
municipal issues. But the corner drugstore is now CVS; the 
local hardware store closed when Home Depot opened out on the 
highway; and banks in town are corporate giants headquartered 
thousands of miles away. When leadership is needed on issues 
such as housing the workforce, it's much harder to find than in 
times gone by.
    This administration intends to rebuild a social compact 
between employers and communities. When local employers speak 
with community residents, the need for housing becomes an issue 
of economic survival and is less likely to be perceived as 
discretionary social engineering. We need to spread the truth 
about our economic survival.
    Excellent analysis in recent years demonstrates that the 
acceleration in housing costs in Massachusetts has far outpaced 
income growth, and thank you, Barry, for making that very clear 
to us. If we significantly increase the supply of housing, both 
multi-family rental and homeownership, the rapid acceleration 
of housing costs will slow down. As we take steps to increase 
production, we also recognize that even expedited production 
can be slow and costly which is why preservation of existing 
rental housing for low and moderate-income families is also of 
key strategic significance.
    And Amy, you covered some of this, so I'll just very 
briefly state that in the Boston metropolitan area, the total 
cost of developing one new rental unit often exceeds $300,000. 
The total cost of preserving affordability in an existing unit, 
through acquisition, rehabilitation, and affordable use 
restrictions is typically in the $150,000 to $200,000 range, 
far less than the cost of producing a new unit. So while it is 
imperative that we produce new units, it's also imperative that 
we prevent the loss of existing affordable units.
    Chairman Frank, we know you have deep familiarity with this 
issue and have championed the importance of housing 
preservation since the beginning of your career. Regrettably, 
not all public servants share your perspective. In 
Massachusetts, during the Romney administration, the importance 
of housing preservation was minimized. The Patrick 
administration brings a renewed commitment to housing 
preservation at the State level. In the first 90 days of their 
new administration, we have reversed the Romney 
administration's policies which discouraged the preservation of 
expiring use and other assisted projects. We are lifting 
restrictions that made it difficult for private and nonprofit 
owners to use tax-exempt bonds and related tax credits in 
preservation transactions. And in order for these State efforts 
to succeed, we need a parallel commitment from our Federal 
partners to address the threat to our existing assisted multi-
family inventory.
    We applaud the House Financial Services Committee for its 
recent approval of the bipartisan GSE reform bill that would 
create an affordable housing fund. This move is the latest 
indication that momentum is increasing for the creation of the 
fund. Both affordable housing preservation and production stand 
to benefit if Congress passes H.R. 1427, the ``Federal Housing 
Finance Reform Act of 2007'', which you, Mr. Chairman, have 
introduced. The bill directs the GSEs to contribute to a fund 
that will be used, among other purposes, ``to increase and 
preserve the supply of renter and owner-occupied housing for 
extremely low- and very low-income families.'' And the fund is 
expected to generate at least $500 million each year.
    Chairman Frank and members of the committee, it's clear 
that the Federal Government and State governments will face 
huge housing challenges in the next few years. We need to 
produce and preserve thousands of units to serve working 
families as well as low-income households. In Massachusetts, 
Governor Patrick and his team are ready for the challenge and 
we welcome the opportunity to work closely with the committee, 
with HUD, and with other Federal agencies to reach our mutual 
goals.
    Thank you.
    The Chairman. Thank you very much. I appreciate all the 
witnesses being so direct and helpful to us. And the last 
witness on this panel now is someone I've worked with very 
closely in our efforts to actually get some housing up because 
his area covers much of the district that I represent, and also 
Mr. Lynch's district--Steve Dubuque from South Shore Housing.

 STATEMENT OF STEPHEN DUBUQUE, EXECUTIVE DIRECTOR, SOUTH SHORE 
                HOUSING DEVELOPMENT CORPORATION

    Mr. Dubuque. I'd like to thank the committee for the 
opportunity to testify. As executive director of South Shore 
Housing, a regional nonprofit agency working in southeastern 
Massachusetts, we administer over 2,600 units of rental 
assistance under contract to the Department of Housing and 
Community Development. We also manage 400 units that we have 
built and created in southeastern Massachusetts for a variety 
of people: the elderly, families, and special needs 
populations.
    Currently, we're working on the development of a 52-unit 
subdivision in the Town of Dighton. Thirty percent of those 
units will be selling for $149,900 to qualified individuals. 
We're also working in the City of New Bedford to create a 
Veterans housing project for Vietnam Vets. This is the first 
time a project dedicated to Vietnam Era Vets who have been 
cycling in and out of hospitals will be done with social 
services onsite. We feel strongly that the support of the City 
of New Bedford and the Congressmen has resulted in our being 
able to require the funds to, in fact, build that housing. I 
should add though, that currently the process of seeking funds 
to build affordable rental housing is fractured, not by the 
intent of the State, but by the existence of the Federal and 
State rules that limit certain pockets of funding. You can go 
to one source to build 19 units of Veterans housing.
    In this project, which will close soon and start 
construction on, we need no fewer than five separate sources 
which include the cost of doing the project and delay the same 
project. I'd also like to point out that we're doing in-fill 
housing in the City of Brockton in cooperation with the 
Brockton Interfaith Community. In that case, the City is 
selling us lots at a discounted price as most cities can do in 
order to reduce the cost of developing the housing for folks 
who are currently renters in their city. In the case of 
Brockton, we're going to produce eight condominiums that have 
been presold to people who are currently renters and people 
working in the City. Now the object is to continue that process 
with the cooperation of the city.
    The last thing I'd like to address, though, has to do with 
the rent subsidy program. As a major administrator in 
southeastern Massachusetts, the rent subsidy program I would 
offer is one of the strongest and most important devices to 
help very low-income people secure housing. An element of that 
program is called self-sufficiency. In that instance, we're 
attempting to help folks become more economically independent. 
And we have seen people who have started out homeless become 
homeowners in as short as 5 years. I would argue that the rules 
that you're changing now with SEVRA II are an important part of 
improving the administration of self-sufficiency and that we 
should use that and continue to use it as an engine, a way in 
which we can move people forward and along.
    I'd also say that the McKinney Program, which is now 
changing the way it focuses its efforts on the Housing First 
model, is moving in the right direction. Shelters are not the 
answer to homelessness. Permanent housing is. But if the 
Housing First model does not have with it some case management, 
those people who are placed will fail. Case management is 
essential as we've seen in something called Safe Step where we 
help domestic violence victims rebuild their lives, but we do 
it not only with housing, conventional apartments, but with 
case management. Ninety percent of the people we've worked with 
in that particular program have been successful.
    In a similar program that merely devotes time to helping 
homeless people find permanent housing with no follow-up case 
management, only 30 percent of those families succeeded.
    To give you an idea of the strength of case management and 
the strength of the self sufficiency program, I'll relate a 
short story. At the end of a self sufficiency graduation, my 
then-president, Ray Morrison, and I were standing over to the 
side of the room. We were approached by a young woman who was 
enthusiastically telling us how much we had done for her mother 
who had shown a great deal more confidence in herself by 
setting goals and achieving them. And then her story ran right 
on to explain that she had recently married, after graduating 
from college, and was about to buy her first house. The fact 
that she was able to do that, she said, was because she was 
able to graduate from the same high school she started in, 
because her parents did not have to move from house to house 
every year forcing the children to move from school to school. 
And in the final analysis, the self sufficiency program and 
what we're doing is about the children, setting an example that 
they can see and live by and further being able to live in a 
stable environment to allow them to become properly educated 
and move forward is critically important. We've seen dramatic 
changes in people by merely inviting them to imagine a future 
that's different for themselves.
    I'd like to deal with a couple of specific items that the 
committee is now working on and begin by thanking the committee 
for its work on SEVRA II. It's important that the Federal 
voucher program be improved so that it can be more effectively 
used throughout the country, not only in combination with the 
Federal tax credit program, but by housing authorities who are 
beginning to experience the same successes we've seen with the 
self-sufficiency program. Changing the payment standards for 
more flexibility, offering an opportunity for the rent subsidy 
program to be used in conjunction with a tax credit project, 
allowing units to be project-based, which becomes an integral 
part of the financing of affordable housing going forward is 
critical for the success if we are to get to the point of 
making some impact on affordable housing.
    I'd argue that creating a separate fee for the 
administration of the self-sufficiency program would allow us 
to expand that effort to greater and greater numbers of people. 
I'd also say to you that we're really a part of a network. I 
started 30 years ago, and 30 years ago the rents were $210 a 
month for a two-bedroom; now they're nearly $1,500 for the same 
unit. A house that sold for $35,000 then is now selling for 
$400,000. I don't know how, if I lost the house I am in now, 
that I'd find a way of getting back into one.
    The nonprofit world is very different than what it was when 
I first started. We were four people, VISTA volunteers and good 
folks. Now, we're a mature organization delivering much more 
housing and services than we've ever delivered before. The 
producers and managers of housing providers are now part of an 
industry preserving and creating housing across the country. 
We're a collection of national, regional, and neighborhood-
based organizations with volunteer, unpaid community boards. 
Our mission is to change people's lives to create sustainable 
communities. And with your help, I have confidence we're going 
to get that help. We'll deliver on that promise. Thank you.
    The Chairman. Thank you. Let me begin the questioning and I 
do want to emphasize what my colleague, Mr. Lynch, made clear; 
there are differences. The biggest single difference you will 
see in the committee that we represent is in housing. 
Essentially, the policy for the last 12 years has been to 
provide some assistance in the form of vouchers, but virtually 
no family housing construction. The problem is that the 
vouchers have been offered, as you know, on a year-by-year 
basis, so that you literally could not make any commitment to 
build based on that. We used to have what we call, and you've 
referred to as, project-based vouchers, where a developer could 
be given a binding commitment for 20 years of vouchers, 
literally take it to the bank, borrow money, and build housing. 
When you reduce it to year by year, when you instead of 
preserving the units, give the individual tenants the voucher, 
you are adding to the demand for housing in a way that does not 
increase the supply. So that you get two things: you get some 
increased equity, but you have higher prices. And the fact is 
that Federal housing policy, as well-intentioned as it may be, 
is, in fact, driven up housing costs.
    And you get to the ludicrous extremes where in Louisiana 
after the hurricane, there was some talk about doing just by 
vouchers. Well, substantial destruction of rental housing just 
drives up the price. So much of what we will be doing will be 
to try and get new housing constructed. One of the things that 
we did in the hurricane bill that came out of our committee was 
to grant 4,500 units of project-based housing for the first 
time in a long time. I think 3,000, at least, 1,500 for 
Mississippi, because it doesn't do any good to give people a 
voucher to rent an apartment that isn't there. So we do plan to 
get in this.
    Now there are a couple of other things that we're working 
on. Several of you mentioned the frustration of trying to take 
various programs and put them together. One of the great 
advocates of affordable housing is Charlie Rangel, the chairman 
of the Ways and Means Committee. Our staffs are working 
together--the Ways and Means Committee and the Financial 
Services Committee--so that the tax supported forms of 
affordable housing and the HUD program will work seamlessly 
together. And that's one of the things that I've read and 
that's an example of where we can help without costing any 
money, without increasing the allocation. Saving transaction 
costs, we can guarantee you that will happen.
    Let me say a couple of things to Professor Bluestone. We 
went through a debate last week where the three of us were 
defending our amendment, where we succeeded with some help from 
some California friends to raise the level of housing prices at 
Fannie Mae and Freddie Mae. We didn't do it. I noticed, 
according to Professor Bluestone's figures, the dollar figure 
is significantly below half a million dollars, you mentioned at 
30 percent of our communities are above that already. And we 
were told oh, that's unnecessary because higher housing prices 
track higher wages. And your recitation will be very helpful to 
us because we will probably deal with that again on the Floor. 
So that was directly on point, that there is no automatic 
tracking of wages and prices.
    I also want to invite everybody and we've heard from all of 
you, and to the undersecretary and we in Massachusetts took 
better advantage of the Federal subsidized housing programs I 
think per capita than any place in the country. We are more at 
risk if we don't do preservation. So we need from you 
everything that we should do and work with our friends on the 
Tax Committee and that includes some of the housing which is 
Federal, some done by Massacusetts Housing, formerly MA Cafe. 
Please give us a list of everything we need to do to maximize 
the preservation. Because--and let me make one other point that 
Selectman Allen alluded to. There are a lot of problems in the 
construction of housing and the government often falls short, 
but you know, sometimes the citizens are no bargain either.
    [Laughter]
    And one of the major obstacles to the building of housing 
is an excessive fear on the part of residents that if we build 
something called affordable housing near them, their lives will 
be over. In fact, I wish we could do tours of the affordable 
housing that has been built. I will tell you this, I want to 
say to people, we're here in Massachusetts. To this extent, 
affordable housing very much resembles same sex marriage. It 
scares a number of people before it happens and after the fact 
nobody notices it except the people directly involved.
    [Laughter]
    I invite people to go around your community and see if you 
can pick out the affordable housing; you often won't be able to 
do it. And part of the problem, in fact, is that it's been a 
cycle. It is true that we have sometimes inadequately funded 
affordable housing. Well, inadequately funded housing is not a 
good neighbor, but if we're able to get the funding up, we're 
okay. But you know, it's been a long time since we've built in 
this country a Columbia Point, or a Cabrini Green, or anything 
like that--Pruitt. We know how to do it better. So I really do 
urge you, and we will work with you, but that is one other 
reason why preservation is so important because when you were 
talking about preserving existing units, not only is it 
cheaper, not only are you avoiding displacement for people who 
are living there, but you don't have the zoning issues. You 
don't have these other issues. And as a matter of fact, maybe 
we should do a tour, and I mean this. Representative Honan, Ms. 
Brooks, how about a tour of that terrible affordable housing 
we're trying to--as a matter of fact, let me put it to you this 
way. Do you know what our problem with affordable housing is in 
many cases? Not that it is unattractive, but that it is so 
attractive, that if we don't take legal steps, the market will 
take it away from the poor people.
    If affordable housing were so terrible, we wouldn't have a 
problem of preservation because we are talking about housing 
that was built for lower-income people. And what we're now told 
is is that when the time limit is up, 20 years or 40 years 
depending on what it is, that housing is now so attractive that 
wealthier people want to move in. Do people not realize how 
that doesn't compute, that it cannot be simultaneously 
neighborhood destroying and irresistibly attractive to 
wealthier people?
    So we will do everything we can, but we will all have to 
work together. I just want to thank you all and we are working 
on--many of these specifically were very helpful.
    Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. I came today for a 
lot of different reasons, not the least of which is to prepare 
for the Floor debate that's coming up on the bill we had. And I 
would ask each of you, I guess particularly you, Mr. Bluestone, 
one of the things I'm most interested in, and I know the 
numbers are there, but I'd like some statistical analysis of 
it. I've seen some of the things here today, I believe, from 
the undersecretary on how much it takes, how much money you 
have to earn on an hourly basis.
    The problem is, of course, that everybody in the country 
thinks everybody who lives here is rich. And they think it 
because yes, our wages probably are higher than the national 
average, but they don't then make the connection between that 
and the higher cost of living. And I think it would be helpful 
and the debate, I believe will come, to have some statistics, 
some clear statistics comparing national, statewide, and 
actually I'm most interested in the Greater Boston because my 
guess is it probably is less expensive to live in Great 
Barrington than it is to live in Brookline.
    But I'd like to see some statistics relative to percentage 
of median income that it takes to pay the average or median 
mortgage. Nothing extraordinary, nothing--I'm not talking about 
the new houses on Brattle Street, but just averages. And again, 
maybe I'm wrong. My gut tells me that's the direct link that 
gets rid of any arguments about income levels and housing costs 
and everything else. It's how much of your income, whatever 
that is, is required for your housing and I have no idea what 
the numbers are, but I have no doubt that they are 
significantly higher now than they once were, and I have no 
doubt that they are higher for the Greater Boston and 
Massachusetts region than they are in many of the other areas.
    One of the tables that was here, I did happen to note that 
the person who made the amendment to get rid of this one 
provision relative to adjusting housing costs comes from Texas 
and the Texas numbers are not significantly lower, and there's 
no doubt, and that's why people move. The only State that I saw 
the people moving to that has a higher than average cost 
relationship to hourly wages is Nevada, and I don't know what 
the reasons are, but my guess is that if you took Nevada, and 
distinguished Las Vegas from the rest of the State, you would 
see a significant difference. So I would appreciate any of 
those numbers that might be helpful and again, understanding 
that for my purposes, I'm not doing academic research, I'm 
preparing for a Floor debate, so keep it simple and keep it 
short, only because we don't get as much time on the Floor as 
Barney is letting us have here.
    The other thing that I'd like to talk about--Barney talked 
about preservation. There are a couple of the things that I 
always take the opportunity to remind my friends of. When it 
comes to housing, too many of my friends talk about nothing but 
affordable housing and that term gets lost amongst a lot of 
people. A lot of people when they hear the term affordable 
housing, think only of housing projects, the old-fashioned 
housing projects. They don't understand that affordable housing 
is also senior housing and now in today's world, I'm not sure 
that I have met any sane person who wants to build anything 
other than mixed use housing. I think, no one has come to me 
and actually suggested that we didn't learn our lessons from 
the old days and the mistakes made in the past that you can't 
just put all the poor people in one area and walk away. It 
doesn't work and I don't think anybody still believes that.
    I think when you use the phrase, I really push people to 
understand that everybody who listens to it is not a friend. 
They're not always already on the same side. They hear 
affordable housing, and they think nothing but the worst like 
the Cabrini Greens, and I won't mention any of the ones in 
Massachusetts, because we know them all too well, and I don't 
want to create any difficulties for any of my constituents or 
any people whom I have the greatest respect for. But I would 
also strongly encourage people to understand that there's also 
a political component to this. And the political component that 
I hear all the time from people who are struggling particularly 
young people who have done all the things they were told to do: 
they went to college; they got an education; they're working 
hard; they're working 12 hours a day struggling to keep it 
together, but hey can't afford a house either. And they don't 
qualify for many of these programs that we have.
    I think those of us who advocate for affordable housing are 
missing a huge, I think it's a social issue, but it's also a 
political issue. A huge component of it, if we don't talk to 
what most people would consider to be the middle class, many of 
them need help into the housing market as well. Not usually as 
much, well, actually not as much, but I need help with my down 
payment. I'm an attorney. My wife is a CPA and when I went to 
buy a house, we had the same loans, well, not the same, well, 
comparably the same and we needed help from the family to get a 
down payment. And to miss that issue you're walking away from a 
huge bunch of people who are the political people of this State 
and this country. We all know it; it's no secret. It's the 
middle class who votes; it's the middle class who contributes 
donations to people who get elected; and it's the middle class 
who creates, for the most part, the public dynamic that we deal 
with on a regular basis.
    And if we allow them to say there's nothing in it for me, 
we lose the political capital we need to keep these programs 
going, and I think we do the wrong thing. We also create 
pressure on the economic and housing rungs of the ladder that 
are lower than that.
    Here is a very simple example. We talk about three deckers. 
Somerville is full of them, Cambridge is full of them, and 
Dorchester is full of them. Many of those three deckers are no 
longer available for the people they were built for. They were 
built for--I live in a two-family home. I bought a two-family 
home for lots of different reasons, not the least of which is I 
needed the rent to pay the mortgage. That's who those homes are 
built for. I challenge you to find many of them in Cambridge, 
Somerville, most of my District, and Dorchester and Roxbury 
that are now available that way. They've all been ``condo-
ized.'' Good, bad, indifferent, leave that to other aspects. 
But the economic basis, the working middle class has lost one 
more entry into the housing market, the two and three family 
homes because they're not available. You have to buy two condos 
now and put them back together to have that two-family house. I 
can show you all over the neighborhood; you know this.
    Please, as you look at these issues, as you help us look at 
these issues, don't forget that part of it, because otherwise 
I'm talking to an empty wall, a blank stare from people who 
don't know what this is all about or don't see it from that 
perspective. They see it only from their own perspective of, 
``What do you mean? What's the problem? I got mine.'' And many 
of them don't see it until their own children try to buy a home 
in their own community, when they realize that the house that I 
bought in 1908 for $75,000, which is way below any table I see, 
that same house today through no, well, no credit to myself, is 
now worth $700,000. I couldn't afford the house I live in today 
if I had to buy it today with a better income than I once had. 
And that story is told over and over and over and over and over 
in Greater Boston.
    Unless people have children that they want to get into that 
housing market, they don't see it. And to me, to miss that is 
to not talk about it, that's why I do focus on police and fire 
fighters and teachers who are, no matter how you measure it, 
working middle class people in any community. They can't afford 
to live here and they have to move to the Dightons of the world 
which is fine if you want to, I have no problem with that. My 
concern is that they have to.
    The Chairman. It's a wonderful town.
    Mr. Capuano. It's a wonderful town.
    [Laughter]
    Mr. Capuano. I only mention it because he did. I have 
areas--
    The Chairman. It's mine.
    Mr. Capuano. I know. I know it is. I actually even know 
where it is.
    [Laughter]
    Mr. Capuano. I'm now going to get 14 calls.
    The Chairman. My staff in Dighton just solved the double 
crisis of the Dighton mail boxes.
    Mr. Capuano. But I say these things because to me I always 
have to remind particularly my friends from Massachusetts who 
have been--we're almost always on the same chapter of the book, 
trying to move the ball forward, for me now, at least my 
arguments and the arguments of the people up here are no longer 
with my friends in Massachusetts. It is now my arguments with 
my friends across the country who don't necessarily see the 
same problems we have. I need help doing it and I need to grow 
that political support for it, that helps us move this ball 
forward. I want to thank you for what you've done today and 
thanks for what you do on a regular basis.
    Mr. Bluestone wants to--
    Mr. Capuano. Yes, Barry?
    Dr. Bluestone. Mr. Chairman and Congressman Capuano, first 
of all, I promise you I will get you that data. You will see 
what we found here in Massachusetts is actually true in many 
parts of the country. Family incomes are nowhere near keeping 
up with housing prices.
    I hope that our delegation in Massachusetts will work hard, 
particularly with our colleagues in Connecticut, in New York, 
in New Jersey, and in California--all with very large 
congressional delegations, who have exactly the same problem we 
share with Stamford, Connecticut, and the metropolitan areas of 
Newark to New York City to San Jose to San Francisco. It's all 
across the country.
    Second of all, we have been focusing particularly with our 
great new Governor and with our legislature on starter homes 
and putting together homes for working families and middle-
income families because we need those and we hope we'll get 
some Federal support for that.
    Third, I can't help but remember from growing up in 
Detroit, Michigan, when we were trying to get integrated 
housing and many people were very worried about African 
Americans moving into our neighborhoods and lowering property 
values. I remember bringing Dick Gregory, the great comedian, 
to Detroit and maybe his greatest line that night was, ``Where 
else in America can an African-American family move in, pay 
$85,000 for a $35,000 home, and be accused of lowering property 
values?''
    [Laughter]
    Well, we have the same problem today. We have housing now 
that's affordable and people worry that it will lower their 
property values.
    Last point, we obviously can appeal to families who already 
are homeowners to support greater development of housing for 
working families, preserving affordable housing, and rezoning 
their communities. We can say that we need this for their 
children so they don't have to leave the State. We can say it 
in terms of housing in our communities where our fire fighters 
and our teachers and our police officers can live. But what I 
found from my own research is that in fact there's a pure self 
interest issue that we can also raise. Those communities that 
do not increase their supply of housing for working families 
see their housing prices go through the roof. That benefits me 
as a homeowner in the short run. In the long run, those are the 
communities that are now losing population like Greater Boston 
and Massachusetts. Those are the communities that are losing 
jobs. So in the long run, Detroit would be a good example for 
reasons having to do with the auto industry. Housing prices 
actually can cause such an economic calamity that ultimately in 
the longer run housing prices and housing values will plummet. 
And what does that mean? It says we can now talk to our 
neighbors and say the reason why we should build this new 
housing that's affordable is that not only will it be good for 
your kids and for the public servants in our community, but it 
will be good for you and your economic self-interest, because 
the alternative is a plunge in housing values if we continue to 
lose jobs and we continue to lose population. Building that new 
housing inoculates you against such a calamity.
    The Chairman. Thank you. Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. First of all, I want to 
thank the panel for your testimony. It's such a huge issue 
affecting a broad spectrum of our society. It was very helpful 
for you to focus the discussion. I do want to also note that in 
addition to the new chairman and the Democratic resurgence in 
Congress, we also now, in a refreshing change, have a Governor 
and an Administration who have made a 180 degree turn in terms 
of where we are on housing policy in this State. They have not 
only in the Governor's office, but also the legislature has 
finally had the ability to work with the Governor who is really 
pro-affordable housing. It is such a wide and--just the scope 
of this problem--I have folks in my community, in my District, 
that they describe affordable housing as well, there's 
affordable affordable housing and then there's unaffordable 
affordable housing because right now, we have such a wide group 
of people who need a little bit of help. Some people need a lot 
of help, that the programs necessarily have to address all that 
need. So you can see how criticisms are valid, that we have 
such an overlay of all these programs as Mr. Dubuque mentioned, 
having the need for five or six different programs to get a 
project done. It speaks to the complexity that is out there and 
we have a great partnership. We have a lot of people here today 
who are long-time advocates on behalf of affordable housing in 
the Commonwealth of Massachusetts and have been terrific. And I 
think with these recent changes, we have reason for some hope 
in addressing the problem.
    I do appreciate the work that's being done on the veterans' 
issues for veterans' housing. I think there has to be a better 
way to get our arms around that, but I want to note that 
Professor Bluestone, you mentioned this growing affordability 
gap. I haven't heard it mentioned much today is that we have in 
recent 10 years seen the lowest interest rates in the history 
of this country and even that, even with interest rates at 5, 
5.50, 5.75 percent, we didn't see that--now that by definition 
should make housing more affordable. The financing costs are 
drastically reduced. Even with that help, even with the 
subprime market out there pushing the envelope inadvisably so 
in some cases, we couldn't reduce that affordability gap. So 
there's need for, I think, a reassessment of how we're 
approaching this problem. We certainly welcome all of your 
input and we look forward to working with you on this problem.
    Lastly, and it's probably beyond the scope of this 
committee, we have to figure out a way to facilitate a greater 
savings rate for all of the folks out there who are struggling 
to meet their basic housing costs, and there has to be some 
way. I've seen it happen at the Federal level with the Federal 
Thrift Savings Plan where there's a match by the employer. I 
think there has to be a widening of that availability for 
people because it's showing to be successful, encouraging 
savings, if we somehow plug all workers into that match 
program, with a match from government for low-income workers 
and perhaps a match as well from their employers and then give 
them an opportunity to draw from that 401(k) program for the 
purpose of buying a home. That may use what even the lowest 
paid Americans have. They have a little bit of money and they 
have time. And by using the miracle of compound interest over 
their working lives, we should raise that homeownership rate 
from 68 percent to 80 percent anyway, over the next 20 years. 
So thank you, Mr. Chairman, and I yield back.
    The Chairman. I just want to make one point. Clearly, you 
have to get more housing for everybody, and one of the big 
changes you're going to see as we start to build housing is, 
after all, housing is a spectrum. You build more housing, right 
now, most of the programs we have to help low-income people 
compete with other people for a relatively fixed supply of 
housing. It is our intention to increase the supply. As you do 
that, as you give people more housing in general, then you are 
adding to that housing stock overall. Mr. Capuano was right and 
we think this is a part of it.
    I thank the witnesses and I just want to assure you that 
these are some very specific suggestions. We are already 
working on some of them and you've given us some reassurance 
that the national agenda that Mr. Lynch, Mr. Capuano, and I 
have is also very much a Massachusetts agenda. And everything 
that you've talked about we hope, by the end of this year, to 
have enacted into law early next year in a way that will help 
alleviate a housing crisis and promote the economic development 
of the Commonwealth and we'll be working closely with the 
Governor in doing that. The hearing is adjourned.
    The Chairman. If people want to leave, you leave, but--all 
right, let's have some quiet, please. If people want to leave, 
you're free to leave, but if you stay, you're not free to talk.
    We are very grateful to Charles Baker who obviously has 
extensive experience in State government and is president of 
Harvard Pilgrim Health Care. He's very much attuned to the 
employment impact of housing costs in Massachusetts and I will 
tell you that it was on the Saturday before the election when I 
was listening to a talk show, because I was driving in, doing 
nothing useful, and Mr. Baker was being very nice and two hosts 
were talking to him and one asked him about the problems of the 
Commonwealth from an economic standpoint, and as I recall, he 
said that housing affordability costs were one of the major 
economic problems facing the Commonwealth and I was struck at 
that time with the importance of that and that's one of the 
reasons why we have taken the line of approach that we're 
taking. So Mr. Baker, thank you for joining us.

   STATEMENT OF CHARLES D. BAKER, PRESIDENT AND CEO, HARVARD 
                      PILGRIM HEALTH CARE

    Mr. Baker. Thank you very much, Chairman Frank, Congressman 
Capuano, and Congressman Lynch. For the record, my name is 
Charles Baker, and I'm the President and CEO of Harvard Pilgrim 
Health Care, which is a Massachusetts-based nonprofit health 
insurance plan, licensed to offer and support health insurance 
solutions to employers and individuals in Massachusetts, Maine, 
and New Hampshire. Overall, we have approximately one million 
members and over 800,000 members in Massachusetts. We also 
employ approximately 1,000 people in Massachusetts and have two 
main offices here, one in Wellesley, and another in Quincy.
    While the plan has been around for about 40 years, it's no 
stranger to Massachusetts. I thought it would be worth 
mentioning that Harvard Pilgrim was recently named by both U.S. 
News and World Report and J.D. Powers as the one number health 
plan in the country for customer satisfaction.
    I appreciate the chance to speak before the committee today 
on the high cost of housing, as the CEO of a locally based 
employer and as a local official. I also happen to serve on the 
board of selectmen in my home town of Swanscott. I wonder about 
whether our high cost of housing is driven by local and State 
issues and not national ones. There's simply no doubt that it 
significantly and negatively affects the capacity of this State 
and this region to provide economic opportunity to its 
residents.
    As a CEO of a health insurance carrier, I've participated 
in several cost of doing business meetings between State 
officials and CEOs for many important employers in 
Massachusetts and listened, almost dumbfounded, as the high 
cost of healthcare has been eclipsed and forgotten by the high 
cost of housing. There I was prepared to take the heat from my 
fellow employers for playing some small role in creating the 
highest healthcare costs in the Nation, and I was completely 
ignored as business leaders pondered on the high cost of 
housing as their single biggest recruitment and retention 
issue.
    I came away from these sessions and others believing that 
while our high health care costs were a problem, our high 
housing costs are a catastrophe. In fact, Harvard Pilgrim's 
decision to support Mass. Inc.'s recent research on the 
Massachusetts work force was based, in part, on my own 
experience at these meetings. The research bore out what I had 
been experiencing and hearing which is that our working age 
population is shrinking. We aren't holding on to as many 
college and high school graduates as we used to and the high 
cost of housing has a lot to do with it.
    To put it another way, I participated in a panel on housing 
costs about a year ago that was sponsored by a local business 
organization and I put this question to the audience. If any of 
you had to do it all over again, and go out now and buy your 
first house, how many of you, with the money you made in your 
late 20's and early 30's, could have forked over the $500,000 
that represents the median price of a house inside Route 128? 
The answer, not surprisingly in a room full of 500 people or 
so, was nobody.
    As a local elected official, I also see the difficulties 
created by the high cost of housing in this region affecting 
every sector of the population: young single people, all 
married couples, older couples, people on fixed incomes, you 
name it. It is and has been for the past several years the 
primary issue people discuss with me, with the cost of 
healthcare, believe it or not, running a distant second.
    In fact, when I was asked last fall by a radio talk show 
host about what issue I thought would dominate the voters' 
decisions in State and local elections this past November, I 
said the cost of housing, in general, and in particular, the 
high property taxes that came with it. At the time, this was 
considered odd since there were very few statewide campaigns 
that were focusing on this issue. But after the election, 
several polls of focus groups indicated that the high cost of 
housing and the property taxes that came with it, had, in fact, 
been a dominant issue in the minds of the voters, even if it 
wasn't discussed much during the campaign.
    In closing, I want to thank the committee and the chairman 
for the opportunity as both a local employer and local official 
to testify before you today on the high cost of housing and to 
reiterate my deep concerns about how this issue is affecting 
the ability of Massachusetts residents and businesses to stay 
here and prosper.
    Thank you very much.
    [The prepared statement of Mr. Baker can be found on page 
48 of the appendix.]
    The Chairman. I appreciate it. We did talk about some of 
the State and local issues, including an excessively nervous 
attitude on the part of many of our fellow citizens who have an 
exaggerated idea of what affordable housing is going to do. I 
suggest that we might want to do a kind of magical mystery 
tour, take some people on a tour of existing affordable 
housing, and I think many of them would be pleasantly 
surprised. I think they would have a hard time sometimes 
telling which housing is the affordable housing.
    Mr. Baker. The mythology is definitely not the reality.
    The Chairman. I think it is helpful and that's why I 
appreciate your being here is that we do want to explain to 
people that there is a counter balance on the other side in 
terms of the economic factor. As far as the Federal Government 
is concerned and yes, obviously that's a problem that's hard 
for us to address. Actually, when Jack Kemp was sent to HUD he 
proposed that we deny community development block grants to 
communities that would not do affordable housing. This was back 
in the--during the first Bush Administration. He got exactly 
two votes on the committee for that, me and Steve Bartlett.
    [Laughter]
    Steve Bartlett had been the Mayor of Dallas; Steve and I 
were the only votes. We couldn't even hold Henry B. Gonzales on 
that one so I'm afraid we're not likely to be much help.
    I do think, though, that there is some role in the Federal 
Government in helping to construct affordable housing, 
particularly mixed use housing. The tax-supported housing has 
been very helpful and you know from your days in the state 
finances that Massachusetts housing can be a very flexible 
issue. So one of the things we plan to do is to sort of 
increase the tools that would be available not just for the 
very low-end stuff, but across the board. It is, after all, a 
kind of a spectrum.
    But let me just, because I think this is very important for 
people, and we have Democrats here, we have the senior staffer 
for the minority in attendance. How does it work? You try to 
get people to come here and they won't come? Does it increase 
your cost for pay? What's the actual mechanism by which the 
high housing costs hurt us economically?
    Mr. Baker. It's twofold. First of all, it's hard to get 
people to come here and there's actually--there are many 
employers now who started to consider a whole variety of sort 
of employer-assisted housing arrangements and programs, some of 
which involve leasing housing, some of which involve actually 
buying units and making them available to people, sort of the 
transition for people who come here from elsewhere. But there's 
no question that it affects people's ability to attract talent. 
And the other issue is that it makes it harder to hold onto 
people. In my own experience as an employer, I've lost a number 
of terrific people to other parts of the country who left 
primarily because they found a quote ``better deal'' somewhere 
else.
    And I think the other issue that plays into this is that we 
are for all intents and purposes competing nationally in many 
of the knowledge-based industries that Massachusetts sort of 
builds its foundation on, life sciences, being as good an 
example as any, biotechnology, pharma, education. We are in 
many ways part of a very nationally-distributed sector of the 
economy and whether it's financial services, education, life 
sciences, academic medicine, the people that we're seeking to 
bring here, to keep here, are very much in demand because they 
have terrific skill sets and they add tremendous vitality, both 
economically, culturally--
    The Chairman. I heard most of what you said. When you said 
leasing housing, buying housing, that's not something you 
ordinarily choose to do, if you're not in the housing business.
    Mr. Baker. Correct.
     The Chairman. So to the extent that you do deal with that, 
is that part of the cost of doing business?
    Mr. Baker. Yes, definitely.
    The Chairman. Let me say one of the things, we'll get your 
comment on this, there are three entities that help bring down 
the cost of homeownership at the upper middle level, not at the 
very top, or the median level. One is FHA which insures 
mortgages. The others are Fannie Mae and Freddie Mac which buy 
mortgages. Now our problem has been that all three of those 
operate under a national uniform dollar limit and if you go 
above the price which I think is now about $400,000 you're 
ineligible. The problem we have with that is that well, car 
prices are pretty much the same across the country. House 
prices, by the lack of mobility are not a uniform price. We 
don't have a uniform price for Section 8 rents. We don't give 
uniform costs of living allowances. So one of the things we're 
trying to do, the Massachusetts delegation, is to raise the 
limit for the FHA, Fannie Mae, and Freddie Mac to a median 
house price, rather than a dollar limit. Is that something that 
would make sense?
    Mr. Baker. Here that would be $500,000, as opposed to 
$400,000, which is the number that you mentioned.
    The Chairman. But it would be helpful with the level of 
people we're talking about.
    Mr. Baker. Absolutely.
    The Chairman. They said well, it's too high and our answer 
is yes, well, we don't want FHA and Fannie and Freddie 
financing luxury housing and we have a limit that keeps them 
from doing luxury housing in Nebraska and luxury housing in 
Mississippi and luxury housing in Massachusetts, but it also 
keeps us from doing median housing in Massachusetts.
    One other point which you--and we had some conversation. 
One of the arguments we had to counter that was well, but you 
live in a high wage area as well as a high housing cost area 
and one argument we had was that the high housing costs are 
somewhat neutralized by our higher wages.
    Mr. Baker. I guess what I would say about that is that is 
sort of true, but as an employer who has watched what happens 
to the sort of the average income of the people who work for 
Harvard Pilgrim over the course of the past decade or so, and I 
look at what has happened to the cost of the housing that 
people have to live in and acquire, there's no question the 
housing prices have gone up. Pick a number, two, three, four 
times faster than--maybe more. Actually, probably higher given 
the actual cash wages that people get paid than the cost of, 
than the increase in their income. There's no question about 
that.
    The Chairman. Mr. Lynch?
    Mr. Lynch. First of all, thank you for coming today. One 
thing I wanted to sort of hammer away at is that we've watched 
this--the situation is quite different compared to Nebraska or 
Texas. We are asked to compete for the same talent and I've 
witnessed from afar the Governor's struggle trying to attract 
good development people to his team, to deal with the housing 
issues and the development issues in Massachusetts and one of 
the people he was trying to attract also had a competing offer 
from Daytona Beach, Florida, and I watched as they were putting 
offers on the table to lure this person away from Governor 
Patrick onto their team and it's astounding what they could 
give him for the same price and the same salary in comparison 
to what we could offer for the salaries that we're offering.
    It was just a--I think it was a perfect example of what 
we're dealing with, especially in industries that are so 
central to the economic health of our State, the high tech, bio 
tech, medical education institutions, financial services, all 
of that, we're being disadvantaged by the current outlay in 
terms of what we can get to help the people who find themselves 
in a position where they can't afford decent housing here to 
remain in Massachusetts. So I appreciate your weighing in with 
the credibility that you have as someone who attracts employees 
and keep them here in Massachusetts and I look forward to 
working with you on this issue as we move forward.
    Mr. Baker. As I said, as a guy in the healthcare sector, I 
expect to take it on the chin pretty much every day of the week 
over the high cost of doing business with regard to that and 
I've been astonished by how much more people on the employer's 
side talk about the high cost of housing.
    The Chairman. Well, it's our goal to return you to your 
rightful place as the number one problem in America, and the 
hearing is adjourned. Thank you.
    [Laughter]
    [Whereupon, at 11:44 a.m., the hearing was adjourned.]


                            A P P E N D I X



                             April 4, 2007

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