One of the best arguments for preserving affordable housing emerges out of the wreckage left by the housing and financial crisis. “In many markets right now it
doesn't make a lot of sense to build new
housing, but in all markets it makes sense to preserve all or most
of the existing housing,” says Bill Kelly, president of
the Stewards of Affordable Housing for the Future (SAHF).
With new construction projects tough to do these days, industry
advocates say preservation is more important than even a few years
ago in helping to meet the nation's housing
“If you take a look at
what's going on in the homeownership and rental
market, I think it's more and more clear that we
need to, for both environmental and housing reasons, maintain
existing housing,” agrees Michael Bodaken, president of
the National Housing Trust (NHT), a nonprofit organization focused
on preservation. “As we see markets beginning to
absorb product at a slower rate, it makes economic and social sense
to try to preserve housing that's already built.
I think you are seeing that by the way governments, developers, and
others are looking at making decisions for their businesses and the
allocation of resources for housing.”
The issue has largely been about housing that is at risk of
losing their affordability as different restrictions come to an
end. The threat is that the housing will then convert to
However, today's tough economic climate is
raising additional worries for affordable housing owners.
“I think there's more
concern about losing housing due to financial and physical
distress,” says Bodaken.
One of the biggest challenges right now is the low-income
housing tax credit (LIHTC) market, which has struggled as several
companies, including Fannie Mae and Freddie Mac, have stopped or
reduced their investments. The lack of capital means that pricing
to developers has fallen, and many deals may not get funded at all
“Over 50 percent of the units that were able
to receive financing from the credit in 2007 were preservation
units,” says Bodaken. “The ability of
preservation to do deeper rehabs and more meaningful affordability
is conditioned at least in part on the LIHTC market being
Major preservation bill
The case for preservation will be made in the halls of Congress.
Affordable housing developers and advocates are waiting on a bill
that could be the most significant preservation legislation in
Rep. Barney Frank (D-Mass.), chairman of the Financial Services
Committee, has prepared a draft bill aimed at saving existing urban
and rural low-income housing. The likes of such a bill, which
addresses properties financed by the Department of Housing and
Urban Development (HUD) and the Department of
Agriculture's Rural Housing Service (RHS),
haven't been seen in a decade, according to
“I think it's fair to say
it's a sweeping measure that would without
significant costs to the taxpayer dramatically improve the
prospects for preserving both HUD and RHS housing,”
The draft bill calls for providing federal assistance to extend
the affordability of assisted housing projects. Assistance could be
either loans or grants to help owners rehabilitate their properties
for continued use as affordable housing and to help nonprofits buy
properties. The bill also provides new project-based Sec. 8
assistance for currently assisted units.
A controversial component in the draft has involved a mandatory
first right of purchase before subsidized projects can be converted
to market rate. Several industry organizations have voiced
opposition to such a provision.
A bill had yet to be introduced as of press time. In light of
the Financial Services Committee's congested
calendar, some watchers don't expect to see the
bill enacted this year.
Other preservation-related bills have been introduced, including
H.R. 2876, by Rep. Lincoln Davis (D-Tenn.), which addresses rural
housing projects, and S. 1676 by Sen. Ron Wyden (D-Ore.), which
would allow the residual receipts of projectbased Sec. 8 properties
to be transferred at the time of a qualified sale or exchange to a
Even without a new bill, preservation efforts were boosted this
year when HUD provided new guidance on using Federal Housing
Administration (FHA) loans with tax credit financing, says Kelly of
SAHF, a network of nine leading nonprofi t organizations that
acquire and preserve affordable housing.
The move came on the heels of the Housing and Economic Recovery
Act of 2008, which called on HUD to enhance the use of LIHTCs with
FHA. In Mortgagee Letter 2009-24, HUD outlined several changes,
including the elimination of FHA multifamily mortgage insurance as
a basis to require a subsidy layering certifi cation. In addition,
projects with FHA mortgage insurance and tax credits can be exempt
from certain cost certification obligations if HUD determines that
the ratio of loan proceeds to the actual cost is less than 80
percent. In another move, offi cials report that an equity escrow
may be eliminated for these projects if other conditions are
Since most preservation deals are done with LIHTC financing and
the commercial lending market has been difficult,
it's important to have access to FHA insurance,
He cites the recent action as changes that were done without
SAHF has focused on recommending other administrative moves that
can be taken to help accelerate preservation. They include asking
HUD, “by general policy, to make 20-year HAP
contracts, subject to appropriations, available in preservation
sales and refinancings, regardless of when the current contract
Bodaken is excited about “green
preservation,” specifically the growing understanding
about the connections between the preservation of existing housing
and the reduction of greenhouse gas emissions.
“We at the Trust think that preserving an
existing building is the greenest thing you can do in affordable
housing,” he says.
He points to recent collaborative efforts between HUD and the
Department of Energy. “The resources that they
are putting into making existing housing more energy efficient is,
at least in my memory, the first time that this has been approached
on a holistic basis.”
HUD Secretary Shaun Donovan has stressed that a
“flexible menu of solutions will be
required.” For example, the needs of a troubled
property in a challenged neighborhood may be different from those
of a well-maintained property in a good market at the end of its
“One concept that we are very interested in
pursuing is linking the preservation of the existing affordable
housing developments with broader initiatives that benefit
communities,” he said before the Financial Services
Committee. “We want to look at prioritizing the
preservation of developments that are integral to sustainability
such as those adjacent to transit or with great access to job
Carol Galante, HUD deputy assistant secretary for multifamily
housing, has been working on different preservation initiatives for
the department. (See guest
MacArthur key to preservation
An important driver in the preservation effort has been the
MacArthur Foundation, which is investing $150 million toward saving
affordable rental housing, including awarding $32.5 million this
year to 12 state and local jurisdictions.
The jurisdictions will use the funds to support innovative
preservation efforts. For example, the Pennsylvania Housing Finance
Agency will use a $1 million grant to determine how energy
conservation improvements help preserve affordable housing and
ultimately help reduce the utility costs of needy families.
One industry leader calls the Foundation a linchpin in the
recent progress that has been made.
The Foundation has also funded 25 nonprofit developers,
including Volunteers of America, NHT/Enterprise Preservation Corp.,
and Preservation of Affordable Housing, Inc.
Developers have deployed the funds in various ways, including
acquiring properties that were at risk of becoming market- rate
developments and retrofitting buildings for energy efficiency.
The Chicago-based foundation expects to help preserve and
improve at least 300,000 affordable homes nationwide. So far, more
than 60,000 units have been preserved in more than 40 states.
The initiative is touching a variety of markets, demonstrating
that preservation is an issue in every kind of community, says
Debra Schwartz, director of programrelated investments.
“For many, homeownership is not an appropriate
option,” she says. “We have believed
that rental housing is a critical part of a balanced housing
NCR Takes on Big Preservation Deal
National Church Residences (NCR) is working on its largest
preservation project to date, the 300-unit Baptist Towers here.
The nonprofit organization acquired the 37-year-old property
when the prior owners knew they needed to either recapitalize its
only real estate holding or sell the aging building. The Baptist
Towers Corp., a Georgia nonprofit, decided to sell.
Although the owners hoped to see the property preserved as
affordable seniors housing, they did not want to wait while a buyer
went through the lengthy process of applying for low-income housing
tax credits (LIHTCs), says Jim Baugh, NCR's vice
president of development.
More owners are wanting out of a deal sooner than it takes to
win a LIHTC award, according to Baugh, explaining that winning 9
percent LIHTCs remains highly competitive and may take multiple
applications. In addition, it is very challenging to find an
investor these days, and sellers do not want to tie up their
properties for long periods of time.
NCR had to come up with a new strategy to fund the $16.4 million
deal instead of waiting to receive tax credits.
The group received an interim loan from SunTrust Community
Development Corp. and worked with Department of Housing and Urban
Development officials in Atlanta to acquire Baptist Towers, which
had been built with a Sec. 236 loan. In addition, 268 of the 300
apartments have project-based Sec. 8 contracts.
NCR went ahead and acquired the property in December 2007, using
the SunTrust loan. It then applied for tax credits to help pay for
the project's rehab in 2008.
The project failed to win a LIHTC reservation in the competition
but was near the top of the waiting list. When several of the
projects receiving reservations failed to find a tax credit
investor or had trouble making a deal work in the tough economy,
NCR was notified by the Georgia Department of Community Affairs in
May that its project would receive an $8.5 million reservation
In the interim, as deals struggled across the country, Congress
passed the American Recovery and Reinvestment Act, establishing the
Tax Credit Assistance Program (TCAP) to steer additional funds to
LIHTC projects. NCR applied for TCAP funds for Baptist Towers and
has received preliminary approval. The group hopes to receive about
$2 million and hopes to close on all financing this year and
commence a $7 million renovation.
The development is about halfway through its 20-year Sec. 8
agreement, so NCR hopes to obtain a new 20-year contract at
PRESERVATION BY THE NUMBERS
”¢ The National Housing Trust (NHT)
estimates that it costs about 40 PERCENT more to
build a new affordable apartment than to preserve one in the same
”¢ Over the next fi ve years, contracts
on more than 900,000 Sec. 8 units will expire,
estimates the NHT.
”¢ Nearly 200,000
affordable apartments in properties with Department of Housing and
Urban Developmentsubsidized mortgages will be at risk of conversion
to non-affordable use when the mortgages mature over the next 10
years, according to the NHT.
”¢ Number of affordable apartments
preserved with 4 percent and 9 percent lowincome housing tax
credits, according to the NHT.
”¢ From 1995 to 2005, 1.5 MILLION UNITS
renting for less than $600 a month in 1995 were demolished or
otherwise removed from the housing inventory, according to Harvard
University's Joint Center for Housing