A Joint report of the National Low Income Housing Coalition (NLIHC) and the Public and Affordable Housing Research Corporation (PAHRC) on the affordable housing preservation situation and needs in the United States was released in late May. The report focuses on the challenge of preserving the existing federally assisted affordable housing stock.

Federally-assisted affordable housing provides stability for 4.9 million low-income renter households. The need for affordable rental homes, however, still far outweighs the supply. Fewer than four affordable rental homes are available to every ten extremely low-income renter households, leaving a national shortage of 7 million rental homes. Preserving and expanding the nation’s federally-assisted housing stock will require adequately funding affordable housing programs, adopting policies that support long-term affordability, developing local preservation strategies, and boosting capacity for affordable housing preservation.

Introduction

Primary Federally Funded Project-Based Subsidy Programs

Program                                                                      Units Assisted in 2019

Low-Income Housing Tax Credit (LIHTC)                  2,413,156

Section 8 PBRA                                                           1,403,603

Public Housing                                                            948,021

Section 515                                                                 383,520

Section 521                                                                 270,812

HOME Program                                                          261,718

HUD Insured Mortgages                                             176,097

Section 538                                                                 54,540

Section 202 Direct Loan                                             39,737

State HFA Section 236                                               35,284

Other programs that provide affordable housing include:

Preservation Risks

There are currently three basic risks to the preservation of existing affordable housing:

Exit risk refers to the degree to which federally assisted housing is at risk of no longer being subject to program requirements (e.g., expiring extended use agreements for LIHTC projects). With the exception of Public Housing, all federal project-based subsidies carry restrictions on affordability and eligibility that are limited in duration.

Depreciation risk refers to the degree to which the financial stability and physical quality of federally subsidized housing can deteriorate over time. This risk can be greater than exit risk to the preservation of assisted housing. Due to the low rent paid by residents, owners of these properties require ongoing operating or capital support - or both - to maintain the financial stability and physical viability of the housing.

Appropriations risk refers to the degree to which federally subsidized housing depends on Congress to provide continual funding in order to continue to operate as affordable housing. In some programs, such as LIHTC, subsequent credit allocations may be the only way to extend eligibility and affordability restrictions within a program.

Between 2000 and 2015, Congress cut the Public Housing Capital fund by more than 50% and it has only twice provided adequate funding levels for the operating fund since 2002. This has led to the loss of more than 250,000 Public Housing units since the mid-1990s and a capital needs backlog of $70 billion. 15% of current Public Housing units have failing physical inspection scores and are in need of immediate capital infusions.

Why Preservation Must be the Cornerstone of Any Affordable Housing Strategy

New development alone cannot offset the loss of the existing affordable housing stock.

LIHTC, the largest affordable housing production program, does not assist tenants of properties exiting the program. Preservation may be the only option to ensure housing stability for many LIHTC tenants so long as existing eligibility and affordability requirements are maintained in the process.

The issues that make it difficult to replace housing in high-cost and exclusionary neighborhood make preservation more cost-effective than new construction. In disadvantaged neighborhood, preservation has the potential to prevent further disinvestment.

Preservation also presents a clear opportunity to retrofit older federally-assisted housing for energy-efficiency, lowering greenhouse gas emissions and figuring in a larger national strategy to combat climate change. Further research is needed to fully compare the environmental impact of new construction and preservation (especially preservation that involves rehabilitation).

Finally, preservation prevents the loss of units from the federally assisted stock. Preservation must play a central role if federal resources are to be expanded and the challenges of the affordable housing crisis are to be met.

Federally-Assisted Housing Stock

In 2019, 81,007 federally-assisted properties (4.9 million units) received federal project-based assistance. This does not include:

LIHTC supports 49% of all project-based federally-assisted rental homes making it the largest affordable housing subsidy program, followed by Section 8 PBRA (29%), Public Housing (19%), and USDA loan programs (9%). Tenants also frequently use HCVs at project-based federally-assisted rental home, further boosting the reliance on multiple funding sources.

The percentage of federally-assisted housing varies greatly by state. Federally-assisted rental homes make up a larger percentage of the rental stock in the Northeast and Midwest. States with 15% or more of the rental stock being federally-assisted are Maine, Massachusetts, Rhode Island, Mississippi, Minnesota, and South Dakota.

LIHTC, HOME, CDBG, and the HTF are the only federally funded programs actively financing new construction of affordable housing. However, due to the pressure to preserve existing housing, fewer new units are being built.

Federally-Assisted Housing Stock at Risk

Affordability restrictions are set to expire for 299,303 (6%) rental homes between January 2020 and December 2024. This figure will increase in future years. North and South Dakota have the greatest percentage of assisted housing expiring.  Overall, federally-assisted homes with subsidies expiring in the next five years are concentrated in California (34,215), New York (30,410), Florida (16,373), and Texas (16,121). Currently, most of the expirations are for Project-Based Section 8 Contracts, but in 2025, the LIHTC program will pass Section 8 for the most expiring low-income use requirements.

Many federally-assisted homes expiring in the next five years demonstrate factors that can increase exit risk:

Trends in Preservation

Ensuring adequate funds for the preservation of existing federally-assisted properties can keep these homes affordable to extremely low-income families for years to come and can save construction costs in the long run.

Programs that provide funding to meet the capital needs of properties and incentives for owners to renew their rental assistance contracts (i.e., not exit the affordable housing stock) support the preservation of affordable homes. Programs that are currently preserving affordable housing include:

Other programs contribute limited numbers of preservation units annually, including:

LIHTC and HOME, two of the largest active federally funded subsidy programs, provide resources for preserving the existing affordable rental housing stock in need of capital investment. Depending on the year, 35% to 62% of units financed by the LIHTC program between 2003 and 2012 were for existing affordable properties.

Strategies that Can Expand & Preserve Affordable Housing

The study makes a number of recommendations regarding how to address the preservation problems.

While it is certainly aspirational, this report does provide a blueprint on how to increase the preservation of affordable housing in the United States. While many of the proposals are probably not politically feasible, others may well be put into place. For example, expansion of the LIHTC program is very possible, as is the expansion of state and local programs (although growth in state and local programs will probably be delayed due to the crushing financial burden imposed by COVID-19).