This is the second of a series of articles about how the impoverished American can overcome proposed budget cuts by utilizing other services and methods.
Donald Trump’s proposed budget would cut funding that provides low-income Americans with affordable housing. Specifically, the $3-billion Community Development Block grant program would be cut entirely. Of that $3 billion, 70 percent must be used to benefit low- or moderate-income persons. It prevents or eliminates “slums or blight” and addresses “community development needs having a particular urgency because existing conditions pose a serious and immediate threat to the health or welfare of the community for which other funding is not available.” I repeat, “for which other funding is not available.”
That’s not all, though. The entirety of the Section 4 Community Development and Affordable Housing Program funding -- the measly $35 million of it -- would be cut. That $35 million was distributed as grants in the following manner last year:
- a nonprofit called Enterprise, which has created nearly 470,000 homes and invested $28.9 billion in low- and moderate-income housing, received $14,264,625;
- a little nonprofit called Habitat for Humanity, which is building and rehabbing homes in Hawaii, Texas and Vermont, received $5,690,893;
- and Local Initiatives Support Corporation, which has financed more than 366,000 homes, received $13,719,931.
The HOME Investment Partnerships Program, the largest federal block grant to state and local governments designed exclusively to create affordable housing for low-income households, would also be cut from Trump’s budget. The HOME program awarded nearly $1 billion in grants in 2016 that built affordable homes all over the country.
Also proposed to be cut is the Choice Neighborhoods program, which has funded affordable housing on blighted or empty lots all over the country. To get an idea of what they’ve built go here. (UPDATE: A cut to Section 8 billed at $300 million would actually be a cut of $2 billion given inflation and raising rents.)
The Self-help Homeownership Opportunity Program, which awards grants to nonprofit organizations that build affordable homes with volunteer labor (like Habitat for Humanity), would also cease to exist. So affordable home builders would have fewer funds to build fewer affordable homes, and fewer Americans would realize the American Dream.
You might say the government shouldn’t be in the business of providing affordable housing, but if you say that, you’ve likely never been near a project or witnessed people sleeping on the sidewalk or under bridges. And just because you don’t see it everyday doesn’t mean it’s not happening. This money is an investment in America. It provides (or if cut, provided) funding to decrease the number of homeless Americans -- 8.6 percent of which are veterans.
But now that affordable housing is on the chopping block (actually it’s always been) and there will be fewer affordable homes to go around, a lot of low- and moderate-income Americans will have to find a way to pay a higher percentage of their income in rent.
There is still hope, though. The proposed budget cuts have to get through the Senate after all, and those programs are still at work building affordable housing throughout the country. Here are three ways you can pay less in rent despite budget cuts to housing and urban development programs.
Buy a Home
Bet you didn’t think that would be the first suggestion to save money on housing, but a mortgage on a single-family home is currently a cheaper monthly payment than a lease in most of America. I can see how much cheaper here. The Economist provided a review of America’s housing market in five interactive charts back in August of 2016, and the ratio of home prices to rents was below the long-run average.
In my area, even considering the low rent I pay because I share a two-bedroom apartment with a roommate, buying a home is 23 percent cheaper than renting. I know what you’re thinking: “But I don’t have enough for a 10-percent down payment.” Well, you don’t need it necessarily. There state and local, down-payment assistance providers who will loan or grant you a portion of your down payment if you live in the home for a certain period. You could end up putting down the minimum three percent down by coming up with one percent yourself and getting the other two percent as a grant if you live in the home for three years.
A good rule is to never pay more than 25 percent of your monthly income to your mortgage, home insurance, and property taxes. Use a mortgage calculator to determine the maximum amount you can spend on a home, and don’t let a lender tell you different, because they will.
I attended a Home Stretch homebuyer education course to get a better understanding of the homebuying process, and you should too. Registration fees for many of the courses are waived during the month of June for National Homeownership Month, and you can even complete the course on nights or a Saturday.
These classes tend to be offered by your state’s housing finance agencies, which you can find with a Google search of “<your state> housing finance agency.” I just searched “Home Stretch homebuyer education course near me” and registered in minutes. The class was very helpful, explaining the importance of inspections, budgeting and saving for a down payment, shopping for mortgages, working with a realtor and closing the sale. You even get a manual to take home, but the best part is you’ll get the business cards of people who can help you with the homebuying process. And since these folks already take time out of their day to help first-time homebuyers, you can trust them to look out for your interests. Sure they leave their business cards for a reason, but most of them wouldn’t present at the class if they weren’t interested in helping homebuyers.
The first thing you can do before you even start shopping for a home is start saving for a down payment by putting together a budget. The more money you can put down the lower monthly mortgage you’ll pay. And you should shop for a mortgage. There are so many banks out there, which means there’s plenty of competition for your money. Don’t take the first mortgage you’re offered. You should take the best of three or four options.
People think they can handle the homebuying process without a realtor, but a realtor doesn’t cost the homebuyer anything. Their fee comes out of the seller’s fees, so there’s no reason not to employ a realtor. It’s important to have someone looking out for your interests, and just because that realtor is from the same agency as the seller’s realtor, that doesn’t mean they’re trying to screw you over. In fact, it could work in your favor.
The one thing that does cost you money is the home inspection, which is worth the $400 to $600 you’ll pay. If you waive an inspection and buy a house that’s on land being eroded and have to repour a foundation, you will have wished you paid $500 for an inspection. And always be there for the inspection. It’s probably some of the most important information you can get before buying a home.
Also your responsibility is to investigate the neighborhood where you’re buying a home. The first rule of real estate is location, location, location. Go to open houses (they’re good practice) and afterwards talk to the neighbors to get an idea what the neighborhood is like. Come back at night and check the crime statistics online. Most police departments publish a crime map on their websites. If not, call them and ask what crimes have been committed in the area lately and how often. Zillow has a 10-point rating system for the schools in the area, but it’s not a bad idea to drive by them and the parks to see what kind of shape they’re in.
Even with average home prices increasing due to a lack of supply and low interest rates, it’s not a bad time to buy considering the proposed cuts to housing and urban development budgets. Supply is expected to increase but still won’t satisfy demand, and while it’s a seller’s market, taking advantage of the relatively low interest rates before they climb could save new homeowners thousands. Homes are only going to get more expensive, albeit at a slower rate, so you might as well get in while the getting’s still good.
Rent to Own
If you can afford to purchase a home outright, negotiating a contract for deed on a home is still better than paying rent. Paying rent doesn’t allow you to create equity in your home, but a contract for deed does. You’re going to own that place someday, but be careful to read your contract for deed carefully. Some are written so that just one missed payment can void the contract. Then all the work you put into the place that wasn’t yours yet is lost to holder of the deed. A lot of condos and townhomes can be found on a rent to own basis, and can still be cheaper than renting.
Rent a Spare Bedroom
If you don’t qualify for a mortgage, you can still make renting more affordable if you rent a spare bedroom. Yes, renting more space than you need is more expensive and costs more to heat and cool, but you can make a whole lot of money in a whole lot of places renting that spare bedroom by the night using Airbnb. There are stories of Airbnb hosts making $1 million annually, but you’d need pretty nice digs to do that. But if you’re struggling to make rent (which is likely why you stumbled onto this piece), an Airbnb business can be a lifesaver.
If you’re a natural clean freak and don’t pay for water or laundry, an Airbnb business is perfect for you. All you have to do is figure out how much you can afford to pay in rent, because if the third month comes along and you don’t have half the rent because you couldn’t get enough people to reserve your spare bedroom, you won’t have a home for very long. Generally, if you're paying more than half of your income on rent, that's an unsafe place to be. But if you're going to rent your spare bedroom, you can stand to pay half of your income in rent. Whether the owner will accept your credit based on your income is another story, though.
The beauty is Airbnb does most of the work for you (for a small fee, of course, generally 3 percent of earnings). Take some pictures of your clean home and describe it, you and the location. Be honest. Don’t expect people from out of town to know what they’re getting into. You don’t want to host the people that give you bad ratings because of your location, even though they actually choose the location. If you’re in an urban area where gunshots are regularly heard, make sure people know that before they wake up to gunshots. Even community demographics can be helpful, because some people are racists, and you don’t want to host those people. Being thorough in the description of your home and location can save you from bad ratings down the road, and your rating will affect how many reservations you secure and what price you can charge.
Before you get ahead of yourself, though, call your city hall and ask them if there is an ordinance governing short-term renting or home sharing. Airbnb is not legal everywhere. Some cities have outlawed “transient lodging” or “short-term rentals,” with hefty fines accessed to those who are caught.
New York City started fining Airbnb hosts in February, but has issued only a few fines since. Basically, it’s a really hard law to enforce in large municipalities where city employees are already overwhelmed. But neither GCN Live nor I advocate illegal home sharing. I’m actually trying to change the ordinance in Bloomington, Minn. outlawing short-term rentals less than 30 days by forcing hosts to pay the same percentage in lodging taxes that hotels pay. It’s only fair, and it won’t cut too much into hosts’ profits. The city council doesn’t seem to be interested in taking me seriously, but if I get enough people to help me persuade them they’ll have to address the issue.
If home sharing is illegal in your city, move. If you can’t afford to move, you can use the following as a template to get the ball rolling on legalizing home sharing or short-term renting in your city. Of course, you’ll have to find the law governing transient lodging or short-term renting in your city code and alter it accordingly. Otherwise, you can use this to draft a letter or email to your city council:
To Whom It May Concern:
I think Bloomington’s ban on transient lodging is wrong, and I have a solution. First of all, what people do with the homes they own or rent is up to those people and their landlords, and the City of Bloomington, or any municipality, should not be allowed to limit a person’s ability to make a living.
Secondly, the current law is nearly impossible to enforce, because despite monitoring websites like Airbnb, there will still be transient lodging made available through Craigslist, WarmShowers, and other websites. People will find a way.
There’s no reason why the City of Bloomington shouldn’t profit from transient lodging, though. If every Airbnb or similar host paid the applicable lodging taxes for their location, hotels would have little reason to complain, as the people renting Airbnb rooms are more likely to camp than pay for a hotel, and the hosts would be paying the same taxes as the hotels.
I propose the following alteration to the City of Bloomington Code of Ordinances subsection 14.577.
14.577 ILLEGAL RENTALS, OCCUPANCY LIMITS AND NO SUBLETTING
An owner may adopt standards that reduce the maximum allowed occupancy of a dwelling unit from the standards set forth herein. The maximum permissible occupancy of any licensed rental dwelling unit is determined according to the 2012 International Property Maintenance Code and as follows.
(a) Not more than one family, except for temporary guests, will occupy a licensed rental dwelling unit.
(b) No one will lease, license or agree to allow the occupancy, possession or tenancy of a licensed rental dwelling unit to more than four unrelated persons.
(c) Tenants of a licensed rental dwelling unit must not lease or sublet the dwelling unit to another without the prior approval of the property owner.
(d) No one will lease, license or agree to allow the use of a dwelling unit, or portion thereof, for transient lodging, unless applicable lodging taxes are paid.
I believe that tax is seven percent for the City of Bloomington. You can find the applicable codes here: http://www.house.leg.state.mn.us/hrd/pubs/lodgetax.pdf.
Since Airbnb hosts must pay taxes on their Airbnb income and fill out a W-9 or other appropriate tax form, collecting the tax would be as simple as applying that seven percent to the Airbnb income already reported each year. Let me know your questions or concerns.
If a member of your city council or an administrator from city hall doesn’t get back to you in a couple of weeks, contact them and ask when it will be addressed. If they say the council isn’t interested in addressing the issue, ask them when the next city council meeting is and attend. There’s always a time for public comment at those meetings, and it’s a good way to get media exposure for your cause and recruit other supporters. There really is strength in numbers, so if you show up to the next city council meeting with 20 people behind you, and every one of them takes the time to speak their mind on the issue, your city council members will have little choice but to refer your suggestion to the ordinance committee for review.
It takes months to accomplish anything in city government, so be prepared for a lot of waiting. Take solace in the fact you’re trying to improve your community by increasing tax revenue for street and sidewalk repair, etc.
So there are three ways to pay less in rent despite housing budget cuts. Next up in our series on how to navigate federal budget cuts, we’ll look at how to get around proposed cuts to energy and transportation.
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