A small, affordable housing multifamily building in Chicago.
Image credit: stevegeer on istock.com

Affordable housing programs often neglect small buildings. Typically, federal affordable housing programs encourage investments that focus on large-unit multifamily apartment buildings. For new construction, larger buildings can result in smaller per-unit costs.

Additionally, larger buildings have a perceived higher per-project impact. As a result, the average size of a Low Income Housing Tax Credit (LIHTC) building, the nation’s largest housing support program, has increased from 34.0 units per building between 1987 and 1994 to 80.3 units in the last two decades (2000–2019).

However, small buildings are a crucial part of our affordable housing ecosystem. And when it comes to community ownership of real estate, smaller buildings are key. For advocates of converting tenants into building owners through cooperatives and related strategies, if you want to think big, it often helps to think small first.

Why Small Buildings Matter

A recent Terner Center for Housing Innovation report found that small multifamily apartment buildings, defined as having between five and 49 units, make up 17 percent of US housing stock. About 8.2 million families live in these buildings, scattered across nearly 500,000 properties.

For advocates of converting tenants into building owners through cooperatives and related strategies, if you want to think big, it often helps to think small first.

The Terner study also confirms that small buildings are often more affordable. There are a few reasons for this: small buildings tend to be older, have fewer amenities, and are more likely to be owned by individuals who get to know their tenants as opposed to corporations that set rents based on algorithms. All told, an estimated 70 percent of small buildings are owned by individuals directly or owned by individuals operating through limited liability corporations that they control.

Most small buildings are what are known as “naturally occurring affordable housing” (NOAH), an industry term for buildings that have affordable rents without receiving public subsidies.

Harvard’s Joint Center for Housing Studies found that an estimated 75 percent of the nation’s affordable housing is considered NOAH. While each property is a minor piece of the overall housing stock, the asset type represents a high proportion of affordable housing stock. However, the unregulated nature of these buildings’ affordability makes them ripe for speculative investment, especially in gentrifying cities. Since NOAH housing, by definition, does not have covenants or other affordability restrictions, when an owner chooses to sell their building, the units are always at risk of being turned into market-rate housing.

This is no small matter. In Washington, DC, the city’s Department of Housing and Community Development reports that 18,300 units of affordable housing of this kind became unaffordable between 2006 and 2017. This loss of affordability is related to other challenges that DC renters and the city have been facing.

Supporting community ownership can be a powerful strategy to preserve housing affordability in small multifamily apartment buildings and townhouses.

Between 2000 and 2013, the National Community Reinvestment Coalition found that DC had the greatest “intensity of gentrification” of any US city. During this period, the study also estimates that the city lost 20,000 Black residents. In 1957, DC became the first large US city to have a majority Black population; it lost this status in 2011. The loss of housing affordability is directly related to the city’s loss of Black residents.

Using Community Ownership to Preserve Affordability

What can be done? To start, supporting community ownership can be a powerful strategy to preserve housing affordability in small multifamily apartment buildings and townhouses. Even though Washington, DC, has lost many affordable housing units, its community ownership legislation has helped stem the tide. DC’s landmark Tenant Opportunity to Purchase Act (TOPA), well-funded Housing Production Trust Fund, and Small Building Program provide a framework to support buildings from acquisition through to renovation.

TOPA, in particular, is being emulated across the country as a tool that helps tenants, with nonprofit financing and technical assistance support, to come together and preserve affordability by becoming owners themselves, either through a limited-equity cooperative or nonprofit structure. According to a recent Coalition for Nonprofit Housing and Economic Development study, between 2006 and 2020, 16,224 units of housing were preserved as affordable in DC using TOPA.

Of course, the success of TOPA in DC, while impressive, has, at best, slowed—and certainly not stopped—gentrification. Cities across the country are facing similar issues. Advocates are exploring a range of solutions, including joint ownership, targeted public investment, and housing preservation measures.

Joining Forces

Take, for example, Joint Ownership Entity New York City (JOE NYC), which helps affordable housing owners in New York manage their properties, both large and small, through shared ownership and joint maintenance and capital repair planning. But how does this work?

Nonprofit affordable housing owners contribute property to JOE NYC in return for a seat on the board of directors and a proportional share of the cash flow. To join JOE NYC, the member organization must commit to long-term affordability of the property. After donating a building, the member maintains ownership of the land underneath the property. JOE NYC’s goal is to “improv[e] operating margins of contributed properties by achieving economies of scale through the bulk purchase of energy, goods, and services.”

One critical challenge for small building preservation is the lack of dedicated funding….This can be addressed through public intervention.

The increased number of units across its portfolio allows JOE NYC to pool repairs needed between buildings to get a larger loan at a lower rate, use buildings not needing immediate repairs as collateral, and look at portfolio-wide improvements such as electrification.

In addition to managing its members’ properties, the joint ownership body also helps its nonprofit members be more competitive for new deals as they can leverage their joint balance sheet and their share of cash flow while claiming JOE NYC as a co-guarantor. JOE NYC helps its nonprofit members’ portfolios thrive, giving members the bandwidth and additional tools to focus on acquiring new buildings and supporting more residents.

Investing Public Resources

One critical challenge for small building preservation is the lack of dedicated funding, making it risky for nonprofits to acquire small buildings. This can be addressed through public intervention. Two local programs that support acquisition are San Francisco’s Small Sites Program (SSP) and Los Angeles County’s pilot Community Land Trust (CLT) Partnership Program. In both cases, a dedicated funding pool helps qualified organizations acquire small multifamily apartment buildings to preserve affordability.

SSP launched in 2014 and supports local nonprofit sponsors with acquisition and preservation loans, stabilizing at-risk communities by converting rent-controlled properties to permanently affordable housing. The program complements San Francisco’s Community Opportunity to Purchase Act (COPA) by providing quick loans to the nonprofit developers competing for buildings and technical assistance through financial support for organizational costs. In addition to supporting the acquisition of the building, the program requires and provides funding toward the rehabilitation to address any deferred maintenance needs.

Famously, San Francisco is home to some of the most expensive real estate in the country, so the cost of preservation per unit is likewise elevated. One nonprofit, Mission Economic Development Agency, has renovated and preserved 35 buildings with five to 25 units with SSP, using SSP subsidies of $300,000–$375,000 per unit, to ensure that rent is affordable to current tenants. SSP provides a model for how a city can provide comprehensive funding to incentivize nonprofits to acquire buildings and preserve long-term affordability.

Another California example comes from Los Angeles County, which created a housing preservation in partnership with the Los Angeles Community Land Trust Coalition. The $14 million program helps five community land trust coalition members secure tax-defaulted properties to preserve them as affordable housing. The coalition members’ goal is to purchase, stabilize, and eventually convert these buildings into limited equity housing cooperatives, a type of cooperative that caps equity gains to keep units affordable long-term. Properties converted have a minimum 99-year affordability to house very low to moderate-income households.

As of August 2021, the pilot preserved eight multifamily properties across the county, supporting 43 residential units that house 110 individuals in now stabilized affordable housing. Funds were used to purchase these buildings without debt and to cover some of the rehabilitation needs. The pilot program found that the funding was cost-effective as compared to other affordable housing acquisition funds at $327,523 per unit, which, although high, is 47 percent less than the cost of the county’s new construction projects and 39 percent less than acquisition-rehabilitation projects financed by LIHTC.

Housing Preservation

In Chicago, to curb displacement in the Woodlawn neighborhood on the South Side, the city passed the Woodlawn Housing Preservation Ordinance in 2020. The program is intended to preemptively address the displacement pressure expected from the construction of The Obama Presidential Center.

To preserve affordability, the city—with private and nonprofit partners—focused on supporting buildings with two to four units, which, a DePaul University housing study notes, “are the cornerstone of Chicago’s unsubsidized lower-cost rental housing stock.” To support the program, the city also enacted a Right of First Refusal Pilot Program for tenants in buildings with 10 or more units at the time of sale, giving tenants the first chance to buy the building if the owner opts to sell. Chicago’s program is a strong example of leveraging private financing to support anti-displacement measures that preserve affordable housing in small buildings at a neighborhood scale.

Lessons Learned

From these cases, what can be learned about how cities can best preserve housing affordability?

One lesson is clear: since most affordable housing is not the result of subsidized housing programs, the common understanding of what constitutes affordable housing must broaden to consider so-called “naturally occurring affordable housing.”

This means focusing on smaller multifamily apartments where most affordable housing is, rather than on larger buildings where most subsidy dollars go. It also means securing existing affordable housing through mechanisms that convert tenants into owners through such means as tenant and community right-to-purchase laws, housing cooperatives, and community land trusts. It requires aligning public, nonprofit, and community partners around programs and policies that preserve and renovate small buildings, and lock in affordability benefits for the long term.

Preserving small buildings—and keeping them affordable through community or nonprofit ownership—is a cost-effective way to curb displacement and gentrification, support vibrant neighborhoods, and keep residents in their homes.

After all, once a unit of affordable housing disappears, it is far more expensive to replace it. In short, the time to preserve existing affordable housing is now.


This research was supported by the Small Buildings Collaborative with Mi Casa Inc., Housing Counseling Services, and National Housing Trust.