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Models for Affordable Housing Preservation

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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

Models for Affordable Housing Preservation


      • Preservation compacts such as those in Cook County, Illinois, and the state of Ohio are grant-based initiatives that take a highly collaborative and multipronged approach to affordable rental housing preservation, with strategies focusing on analyzing data for at-risk properties, facilitating partnership across levels of government, and reducing operating costs.
      • State housing trust funds, including those in Washington and Delaware, use a dedicated public source of revenue to fund affordable housing projects. These programs are typically administered by public agencies and offer states flexibility in supporting their local needs.

As demographic changes and weak economic conditions are increasing demand for affordable housing, the inventory of affordable units is shrinking nationwide. Foreclosure, age-related deterioration, rising maintenance and utility costs, demolition, and expiring use restrictions and affordability controls cause a significant loss of affordable units each year, and high construction costs and lengthy development processes make replacing all of these units with new housing impractical (see "Preserving Affordable Rental Housing"). Preserving the existing affordable stock is therefore critical to meeting the housing needs of low- and moderate-income families. But property owners, nonprofits, and governments working to preserve this stock face numerous obstacles ranging from timely identification of at-risk properties to obtaining necessary financing and navigating complex administrative and regulatory requirements.

This article looks at two notable approaches to addressing some of the key challenges in affordable housing preservation: preservation compacts and state housing trust funds. The Preservation Compact of Cook County, Illinois, and the Ohio Preservation Compact are grant-based initiatives that take a comprehensive, highly collaborative, and multipronged approach to affordable rental housing preservation. State housing trust funds such as those in Washington and Delaware use a dedicated and ongoing public source of revenue to fund affordable housing projects. Typically administered by public agencies, trust funds offer states a flexible way to support locally determined critical housing needs.

Preservation Compact of Cook County

Swift action by the Preservation Compact’s Interagency Council helped preserve this affordable 30-unit rental development at 5800 S. Michigan Avenue in the city of Chicago.
The Preservation Compact/Photo by John Booz
With 5.2 million residents, Cook County in northeast Illinois is the nation's second most populous county. About 40 percent of residents in the county, which includes the city of Chicago, are renters, and more than half of these renters pay 30 percent or more of their income toward housing costs.1 Although the need for affordable rental housing in the county has been steadily increasing over the years, the supply of such housing has been declining. According to the Institute for Housing Studies at De-Paul University (IHS), the gap between demand and supply of affordable rental housing amounted to nearly 180,000 units in 2009, and this number is expected to increase 30 percent by 2020 as existing affordable units are lost to foreclosures, expiring federal subsidies, condominium conversion, and demolition.2 The Preservation Compact (the Compact) aims to reverse this trend and stem the loss of affordable rental housing in Cook County.

The Compact was created in 2005 as leaders from government, business, and nonprofit organizations in the region formed a broad-based coalition with support from the MacArthur Foundation. The MacArthur Foundation, headquartered in the city of Chicago, funds the Compact through multiyear grants as part of its Window of Opportunity initiative, a 10-year, $150 million commitment to preserve affordable rental housing nationwide. Within this initiative, the Compact is the Foundation's "effort to go deep in Chicago with a more comprehensive approach."3

"The heart of what we're doing is about creating an environment that is more supportive of the operation and preservation of affordable rental units," explains John G. Markowski, president of the Community Investment Corporation (CIC), which serves as the Compact's coordinator.4

A Comprehensive Approach

In 2007, with input from more than 100 housing experts and community and civic leaders, Compact partners identified several key strategies to preserve and improve affordable rental housing in Cook County for both government-assisted and unassisted properties.5 These strategies focus on collecting and analyzing data on at-risk properties; facilitating collaboration among federal, state, and local agencies to preserve subsidized rental units; and reducing operating costs. Together, they represent a comprehensive approach to dealing with the complex and challenging issues involved in affordable housing preservation.

Preservation Compact partners are working to create financing products that will allow investors to purchase and rehabilitate groups of two- to four-unit rental buildings in Cook County.
The Preservation Compact/Photo by John Booz
Data Collection. A key initiative at the core of the Compact is IHS, part of DePaul University's Real Estate Center. IHS provides web-based data, analysis, and research reports that inform Compact activities. The institute assists in dealing with the key challenges of housing preservation: identifying and assessing market trends and the most at-risk properties.

Interagency Collaboration. Compact partners work with the Interagency Council, composed of HUD, the city of Chicago, Cook County, and the Illinois Housing Development Authority, to share information and coordinate the identification and preservation of government-assisted properties at risk of being lost.

Operating Cost Reduction. Compact partners identified two costs that made maintaining the economic viability of affordable rental housing difficult — property taxes and utility costs. "Until 5 years ago in Cook County, multifamily buildings were adversely treated with respect to property taxes when compared with single-family housing. They were routinely assessed at twice the rate of single-family housing," notes Markowski.6 The Compact set out early on to mobilize support for reduced property taxes for multifamily properties. As a result, property tax assessments were restructured through a multiyear step-down so that multifamily rental properties are assessed at the same rate as single-family properties. The Compact also instructs property owners on how to appeal their property tax assessments.

The Energy Savers program, run by Compact partners Center for Neighborhood Technology and CIC, provides property owners with technical assistance and low-cost financing to make energy-efficiency improvements and increase their net operating profit. By early 2013, the Energy Savers program completed 10,191 retrofits, saving 6.6 million kilowatt hours and 2.5 million natural gas therms. CIC loans and grants to the program totaled nearly $10 million.7 "For a modest improvement of about $3,000 per unit, we're generating savings of about 30 percent on the typical utility bill for multifamily housing, and that's cutting the cost by about $10,000 a year for a 24-unit building. Our challenge here is to bring that to more scale. We have a very significant scale already, but we want to do a lot more," explains Markowski.8

Expanded Focus

The Preservation Compact has expanded its focus over time to meet changing market conditions. Among the Compact's new strategies is targeting the unique funding and rehabilitation challenges of two- to four-unit buildings. "We knew anecdotally that it's really tough in the most distressed areas to redevelop buildings of this size," notes Stacie Young, the Compact's director. IHS' analysis of at-risk affordable housing determined "that in Chicago 38 percent of the rental stock is in two- to four-unit buildings. So we added a working group to focus on ways to redevelop these buildings," says Young. The working group found that no products exist to finance groups of two- to four-unit buildings purchased by investors. "Now CIC is creating a new financing product, because we realized there's a gap in this sector," explains Young.9 In addition to Cook County, the MacArthur Foundation has funded preservation efforts in 13 other states and localities through the Window of Opportunity Initiative.10 The Ohio Preservation Compact is one such effort, modeled after the Preservation Compact of Cook County, that focuses on federally assisted rental housing.

Ohio Preservation Compact

Part of financing for the rehabilation of Doan Classroom Apartments in Cleveland, Ohio came from the Ohio Preservation Loan Fund. Listed on the National Register of Historic Places, this building offers 45 affordable senior housing units.
Photo credit: Rhonda Snyder
In 2009, with $5 million in funding from the MacArthur Foundation, three statewide agencies — the Ohio Housing Finance Agency, the Coalition on Homelessness and Housing in Ohio, and the Ohio Capital Finance Corporation — formed the Ohio Preservation Compact (Ohio Compact). The Ohio Compact's goal is to preserve 14,000 affordable rental units throughout the state over a 10-year period.11 Although the Ohio Compact modeled its scope of work, funding strategies, and collaborative partnerships after those of Cook County's Preservation Compact, its strategies are tailored to fit Ohio's rental housing needs.12 Multiple factors, including a high unemployment rate and an "exponential rise in foreclosures throughout rural and urban communities," led to steadily increasing demand for affordable rental housing in Ohio. Additionally, due to deterioration, aging out of subsidy protection, and gentrification, the state faces a loss of nearly a fourth (43,000 units) of its subsidized rental housing stock.13

To meet its preservation goals, the Ohio Compact adopted strategies that range from implementing a sustainable preservation loan fund to creating an online database of at-risk properties and engaging key stakeholders in preservation efforts. To identify and assess at-risk properties, the Ohio Compact launched an online database with information on federally assisted housing projects in the state and an early-warning risk analysis tool based on indicators such as HUD's Real Estate Assessment Center physical inspection scores, expiring mortgages, rent to fair market rent ratios, and proportions of efficiency apartments to total units (see "How Research Tools Are Assisting Communities To Preserve, Plan Affordable Housing"). In addition, the Ohio Compact partnered with the state's housing finance agency to develop an affordable housing mapping tool with project-level data. As part of its preservation and public policy initiative, the Ohio Compact connects and communicates with developers, officials, and tenants via quarterly meetings and a discussion listserv.14

Another key accomplishment of the Ohio Compact is the $25 million Ohio Preservation Loan Fund, which provides predevelopment, acquisition, and equity bridge loans with flexible underwriting guidelines and below-market interest rates to nonprofits so they can compete with for-profit investors to acquire at-risk properties.15 Established in August 2010 with an initial term of 5 years, the loan fund has made 31 awards totaling more than $31 million as of the fourth quarter of 2012 (table 1).16,17 The Ohio Compact is more than halfway toward its 10-year goal, having helped preserve more than 8,100 units of federally assisted affordable housing in the state.

Table 1. Ohio Preservation Loan Fund Loan Production 2010–2012
Year of
Number of
Amount ($)
Predevelopment Loan ($) Acquisition
Loan ($)
Equity Bridge
Loan ($)
2010 9 1,069 14,537,409 74,100 8,490,702 5,972,607
2011 14 679 7,338,649 609,960 1,631,429 5,097,260
2012 8 464 9,547,231 205,000 0 9,342,231
Total 31 2,212 31,423,289 889,060 10,122,131 20,412,098

While the preservation compacts in Cook County and Ohio tackle multiple aspects of housing preservation, state housing trust funds focus on providing flexible financing. Unlike the compacts, which are philanthropy-led and supported, state housing trust funds use dedicated public revenue sources to provide funding in the form of loans and grants for preservation projects.

State Housing Trust Funds

Housing trust funds are "distinct funds established by city, county or state governments that receive ongoing dedicated sources of public funding to support the preservation and production of affordable housing and increase opportunities for families and individuals to access decent affordable homes."18 As of April 2013, 47 states and the District of Columbia were using housing trust funds to finance affordable housing development and preservation. Some states, such as Washington, have created more than one state housing trust fund, targeting specific affordable housing goals with each fund.19 An attractive feature of these trust funds is their inherent flexibility. A trust fund can be created that uniquely addresses local housing needs and priorities such as long-term affordable rental housing, the special housing needs of disabled individuals, and low-income homeownership. A 2011 survey of state housing trust funds found that nearly half of the funds also have the flexibility to respond to special or emergency needs beyond their primary objectives.20

Housing trust funds are generally established by state or local ordinance, resolution, or legislation that delineate the purpose of the fund, who will benefit from it, how it will work, and how it will be financed. The most common revenue sources for housing trust funds are real estate transfer taxes and document recording fees.21 Other funding sources include developer fees, taxes (such as property, sales, and hotel/motel taxes), tax increment funds from redevelopment districts, repayments on various loan programs, appropriations, and special allocations from public entities. These public dollars usually come from increases in taxes and fees rather than from other budget line items. Using these funding sources instead of seeking funding approvals during the cyclic governmental budget reallocation process provides housing trust funds with a reliable, steady funding stream. Although the amount of revenue varies annually, these funds usually are dedicated to the housing trust fund and cannot be diverted from it.22

Washington and Delaware were among the first states to establish housing trust funds for the purpose of creating and preserving housing affordable to low- and moderate-income families.

Washington State Housing Trust Fund

The Washington State Housing Trust Fund (HTF) was established in 1986 and first funded in 1987.23 The legislation authorizing HTF specified that the fund is to be a continuously renewable resource designed to assist low-income and very low-income households with basic housing needs.24 Since then, HTF has awarded nearly $1 billion to help build or maintain 40,000 units of affordable housing across the state.25 The trust fund provides grants and loans to local governments and housing authorities, nonprofit organizations, and federally recognized Indian tribes within the state for the development, construction, acquisition, and rehabilitation of affordable housing; proposed preservation of existing housing stock receives preference."26

Before and after pictures of Catalina Apartments in Tacoma, Washington. The federally subsidized housing development was at risk of being converted to market-rate housing when nonprofit developer Mercy Housing acquired and rehabilitated the property with funding from the Washington State Housing Trust Fund.
Photo courtesy: Mercy Housing Northwest
Administered by the state's Department of Commerce, HTF currently receives steady-stream revenues from various sources, including interest on upfront payments in mortgage transactions, loan repayments, capital bonds, and state legislature funding.27 The trust fund, which gives preference to affordable housing projects that leverage other funds, has leveraged some $3 billion in additional public and private dollars.28 As of early 2013, $5.50 in additional funds had been leveraged for every dollar awarded from the housing trust fund.29

A strong connection with other funders is one key to Washington's housing trust fund success. "We communicate with many of the other principal funders on a regular basis, and we consult with them during our application review process. Local funders, in particular, are able to provide valuable insights regarding specific features or potential challenges of a project as well as how it fits within the community's priorities," says Janet Masella, managing director of HTF. Through collaboration among funders in the state, Masella notes, "[w]e have developed common application forms and annual reporting systems that are shared by a number of state and local agencies, resulting in significant savings in time and effort for our contractors. We also work with other funders to coordinate the timing of applications, reducing the length of time it takes to bring a project from predevelopment to full funding, which in turn reduces the cost of the project. In addition, we coordinate monitoring and compliance activities, including physical inspections and annual report reviews."30

The trust fund gives preference to projects that have a strong probability of serving a target group or income level for at least 25 years. Although this preference helps guard against encroachment by gentrification and conversion to market-rate housing, continued fiscal and physical viability are concerns. Increasingly challenging, notes Masella, is the aging of the trust fund's portfolio of properties that are in need of recapitalization. Many of these projects were not appropriately underwritten for the populations they serve. Annual occupancy reports show that the properties typically serve households with lower incomes than originally targeted, resulting in cash flows that are lower than the amounts projected in their operating pro forma. This affects owners' ability to adequately fund reserves and to perform appropriate building maintenance and upgrades. As a result, many projects need financial restructuring and recapitalization to remain viable over time.31

Looking forward, HTF is implementing new policies designed to encourage better long-term planning, such as a requirement that all projects complete a 20-year Capital Needs Assessment. "We are also beginning to work more closely with organizations to help them develop portfolio plans and other asset management tools," says Masella.32 In 2012, Washington's HTF statute was amended to mandate that the Department of Commerce evaluate cost-effectiveness of projects as a basis for funding. The intent of the new cost limit policy, inaugurated in 2013, is to reduce costs while retaining durability and encouraging sustainable building practices.33

Delaware Housing Development Fund

Funding for the acquisition and rehabilitation of Arbor Place III, a 23-unit apartment complex in New Castle, Delaware, includes a low-interest loan from the Delaware Housing Development Fund.
First established in 1968 as a revolving loan fund, Delaware's Housing Development Fund (Development Fund) was repurposed in 1986 as the state's housing trust fund to "provide affordable, decent, safe and sanitary housing to responsible very low-, low- and moderate-income households."34 A significant portion of the Development Fund's revenue is derived from fees collected by Recorder of Deeds in each county. In addition to these fees, the state allocates approximately $4 million annually from its general fund. Other sources outside the state budgetary cycle include the fund's own interest earnings and repayments of loans. Administered by the Delaware State Housing Authority, the Development Fund provides low-cost financing in the form of loans and grants to developers and owners of rental and for-sale affordable housing. Activities eligible for funding include the acquisition and rehabilitation of existing housing, adaptive reuse of nonresidential properties, and new construction of affordable housing.35

Preservation is an important focus for the Development Fund, given the high demand for and limited supply of units affordable to low-income families. According to a 2012 report on housing affordability in the state, only 33 affordable units are available for every 100 households earning at or below 30 percent of the area median income. Moreover, between 2000 and 2008, the state lost more than 9,400 affordable rental units while gaining nearly three times as many high-end units.36 The Development Fund provides the gap financing needed to fully use the small state minimum low-income housing tax credit (LIHTC) allocation of around $2.5 million that Delaware receives. "We are able to provide up to $45,000 per unit in soft financing (or a total of $2.75 million, whichever is less) which makes preservation deals possible," notes Susan Eliason, who oversees the fund as the director of housing development for the housing authority. She notes that preservation deals, although slightly less expensive than new construction, are "still expensive to do, and we have found that our financing is about one-third of the cost, along with the tax credit equity and the permanent (amortizing) financing." Between 2008 and 2012, most of Delaware's LIHTC deals were rehabilitation projects rather than new construction. During this period, Delaware preserved approximately 1,100 units of rental housing.37

The Development Fund's money not only helps provide the financing to get a project started but also attracts other public and private funding sources. According to the housing authority, "from FY 2008–FY 2011, $19.5 million in additional Development Fund allocations leveraged other federal and private resources to rehabilitate 11 sites (893 units), preserving $225 million in federal subsidies for Delaware."38 In 2011, the Delaware legislature allocated an additional $10 million from capital budget monies to a separate preservation fund within the Development Fund. These additional funds were awarded as part of an incentive package to create and retain jobs and expand economic opportunities in the state. "We know from our economic impact analysis that every dollar invested in housing generates $7.00 in additional economic activity, so the state's investment in preserving multifamily housing will not only address the state's affordable housing needs, but will [also] have a significant impact on jobs," says Ken Smith, executive director of the Delaware Housing Coalition.39


Preserving the nation's existing supply of affordable housing is critical to helping low-income families meet basic needs. Public, nonprofit, and philanthropic organizations nationwide are committing resources to support preservation of this stock. In Cook County, Illinois, and in the state of Ohio, key public- and private-sector players have come together, with the support of the MacArthur Foundation, to preserve affordable rental housing in their communities. The grant-based preservation compact model embodies a multifaceted approach, with initiatives to tackle the financial, regulatory, and technical aspects of preservation. Supported by dedicated public revenues, state housing trust funds in Delaware and Washington provide flexible financing in the form of loans and grants for the creation and preservation of low-income rental and ownership housing. These funds are highly responsive to local housing needs and are very effective at leveraging other public and private monies for preservation projects. Both preservation compacts and state housing trust funds offer solutions that can be tailored to local circumstances and address the intricate challenges of affordable housing preservation.

  1. U.S. Census Bureau. American Community Survey, 2007–2011.
  2. Institute for Housing Studies at DePaul University. 2011. “The State of Rental Housing in Cook County,” 2.
  3. Urban Land Institute. 2007. “The Preservation Compact: Preserve, Renew, Rebuild — A Rental Housing Action Plan for Cook County,” 2.
  4. Interview with John Markowski, president, Community Investment Corporation, and Stacie Young, director, Preservation Compact, March 2013.
  5. Urban Land Institute, 2.
  6. Interview with Jack Markowski and Stacie Young.
  7. Peter Ludwig. 2013. “Innovation and Impact: CNT Energy’s Experience With Energy Savers Multifamily Retrofits,” American Council for an Energy-Efficient Economy National Symposium on Market Transformation, 8.
  8. Interview with Jack Markowski and Stacie Young.
  9. Email correspondence with Stacie Young, May 2013.
  10. The John D. and Catherine T. MacArthur Foundation. 2009. “State and Local Housing Preservation Projects.”
  11. “About OPC,” Ohio Preservation Compact website ( Accessed 20 April 2013.
  12. Interview with Kelan Craig, coordinator, Ohio Preservation Compact, February 2013.
  13. “About OPC.”
  14. “How to Get Involved.” Ohio Preservation Compact website ( Accessed 20 April 2013.
  15. “Ohio Capital Finance Corporation.” Ohio Capital Corporation for Housing website ( Accessed 1 May 2013.
  16. Ohio Preservation Compact. 2010. “An Overview of the Ohio Preservation Compact and Ohio Preservation Loan Fund,” 4.
  17. Email correspondence with Kelan Craig, February 2013.
  18. “What Are Housing Trust Funds?” Center for Community Change website ( Accessed 20 April 2013.
  19. “State Housing Trust Funds.” Center for Community Change website ( Accessed 20 April 2013.
  20. Housing Trust Fund Project. 2013. “The Status of State Housing Trust Funds…From a 2011 Survey With Updates,” Center for Community Change, 5.
  21. “State Housing Trust Funds.”
  22. “Housing Trust Funds: Financing.” PolicyLink website ( Accessed 20 April 2013.
  23. Washington State Department of Commerce. 2012. “Washington State Housing Trust Fund 2012 Asset Management Report,” 18.
  24. “RCW 43.185.010: Findings.” Washington State Legislature website ( Accessed 10 May 2013.
  25. Housing Trust Fund Project 2013, 10.
  26. “RCW 43.185.060: Eligible Organizations.” Washington State Legislature website ( Accessed 10 May 2013; Interview with Janet Masella, March 2013.
  27. Housing Trust Fund Project. 2012. “State Housing Trust Funds Dedicated Revenue Sources: 2012 Summary,” Center for Community Change website ( Accessed 18 July 2013.
  28. Washington State Department of Commerce. 2010. “Affordable Housing Inventory Report,” 17.
  29. Washington Low Income Housing Alliance. 2013. “Housing Trust Fund.”
  30. Interview with Janet Masella.
  31. Ibid.
  32. Ibid.
  33. Washington State Department of Commerce. 2012. “Increasing the Cost-Effectiveness of Housing Trust Fund Investments Asset Management Report,” 2.
  34. “Housing Development Act of 1986.” State of Delaware website ( Accessed 2 May 2013.
  35. Ibid.; Delaware Council on Housing. 2012. “Annual Report,” 4.
  36. Delaware Housing Coalition. 2012. “Who Can Afford to Live in Delaware?” 2–3.
  37. Email correspondence with Susan Eliason, March 2013.
  38. “Affordable Rental Housing Preservation in Delaware.” Delaware State Housing Authority website ( Accessed 5 May 2013.
  39. Housing Trust Fund Project. 2011. “Delaware Builds Housing Development Fund to Expand Economic Opportunities,” HTFund Newsletter, Summer 2011: 3.


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The contents of this article are the views of the author(s) and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. Government.