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Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions

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Summer 2013   


        Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions
        How Research Tools Are Assisting Communities To Preserve, Plan Affordable Housing
        Models for Affordable Housing Preservation

Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions


      • The nation's supply of affordable rental housing — both subsidized and unsubsidized — is shrinking, even as demand increases.
      • Preserving existing affordable housing has a variety of economic and social benefits and is typically more efficient than building new units.
      • Federal, state, and local governments and nonprofits are employing creative financing and ownership structures to preserve affordable rental housing in both the public and private stock.

The United States was home to 9.9 million low-income renters in 2010, according to data from the Joint Center for Housing Studies of Harvard University. At the same time, there was a shortfall of 5.1 million rental units in adequate physical condition and affordable to these households.1 The level of unmet demand varies regionally, with long waiting lists and extremely low vacancy rates in expensive markets such as New York City and San Francisco and high vacancy rates and more affordable housing in weaker markets such as Flint, Michigan and Youngstown, Ohio.

In the aggregate, however, the nation's supply of affordable rentals is shrinking. Nearly one out of three homes with a monthly rent of less than $400 in 1999 — affordable to people working full time at minimum wage — had left the affordability stock by 2009.2 Some of these homes were lost through conversion from subsidized to market-rate rentals, from year-round to seasonal uses, or from rentals to ownership. Demolition and abandonment, largely the result of unmet capital needs, claimed others. Although new rental housing is being constructed, these new units, with national median rents reaching $1,000 and more, are generally not affordable to low-income (and even some moderate-income) renters. At the same time, construction rates for subsidized housing have slackened, declining from a mid-1970s high of 300,000 units annually to 75,000 units annually today.3

Preserving existing affordable rental housing offers many advantages over new construction. The nation's stock of government-subsidized affordable rentals represents a taxpayer-funded investment worth billions of dollars.4 The cost of constructing new subsidized and privately owned affordable rental housing from the ground up, says Enterprise Community Partners' Lydia Tom, would be staggering.5 By contrast, preservation typically costs about one-half to two-thirds as much as new construction. Preservation also enables people to stay in their homes and neighborhoods, where they can enjoy the social capital they have built within their communities. In addition, rehabilitation that focuses on energy-efficient upgrades can save tenants, government agencies, and owners money. As Michael Bodaken of the National Housing Trust puts it, "[I]t's less expensive, and smarter," to preserve the affordable housing stock that the nation has already paid to construct.6

Demand for Affordable Rentals Grows

Source: Joint Center for Housing Studies of Harvard University. 2011. “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” Table A-2, 43.
Demographic and economic shifts are expected to increase demand for affordable rentals over the course of this decade. Millennials — those born between the early 1980s and early 2000s — are projected to form 11.3 million new households by 2020. Although immigration has decreased during the recession, the U.S. Census Bureau estimates that yearly net immigration will reach between 1.2 and 1.6 million by 2017, which will fuel additional growth in renter households.7 Increased life expectancy in the United States, particularly among members of the aging baby boomer generation, is increasing the proportion of the population age 75 and over and demand for housing affordable to seniors.8 Together, these demographic forces are expected to increase the number of renter households from 360,000 to 470,000 every year from 2010 to 2020, reaching a total of more than 3.6 million new renter households by 2020.9

Source: Frederick J. Eggers and Fouad Moumen. 2011. “Components of Inventory Change: 2007–2009,” Table ES-1, vi.
Burgeoning numbers of low- and extremely low-income households are also driving demand. From 2000 to 2010, the number of rental households earning $15,000 or less annually grew by 2.2 million.10 Also climbing is the number of people with "worst case" housing needs, which HUD defines as "very low-income renters" making less than 50 percent of area median income (AMI), not receiving housing assistance, and who "paid more than half of their income for rent or lived in severely inadequate conditions" or both. Some 8.48 million households fell into this category by 2011, up 1.38 million from 2009.11

Long-term declines in household income have also contributed to the demand for affordable rentals. Although outcomes vary for different ethnic groups and by gender, Adam Looney and Michael Greenstone of the Brookings Institution found that from 1969 to 2011, annual median earnings of all workers — adjusted for inflation — diminished by 14 percent.12 Rents, however, have continued to climb. Between 1990 and 2010, asking rent for new apartments climbed 7.5 percent while median renter income fell 7.7 percent.13 The wage losses that workers have sustained over the past several decades have left them unable to keep up with rent increases.14

Further exacerbating the rise in demand for affordable rents is the declining rate of homeownership in the United States, which in 2011 reached 64.6 percent, its lowest rate since the American Community Survey began tracking these statistics in 2005. This decline includes former homeowners who became renters through foreclosure or distressed sales during the recession.15

Threats to Privately Owned, Unsubsidized Rentals

Most of the nation's affordable rentals consist of unsubsidized, privately owned multifamily housing. Some 10.1 million privately owned units rent for $599 per month or less, nearly three times the number of similarly priced subsidized homes.16 The availability of rentals at these levels varies depending on the region's housing market, economy, and other factors. For example, whereas San Diego has only 23 units affordable to and available for every 100 renter households making 30 percent or less of AMI, Pittsburgh has 57.17

Across the nation, the scale and ownership of unsubsidized, privately owned rental housing distinguish it from other affordable properties and create distinct challenges for preservation. Many privately owned affordable rentals are small in scale, which the U.S. Census Bureau in 1995 defined as properties comprising five or fewer units (although other sources define "small" as properties with fewer than 10 units, or even fewer than 49 units). These properties primarily have "mom-and-pop" owners; 1998 research from the U.S. Census Bureau found that 92 percent of the owners of multifamily rentals with 10 or fewer units are individuals.18

Source: U.S. Census Bureau, 2011, "American Community Survey," Table B25032. Accessed 9 May 2013.

Source: Joint Center for Housing Studies of Harvard University, 2011, "America's Rental Housing: Meeting Challenges, Building on Opportunities," Table A-5, 46.
The individual-level ownership and the small scale of these unsubsidized properties make financing their upkeep difficult, says Shekar Narasimhan, managing director at Beekman Advisors, because of the high cost of doing business with an individual property owner. "The same amount of energy will go into making a $5 million loan as will go into making a $500,000 loan. But banks charge for these services on a percentage basis. If I charge 1.0 percent, I make $5,000 on the smaller loan and $50,000 on the larger loan. If my cost of making the loan is $10,000 per loan, I lose money on the smaller loan and make money on the larger loan. It's the law of numbers."19 Banks may also balk at lending to these smaller owners because of the fixed costs incurred if a development goes into foreclosure, such as fees for lawyers, court filings, and appraisals. Such fixed costs apply to foreclosures of any size, and they "eat into the value of the property significantly, which means the recovery rates after foreclosure on smaller properties are much lower. Therefore, the lender loses more money when a default takes place," says Narasimhan. As a result, small-scale owners often must put up significant collateral — perhaps even their own home — to access credit, which may inhibit them from seeking a loan to rehabilitate or renovate their property.

Poor physical condition of properties is another challenge to addressing this housing through economies of scale. Research shows that privately owned multifamily rentals typically are older and therefore have higher upkeep. Such properties often have insignificant reserves, in part because of their low rents, and require substantial rehabilitation.20 In addition, because of their small scale and scattered ownership, these multifamily rentals often miss out on energy-efficiency programs offered through utility companies. Together, these qualities make small-scale, privately owned affordable housing unattractive to large-scale investors, which in turn makes adequate property maintenance difficult.21

In stronger markets, privately owned, low-cost rentals have been lost through conversion to condominiums. This type of loss spiked in the mid-2000s; in 2003, only a few thousand homes in multifamily properties were converted to condominiums, and by 2005, that figure reached a peak of 235,000. More than 40 percent of these conversions were located in the southeastern United States. The market for condominium conversion has since cooled in most areas.22

Gentrification poses a special threat to the continued affordability of privately owned stock. A 2010 study from the Dukakis Center for Urban and Regional Policy suggests that transit investments can drive up rent. The researchers conclude that in most communities with new transit options, rising rents "likely caused many [renters] to pay a higher proportion of their income for shelter and could eventually force them to seek housing elsewhere."23 As Bodaken points out, private owners in transit-rich neighborhoods "do not have any reason or regulation to prevent them from moving on to market [rents]."24

Pressures on Subsidized Stock

Unlike most privately owned unsubsidized stock, government subsidized rentals were built specifically to provide affordable rental housing. Under past and present programs including Section 236, Section 8, and the Low-Income Housing Tax Credit program (LIHTC), owners agree to maintain affordable rents for a set period, usually 15 to 30 years, in exchange for federal subsidies. When those agreements expire, owners can either reenroll in the affordability programs or convert their properties to market-rate units. In some cases, private owners can leave subsidized programs before rent restrictions expire by prepaying their mortgages after a set number of years.

Air conditioning installation at Whispering Pines Senior Village in the logging town of Estacada, Oregon, is part of the renovation and green retrofitting of 62 affordable units.
Photo courtesy: Whispering Pines staff/Volunteers of America
Over a period of 10 years beginning in the mid-1960s, the below-market interest rate and Section 236 programs helped create nearly 700,000 affordable rental units. In return for maintaining rent at affordable levels, owners received subsidies to lower the interest rate paid on mortgages insured by the Federal Housing Administration (FHA).25 When owners of these developments became eligible to prepay their mortgages in the early 1980s, HUD created a Preservation Incentives program that provided owners with financial incentives to maintain affordable rents, thereby preserving affordability for nearly 100,000 units.26

Similarly, between 1974 and the mid-1980s, HUD's Section 8 program created about 650,000 units with affordability restrictions lasting 20 to 30 years. Tenants pay 30 percent of their income toward their rent, and the government pays owners the balance. Research suggests that a small percentage of these properties do leave the affordable stock. A 2006 study of 22,471 Section 8 properties consisting of 1.57 million units found that between 1992 and 2004, 7.6 percent of owners opted not to renew affordability provisions or prepaid their mortgages.27 A 2007 study by the U.S. Government Accountability Office found similar rates of renewal; of the 13,218 project-based Section 8 contracts that expired between 2001 and 2005, 92 percent were renewed.28

Unmet physical needs are another threat to the continued affordability and viability of subsidized housing. A 2010 study of the nation's public housing stock calculated the total cost of existing capital needs (including accommodations for people with disabilities and energy- and water-efficiency initiatives) at $25.6 billion, with each unit requiring an average of $19,029 in improvements — a decrease both in the aggregate and at the level of the individual unit since public housing's capital needs were last assessed in 1998.29 Even so, with Congress allocating approximately $2 billion toward public housing's capital needs each year, a significant gap exists between appropriations and the cost of needed repairs.30

Viability Challenges for LIHTC Units

A key tool for creating and preserving affordable rentals is LIHTC, established in 1986 and administered by the U.S. Department of the Treasury, which provides incentives for the private market to build affordable housing. In exchange for tax credits (which are sold to investors to raise funds for development), owners agree to maintain affordable rents for a set period of time. LIHTC properties placed in service before 1989 require affordable rents for 15 years; that term increased to 30 years in 1990. At "Year 15," the tax-credit investor can exit the deal, requiring the owner to either buy out the investor's portion or sell the building.31 However, unlike other subsidized housing, studies suggest that — so far — expiring affordability provisions are not a great threat to LIHTC properties' affordability. Even after these restrictions have expired, remaining rent restrictions from other funding sources and/or prohibitively high rehabilitation costs have deterred owners from converting these properties to market-rate housing.32 Research commissioned by HUD and submitted by Abt Associates likewise shows that most LIHTC properties remain affordable even without federal restrictions.33

The main threat to LIHTC properties' long-term affordability and viability stems from the cost of physical improvements. Research on LIHTC buildings put into service after 1989 found that at Year 15, approximately 21 percent of developments needed an average of $7,348 per unit in rehabilitation expenses, but the properties held only $1,630 per unit in their reserve funds. Current per-unit rehabilitation costs may be relatively low, but if they go unmet, these costs may constitute an increasing threat to affordability as these units age.34

Economic Benefits of Preservation

In addition to meeting demand for affordable rentals and upgrading housing stock that has already been built, preservation can offer economic benefits. Affordable rentals redeveloped through the MacArthur Foundation's Window of Opportunity initiative, which has rehabilitated rentals in 37 states, cost about $81,000 per unit, half the cost of comparable new units.35 According to a 2013 study by the Center for Housing Policy on affordable multifamily rental housing, these savings are realized even when accounting for the full life cycle of a property. Although costs such as maintenance expenses may be higher over the life of a rehabilitated property, rehabilitation is still more cost effective than new construction. Including such long-term considerations and controlling for "location, project size, average unit size, building type, [and] year of development," the study finds that new construction costs between $40,000 and $71,000 more than acquiring and rehabilitating existing developments.36

A number of factors contribute to the high costs of new construction. According to the Federal Reserve Board, residential land costs have grown about 250 percent more quickly than inflation since 1975, although land costs do vary regionally and did fall during the recent recession.37 In addition, as a 2004 paper from Harvard University's Taubman Center for State and Local Government found, the cost of the "right to build" — securing regulatory approval for new construction in certain expensive markets — has also increased over the past several decades and constitutes yet another costly, although variable, factor in new construction.38 Finally, says Allison Clark, program officer in the MacArthur Foundation's Program-Related Investments program, in any new tax-credit project, "there is so much soft-cost that goes into it," such as closing fees, that preservation does not incur.

In addition to high building costs, rising land prices, and land-use restrictions that make replacing low-cost units with new affordable construction difficult, another reason to preserve affordable rental housing is the positive effects of rehabilitated development on the community. For example, in gentrifying neighborhoods, preserving affordable rental housing promotes economic diversity, creating or sustaining a mixed-income neighborhood. This diversity can be important to long-term residents who stayed during "what we call the ‘bad' times. They should have a shot at living there during the ‘good' times," says Bodaken.39 Helping these residents afford to stay in their neighborhood allows them to take advantage of improvements such as better performing schools, improved job access, and increased access to transit. This is why in gentrifying neighborhoods, says Enterprise's Lydia Tom, "it's very important to…support the acquisition and preservation of affordable housing…while it's still affordable."40

Preservation restores vacant buildings to a city's housing stock, and research shows that restoration also benefits neighborhoods. For example, studies of New York City show that affordable rental housing has attracted private investment and improved community safety.41 A 2012 case study of the Bradhurst area in Harlem commissioned by the New York State Association for Affordable Housing showed that, following publicly funded rehabilitation of vacant rental housing, the percentage of residents living below the poverty level dropped and median annual household income rose 200 percent, from $11,000 to $32,000. Although the increased median income is in part a sign of gentrification, the study's authors explain that "the development of affordable units created housing where there was none" — by restoring vacant buildings — "so the influx of moderate-income households did not result in displacement of existing families and households."42 Other studies, also of New York City, have shown similar results for housing rehabilitation completed by both nonprofit and for-profit organizations.43

Federal Solutions to Preserving Affordability

The Moses Dewitt Redevelopment project in Syracuse, New York will rehabilitate and preserve 37 apartments for very low-income seniors.
The federal government has created a number of programs that address preservation of subsidized and privately owned stock.44 In 1997, Congress launched the Mark-to-Market (M2M) program, partly in anticipation of the large numbers of Section 8 properties whose affordability requirements were set to expire in the late 1990s and partly in response to the subsidized developments' rents, which, due to automatic yearly increases, often exceeded the neighborhood's market rate.45 The legislation empowered HUD to "mark down to market rents" those projects that had mortgages guaranteed by FHA and that were renewing their Section 8 contracts.46 To give owners an incentive to renew, the program also restructured mortgages, making partial or full payment of the FHA-insured first mortgage and replacing it with a smaller, often FHA-insured, mortgage. In the case of a full restructuring, the difference between the original and reduced mortgages could remain as a second mortgage, payable only if funds were available or the property was sold. At the time of the restructuring, owners would agree to a new 30-year affordability agreement.47 Researchers estimate that the program will save $831 million over 20 years, or about $28 per unit each month.48 In this way, M2M succeeded in preserving Section 8 properties' long-term affordability while also saving the federal government money.

Preservation through rehabilitation, particularly when it focuses on energy-efficient upgrades, is another means for HUD, property owners, and tenants to realize economic benefits. Annual utility costs for the nation's subsidized housing are an estimated $7.1 billion, $6.4 billion of which HUD is responsible for paying.49 Lower-income households often live in older, less-efficient homes with older appliances that drive up utility costs. In fact, low-income residents' homes use about 12,000 more BTUs per square foot than the average home.50 Programs such as the Green Retrofit Program (GRP), a $250 million initiative funded by the American Recovery and Reinvestment Act of 2009, provided funds for retrofits and upgrades that increase energy efficiency.51 GRP, which ended in September 2012, reached 19,000 units in 221 properties; each home received an average of $13,000 in efficiency improvements, and owners of enrolled projects were required to add 15 years to their properties' affordability restrictions.52 Thanks to this investment, GRP properties will save a projected $12 million each year on utilities — savings that are passed on to property owners, tenants, and HUD.53 Equally important, these energy savings will reduce greenhouse gas emissions. Clark notes that preservation through retrofitting builds on the "same carbon footprint that's already been put in place," with preexisting hookups to water, sewer, and other existing infrastructure.54

HUD's Rental Assistance Demonstration (RAD), a new, budget-neutral pilot program addressing subsidized housing at risk of leaving the affordable rental stock through unmet capital needs and expiring Section 8 contracts, enables owners and public housing agencies to shift housing developments to the Section 8 platform.55 Doing so gives these owners access to private and public debt and equity, including LIHTCs, HOME and Community Development Block Grant funds, and private-market investment, enabling rehabilitation or even replacement of decrepit units.56 In this way, says Patrick Costigan, senior adviser to HUD Secretary Shaun Donovan, RAD meets public housing's "enormous capital backlog" without adding financial obligations to the federal government.57 The legislation authorizing the RAD program also ensures that tenants will retain the rights and protections they are afforded under the Housing Act of 1937.

RAD is administered through the Office of Multifamily Housing Program's Office of Affordable Housing Preservation (OAHP) and consists of two components. In the first, competitive component, private owners and public housing agencies put together funding sources, then apply to convert public housing and Moderate Rehabilitation homes to a long-term, property-based Section 8 contract, extending affordability for at least 15 years. At the time of this writing, awards have been made to 78 public housing agencies proposing to convert more than 14,000 units, and 2 Mod Rehab owners.

During the initial application period, says Costigan, selected proposals ranged from complete replacement (22%) to rehabilitation costing $50,000 and more per unit (24%). Other proposals involve modernizing the housing (22% of all rehabilitation projects) or adding funds to the property's reserves, which enables owners to budget for future maintenance. Putting money into reserves is noteworthy, explains Costigan, because "[y]ou can't do that in public housing. You basically get an allocation and do the best you can. By going onto a Section 8 platform, you can budget for replacement." In addition, these proposals are evidence that public housing agencies are employing funding mechanisms used by other developers of affordable housing, such as 4- and 9-percent LIHTCs.58 "A whole range of secondary or gap financing is now available to [public housing agencies]," Costigan observes. "With this tool, public housing agencies are more able to be the community-based affordable housing developers, owners, and managers that they really are."

The first rounds of submissions have proposed approximately $977 million in total financing, $650 million of which is for construction costs. Those figures include $257 million in first mortgage proceeds from lenders, an expected $409 million through 4- or 9-percent LIHTCs, and $237 million in gap financing, including HOME or state trust funds. Bank of America, Deutsche Bank, Enterprise Community Investment, the National Equity Fund, and Local Initiatives Support Corporation have all committed funds at this time.59

RAD's second component, initiated in March 2012, allows affordable properties developed through certain programs that the government has not renewed to transfer to long-term Section 8 contracts through the project-based voucher program, which subsidizes rentals on specific units. This conversion will preserve the affordability of the units for at least another 15 years. Although no estimate of this stock's capital needs is available, these properties do have a backlog of needed repairs.60 As with Section 8 housing, residents of these properties pay no more than 30 percent of their income for rent. Thus far, HUD has prioritized proposals whose affordability provisions are expiring in fiscal year 2013; additional letters of interest, representing developments expiring in later years, are in the queue.61 To date, nearly 50 private owners have received approval to convert approximately 5,000 units through this RAD component.

The New York State Weatherization Assistance program assists income-eligible households in reducing heating and cooling costs with energy-efficiency measures such as air sealing, insulation, and improvement or replacement of heating systems, lighting, and appliances.
Photo courtesy: New York State Weatherization Directors Association
Because RAD is a pilot program, no data yet exists on its efficacy or its effect on tenants, although an evaluation is planned. Slots are still available, and the program is accepting applications on a rolling basis.62 HUD released an updated RAD notice in July, which Costigan says makes it easier for owners or public housing agencies seeking to bundle together many projects in a single application. Notably, despite sequestration's spending cuts and its impact on Section 8, HUD plans to try to shield those public housing agencies taking part in RAD from automatic cuts by maintaining approved projects' rent levels.63

In addition to RAD, HUD's Office of Multifamily Housing Programs has initiated preservation programs targeting other HUD legacy properties. Specifically, OAHP is spearheading affordability preservation programs targeting Section 236 and Section 202 properties. Both programs directly subsidized the development of thousands of units of affordable rental housing from the 1950s through the 1970s. These mortgages are approaching or have reached their maturity dates. In addition, many owners are seriously considering refinancing their HUD mortgages, which would terminate any current affordability restrictions. Not only are current low interest rates a strong incentive to refinance, but most 236 and 202 property owners also have deferred maintenance costs in serious need of capital. HUD is proactively addressing this trend by creating financial incentives for owners to preserve their properties' affordability.

Owners and purchasers of Section 236 properties with impending mortgage maturity dates often need HUD assistance not only to preserve affordability for tenants but also maintain the long-term physical and financial viability of their properties. Preservation transactions typically involve prepaying an existing Section 236 loan, first mortgage refinancing (either with or without FHA mortgage insurance), and securing new, additional sources of capital financing such as LIHTC equity. These Section 236 prepayment requests often require various additional approvals from HUD, including the decoupling of the 236 Interest Rate Payment from the 236 prepayment, deferral of Flexible Subsidy loan repayments, and unit conversions.

Effective July 1, 2013, HUD's Office of Multifamily Housing Programs initiated a centralized processing model for most Section 236 preservation activities through OAHP. This initiative is designed to streamline and expedite HUD approvals of these preservation transactions.

The Section 202 Supportive Housing for the Elderly Act of 2010 authorizes HUD to provide Senior Preservation Rental Assistance Contracts (SPRACs) with 20-year terms to eligible Section 202 property owners. The SPRAC program prevents the displacement of existing income-eligible tenants of eligible Section 202 properties that can result when property owners seek to prepay the existing mortgage and refinance the property to generate capital for property maintenance. HUD's portfolio of Section 202 Direct Loan properties includes approximately 18,200 unassisted units; over the next decade, an average of 2,000 unassisted units per year are at risk of expiring affordability due to maturing Section 202 loans.

In fiscal year 2012, $16 million was made available for SPRAC funding, which HUD anticipates could assist up to 2,000 currently unassisted income-eligible tenants. SPRAC funds will be awarded to support currently unassisted tenants who may be either low-income (80% of the applicable AMI) or very low-income families (50% of AMI), as determined by HUD. In addition to protecting existing tenants from displacement, SPRAC assistance supports the long-term preservation and affordability of these pre-1974 Section 202 Direct Loan projects. The prepayment of the Section 202 mortgage, in conjunction with the rehabilitation of the project and the provision of a SPRAC, will facilitate the improvement of the project and its long-term preservation as affordable housing for both current and future tenants. HUD's SPRAC award criteria prioritize applications for properties that commit to serving very low-income tenants and completing substantial rehabilitation.

State and Local Approaches

State and local approaches to affordable rental housing preservation include acquisition funds, tax increment financing, tax abatements, and regulatory tools designed to incentivize owners to upgrade their rental properties.
On a macro level, some states prioritize preservation of both privately owned and subsidized rentals by specifically targeting portions of tax credit allocations and federal funds for preservation projects.64 For example, Delaware, Florida, Massachusetts, and Ohio earmark between 35 and 50 percent of their LIHTCs for preservation projects. Kansas, New York, Oregon, and Wisconsin have all set aside percentages of their states' Weatherization Assistance Program (WAP) funds, which make capital improvements keyed to energy-efficiency and the reduction of greenhouse gas emissions. Massachusetts earmarked $6 million WAP funds specifically for privately owned, subsidized properties — a significant move because these properties tend to be older and less energy efficient.65

Other approaches enable cities to anticipate changes to affordable rentals and thereby prevent their loss. By municipal code, San Diego, among other communities, requires one-to-one replacement of any affordable rentals that are razed, removed from the stock, or converted to condominiums.66 Similarly, communities developing mass transit systems have protected nearby affordable rentals through community benefit agreements that stipulate, as part of the contract, that developers must preserve affordable housing. Cities such as Denver, Colorado have provided transit-oriented development acquisition funds and philanthropic grants to nonprofits that buy affordable housing around the area slated for transit, thereby protecting their long-term affordability.67

A handful of cities and states have captured funds for rehabilitation, land acquisition, and affordable housing through tax increment financing (TIF). Municipalities designate a tax increment district and then devote the portion of tax revenue that exceeds a projected baseline toward specific projects within the district. In some cases, a percentage of TIF revenue is statutorily earmarked for affordable housing. In California, this model netted some $1.2 billion for housing funds that work with low- and moderate-income housing.68 Chicago has also deployed TIF as part of its 2009–2013 plan to preserve the city's affordable rentals; with it, owners of multifamily rentals whose residents make 80 percent or less of AMI can take TIF-funded grants of up to $100,000 to upgrade their buildings' exteriors and safety features. The cities of Atlanta, Kansas City, and Austin, as well as the states of Florida and Maine, also use TIF for preservation.69

Another approach used to assist owners with the upfront costs of preservation, such as acquiring buildings or land, is bridge financing, which provides loans to non- and for-profit developers otherwise unable to make those acquisitions and pay for "soft" predevelopment costs. For example, the New York City Acquisition Fund, a public-private initiative launched in 2006, includes philanthropies, the city of New York, and such financial institutions as JPMorgan Chase, Citibank, Fannie Mae, and Deutsche Bank. The fund has invested some $140 million in preservation funds throughout the city, thereby preserving the affordability of 2,600 homes.70 The Acquisition Fund's structure has since been duplicated in other cities, including Chicago and Los Angeles. Its successful and creative approach to a seemingly intractable problem — the high costs of land and property in major cities — earned it a 2008 Innovation in American Government Award from Harvard University. In a similar initiative, the recently formed Housing Partnership Equity Trust has joined with 12 nonprofit partners across the country to invest $100 million in multifamily affordable housing (see "Philanthropy's Role in Funding Preservation").71

Finally, municipalities use regulatory tools to make it easier, or more financially attractive, for owners to upgrade their affordable rental properties.72 Tax abatements, for example, which freeze taxes at a certain level, are one tool commonly used in New York City to induce owners to rehabilitate these properties. Streamlining the financing process is another way that localities create incentives for owners to rehabilitate their properties and maintain their affordability.

In addition to these regulatory and tax-related strategies, preservation databases, including one built by the Furman Center for Real Estate and Urban Policy at New York University, track and provide information about at-risk properties. The Furman Center's database collates information from multiple sources on subsidized rental properties in New York City that are privately owned. The database contains details on 40 property-level variables, including subsidy, ownership, and physical and financial information that help identify opportunities to preserve affordability (see "How Research Tools Are Assisting Communities To Preserve, Plan Affordable Housing").73 Likewise, the National Housing Trust maintains a list of all project-based Section 8 housing whose contracts will expire in the next five years.74 These data are crucial, says MacArthur's Allison Clark, "It's a much harder job to get your hands around what you already have than you would expect." For instance, Clark explains that some subsidized deals date from before widespread use of computer systems, which can make them difficult to track. Cities, states, and HUD track properties differently, so projects can fall through the cracks or be double-counted. Finally, she says, tracking market-rate, privately owned developments that provide critically needed affordable housing "is a big challenge." These developments might not be tracked without these initiatives, so the critical housing needs that they meet — and the threats posed to them, such as conversion to condominiums — may be invisible.

The Future of Preservation

Increasingly, the need to meet the demand for affordable rental housing is being addressed through collaboration among different levels and branches of government and among private, public, and philanthropic groups. These groups are motivated to preserve affordable housing because of its impact at the individual household, neighborhood, and community level. For low-income households, preservation safeguards affordability during a time of rising housing costs and shrinking incomes. It further helps revitalize and stabilize neighborhoods that can offer access to opportunity. More economical than new construction, for which there is inadequate funding, preservation also reuses buildings, takes advantage of existing public infrastructure, conserves green space, and reduces utility costs and greenhouse gas emissions. Interagency work groups that include nonprofit and public entities coordinate efforts, such as Illinois' Cook County Preservation Compact, and share data about homes most at risk of converting to market-rate rents or falling out of use due to disrepair. Together, these diverse stakeholders are leveraging the knowledge, resources, and data needed to protect residents living in affordable rentals today and to meet future demand for such housing.

Related Information:

Philanthropy's Role in Funding Preservation

  1. Joint Center for Housing Studies of Harvard University. 2012. “The State of the Nation’s Housing 2012,” 25, 37.
  2. _____. 2011. “America’s Rental Housing: Meeting Challenges, Building on Opportunities,” 6.
  3. Ibid., 35.
  4. The John D. and Catherine T. MacArthur Foundation. 2007. “Window of Opportunity: Preserving America’s Rental Housing,” 2–3.
  5. Interview with Lydia Tom, March 2013.
  6. Interview with Michael Bodaken, March 2013.
  7. Louise Keely, Bart van Ark, Gad Levanon, and Jeremy Burbank. 2012. “The shifting nature of U.S. housing demand,” The Demand Institute, 20.
  8. Karen M Gibler. 2003. “Aging subsidized housing residents: a growing problem in U.S. cities,” The Journal of Real Estate Research 25:4, 396.
  9. Joint Center for Housing Studies of Harvard University 2011, 6, 18.
  10. Joint Center for Housing Studies of Harvard University 2012, 25.
  11. U.S. Department of Housing and Urban Development, Office of Policy Development and Research. 2013. “Worst Case Housing Needs: Report to Congress,” 1.
  12. Michael Greenstone and Adam Looney. 2011. “Trends: Reduced Earnings for Men in America,” The Hamilton Project, 13.
  13. Joint Center for Housing Studies of Harvard University 2011, 43.
  14. U.S. Department of Housing and Urban Development 2013, 2; For more on renters’ incomes and rents, see also Rob Collinson. 2011. “Rental Housing Affordability Dynamics, 1990–2009,” Cityscape 13:2, 71–103.
  15. Fannie Mae. 2012. “Rental Resurgence Marked by Single-Family Expansion and Diverging Affordability Trends for Owners and Renters,” Fannie Mae Housing Insights 2:5, 2; Jim Logue. 2011. “Homeownership versus rental housing,” Journal of Affordable Housing & Community Development Law 20:2, 240–1.
  16. Joint Center for Housing Studies of Harvard University 2011, 22.
  17. Collinson, 91–2.
  18. Howard Savage. 1998. “What we have learned about properties, owners, and tenants from the 1995 Property Owners and Managers Survey,” U.S. Census Bureau, 3.
  19. Interview with Shekar Narasimhan, March 2013.
  20. David J. Reiss. 2010. “Landlords of last resort: Should the government subsidize the mortgages of privately-owned, small multifamily buildings?” Western New England Law Review, 31; Philip M.E. Garboden and Sandra Newman. 2012. “Is preserving small, low-end rental housing feasible?” Housing Policy Debate 22:4, 507–26; Interview with Shekar Narasimhan.
  21. Kate Johnson and Eric Mackres. 2013. “Scaling up multifamily energy efficiency programs: a metropolitan area assessment,” American Council for an Energy-Efficient Economy; Garboden and Newman, 508.
  22. Joint Center for Housing Studies of Harvard University. 2008. “Rental Production and Supply,” 11.
  23. Stephanie Pollack, Barry Bluestone, and Chase Billingham. 2010. “Maintaining diversity in America’s transit-rich neighborhoods: tools for equitable neighborhood change,” Dukakis Center for Urban and Regional Policy, 24–5.
  24. Interview with Michael Bodaken.
  25. Meryl Finkel, Charles Hanson, Richard Hilton, Ken Lam, and Melissa Vandawalker. 2006. “Multifamily Properties: Opting In, Opting Out and Remaining Affordable,” Econometria, Inc. and Abt Associates, 1.
  26. Richard Hilton, Charles Hanson, Joanne Anderson, Meryl Finkel, Ken Lam, Jill Khadduri, and Michelle Wood. 2004. “Evaluation of the Mark-to-Market Program,” Econometria, Inc. and Abt Associates, 2.
  27. Finkel, Hanson, Hilton, Lam, and Vandawalker, 14, 24.
  28. Government Accountability Office. 2007. “Project-Based Rental Assistance: HUD Should Update Its Policies and Procedures to Keep Pace with the Changing Housing Market,” 3.
  29. Meryl Finkel, Donna DeMarco, Hin-Kin (Ken) Lam, and Karen Rich. 2000. “Capital Needs of the Public Housing Stock in 1998,” 2; Meryl Finkel, Ken Lam, and Christopher Blaine, et. al. 2010. “Capital Needs in the Public Housing Program,” vii, iv-v, 41–9, 59–60.
  30. Committee Reports, 112th Congress, “Senate Report 112-083.”
  31. Interview with Lydia Tom.
  32. Edwin Melendez, Alex F. Schwartz, and Alexandra de Montrichard. 2008. “Year 15 and Preservation of Tax-Credit Housing for Low-Income Households: An Assessment of Risk,” Housing Studies 23:1, 67–87.
  33. Jill Khadduri, Carissa Climaco, Kimberly Burnett, Laurie Gould, and Louise Elving. 2012. “What Happens to Low-Income Housing Tax Credit Properties After Year 15 and Beyond?,” 66.
  34. Melendez, Schwartz, and Montrichard, 72; Khadduri, Climaco, Burnett, Gould, and Elving.
  35. MacArthur Foundation. 2007. “Window of Opportunity: Preserving Affordable Rental Housing”; MacArthur Foundation. 2009. “Window of Opportunity: Investment Summary,” 1.
  36. Maya Brennan, Amy Deora, Anker Heegaard, Albert Lee, Jeffrey Lubell, and Charlie Wilkins. 2013. “Comparing the Costs of New Construction and Acquisition-Rehab In Affordable Multifamily Rental Housing: Applying a New Methodology for Estimating Lifecycle Costs,” Center for Housing Policy, 11.
  37. Joseph B. Nichols, Stephen D. Oliner, and Michael R. Mulhall. 2010. “Commercial and Residential Land Prices Across the United States,” Finance and Economics Discussion Series, Divisions of Research & Statistics and Monetary Affairs. Federal Reserve Board, Washington, DC, 21.
  38. Edward L. Glaeser, Joseph Gyourko, and Raven E. Saks. 2004. “Why Have Housing Prices Gone Up?,” A. Alfred Taubman Center for State and Local Government, Harvard University, John F. Kennedy School of Government.
  39. Sheila Crowley and Danilo Pelletiere. 2012. “Affordable Housing Dilemma: The Preservation vs. Mobility Debate,” National Low Income Housing Coalition, 23; Interview with Michael Bodaken.
  40. Interview with Lydia Tom.
  41. Alex Schwartz. 2010. “New York City and Subsidized Housing: Impacts and Lessons of the City’s $5 Billion Capital Budget Housing Plan,” Housing Policy Debate 10:4, 839–77.
  42. New York State Association for Affordable Housing. 2012. “Economic Impacts of Affordable Housing on New York State’s Economy,” 33–4.
  43. Ingrid Gould Ellen and Ioan Voicu. 2006. “Nonprofit Housing and Neighborhood Spillovers,” Journal of Policy Analysis and Management 25:1.
  44. State of Nevada Disaster Recovery Grant Reporting System. 2012. “October 1 Thru December 31, 2012 Performance Report”; Florida Housing Coalition. n.d. Neighborhood Stabilization Program; Chicago Rehab Network. 2009. NSP2 Consortium Program Summary; Bill Healy. 2011. Chicago NSP helps fill demand for affordable rental housing.
  45. Richard Hilton, Charles Hanson, Joanne Anderson, Meryl Finkel, Ken Lam, Jill Khadduri, and Michelle Wood. 2004. “Evaluation of Mark-to-Market Program,” vi.
  46. National Low Income Housing Coalition, HUD Notice Helps Nonprofits Preserve Affordable Housing.
  47. Hilton et al., vii-viii.
  48. Ibid., xi.
  49. U.S. Department of Housing and Urban Development. 2012. “Affordable Green: Renewing the Federal Commitment to Energy-Efficient, Healthy Housing,” Progress Report and Energy Action Plan: Report to Congress, Section 154, Energy Policy Act of 2005, 5.
  50. Energy Programs Consortium. 2009. “Bringing Residential Energy Efficiency to Scale: National Residential Energy Efficiency Program,” 4.
  51. U.S. Department of Housing and Urban Development. 2009. Notice H 09-02: Green Retrofit Program for Multifamily Housing (GRP).
  52. U.S. Department of Housing and Urban Development 2012, 16; Office of Affordable Housing Preservation Resource Desk. “Frequently Asked Questions.” Accessed May 2013.
  53. U.S. Department of Housing and Urban Development 2012, 15.
  54. Interview with Allison Clark, May 2013.
  55. Sandra Henriquez and Carol Galante. 2013. “National Launch of Groundbreaking Rental Assistance Demonstration to Preserve and Strengthen Public, Other HUD-Assisted Housing,” The HUDdle (blog), 17 January.
  56. Scott Hoekman and John Griffith. 2013. “HUD’s Rental Assistance Demonstration: A bold plan for preserving affordability in an era of austerity.” Enterprise Community Partners.
  57. Rental Assistance Demonstration Forum, HUD channel.
  58. Hoekman and Griffith, 3.
  59. Interview with Patrick Costigan, May 2013.
  60. Ibid.
  61. Department of Housing and Urban Development. “Rental Assistance Demonstration: Application and Conversion Request Award Summary.” Accessed May 2013.
  62. U.S. Department of Housing and Urban Development, “Rental Assistance Demonstration.” Accessed 23 June 2013.
  63. U.S. Department of Housing and Urban Development. 2013. “Notice PIH-2012-32 (HA), REV-1.” Accessed 5 August 2013.
  64. Michael Bodaken. 2011. “Low Income Housing Tax Credit: Preservation Trending,” presentation to National Council of State Housing Agencies annual Housing Conference and Marketplace.
  65. National Housing Trust. 2010. “Multifamily Weatherization State Best Practices, Fact Sheet.”
  66. San Diego Development Services Department. 2006. “Condominium Conversion” and San Diego Municipal Code, Chapter 14, Article 3, Division 8, “Coastal Overlay Zone Affordable Housing Replacement Regulations.”
  67. Stephanie Pollack, Barry Bluestone, and Chase Billingham. 2010. “Maintaining Diversity in America’s Transit-Rich Neighborhoods: Tools for Equitable Neighborhood Change,” Dukakis Center for Urban and Regional Policy, 42.
  68. Jeffrey Lubell. 2006. “Increasing the Availability of Affordable Homes. A Handbook of High-Impact State and Local Solutions,” Center for Housing Policy, 8.
  69. PeopleTrust. 2011. “Tax Increment Financing Case Studies.”
  70. New York City Acquisition Fund. n.d. “Overview.” Accessed 21 June 2013; New York City Department of Preservation & Development. 2005. “Mayor Bloomberg Announces Historic Collaboration With National Charities And Financial Institutions For The Building And Preservation Of Affordable Housing,” 14 October press release.
  71. MacArthur Foundation. 2013. “Housing Partnership Equity Trust Launches With $100 Million In Funding for Affordable Multifamily Housing,” 29 April press release.
  72. New York State Homes and Community Renewal. “Fact Sheet #41: Tax Abatements.” Last updated 2011.
  73. Jaclene Begley, Caitlyn Brazill, Vincent Reina, and Max Weselcouch. 2011. “State of New York City’s Subsidized Housing,” Furman Center and The Institute for Affordable Housing Policy.
  74. See National Housing Trust, “Project-Based Section 8 State Reports.” Accessed 1 June 2013.


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