Thoughts on the Unnatural Occurrence of Cheap Housing

CDCs and affordable housing developers have an opportunity to prevent displacement, preserve affordability, and improve the habitability of neglected housing.

A grey-colored apartment building in Oakland California.
An under-maintained apartment building in Oakland, California. Photo courtesy of Steve King

The term NOAH, or “naturally occurring affordable housing,” has quickly become an accepted phrase used to denote unsubsidized rental housing, generally more than 30 years old, that happens to be relatively affordable compared to housing in adjacent, more desirable neighborhoods or newer, more amenity-rich buildings.

From my perspective, there are two major issues with NOAH: one is semantic, and one is practical.

First off, there is nothing natural about NOAH’s affordability. This housing stock is most often found in lower-income neighborhoods and communities of color where decades of disinvestment and uneven development has unnaturally nurtured an “untapped market” ripe for speculative reinvestment. It may be unsubsidized and affordable for now, but it is also under-maintained and precarious, with eviction and displacement a palpable, everyday threat. (For instance, building owners can make improvements to their properties that range from routine maintenance to over-the-top efforts to improve the marketability of their development and then pass those costly expenses directly on to tenants. For long-term, very low-income tenants, the capital pass-through can be untenable.) Referring to this housing as natural has the chilling implication that building owners who fail to maintain their properties, institutions, and systems bear no responsibility for its problematic status.

As a corrective to the benign and misleading phrase NOAH, I propose HAUTMSS (Housing Affordable Until the Market Speculation Starts; suggested pronunciation: “hot mess”) as a more appropriate term. (Despite the potential for confusion, I use HAUTMSS interchangeably with NOAH in the remainder of this article.)

My second issue with NOAH is that while it sounds benign, or even positive, it is a disaster waiting to happen for thousands of vulnerable households, as the prevailing system consistently fails to protect renters and empower them with viable alternatives to market-driven displacement. In Oakland, California, for instance, it remains commonplace to find sales listings for older multi-unit buildings that clearly spell out for speculators the lucrative upside of “repositioning” occupied, yet tattered, housing units at higher rents. Even with just-cause eviction and rent-control policies, investors routinely calculate that the short-term expense of maneuvering around landlord-tenant law to oust existing families can lead to significant profits over time.

A recent study of NOAH properties commissioned by the Urban Land Institute identified over 5.5 million “fatigued” housing units in 253,467 properties across the United States. Shaw Lupton, a consultant with CoStar—a real estate analytics firm—correctly identified a “vast opportunity in this segment of the market,” a fact certainly not lost on the speculators. For instance, a Bloomberg news story from October 2016 quoted a real estate investor who specifically targets NOAH acquisitions where rents can be raised by at least 25 percent. While this predictably extractive approach may yield one narrow avenue of market-based opportunity, what if instead the real “vast opportunity” was to prevent displacement, permanently preserve affordability, and simultaneously improve the habitability of a neglected housing stock?

A Resident-Centered, Anti-Displacement Agenda

So what would it take to mobilize an effort to remove a meaningful quantity of HAUTMSS buildings from the speculative market and partner with current residents to stabilize and improve their housing? Part of the obvious challenge is that the acquisition and rehabilitation of small scattered-site rental properties is not generally within the core wheelhouse of most high-capacity affordable-housing developers or community development corporations, and the affordable housing development infrastructure in this country is certainly not calibrated to favor this work.

However, there is a contingent of organizations well positioned to take on the challenge—limited-equity housing cooperatives, community land trusts, mutual housing associations, and any number of innovative combinations of these non-speculative, lasting approaches. This preservation challenge presents a prime opportunity to lift up and properly resource these lesser-supported strategies of resident-controlled housing.

Referring to this housing as natural has the chilling implication that building owners who fail to maintain their properties, institutions, and systems bear no responsibility for its problematic status.

A resident-centered strategy to preserve unsubsidized housing demands a uniquely focused suite of tools, an atypical orientation to acquisition, and a long-term commitment to stewarding quality housing and fostering resident leadership. Organizations doing this work need access to nimble financing so they can be competitive in the market and snap up buildings just like speculators. They need to rapidly assess short-term habitability issues and longer-term needs for sustainable asset and property management. Also of equal importance, organizations need to work with and organize residents to assess needs, build capacity, and develop lasting partnerships. If groups considering this work do not have the in-house capacity to engage and organize residents, then this provides a perfect occasion to develop productive partnerships with tenant advocates and organizers to co-create a model that is responsive to the specific needs of residents who live in HAUTMSS buildings.

The particular messiness of the Bay Area’s housing market has resulted in some emergent thinking around how to align resources, policies, and organizational models to support a resident-centered, anti-displacement preservation strategy. Here are just a few examples:

  • San Francisco’s Small Sites Program supports the acquisition of small, unsubsidized rental properties whose residents are at imminent risk of eviction or displacement. Several nonprofit organizations, including the San Francisco Community Land Trust, Mission Economic Development Agency, and Chinatown CDC have used the program to step up their acquisition and stabilization of buildings with 25 units or less. (See related article about Limited Equity Cooperatives.)
  • The Bay Area Community Land Trust, Northern California Land Trust, and Oakland Community Land Trust are working collaboratively to advance anti-displacement, small-site acquisition models in the East Bay, with a specific focus on resident self-management and limited-equity cooperative ownership options.
  • Oakland voters approved an infrastructure bond measure in November 2016 that includes a set-aside of $100 million for anti-displacement housing strategies, with a specific focus on preserving affordability within existing buildings.
  • Advocates in a number of Bay Area jurisdictions are pushing for policies similar to Washington, D.C.’s Tenant Opportunity to Purchase program, which gives organized tenants the right of first refusal to purchase a building in which they reside if an owner wants to sell. They can also assign that right to a partner nonprofit organization and commit to some form of non-speculative ownership over the long term. This type of policy can go a long way toward addressing the uneven playing field for those who are trying to compete with cash investors. However, D.C.’s program does not limit to non-speculative ownership, which can be an unfortunate loophole for further speculation. This is an issue that advocates in the Bay Area are working to address. Otherwise, a well-to-do group of residents could end up being speculators themselves, which subverts the intent of the policy. In that sense, Bay Area residents are looking to implement a more circumscribed policy that is focused on creating permanent affordability.

John Emmeus Davis, co-founder of a national consulting cooperative specializing in the development of policies and programs promoting permanently affordable, owner-occupied housing, has reminded us that “displacement is not a sign the system isn’t working. Displacement is the way the system is designed to work.” The success of any resident-centered, anti-displacement agenda will hinge on a larger question of values and political will. And any genuine effort to preserve affordability in existing buildings must include resources for community and tenant organizing groups that are directly supporting residents on the front lines of eviction and displacement.

Ultimately, most of the requisite tools, policies, and operational models already exist to effectively pluck housing out of the clutches of market speculation. However, they are rarely marshaled specifically for preservation, or to provide adequate resources to enable resident control, cooperative and community ownership, and permanent affordability. There is indeed a vast opportunity here, but it requires a level of support commensurate with the deep, long-term goals of a resident-centered, anti-displacement program. This support hinges on a necessary yet uncomfortable recognition that displacement is a natural outcome of the system as it currently operates.

11 COMMENTS

  1. You are not preserving “affordability” as the market is always naturally affordable or the prices MUST and will drop. What you are trying to do, is create below market or subsidized housing.

  2. It’s never talked about, but the satisfaction of demand, meets at the intersection of supply and demand. When you subsidized something, you get far more demand for it, which is why there are thousands of applicants for every below market unit offered. Why should one person get discount housing granted to them, that thousands of others are denied ? I see only unfairness there, not equity.

  3. I have been thinking about this issue recently as well, and wonder if maybe your analysis is missing one subtly pro-business approach. I suspect that the idea of “removing” NOAHs from the market isn’t as well received here in Texas as in California, so to play to that reality I would suggest actively investing in privately-owned apartment complexes in exchange for a landlord’s promise to keep rents low for a set time period, commensurate with the investment made. For example, if a city were to invest $2 million upgrading a 1980s-era complex, the landlord would agree to cap rent increases at a modest percentage (maybe 2% a year) for 15 years until that investment is essentially “paid back” through the capped rents. In this example, you have preserved housing for existing tenants who were vulnerable, worked with the landlord to retain ownership, and slowed the deterioration of a neighborhood asset.

    • effectively subsidizing the property owner’s ability to upkeep the property and pay his taxes—”rent controlled” apartments—hmmmmmmmmmm

  4. There is a very coastal component to this analysis, which is fine, but it doesn’t address the issue in the Midwest and South where rents are much lower and land is not scarce. Here in Columbus, Ohio, we have begun to see speculation in the big apartment complexes built back in the glory days of the 1960s and 1970s when they actually zoned large developing areas for multi-family. In a sprawl city like Columbus, these areas were bypassed for reinvestment as newer luxury multi-family was built 5 miles further out. The important point is that these areas are relatively undesirable and that reinvestment by the current owners or new owners is unlikely to result in much higher rents in the absence of the whole neighborhood changing for the better. I am not exaggerating that rents in this older stock are $400 to $600; that is what folks can afford to pay. In that sense, it IS natural for the housing to run down over time because rents don’t pay back the cost of rehabilitation. Now, Columbus is experiencing a housing boom and some of the NOAH properties may be upgraded and gentrified as time goes by. But in much of the Midwest, I’ll bet we see more NOAH properties end up being boarded up than are gentrified. It is just as much a concern as in Oakland to lose this stock, but the reasons are different.

  5. @Kevin Smith: In many housing markets, the point at which supply and “effective” demand intersect is frequently at a price point that excludes many people from the market. While it’s true that so far there aren’t enough affordable units for all who need them, its a false dichotomy to suggest that either everyone must benefit or no one should. The result is that far too many people pay enormous portions (often more than half) of their limited incomes for housing that is overcrowded, substandard, or located far from community support, transit and job opportunities.

    @Chris: Are there any examples where such a strategy has worked? In areas where market rents are rapidly escalating, it is difficult if not impossible to get private investors/landlords to agree to long term rent caps. And 15 years is hardly long enough – we’ve had plenty of experience with what happens when the affordability limits expire, and most of it isn’t good.

  6. Many of the comments above overlook Steve King’s suggestion of the affordable housing cooperative as the road to gentrification of housing for those who occupy the non-maintained HAUTMSS housing. (Do not shrink from the word gentrification — look up its definition). If we talk in terms of programs that require affordability for 15-20 years, we are predicting public or private reinvestment in affordable housing every generation.

    Affordable housing cooperatives built 50 years ago by and large exist, most in better condition now than when built, and do not be misled by the inadequate in time span records at HUD. This is in comparison to the comparative nonexistence of the rental housing today created under the same federal programs, most of those programs still on the books today, either rarely used or not funded. And do not be misled into doing a 8-50 unit housing cooperative. Its probability of success is diminished by the smaller size.

    A housing cooperative is a housing insurance plan — the larger the group of insured, the greater the probability of success and lower premiums (but a size within representative democratic governable limits). Grouping of smaller apartment buildings within a manageable area in a scattered sites cooperative with the cooperative offices and community space in the basement of one of the buildings will achieve the desired economic size. Some of the current avenues could be limiting low-income housing tax benefits to developers who will agree to sell the housing to a cooperative at the end of the holding period, or even better contract with the cooperative to handle the building’s management under a regulatory agreement with the investor group during the holding period. Or reactivating the HUD investor sponsor approach under HUD programs or with private foundations and investment groups with 5 year construction loans to permit the cooperative to establish it credit for a take out loan.

    BUT bear in mind if the income group to be served would need an operational subsidy to operate, so will the housing cooperative, with the exception that it will not have to have the investors’ profit or return on investment included in its rents after the cooperative becomes a free-standing independent operation. That has been proven over the past 50 years, together with the lower maintenance costs produced by the pride of home ownership.

  7. Thank you, Steve King for offering us a wonderful alternative to NOAH. HAUTMSS is easy to say and much more accurate. And thank you for reminding us that the struggle against displacement is a struggle against the “success” of our current market system. In your survey of resident-oriented strategies you mention the Tenant Opportunity to Purchase Act (TOPA) in DC. Mi Casa serves as development consultant to tenants seeking to purchase their homes through TOPA. Since 2000 we have worked with more than 20 groups to purchase buildings for a total of more than 550 units. All but two of those groups formed and continue to own their buildings as limited-equity cooperatives. Seventy-five percent of the units are affordable for households at 50% or less of the median income. And about half of those units are affordable to households at 30% AMI and below.

    The vast majority of the TOPA work of not-for-profits in DC is in serving as development consultants to assist resident groups purchase as limited-equity cooperatives or in a few cases as affordable condominiums. All buildings suffer from deferred maintenance and are in need of moderate to substantial rehabilitation. Support from the city comes from flexible subordinate loans with a 40-year affordability covenant that runs with the land.

    As Steve points out, TOPA is a valuable tool but not a complete answer to solving the issues of HAUTMSS. Tenant groups have the option to assign their right to purchase to private developers. Often this decision is swayed by developers who mislead tenants about their plans to improve and keep the building affordable or by offering “buy-outs” to encourage them to move. Buy outs rarely cover six months’ rent in a future HAUTMSS building. Tenant organizing groups such as Latin Economic Development Association (LEDC) and Housing Counseling Services have successfully worked with many tenant groups to stand firm and negotiate better agreements with developers.

    The DC Department of Housing and Community Development (DHCD) has created a special fund for tenant purchase of their buildings. Given the regulatory necessity to complete the purchase within nine months this resource is necessary tool for successful tenant purchase. However the amount of funding is not enough to meet the potential number of tenant purchases. Recently the DHCD requested comments on opening the TOPA funds to not-for profit and private developers. Through the Coalition for Non-profit Housing and Economic Development (CNHED), Mi Casa and other groups advocated for strict controls ensuring that projects that protect long-term affordability and have a meaningful partnership with the tenants get priority to receive public funding.

    In addition to the need for additional financial resources, other factors can limit the use of TOPA. Two common limiting factors are: small size of buildings or a group of residents who for some reason are reluctant to take on ownership. Seeking to find a strategy for these cases, Mi Casa has for the first time accepted assignments of rights from tenant groups. During the past year we have acquired five buildings in which residents have decided not to exercise their TOPA rights. All are less than 25 units in size. The development plan is to bundle these buildings in order to achieve reasonable economy of scale in order to prevent displacement and protect affordability.

    We in DC are fortunate to have a fairly unique tool like TOPA and support for community-controlled housing though limited-equity cooperatives. But like all such tools mentioned in Steve’s article, within our current economic system it only remains effective with continued grassroots vigilance and organizing. That is until we change our system and then perhaps we can bring back NOAH as an accurate and meaningful acronym.

  8. “Organizations doing this work need access to nimble financing so they can be competitive in the market and snap up buildings just like speculators.”

    THIS. Where and how do we make this happen? This has seemingly been our only stumbling block so far…

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