Preservation Critical to Maintaining Affordable Housing Stock

 

Preserving existing affordable housing is as important as creating new affordable housing. Each year, even as demand increase, the United States loses more than half a million affordable homes due to expiring affordability restrictions, conversion to more expensive housing, or building deterioration.1 Without intervention, we are in danger of permanently losing the current supply of affordable housing.

WAYS THE MARKET LOSES AFFORDABLE HOUSING 

Expiring affordability restrictions
Many affordable housing properties receive rental assistance contracts and/or financing from various federal, state and local programs. As time passes and owners pay off their subsidized mortgages, the low-income use restrictions on these projects expire. Without further incentives, owners often opt out of continuing to offer their properties as low-income housing.

Conversion
In strong markets, owners can command higher rents as competition for units increase. In addition, higher property values also motivate owners to sell to investors, who are generally not in the business to provide affordable housing. In these situations, affordability is lost and rents will almost always increase.

Deterioration
To maximize returns, property owners can either increase rent or reduce cost. For properties with already low rents, owners will delay fixing vital infrastructure systems such as plumbing, electrical systems, roofs, etc. Over time, the unit can deteriorate to the point where it is no longer habitable. These vacant properties enter foreclosure or become a source of blight. In cases where properties are sold to investors, it is often demolished and replaced with high rent buildings. This is where policy and incentives can intervene, turning these abandoned eyesores into livable homes.

ADVANTAGES OF PRESERVATION

In many cases, preserving housing, rather than building it new from the ground up, has proven to be the most financially sustainable method.

  • Preserving existing affordable housing is generally much more cost-effective than new construction, by as much as 30% to 50% (U.S. Department of Housing and Urban Development2).
  • With inadequate funding for new affordable housing construction, the existing funds can go a long ways in creating more affordable housing options.
  • In many cities, high land costs, limited available land or regulations that restrict land use make it difficult to build new affordable rental housing.
  • Preservation builds on previous public investments: there is no need to buy new land (where prices have skyrocketed in many cities), pay for costly securing of regulatory approval for new construction in certain expensive markets, or contend with “soft-costs” such as closing fees.
  • Preservation of affordable housing is key to a diversified and stable housing stock and economic diversity by creating or sustaining a mixed-income neighborhood.
  • Preservation is less likely to displace longterm residents who may otherwise have to move and change jobs when rents are no longer affordable.
  • Preservation keeps families, communities and social networks intact and safe. Displaced residents often have to move to a more affordable but less safe neighborhood. For those who remain, the loss of a tight-knit community means less protection, reduced communication and more isolation of individuals who no longer look out for each other.
  • Preservation restores vacant buildings to a city’s housing stock, and research shows that restoration also benefits neighborhoods by attracting private investment and improving community safety.

There is no doubt that the need for affordable housing is dire. Through collaboration between public, private, philanthropic groups and elected officials, their combined power can make a difference in preserving affordable housing that can impact individuals, neighborhoods and communities.

Recently, Century funded a bridge loan to Bridge Housing for preservation of low-income senior housing in the growing community of Danville, CA where seniors can now remain in their community even as rents soar. Century also helped with acquisition financing to developer Affirmed Housing to preserve 60 two- and three- bedroom units for families in Bakersfield targeting average affordability of 50% of AMI.

 

 

  1. “Community Strategies to Preserve Affordable Housing” https://www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec-112017.html
  2. “Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions,” Evidence Matters, Summer 2013. https://www.huduser.gov/portal/periodicals/em/summer13/highlight1.html

Is Preserving Housing Affordability Still a Priority?

The latest figures from the California Housing Partnership Corp. indicate that there are over 50,000 apartments in the state at high or very high risk of converting from their current subsidized rent levels to market rents.  This dwarfs the ability of the housing community and public agencies to develop new housing, and loss of this housing stock would be catastrophic to the residents, who would be forced to move into fewer and fewer affordable units.  Extending the affordability of this rental housing stock must be a part of any effort to assure that lower income Californians have a place to live and raise their families.

So I read a recent article in Affordable Housing Finance entitled Housing At Risk with considerable interest.  The article outlines how three policy changes will affect the ability to preserve the affordability of the 800,000 units in the nation facing possible loss of affordability. Read more

Preservation in Murrieta and Claremont

Rancho Las Brisas

In real estate, timing is everything, especially as the end of the year approaches. Century is happy to announce the closing of a $13 million bridge loan to Foundation for Affordable Housing, so that FFAH could close on the purchase of Rancho Las Brisas, 200 apartments for very-low income families in Murrieta,  a couple of weeks before they could close the sale of Claremont Villas, 154 apartments for low-income seniors in Claremont (of course). The occasionally-imprecise timing of real estate closings left a $3.9 million financing gap in FFAH’s purchase in Murrieta, with no time to spare to find more financing. Read more

LA County Innovation Fund Serving East LA

Century tapped the LA County Housing Innovation Fund (LACHIF) for the second time with a $3,363,000 acquisition loan for Kernwood Terrace Apartments. Developer Gary Braverman will preserve 51 affordable senior homes, and build an additional 26, in East Los Angeles.

Market Park to Stay Affordable

A $3,750,000 Century acquisition loan to Market Park Partners, LP will purchase Market Park Apartments, 50 apartments for very-low income families in Inglewood. The property, located on North Market Street, will be recapitalized with tax exempt bonds and 4% tax credits and rehabilitated inside and out, starting in about six months. The developer, Vitus Group, is based in Seattle and owns more than 5,000 apartments in 13 states. The property is at-risk of losing its Section 8 rental subsidy, so the new owner will commit to keeping the property affordable for 55 additional years and will take on a 20 year Section 8 contract with HUD. This was Century’s first loan to Vitus Group (fka Pacific Housing Advisors).

Huntington Concord Saves 162 Affordable Homes

Huntington ConcordCentury’s $9,000,000 acquisition loan to Huntington Concord Partners, LP, will help preserve 162 affordable apartments for very-low income seniors in Huntington Park. The developer, LOMCO, has been the property manager since it opened 20 years ago. This was Century’s second deal with LOMCO, following a $12.5 million loan in 2008 for a similar development in Huntington Beach. LOMCO’s day-to-day operations are managed by Kent Davis, a Century alum.