October 22, 2018; Next City
According to the US Department of Housing and Urban Development (HUD), a total of 3.05 million units of affordable housing were built between 1987 and 2016 through the Low-Income Housing Tax Credit (LIHTC) program. Of course, more was needed. As reported in NPQ, between 2000 and 2015, one group estimates that the shortfall totaled 7.3 million housing units.
But the situation could, alas, get even worse, as close to 500,000 of the 3 million LIHTC units are slated to lose their federal affordable housing subsidy in the next decade, according to a report titled Balancing Priorities, which was released earlier this month by the National Low Income Housing Coalition (NLIHC) and the Public and Affordable Housing Research Corporation (PAHRC). The reason? It so happens that LIHTC subsidies typically expire after 30 years. And, since the program began in 1987, 31 years ago, phase-outs are starting to occur. HUD notes that “An average of over 1,435 projects and 108,810 units were placed in service annually between 1995 to 2016.” But in 2029 alone, 95,000 units will lose their subsidy. In short, net affordable housing through LIHTC could drop toward zero.
As Jared Brey in Next City explains, “Some units in highly desirable neighborhoods could quickly be converted to market-rate rents, while many more units in neighborhoods with lower demand could start to physically deteriorate without additional capital for rehabilitation.”
“Really, what we need is more resources for preservation,” says Andrew Aurand, vice president for research at NLIHC and a co-author of the report. “Short of that, we have to make these types of decisions about where it makes sense to invest for preservation and where it makes sense to invest for new development.”
Keely Stater, director of research and industry intelligence at PAHRC and a second coauthor of the report, observes that, “I think, at the very least, it’s going to require an extensive amount of planning and pulling together resources and communities working together to figure out their strategy for what to do when these units expire.”
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Some cities, notes Brey, are awakening to the challenge and are developing strategies that prioritize preservation as well as support new production. Brey adds, “In some cases, the work of protecting affordability for LIHTC units is already being done. For example, in 2016, Community Development Trust partnered with YES Housing Inc. of New Mexico to preserve 262 units of low-income housing in Albuquerque, Las Cruces and Roswell.”
Another approach, Brey writes, is employed by the New York City-based Community Development Trust, which is both a federally-certified CDFI (community development financial institution) and a real estate investment trust or REIT. Playing these two roles enables the trust to use loans to finance purchases, while the REIT part of the operation can buy partial ownership stakes in properties with cash. The cash, in turn, can be used to renovate and preserve properties—and support continued affordability.
Brian Dowling, chief investment officer for the Community Development Trust, says another policy step that would help would be for there to be a willingness to invest public money from the state or local government on the order of $10,000 to $30,000 per unit. Such mini-grants could go a long way to preserving housing—and is far cheaper and more efficient than new production.
In the report, one recommendation is to make mission-driven nonprofits be part of the ownership structure for LIHTC properties. Aurand and Stater say that one encouraging sign is new interest in Washington, at least among Democratic Party senators, to support affordable housing. While the proposal of Senator Elizabeth Warren (D-MA) to spend an additional $500 billion over 10 years on federal affordable housing supports has limited chance for passage now, the fact that it was even proposed marks an important shift that could lead to action in the longer-term.
Stater sees growing signs of cities and states that are “stepping up and trying to think about how to make the necessary investments” “But she adds, “the problem is so huge. The scale of the problem really requires a huge federal investment.”—Steve Dubb