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
- The United States faces a shortage of approximately 7 million affordable rental homes.
- Without government assistance, the private sector cannot produce adequate numbers of affordable housing.
- From 2012 – 2017, the private market has lost more than 3 million affordable rental units.
- At the same time, there is chronic underinvestment in federal affordable housing programs.
- Current federal programs for affordable rental housing are tenant-based and project-based and are administered by HUD, RD, and the IRS.
- Tenant-based subsidies (e.g., housing choice vouchers) are demand-side subsidies allocated directly to tenants to subsidize their rents in the private market up to a modest payment standard.
- Project-based subsidies, such as the LIHTC, PBRA, and Public Housing, are supply-side subsidies that provide affordable housing owners with capital or operating support to create and maintain the affordable housing stock.
- About 4.9 million rental units receive federal project-based subsidies – 10% of the rental housing stock in the U.S.
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:
- Community Development Block Grants (CDBG)
- National Housing Trust Fund (HTF)
- Housing Opportunities for Persons with Aids (HOPWA)
- Project-based vouchers (PBVs)
Preservation Risks
There are currently three basic risks to the preservation of existing affordable housing:
- Expiration or exit risk;
- Depreciation; and
- The lack of appropriations
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.
- Research shows that a for-profit owner of a rental property with a Section 8 PBRA contract in a tight rental market is more likely to not renew a subsidy contract and reposition a property as market rate.
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:
- Community Development Block Grants (CDBG)
- National Housing Trust Fund (HTF)
- Moderate Rehabilitation
- McKinney Vento Permanent Housing
- Housing Opportunities for Persons with Aids (HOPWA)
- Tax-Exempt Bonds
- Project-based vouchers (PBVs)
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:
- 79% did not receive subsidy for capital improvements in the past 20-years;
- 53% are owned by for-profit owners (which are more likely to exit affordability programs);
- 18% were built before 1975;
- 7% have failing REAC scores; and
- 58% suffer from two or more of these risk elements.
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:
- LIHTC
- Finances the construction, rehabilitation, and preservation of affordable housing for low-income individuals.
- Preserves approximately 32,000 units annually.
- HOME
- Block grant that finances activities to increase and preserve the supply of affordable housing.
- Preserves up to 7,000 units annually.
- National HTF
- Block grant that finances the construction, rehabilitation, and preservation of affordable housing.
- Preserves less than 700 units annually.
- CDBG
- Block grant that finances activities benefitting low and moderate income households that improve housing, living environments, and economic opportunity.
- Contributes to the preservation of publicly owned units.
Other programs contribute limited numbers of preservation units annually, including:
- Mark-to-Market;
- Multifamily Housing Preservation & Revitalization (MPR) Demonstration Program;
- Section 515;
- Project-based vouchers;
- Section 202 Capital Advance; and
- Section 811 Capital Advance.
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.
- Fully fund the national HTF.
- Expand the LIHTC program, incorporating key reforms.
- Fully fund Public Housing capital and operating funds.
- Expand funding for rural housing programs, including Section 521, 515, and MPR.
- Expand state and locally funded subsidy programs.
- Require LIHTC properties to waive the right to Qualified Contracts.
- Increase the notification requirements when an owner opts out.
- Incentivize or require owners to keep their property affordable beyond the federally mandated minimum.
- Prioritize funding opportunities for mission-driven developers committed to preserving long-term affordability.
- Establish right-of-first refusal policies.
- Build a data-base of at-risk properties.
- Create a preservation plan.
- Build preservation networks.
- Provide technical assistance on preservation.
- Award pre-development funds.
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).