This article is part of the Under the Lens series
Moving Community Development Forward
We have a crisis within a crisis: Even as we redouble efforts to increase housing supply through new construction and zoning reform, we are not making a dent in the need for affordable housing. In fact, in many areas of the country, we are losing ground. Already millions of Americans struggle to find and afford a home, and the problem is growing significantly worse. Contrary to mainstream and trade news reports, the primary culprit is not high construction costs, exclusionary zoning, lack of access to land, stifling regulations, or NIMBYs, although all of those remain problems. Rather, deteriorating conditions and insufficient resources for owners to address them have rendered our existing stock of affordable housing incredibly fragile and on the precipice of loss. This crisis is not a result of financial mismanagement on the part of housing providers. Our affordable housing system was never designed to account for the realities of maintaining housing for the long haul, particularly in the face of growing financial, security, and climate risks.
The benefits of preserving affordable housing are clear and compelling. First and foremost, only by preserving existing housing at the same time as we build new housing will we move the needle on our supply shortage; building new units while hemorrhaging existing stock is treading water at best and losing ground at worst.
Preserving housing is much less expensive than building new. In urban centers, new construction can exceed $700,000 per apartment home, in contrast to the typical $50,000–$200,000 per unit cost of preserving and renovating a property. Preservation leverages prior investments in affordability by extending the life of homes we’ve already created. It’s also faster—an affordable home that is renovated and preserved can be available to families in need of housing in a fraction of the time it takes to build new housing.
Preservation uses less energy and carbon than building new. And most importantly, preserving existing housing averts displacement of residents and addresses housing stability as well as supply.
The organization I lead, National Housing Trust (NHT), was founded nearly 40 years ago to promote affordable housing preservation. For most of that time we have focused largely on preserving federal programs, such as subsidy contracts, and policy levers, like affordability restrictions. While these are still critical tools, lasting affordability has become a better-understood threat and there are organized efforts and campaigns to preserve affordability. Local and state policymakers, nonprofits and even new for-profit preservation funds are working to identify and preserve existing affordability requirements. That work is important and essential—and yet it does not address the full scope of the challenge.
What is overlooked in most housing policy discussions today are the new threats to affordable housing preservation: deteriorating economic and physical conditions in our communities, the strain that housing providers work under to maintain their portfolios, and systemic failures that allow those conditions to persist. Take, for example, one of the communities in NHT’s own portfolio that I’ll call “Pleasant Gardens” to protect residents’ privacy.
In 2005 Pleasant Gardens was in poor condition and had been badly managed. When the owner listed the property for sale, the tenants organized under D.C.’s Tenant Opportunity to Purchase Act (TOPA), and selected NHT and a partner to maintain the community as affordable housing. Our renovation scope of $59,000 per unit ($93,000 per unit, adjusted for inflation) was significant in 2006 but typical of affordable housing renovations—done on a tight budget with limited resources. Nearly 20 years later, wear and tear have accumulated and the buildings—originally constructed in 1968—suffer from leaking roofs, outdated systems, and worn kitchens and baths. Pleasant Gardens desperately needs renovation.
Despite having project-based Section 8 subsidy on all the units and full occupancy, rental income only covers about 60 percent of our operating costs because of rent arrearages and rising property expenses. Every month NHT and our partner write checks to cover the operating deficits—a short-term solution that poses long-term risks to the rest of our portfolio. Fixing the myriad physical problems at Pleasant Gardens would cost well beyond what either of us can afford without help.
Preserving existing housing averts displacement of residents and addresses housing stability as well as supply.
We are an organization dedicated to providing quality affordable housing, yet we are struggling to secure the funds to invest properly in Pleasant Gardens and many of our communities. Many public sources like the District’s Housing Production Trust Fund now de-prioritize preservation projects in favor of new construction.
We are caught between a rock and a hard place. NHT’s nonprofit mission is to create and preserve quality affordable housing. Conditions at Pleasant Gardens are shameful, and we are sickened to maintain such standards. But so long as current property cash flow cannot support additional debt we are limited in what we can do. In addition to scarce soft debt, the District of Columbia, like many states, faces federal limits on how many bonds it can issue, known as volume cap constraints. The soonest we could get a tax-credit, bond-financed recapitalization is at least two to three years. We have considered selling the property, which would be valuable to would-be buyers because of its Section 8 contract. But we fear that most potential owners would invest even less than we do, leaving the residents even worse off than they already are. It’s a lose-lose situation.
Through peer networks and conversations with like-minded owners, we have come to realize that the story of Pleasant Gardens is playing out all over the country among even the strongest and most committed affordable housing owners, nonprofit and for-profit alike. Our properties are aging, and the effects of the pandemic years—including more time spent at home, struggling tenants, and eviction moratoriums—have taken a toll. The greatest threat to affordable housing is not the lack of resources to build, but the lack of resources to operate, maintain, and repair.
How did we get here? It’s a question we’ve asked ourselves and our peers. A series of factors, exacerbated by the pandemic, have conspired to create this dynamic:
- Competing priorities. Thirty years ago, preservation was THE affordable housing crisis, because the market more or less delivered adequate supply. Today, indisputably we have an equally large or larger supply crisis coupled with record rates of housing cost burden, leading to an ever-worsening homelessness crisis. Today, housing preservation has to compete with efforts to spur new construction and solve homelessness. The same scarce subsidy dollars are commonly used to address all three challenges—including HOME funds, Community Development Block Grants, local subordinate debt, Low Income Housing Tax Credits, and vouchers—but in most cases, preservation comes in third. Of course, we need new construction and homelessness services. But we also need preservation. By sacrificing units to conversion and/or physical obsolescence, we deepen our housing deficit, in turn creating more homelessness.
- Insufficient subsidy. Available public subsidy has not kept pace with the cost of maintaining affordable housing. Owning housing, as any homeowner knows, is expensive. While local and state gap financing and state private activity volume caps increase with overall population, they do not increase with growing income inequality and surges in people who are housing burdened. Current levels are insufficient to finance even the new units we need, let alone our existing stock that needs to be refreshed.
- Weak cash flow. Affordable housing economics is, fundamentally, simple arithmetic. In most markets, the cost of building housing cannot be supported by affordable rents, resulting in the need for a subsidy to make up the difference. Increasingly, public subsidy comes in the form not of grants but of subordinate debt that must be repaid from “excess” cashflow. With operating costs skyrocketing—the cost of multifamily property insurance, for example, is up a whopping 26 percent on average last year—there is little to no cash left after property expenses and debt service for us to reinvest in a property.
- Aging stock. Property conditions deteriorate with age. Extreme temperatures, flooding, and more severe weather events as a result of climate change accelerate that deterioration.
- Real estate boom. Twenty years of booming real estate markets in many major cities has meant that affordable housing developers have had to pay record high prices to acquire land and communities, with little left for upgrades. The light rehabs we conducted at the time to make the projects feasible were not extensive enough to maintain the quality of these properties for 15 years, and the wear and tear shows.
- Pandemic strains. While large swaths of the economy have bounced back from the pandemic, many of our residents still struggle to pay rent. Across our portfolios, rent collections are down and emergency relief dollars have been exhausted.
- Capital bias. Ribbon cuttings and new projects are sexier and less of an ongoing commitment than supporting operations. Time and again, elected officials allocate dollars to build projects without thought to how they will be maintained. If policymakers want housing projects that do not require operating subsidy, they will need to finance them so they end up with minimal debt service.
- Cost of capital. In the absence of public dollars, owners turn to private investors for help. Despite being marketed as preservation and social impact funds, many of these vehicles are not aligned with resident or property needs. Many of these funds are motivated by the potential upside of owning affordable communities and prioritize returns for their investors over what improvements the properties and residents need. As a result, their capital is priced too high to carry out appropriate investments.
- Interest rates. Interest rates remain high and spending more in interest detracts from what we can invest in property improvements.
There are some positive signs too:
- The Inflation Reduction Act includes billions of dollars for energy retrofits and decarbonization, $1 billion of which is exclusively for affordable housing. Investments like electric heat pumps, electric appliances, and solar panels can simultaneously reduce carbon emissions and improve a property’s longevity.
- The Affordable Housing Credit Improvement Act, which has bipartisan support, would increase tax credits and improve tax-exempt bonds.
- In lieu of or in addition to government support, corporate partners are stepping up to fill the void. In the Washington metro region, Amazon’s Housing Equity Fund has committed $2 billion to support affordable housing, including preservation.
Housing is beginning to be a central feature of political platforms, ballot initiatives, and campaigns at the national, state, and local levels. Last year, the state of Minnesota approved a $1 billion package of investments that includes direct support for affordable housing operators who have been kneecapped the pandemic, higher costs for things like insurance, increased wear on buildings, and lower rent collections.
Still more, way more, and different kinds of more is desperately needed to meet our current affordable housing preservation crisis. We need more resources, differently priced and structured capital, more preservation-friendly policies, new programs, more rental assistance—and the will to solve the challenges of operating affordable housing for the long run.
According to the Joint Center for Housing Studies at Harvard, 42 million people in the US are housing cost burdened, 22.4 million of them renters. Without reinvesting in our scarce housing stock, we run the risk of making that number even worse and creating a humanitarian crisis.
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5 thoughts on “In the Rush to Build, Existing Affordable Housing Is Falling Apart”
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Drop the mic! So much said succintly, and well. After being in this field for almost 20 years, I am honestly fighting feelings overwhelming cynicism. HTank you for pointing out the conundrum of so-called socially minded investors who want high double-digit returns. I am hopeful we can turn this tide. Yes to more of all of it: new housing, preservation, collaboration. private dollars, public resources, operating subsidies, pathways to homeownership, strategic partnerships, and hopefulness.
Well reported, Priya.
In real terms we have a national housing crisis. The cost to the nation is enormous in terms of lost productivity.
The nation has failed to fill a core need as simple as a roof over your head resulting in housing insecurity.
It really boils down to how, as a country, and as a society we wish to allocate federal resources. As the richest country on the planet that controls 30% of the world’s GDP that represents less the 5% of the world’s population it’s an embarrassment we can’t provide adequate housing that is safe, decent and affordable for every America, and as Priya correctly points out there are resources needed to maintain the housing efficiently for those at the lowest incomes.
This is not a complex problem. This is story of a lack of political willpower to prioritize a housing crisis.
Great piece Priya,
In the face of the operating pressure and resource constraints, many owners are also looking to tap asset values in their portfolios to preserve others. Sometimes finding a new owner can help preserve a property while making one’s own portfolio more efficient.
Why don’t we address the sources of these problems? Insufficient employment, and treating homes as investments (including second, third, etc. homes and short-term rentals) and more, all make the housing situation, and make it worse. The US needs to grow up and deal with the roots of our challrnges.
Hi Priya, Dana forwarded this article to me. What a well written piece and your thesis is compelling. And this topic is one that I hear about a lot when I speak with Dana about Homes for America. Dana also told me how much she enjoys being not only your friend but also a colleague with whom she can strategize and commiserate. Congratulations on all that you are doing in this space! I am working as a consultant to a local network of Funders Together to End Homelessness in Baltimore and really enjoying the work, despite how hard and frustrating this field is to find solutions that match federal and local monies. It would be great to. see you in person one of these days. Maybe we could organize a DC; MD; northern VA reunion of sorts. Take good care, Kathy