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Time to Fix the Expiring Affordable Housing Crisis
Yesterday, Crain’s New York came out with came out with an article – irresponsible landlords buying affordable housing portfolios, and trying to harass tenants and drastically raise rents. While this practice certainly isn’t new for rent-stabilized buildings in general, what is new is that now its expanding to portfolios that were developed specifically as affordable housing, using Low-Income Housing tax credits.
Yesterday, Crain’s New York came out with came out with an article – irresponsible landlords buying affordable housing portfolios, and trying to harass tenants and drastically raise rents. While this practice certainly isn’t new for rent-stabilized buildings in general, what is new is that now its expanding to portfolios that were developed specifically as affordable housing, using Low-Income Housing tax credits.
In LIHTC deals, a private developer doesn’t put in much, if any, of their own money. Instead, it’s the taxpayer who provides the equity – but the developer who gets it all by cashing out at the end. Investing nothing, and then selling a housing portfolio for a multi-million dollar profit after 15 years, is a pretty sweet deal. So why are these portfolios even for sale in the first place?
The problem is that there’s a loophole – the housing is only required to remain affordable for 30 years. And what we’re seeing is that even before those restrictions are up, irresponsible or incompetent landlords are looking to buy these portfolios, with an eye toward getting the low-income tenants our eventually – and the current for-profit affordable housing owners are just as eager to sell.
This trend toward these sales is disturbing. But what it isn’t is surprising. Business look toward their bottom line, not what’s best for the community. That’s why a mission driven, not-for-profit needs to be the ultimate owner and steward of our affordable housing. Without this, we will just recreate this problem with our future affordable housing – for-profit owners either looking to cash out at the first opportunity, or holding the city up for as much money as possible in order to make it worth their while not to. It’s not a surprise that research has consistently shown that not-for-profit ownership is a major factor in preserving affordable housing – especially in more expensive neighborhoods.
The latest evidence, from 2014, comes from the Journal of Housing Economics where Vincent Reina and Jaclene Begley, in their research on predicting subsidized housing opt-outs, concluded that “Across all models we find that properties located in neighborhoods with high property value growth, those with for-profit owners, and those past the affordability restrictions on all subsidies, are more likely to opt out,” and that “nonprofit owners have a 59% smaller hazard rate of opt-out than for-profit owners.”
But non-profit stewardship is only part of the solution. This needs to be combined with sound underwriting practices, so that the building stays both affordable and financially stable in perpetuity. Which is why ANHD commissioned detailed underwriting scenarios for various affordable housing programs, and came up with recommendation to keep buildings both affordable and financially stable in perpetuity.
Tomorrow, ANHD will be releasing its white paper Permanent Affordability: Practical Solutions which will detail the policies and underwriting changes that need to be put in place to avoid the next expiring use crisis, and make sure the affordable housing we build stays both affordable and financially sound for future generations, not just the current one. What we found is that with tax relief and some modest changes in underwriting standards, affordable housing projects can be financially sustainable in perpetuity.
We have already had to deal with much of our Mitchell-Lama housing exiting affordability. With an average of over 11,000 LIHTC units set to exit affordability each year starting in 2017, we are going to have our hands full preserving our LIHTC developments – especially in the many areas that have heavily gentrified since then. By now, there is no excuse for not looking ahead, and putting in place policies that will avoid the next expiring use crisis. It starts by working more closely with responsible, mission-driven nonprofit community stewards, and entrusting our city land them, instead of for-profit businesses who can’t be counted on not to cash it out at the first opportunity. It continues with underwriting these buildings to ensure they stay both affordable and financially stable in perpetuity. And hopefully, it will put an end to our constant crisis of homes that were intended as stable, affordable places to live, instead falling into the hands of predatory landlords.