Appeared in the Spring/Summer 2002 Enterprise Quarterly, pages 4 and 5

Saving America's Affordable Homes

By Michael Bodaken

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 Saving America's Affordable Homes

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Losing Ground: Why We Need to Preserve and Improve Existing Affordable Multifamily Homes

We live in relatively prosperous times. Despite the shallow recession, homeownership hit a record high last year, climbing over 67% for the first time in our nation’s history. Unemployment is at its lowest rate in almost 30 years. Rapid technological innovation has increased productivity and created longer, sustainable economic growth.

However, many of America’s most vulnerable citizens are being left behind. Our nation is experiencing a crisis in affordable multifamily rental housing. Rising real estate markets often translate into increased potential for the loss of affordable housing rental opportunities. This loss is compounded by the imminent expiration of the subsidies and contracts on much of this nation’s regulated housing supply. Consider the following:

  • Many owners of HUD-assisted affordable housing are actively choosing to exit government-sponsored programs, whether they are motivated by personal lifestyle choice, HUD’s increased scrutiny of their actions, or tax considerations. According to data gathered by the National Housing Trust, private owners have already “taken to market” more than 150,000 HUD-assisted or insured apartments. We are losing affordability on about 2,000 of these apartments monthly. The average rent hike associated with conversion from “regulated affordable” to market rate is 45%.
  • According to HUD, 1.5 million privately-owned, federally-insured apartments with project-based Section 8 assistance will have their government contracts expire over the next 5 years alone. The unpaid principal balance on the loans on these properties is well over $50 billion!
  • Other potential affordable housing with expiring subsidies include housing subsidized by the Rural Housing Service and with low income housing tax credits.
  • According to the Joint Center for Housing Studies at Harvard University, the number of unregulated, but affordable, apartments is falling at an alarming rate. 16% of this stock, representing hundreds of thousands of apartments, became unaffordable between 1993 and 1995!

The struggle for affordable housing is geographically widespread and includes the working poor. In no housing market in the nation—not Baltimore, not Iowa, not Texas, nowhere—can a household earning today’s minimum wage reasonably afford a modest two-bedroom rental. While the rest of our nation is well sheltered, the poor and very poor are living in overcrowded or dilapidated housing or are spending a very large percentage of their discretionary income on shelter, placing rent in competition with other essentials, like food or health care. According to HUD’s worst case housing needs study, more than 4.9 million renter families pay more than half their income for housing or live in severely distressed housing.

In short, structural changes that impact the availability of affordable housing are profoundly affecting the lives of those who need it. Perhaps the National Low Income Housing Coalition gave the most vivid picture of the life these low-income families lead: “Like a high stakes game of musical chairs, the number of poor renters remains the same and they must compete for a diminishing number of affordable places to live.”

Nonprofit Housing Acquisition: an Opportunity Emerges

Within the potential loss of affordable housing lies an opportunity for nonprofit, mission-driven ownership. Toward this end, the National Housing Trust and the Enterprise Foundation created the NHT/Enterprise Preservation Corporation (“NHT/Enterprise”), a 501(c)(3) acquisition entity with the sole purpose of preserving affordable multifamily housing that serves low income households. NHT/Enterprise is unique in several ways:

  • The National Housing Trust and Enterprise have provided $1.3 million in seed capital to the effort. An additional $1.7 million has been invested by loans and grants from the MacArthur Foundation, Fannie Mae Foundation and Freddie Mac.
  • NHT/Enterprise builds on the Trust and Enterprise’s experience in acquisition and rehabilitation. The Trust has helped preserve and improve over 4,000 government assisted apartments over the past six years. Enterprise Social Investment Corporation (ESIC) has raised over $2.5 billion in equity from more than 180 different financial institutions to help create approximately 6,000 homes.
  • The response to NHT/Enterprise has been overwhelming. Over the first two years, NHT/Enterprise has acquired over 2,600 apartments located in Texas, Florida, South Carolina, North Carolina and the District of Columbia. In some cases, the transactions were carried out with 501(c)(3) bond financing; in others, NHT/Enterprise used private activity bonds and low income housing tax credits.

Mission, Strategy and Partnership

The mission of NHT/Enterprise is straightforward: To preserve and improve at-risk, multifamily rental housing across the nation through long term ownership, ensuring quality and affordability of the housing stock, and enhancing residents’ quality-of-life. To accomplish this mission, NHT/Enterprise intends to acquire single assets and portfolios in partnership with communities or local nonprofit organizations. To ensure success, we foster resident involvement and activities and employ careful asset management. The following examples demonstrate the widely divergent means NHT/Enterprise employs to accomplish its mission:

  • During June 2001, NHT/Enterprise partnered with Archbishop Rivera y Damas Cooperative, a Washington D.C.-based cooperative, and Mi Casa, Inc., a local nonprofit community development corporation. The cooperative had secured ownership of the project, a 34-unit apartment building in the rapidly gentrifying Columbia Heights neighborhood of the District. But the cooperative members were displaced shortly thereafter when the property was condemned. Nevertheless, the cooperative continued to work on developing a permanent financing plan. A partnership including the cooperative and NHT/Enterprise consummated the plan. The plan includes bonds and low-income housing tax credits, historic tax credits, and a project-based Section 8 contract. At the end of the compliance period, the project will be sold to the cooperative.
  • During October 2001, NHT/Enterprise completed the largest-ever, multifamily housing bond transaction in the state of Texas. NHT/Enterprise acquired nearly 1,760 apartments in Dallas and Houston via a 501(c)(3) bond transaction. Of these, 20 percent of the apartments have had their rents lowered to a level affordable to households earning 50 percent of the area median income. The Texas State Affordable Housing Corporation (TSAHC) issued $83 million in bonds for the transaction, which were rated by Standard and Poor's and insured by MBIA. In sum, NHT/Enterprise will go it alone, or, preferably with a capable community partner, to accomplish our ultimate goal of preserving affordable, multifamily homes.

Targeted Properties/Neighborhoods

NHT/Enterprise’s stated objectives include the preservation of affordable, multifamily housing where at least one or more of the following criteria are satisfied:

  1. Any preservation transaction that helps create a replicable “model” which may serve to help others preserve similarly situated properties.
  2. The development is one of the few affordable housing resources located in the city or neighborhood.
  3. The purchase results in a significant rehabilitation of the property, or “turns around” the property.
  4. The purchase results in enhanced tenant services.
  5. The residents endorse the purchase.
  6. Where preservation will reposition the property for it to compete in the open market, and simultaneously maintain the property’s affordability (e.g., Mark-to-Market transactions).
  7. Where the preservation contributes to an overall neighborhood revitalization strategy.
  8. Where no other competing, legitimate nonprofit organization is willing or able to complete the transaction with community support.

Geographic Selection

NHT/Enterprise focuses its efforts in states (or areas within states) where the Trust has established root. This includes: Alabama, Florida, Georgia, Indiana, Iowa, Kentucky, Maryland, Michigan, Mississippi, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Wisconsin.

Housing Organizations Respond to the Preservation Challenge

NHT/Enterprise is hardly alone in its mission to preserve and improve multifamily, affordable housing. Many other organizations across the United States have taken on the preservation mission. Examples include Mercy Housing, the members of the Housing Partnership Network, Rocky Mountain Housing, Greater Miami Neighborhoods, the members of the Neighborhood Community Collaborative, Preservation of Affordable Housing (POAH), and the Community Development Trust. There are many others, too numerous to mention here. All are dedicated to preserving and improving affordable multifamily homes. Nevertheless, as current owners look for an exit from their affordable multifamily investments, the demand for capable, mission-driven owners of multifamily housing—particularly housing that shelters low-income families and seniors—is increasingly apparent. A core national policy objective should be the assembly of a new group of interested, vigorous owners willing to invest new resources into this housing. To that end, the Trust and NHT/Enterprise have proposed that Congress consider matching foundation investments in preservation. An investment into capable preservation entities is a sound investment of our nation’s resources.

Conclusion

Affordable, multifamily real estate is a unique resource. Once lost, it can’t be replicated. NHT/Enterprise Preservation Corporation can’t do it alone. To save this housing, we need not one, but many organizations like NHT/Enterprise.

1According to the Joint Center for Housing Studies at Harvard University, in 1995, almost 3.9 million unsubsidized households spent more than 50% of their incomes on housing costs and the wages former welfare households earn—at least initially—are inadequate to cover the cost of a modest two bedroom rental. (State of the Nation’s Housing, 1999)

2“A Report on Worst Case Housing Needs in 1999: New Opportunity Amid Continuing Challenges” (U.S. Department of Housing & Urban Development, Office of Policy Development & Research, January 2001).

3“Out of Reach: The Gap Between Housing Costs an Incomes of Poor People in the United States” (National Low Income Housing Coalition, September 1999).