Lasting Affordability Is the Path to Resilience

We now have a unique opportunity, generated by a combination of life-threatening conditions and focused political will stemming from the Black Lives Matter movement, to re-prioritize local housing policies and resources.

Rowhouses – QoR watercolor on Hahnemühle Collection. Photo by Sandra Strait via flickr, CC BY-NC-ND 2.0

Updated Aug. 31—During the past few months, local governments have—by necessity—focused on urgent COVID-19 housing responses including eviction moratoriums and emergency rental assistance. Attention must now turn to longer-term COVID recovery strategies. Housing with lasting affordability should be an indispensable feature of any local COVID recovery plan, especially for municipalities that strive for racial equity and resilience. A few municipalities, like Baltimore, are heading proactively in this direction by investing in lasting affordability. It’s time the rest of us do the same.

Lasting affordability is achieved through legal restrictions on land or property that guarantee affordable rents and home prices for low- and moderate-income households for at least 40 years. The term “lasting affordability” also carries an implicit intention for—and mechanisms to support—affordable rents and home prices in perpetuity. Lasting, perpetual, or permanent affordability can be implemented in both rental and ownership housing in any state, although legal guidelines and restrictions slightly vary. Models to achieve this include shared-equity homeownership, community land trusts (CLTs), inclusionary housing policies, limited-equity cooperatives, and deed-restricted housing programs.

Lasting affordability models remove housing from the speculative market to provide households with stability through economic upswings and downturns. Lasting affordability is a cost-effective strategy for municipalities to substantially increase their affordable housing stock over time. COVID-recovery plans should prioritize lasting affordability because both stability and scale are necessary ingredients for advancing racial equity and resilience.

Stability

We can think about housing stability at the household level, the neighborhood level, and the market level.

At the household level, parents with affordable, stable housing they can rely on—whether a rented or owned home—can focus on household income growth and educational success. Tenants and owners housed with lasting affordability also gain resilience to personal health problems or income hits when stewardship support is provided to them. Stewardship, a term used by CLTs, encompasses taking care of both the buildings and the families who live there. Stewardship supports include counseling in financial literacy skills, wealth-building opportunities like individual development accounts, and accommodations like rent and mortgage reductions in hard times. At the peak of last decade’s foreclosure crisis, conventional mortgages were 10 times more likely to be in the process of foreclosure than CLT mortgages. CLTs excel at stewardship, but they are not alone. Many mission-driven affordable housing organizations also do excellent stewardship under other names, like asset management and resident services.

Lasting affordability models also build in resilience at the neighborhood level by providing a bulwark against displacement caused by gentrification. The fragmentation of communities of color due to speculative investing and gentrification pressures weakens social networks and neighborhood resilience. One poignant example is the shrinking of Black churches as African Americans are priced out of Oakland, California. Investing in lasting affordability, as was done in the Fruit Belt neighborhood of Buffalo, is an antidote to this fragmentation.

One challenge to achieving market-level housing stability is that housing prices tend to rise more readily than they fall. With widespread job and income losses, as during a recession, there is a reduction in housing demand and ability to pay. In a simple supply-and-demand model, housing prices should fall commensurate with demand. But, in fact, landlords and homeowners alike must pay their mortgages, so price reductions (rent or mortgage payment reductions) are rare, while eviction and foreclosure are common. For this reason, the public sector has tried to impose crisis-response restrictions on the market during COVID-19. These restrictions are crucial, but they are short-term and only apply to some of those in need.

On the flip side, in times of relative prosperity, rent and home prices rise more quickly than wages. New supply, which should theoretically balance new housing demand to stabilize prices, lags many years behind. In real estate development, it often takes five years or more from inception to lease-up. In the meantime, rising rent and property taxes displace low-wage workers and people on fixed incomes.

Housing instability magnifies both the human and economic impacts of recessions. These negative market-driven impacts are typically borne most by communities of color, as illustrated in research on displacement in the San Francisco Bay Area and Milwaukee. Thus, without intervention, the “natural” rise and fall of the economy compounds and perpetuates the damage caused by racially biased housing policies through every new market cycle.

Lasting affordability models remove homes and apartments from the speculative market entirely, offering owners a safe but modest return, rather than the potential for extreme reward—or extreme loss—offered by the speculative market. Under lasting affordability models, neither renters nor owners are as vulnerable to down-market impacts like stock market crashes or short-term unemployment, nor are they as likely to be displaced due to up-market pressures like rising property taxes and predatory investors as they would be in the speculative market.

Scale

The affordable housing sector is already hard at work building homes and apartments that are not subject to the whims of market speculation, but we must increase our efforts. Despite 50 years of federal investment in affordable housing development, only 4.9 million units of legally price-restricted housing exist today, while prior to COVID-19 the housing costs of over 18 million families required payment of more than 50 percent of their incomes. Our national housing industry is caught on a hamster wheel—investing in new affordable housing development while buildings that are only 15 or 20 years old lose their legal price restrictions. Over a million publicly financed housing rentals—mainly LIHTC and project-based Section 8 rentals—will be allowed to exit affordability in the next 10 years. Most LIHTC rentals are legally able to exit affordability after 15 years, even if their funders (and our tax dollars) intended a 30- or 45-year “extended term” of affordability.

The only way to achieve large-scale affordability is to ensure that investments result in housing that remains affordable—and high quality—for a much longer time. Montgomery County, Maryland, learned this lesson the hard way. Its Inclusionary Housing program produced over 14,000 affordable units between 1974 and 2014. However, the initial units only had to remain affordable for five years. As a result, 9,600 units have returned to market rate. In 2004 the county increased the term of affordability to 30 years for ownership units and 99 years for rentals.

Solutions

Building homes with lasting affordability and converting existing buildings to perpetual affordability must happen incrementally. Housing is one of several urgent public investments facing cash-strapped government agencies. Furthermore, increasing national racial equity and resilience requires an intersectional, cross-sectoral, coordinated approach of which housing is only one piece. That said, too often long-term policy solutions are deprioritized and we focus on those that solve immediate problems, treat a symptom, or earn a vote. Grounded Solutions put forward the following recommendations for new housing investment strategies that will incorporate lasting affordability, racial equity, and resilience into COVID-19 recovery plans.

  1. Link financial assistance to long-term affordability.

Many property owners—including owners of regulated affordable housing, unregulated multifamily rental properties, and single-family homes—will experience continued income loss in the coming months and may have trouble covering their costs, unless emergency housing assistance becomes available to all families in need, including undocumented households. When local governments are called upon to support property owners, new public investment can be leveraged to stabilize costs in the housing market by requiring long-term affordability restrictions on a portion of the units that receive investment.

Regulated affordable multifamily properties

When regulated affordable properties enter foreclosure, their affordability restrictions usually do not survive the foreclosure process and the affordable units are lost. To help prevent affordable properties from being foreclosed on and losing their affordability restrictions, Chicago’s new Emergency Relief for Affordable Multifamily Properties (ERAMP) program provides short-term operating support to owners of multifamily regulated affordable housing properties. If a property’s affordability restrictions are scheduled to expire before 2026, the program requires an extension of the affordability term. In addition, all developments receiving assistance must commit to maintaining affordability for the full extended term of restrictions (i.e., they waive their right to submit a qualified contract).

Unregulated multifamily properties

Similarly, public investments in market-rate apartment buildings that serve low-income renters, often—and misleadingly—termed Naturally Occurring Affordable Housing (NOAH), must be protected with legal affordability requirements wherever possible. Such investments can include funds for rehabilitation and/or property tax reductions. Minneapolis’s 4d Affordable Housing Incentive Program provides apartment building owners with property tax reductions if they agree to execute a legal affordability declaration, keeping 20 percent or more of their rental units affordable to households making 60 percent of area median income (AMI).

Single-family homes

Unfortunately, many owners of single-family homes will also face financial hardship in the coming months. For those who experience long-term income losses (and therefore cannot be helped by short-term emergency assistance or a mortgage modification) but do not wish to immediately sell their home, there is another way to prevent foreclosure with a relatively modest public investment that also increases the stock of long-term affordable homes. Chicago’s new Community Land Trust Pilot Program allows homeowners to opt-in and put their home in the Chicago Community Land Trust, making a legal commitment that their home will be sold at an affordable price when they choose to sell it. In exchange, homeowners will qualify for substantial property tax savings and up to $30,000 in home improvement grants.

  1. Give community organizations priority to buy rental properties.

Many owners of multifamily properties—particularly smaller-scale landlords who have less financial cushion—may look to immediately sell their properties to avoid financial losses or foreclosure. Such circumstances are ripe for market-driven exploitation, as speculators may purchase these properties and then raise rents.

Local governments can adopt policies that give the existing tenants in a building and/or community organizations the opportunity to purchase properties before they are sold on the broader market. San Francisco’s Community Opportunity to Purchase Act gives qualified nonprofit organizations the right of first offer and/or the right of first refusal to purchase buildings with three or more residential units. After purchase, the average rent for all units must be less than 30 percent of 80 percent of Area Median Income, or AMI, and units must remain affordable in perpetuity.

  1. Transfer foreclosed properties to community organizations that agree to keep them affordable long-term.

Despite all best efforts, some homeowners impacted by the pandemic will lose their homes to foreclosure. Owners of rental properties may also face foreclosure if tenant assistance isn’t enough to help the property owners pay their mortgages. We learned from the last foreclosure crisis that circumstances such as these are also ripe for exploitation by speculators. We can avoid the mistakes of the past and ensure that the present crisis has some silver lining by ensuring that foreclosed residential real-estate assets return to community ownership. Local taxing authorities should make these assets available to nonprofit housing organizations with right-of-first-refusal policies.

The Fulton County/City of Atlanta Land Bank Authority, which is authorized to foreclose on tax-delinquent properties, has taken initial steps in that direction. For example, the authority has a policy that only governmental entities and not-for-profit corporations can receive land bank property through its Depository Agreement Program. Grounded Solutions Network and our partners at the Center for Community Progress are currently working with the authority as part of our Catalytic Land Cohort to leverage the authority’s portfolio of distressed and underutilized properties in support of existing CLT housing programs that provide lasting affordability.

  1. Acquire vacant properties for future use as long-term affordable housing.

Economic downturns, when property prices fall, are the ideal time for public agencies and mission-driven organizations to acquire property for future use as long-term affordable housing; land banks are ideally situated for this process. A local government can also set up a land banking program within an existing entity, such as a redevelopment authority or a housing or planning department, without forming a separate land bank entity. Mission-driven nonprofit organizations can also acquire property for later use if they have sufficient patient capital earmarked for the task.

This strategy can be successful even if a jurisdiction is not immediately able to use acquired vacant property for long-term affordable housing. The Urban Land Conservancy in Denver purchases a mix of occupied and vacant strategically located properties, including those near planned public transit expansion routes, and holds the asset until the property is ready to be repositioned or redeveloped as long-term affordable mixed-income housing and community-serving space.

  1. Provide capital to land banks and mission-driven developers to acquire properties and keep them affordable for the long term.

Acquisition of occupied, vacant, for-sale, or foreclosed properties by land banks and mission-driven developers is only possible with nimble patient capital that enables competition with private market speculators. Existing systems that require months-long application and approval processes simply don’t work for the fast pace of real-estate investing. Property acquisition funds can help mission-driven entities acquire property quickly. Once land or property is secured, community-based organizations and developers also need capital to construct and rehabilitate property with financing that supports deeply affordable rents and mortgages for the long term.

San Francisco’s Small Sites Program complements the city’s Community Opportunity to Purchase Act by providing loans to nonprofit organizations to buy buildings before a private market investor does. The buildings are then converted to permanently affordable housing. The Indianapolis Equitable Transit-Oriented Development Fund is used to acquire vacant land or land with underutilized building structures located near transit corridors. The fund then sells the land to developers for the purpose of developing or preserving affordable housing near transit.

  1. Adopt mandatory inclusionary housing policies for affordable housing in amenity-rich neighborhoods.

As the post-COVID-19 recovery begins, the economy is likely to get off to a sluggish start. Local governments will be pressured to provide subsidies and other incentives to developers to help rekindle local housing markets. When granting these concessions, officials must ensure that developers are providing long-term affordable housing in exchange. For a city without a mandatory inclusionary housing policy, that means adopting one now. Only in cases where a locality lacks the legal authority to adopt a mandatory policy should it adopt a voluntary policy that requires affordable units whenever public subsidies or incentives are provided.

Lawmakers may encounter resistance from developers who argue that inclusionary housing policies are unnecessary or unwise during this economic slowdown. However, these policies can be flexibly designed to address varying housing market situations. For example, San Jose, California, adopted its inclusionary housing ordinance in early 2010, on the heels of the Great Recession, but delayed the start of implementation until 2013. San Jose also added a creative market-based trigger to allow for earlier implementation if the housing market picked up more quickly: the ordinance could take effect if at least 2,500 building permits were issued within a 12-month consecutive period, with some additional caveats.

Outlook

Our nation’s housing sector is in crisis and suffers from systemic racial discrimination that runs as deep as in the criminal justice system. As with police violence, the remedies we have implemented to date are paltry in comparison to the weight of documented historic racial injustice and modern active racism, so disparate outcomes for Black Americans in particular persist. We all want the future to be more equitable than it was before COVID-19. Our nation now has a unique opportunity, generated by a combination of life-threatening conditions and focused political will stemming from the Black Lives Matter movement, to re-prioritize local housing policies and resources. Investing in housing with lasting affordability that centers racial equity and resilience should be an indispensable feature of any local COVID-19 recovery plans.

Editor’s Note: This article has been updated to include new links and additional information.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.