Over the past three years, the strong economy has driven up real estate prices in many markets, making the market rate conversion of below market, HUD-assisted or -insured apartments extraordinarily attractive. Not surprisingly, many owners of this housing are opting out of their Section 8 contracts and/or prepaying their HUD-insured mortgages, resulting in dramatically higher rents. When this occurs, tenants are threatened with losing their homes, and the nation loses an irreplaceable housing resource. Neither outcome is acceptable.
An Alarming Loss
The National Housing Trust (NHT) is tracking both prepayment and opt-out data, which demonstrate that through the end of 1998:
- Prepayments and opt-outs occurred on over 925 properties involving nearly 98,000 previously affordable apartments.
- Prepayments and opt-outs occurred in 48 states and the District of Columbia.
- The average rent hike when an owner prepays a HUD mortgage is over 45 percent. When this occurs, either the government pays more for a voucher or the tenant is forced to pick up the increase.
- Prepayments and opt-outs occurred in many prime housing markets, which unfortunately led to the loss of affordable housing from neighborhoods with better schools and services. By definition, poor families and the elderly, typically earning less than $15,000 annually, reside in this housing.
Threat of Future Loss
Will our nation continue to lose its best investment in affordable housing? To help analyze this, the National Housing Trust created a database, tabulating, by state, every “below market” Section 8 assisted property listed by HUD that expires between now and 2004. The figures are troubling. According to the data, more than 500,000 apartments are “at risk” of losing their affordability; i.e., their current HUD rents are below market. In a similar study, HUD estimated that as many as 600,000 of HUD-assisted or -insured apartments are “below market.” There is no dispute that literally hundreds of thousands of apartments are at risk of conversion to market rate rents during the next five years.
HUD and Congress Begin to Act
How can we correctly manage incentives to encourage owners to “stay with HUD?” Over the past three months, prompted by stories of elderly people in Iowa and New Hampshire experiencing rent hikes above 50 percent, Congress and HUD have taken initial steps to stem the bleeding.
After disputing that saving this housing was an important policy objective, HUD reversed course and announced on April 29 a policy to offer higher Section 8 rents to owners whose expiring project-based Section 8 contracts carry below-market rents, and who might otherwise exit the program. The NHT endorses the basic HUD guidelines, i.e., (1) that well-maintained properties that can command rents higher than a certain threshold (110 percent of the local Fair Market Rent) will receive HUD paid rent hikes up to a certain amount, i.e., 150% of Fair Market Rent; (2) that the 150 percent FMR rent ceiling may be waived if an owner can demonstrate that street rents for the property are higher and if the property meets certain other specified targeting criteria (such as tight housing markets or occupancy by elderly or the disabled); and (3) that, in return for such renewals, the owners will agree to maintain the affordability for a specific term, at least 5 years.
HUD’s policy addresses only Section 8 contracts expiring between now and September 30, 1999. Congressmen Jim Leach (R-IA), Rick Lazio (R-NY), and James Walsh (R-NY) have introduced legislation that would make permanent HUD’s ability to raise Section 8 contract rents. Hearings have been held and this measure could emerge in Appropriations bills on President Clinton’s desk by September 30. NHT supports H.R.1336, if amended to (1) require HUD to raise below market Section 8 contract rents in tight housing markets to keep owners from prepaying HUD mortgages and raising the portion of the rent paid by tenants; or (2) where a Section 8 rent hike paid by the government will help facilitate the transfer to a socially motivated nonprofit which agrees to keep the housing affordable over the long haul.
H.R. 425 Fills the Gap
The federal government probably can’t provide all the subsidies needed for these apartments. A bipartisan measure has been introduced to encourage state and local governments to become involved in saving and recapitalizing HUD-assisted and -insured housing. H.R. 425 (The “Housing Preservation Matching Grant of 1999”), co-sponsored by Reps. Vento (D-MN) and Ramstad (R-MN), authorizes federal matching grants for state funds contributed to improve federally assisted low-income housing. Funds may be used for loans, grants, acquisitions, operating costs or capital expenditures. So far, 50 Representatives have co-signed the measure. A companion Senate measure should be introduced in June or July.
Time for Solutions
During the next five years, over half a million affordable Section 8-assisted apartments will come up for renewal, at roughly 100,000 units per annum. Now is the time for federal, state, and local governments to craft solutions protecting both the tenants and the housing. Smart, swift action will yield the right outcomes – secure tenants and affordable housing.
The National Housing Trust engages in public policy debates on HUD multifamily housing and acquires HUD-assisted multifamily properties on its own behalf or on behalf of other nonprofits. Information: NHT, 202-333-8931; www.nhtinc.org
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