Permanent Affordability: A National Conversation

The convening of key stakeholders from the affordable housing community, including local and national housing agencies, policy experts, not-for-profit developers, and advocates. The purpose of this forum was to engage in a discussion of challenges and opportunities related to ensuring permanent affordability in subsidized housing.

ANHD is releasing a new white paper today, Permanent Affordability: Practical Solutions, which lays out detailed financial underwriting scenarios and program modifications that can create an improved model of City-financed affordable housing, one that will ensure that the housing is permanently affordable. These financial changes are modeled for three affordable housing scenarios – low-income, low/moderate income, and mixed-income buildings – with an additional section on programmatic recommendations to ensure practical permanence in our offsite inclusionary housing.

This issue is crucial because although we are always working to stem the loss of affordable housing in our city, we never manage to reverse it. Instead we actually lose more affordable housing than we build. Rent-stabilized housing becomes decontrolled, Mitchell-Lama developments buy out, and increasingly we are losing units built specifically to be low-income by the City of New York, because affordability restrictions were only for the short-term. With an average of over 11,000 units of these Low-Income Housing units set to exit affordability each year, we’ll have our hands full holding on to what’s left of an affordable city in the coming years.

And this crisis won’t only cost us affordable housing – it will also cost us a lot of money. Currently, when the affordability restrictions expire on a City-financed affordable building that was built by a for-profit owner, this owner weighs two options: the value of cashing out and going to market versus the value the government will provide him or her to keep the property affordable. As a result, up to 30% of HPD and HDC subsidy is spent on simply preserving the affordability of existing projects. And much of this subsidy is not put toward bricks and mortar renovation, but instead is put toward compensating the building owners for the increased property values, in order to compete with the private market. This is money we could be using for a lot more – including building more affordable housing.

But there is another, better solution. Instead of building short-term affordable housing, watching it expire, and either overpaying to preserve it or having to build a new unit to replace it, and we can instead end this cycle and build permanently affordable housing. Instead of fighting the tide, we can build a wall against it, unit by unit. The key is making sure that the bricks of affordable housing that we put in place, stay in place.

A focus on mission-driven, non-profit stewardship of affordable housing is the main place to start. But it’s not enough by itself. It would also require some changes in the way the city finances and underwrites its developments, so that a building stays financially and physically sound. ANHD recently commissioned a financing analysis with three detailed underwriting scenarios – a low-income, a low/moderate income, and a mixed-income scenario – to see what changes would be needed to be put in place to effect permanent affordability. The resulting white paper, Permanent Affordability: Practical Solutions finds that three financial changes will be needed to let responsible, community-minded owners effect permanent affordability:

First are increases in the up-front reserve funding. Buildings need to have cash-on-hand in case of emergencies or unforeseen circumstances. Without this, repairs don’t get made, maintenance is deferred, and the building runs the risk of physically deteriorating. Having more up front allows the reserve fund to stay stable long-term.

Second is ensuring that a real estate tax exemption is available to run in conjunction with the affordability restrictions. Buildings also need to have cash flow – the amount they take in should be greater than the amount spent on expenses, taxes, and debt service. Without this, reserves get uses up, and the building is left unable to maintain itself in the event of emergencies or unforeseen circumstances. In affordable housing, the amount of income from rent is less, so expenses need to be less also. The main way the city reduces an affordable building’s expenses is through exempting it from Real Estate taxes. If we keep affordability, we also need to keep this tax relief.

Third are changes in ongoing reserve funding. This cash flow needs to not just go in a developer’s pocket. A substantial portion needs to be reserved for the building reserves on a continuing basis, in order to ensure a continuing financial cushion for the building.

With these changes we can end this revolving door of affordability, and truly look to make a dent in our housing crisis.

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