Preservation of Affordable Housing

Preservation information from Stockton Williams, NCSHA:

Preservation of existing affordable housing has been a long-running priority for the affordable housing community, for good reason. Sixty percent of rental units affordable in 1985 were lost by 2013, according to a major study by the Hudson Institute last year. Current estimates suggest that losses now significantly outpace new additions to the affordable supply on an annual basis.

According to the National Housing Preservation Database, almost half-a-million federally assisted homes and apartments will reach the end of their current subsidy contracts and affordability restrictions in the next five years. Roughly 25 percent of them are units financed with the Housing Credit.

While affordable housing preservationists have long had to contend with declining subsidies and expiring rent restrictions, a more recent challenge has arisen as a result of the overall strength of affordable housing as a real estate asset class in the current economic cycle: a new set of investors looking to maximize the economic opportunities in the inventory.

As one investor said to an industry newsletter last year: "Affordable housing is the sexiest space alive right now, and everybody wants in."

Some of the new players are committed to keeping properties they acquire affordable to current residents or others of similar incomes. Others are openly looking for ways to "reposition" affordable apartments as market-rate developments through tried-and-true "value-added" real estate strategies: low-cost upgrades "that can generate higher rents, leading to rapid ROI growth."

State HFAs are finding ways to compete and save some of this precious stock. Minnesota Housing, for example, is a lead partner in the innovative new $25 million NOAH Impact Fund, which aims to preserve the affordability of 1,000 unsubsidized affordable units in the Twin Cities over the next three years.

The Colorado Housing Finance Agency’s leadership in establishing a statewide preservation network generated improvements and extended rental assistance and affordability periods at 65 properties with a total of nearly 5,000 units in 2016 – earning CHFA recognition as a 2017 winner in NCSHA’s Annual Awards for Program Excellence.

HFAs are also proactive in addressing unintended consequences that can occasionally occur in connection with even the most effective programs. The "qualified contract" provision of the Housing Credit statute, which permits limited exceptions to the 30-year affordability commitment otherwise required by the program, is one such example.

The provision, in the current real estate investment environment, appears to be contributing to significant and growing affordable housing losses. Most state HFAs have taken or are taking action to address the issue, consistent with NCSHA’s new recommended practices for state HFA administration of the program. NCSHA is doing additional analysis to ensure HFAs have a complete picture of qualified contract activity and its impacts on the affordable housing supply.

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