Affordable housing has shown its stability through different economic cycles and has been key in rebuilding communities after hurricanes, tornadoes, and other disasters.

Now, as the country faces a different type of crisis in COVID-19, what role can affordable housing play in the nation’s comeback?

Even before the pandemic, there was a huge need for affordable housing.

Denise Scott
Denise Scott

“This housing is for the most vulnerable—disabled, veterans, seniors, low-income families, folks who are a paycheck away from homelessness,” says Denise Scott, executive vice president for programs at the Local Initiatives Support Corp. (LISC). “The availability of quality affordable housing has been a big challenge.”

Now, in the new context of COVID, it’s an even greater problem because the households in need of affordable housing are likely to be disproportionately impacted by the health crisis, according to Scott.

With the pandemic closing stores, restaurants, and other businesses from coast to coast, millions of people have lost their jobs. And, many of those jobs won’t be coming back soon. A staggering 33 million people have filed for unemployment benefits in recent weeks.

The loss of jobs puts families at risk of homelessness and creates an even greater need for affordable housing.

Callahan Seltzer
Callahan Seltzer

“We have to get back to better than we were,” says Callahan Seltzer, LISC’s director of housing.. “We have to create more affordable housing. To do that, any recovery necessitates a strong, healthy ecosystem of affordable housing and housing providers.”

Advocates hope to see a large increase in federal rental assistance as well as an expansion of the HOME, Community Development Block Grant, and low-income housing tax credit (LIHTC) programs.

Many of the existing federal programs are a proven delivery system, Seltzer says. “It’s the most effective way to reduce homelessness,” she says. “It’s the instability that we have to do deal with now because so many more people are in the category of housing unstable than they were a month or two ago, and so many more, without a federal influx of resources, will be in that bucket when they never thought they would be. We’ve got to fix that instability. That’s the first step toward a full recovery.”

Protect the Pipeline

The nation has to prepare for the reality of a significant economic crisis that outlasts the immediate and severe health care crisis, says David Dworkin, president and CEO of the National Housing Conference.

“Housing construction is going to play a critical role in getting people back to work,” he says. “It really reframes the whole conversation because it’s not just a housing issue. It’s a jobs issue. There are going to be millions of people who need to go back to work, who are not going to have jobs, and we have a pre-existing shortage of affordable housing.”

David Dworkin
David Dworkin

It's going to be about solving two problems at the same time and being strategic about how to use resources to both get people back to work and to address severe shortages that we have and need to resolve, he says.

NHC was created in 1931, and its first legislative victory was getting housing construction in the National Industrial Recovery Act of 1933, Dworkin says.

While we’re in an unprecedented time, in some ways, it’s back to the future, he says.

Affordable housing takes a long time to develop as developers have to find land, secure the necessary local approvals, assemble complicated financing, and then build the project.

Since its inception, the LIHTC program has fueled the production of more than 2.5 million affordable apartments. It creates approximately 95,000 new full-time jobs, adds $7.1 billion in income to the economy and generates approximately $2.8 billion in federal, state and local taxes each year. In recent years, the

LIHTC has produced about 75,000 new apartment homes annually, according to the National Association of Home Builders.

“We need to make sure that we’re not losing our pipeline, which means that we have to pay attention to the low-income housing tax credit market,” Dworkin says. “It’s the biggest source of equity for affordable housing in the country.”

The value of the credit has been significantly depreciated by historically low interest rates as well as the fact that many companies that would buy tax credits are going to find themselves with much lower tax liability. We’re already seeing that have an impact on LIHTC pricing, he says.

Patrick Costigan
Patrick Costigan

One of the key recommendations being made is to fix the 4% tax credit at 4% instead of where it floats today around 3.12%. “To take that out of the technical weeds, we have to be sure that we’re getting the maximum bang for our buck in the tax credit market,” Dworkin says.

The other critical step would be to use the existing channels that are available. “That means additional funding to the Capital Magnet Fund, the National Housing Trust Fund, the LIHTC, and HOME funds,” he says.

“We need those subsidies to ensure that deals can get quickly funded and that we’re making up for the shortfall, the gap, in financing that is inevitable. We also need to look at a major initiative to build more housing. The timeline is going to be longer than we’d like it in some cases. We have to start now. We have to start preparing for our recovery now.”

An Expanded Role for RAD

Many others have also been thinking about how affordable housing can play a key role in the economic recovery after the COVID-19 threat eases.

Anne Segrest McCulloch
Tamzin B. Smith Anne Segrest McCulloch

“Regrettably, but perhaps also fortunately, affordable housing development is a countercyclical activity,” says affordable housing industry veteran Patrick Costigan. “It’s historically been both a stabilizing response in meeting the immediate need for housing, for example, after a hurricane or a tornado, as well as a form of localized economic stimulus. Think of the good that work that housing authorities and assisted housing owners and developers did with ARRA [American Recovery and Reinvestment Act] and other stimulus funds in the wake of the Great Recession in 2008.”

Affordable housing development and continued responsive property management can play the same crucial role in meeting local needs and boosting the national economy as COVID-19 restrictions begin to ease.

While it’s good to consider the affordable housing tools that are in place and can be quickly launched to lead a comeback, there’s another dimension to this—what can also be deployed with available and limited resources, according to Costigan, a senior adviser to HUD secretary Shaun Donovan during the Obama administration who was charged with getting the Rental Assistance Demonstration (RAD) launched. He is a principal in CF Housing Group and serves as a strategic adviser to the RAD Collaborative.

He recalls how the Obama administration continued stimulus investments to bolster the economy into 2010, and Congress began to grow weary of pumping more resources into housing.

“That was the reality when then-HUD secretary Shaun Donovan launched and ultimately had to settle on a ‘cost-neutral’ approach to RAD,” says Costigan, who was charged with launching the program. “Good arguments for additional dollars to true-up public housing subsidies to fair market rent (FMR) levels that could be converted to standard Section 8 contracts to properly foot RAD fell on deaf ears on the Hill. We were told more than a few times by sympathetic housing staff that Congress had no more money to give. Period.”

In order to survive and stabilize, we immediately need to channel rental assistance through the system as efficiently as we can.

“It’s a strong bet that Congress will issue another full stop on additional funding sometime soon. Pandemic–related spending is already nearly double that of ARRA and related stimulus initiatives from 2008 through 2010. So the best affordable housing tools to aid a comeback are likely to be those that make better use of existing resources—and not those seeking much in the way of additional resources even if the pandemic has laid bare the need for them,” he says.

RAD is arguably one of the most effective demonstrations of how to better use available, not previously well-used and often not fully tapped funds, according to Costigan, noting that to date, RAD has tapped or made better use of all these resources in leveraging over $9 billion in debt and equity investment to shore up nearly 135,000 public housing units. The entire inventory of multifamily Rent Assistance Payment (RAP) and Rent Supplement properties have also been preserved and enhanced under RAD.

The program’s first component has allowed public housing and moderate rehabilitation properties to convert to long-term Section 8 rental assistance contracts. The second component further allows RAP, Rent Supplement, and Mod Rehab properties to convert tenant-based vouchers issued upon contract expiration or termination to project-based assistance.

“First, Congress could take the ‘D’ out of RAD and make it an ongoing initiative in a future stimulus or appropriations bill,” proposes Costigan. “Its established procedures could be decreed to satisfy needed rule-making for a permanent program. Congress could simultaneously commit to providing steady, reasonable amounts of public housing funding needed for converting to long-term Section 8 contracts, say, for the next three to four years. Assuring predictable RAD rent levels for a defined period would allow public housing agencies to properly plan and sequence redevelopment projects, which would hasten RAD’s uptake.”Second, HUD has begun to show how RAD and the Section 18 Demolition and Disposition program can work effectively in tandem to recapitalize larger public housing portfolios with deeper funding needs than RAD alone can reach. This can be accelerated, he says.

Section 18 allows for the award of FMR-level Tenant Protection Vouchers (TPVs) when public housing properties are determined to be obsolete and costly to repair. TPVs can then be project-based to support the development of replacement housing or substantial rehab. Section 8 subsidies at market levels can be blended in varied amounts up or down with RAD subsidy streams that are typically below market to generate sufficient financing for large portfolios of properties with varied capital needs, explains Costigan.With these and other related moves, HUD and Congress could make better use of existing resources and relieve some of the effects of the pandemic.

“The most-distressed public housing could be replaced,” Costigan says. “Thousands of lost jobs could be counterbalanced by new construction jobs at decent wages. Communities across the country could preserve and improve much needed affordable housing—and would surely applaud the results.”

Survive, Stabilize, and Thrive

It’s become increasingly clear, especially during the pandemic, that housing is health care and more, says Anne Segrest McCulloch, president and CEO of the Housing Partnership Equity Trust (HPET), a social-purpose real estate investment trust that acquires and preserves affordable housing in partnership with leading nonprofit owners.

“It is your homeschooling classroom, your elder-care facility, and your telework office,” McCulloch says. “Folks who have a safe, secure, affordable place to call home are better positioned to avoid exposure to the disease, to take care of their children and their parents, to telework where that is possible, and to rejoin the workforce as jobs open up. So stable access to affordable housing is fundamental to restarting the economy and is critical to building a robust post-pandemic economy.”

However, the crisis has exposed gaps in access and social supports experienced by people of modest means.

The residents across HPET’s portfolio earn about 56% of the area median income (AMI). “They rely on a smartphone and limited data plans and a shared computer room in the apartment community for internet access,” McCulloch says. “But that often isn’t sufficient to enable you to apply for critical benefits, telecommute from home, conduct homeschooling, and maintain social distancing. So we know we need to close that gap.”

“We also know that the typical renter that we serve is an hourly-wage worker who does not get federal rental assistance today so is not in the housing support system at all. Getting rental assistance and other critical social supports to them is going to require deploying a new toolkit. So we know we need to connect them to housing support.”

Many of HPET’s residents and residents of other affordable housing also work in industries that are going to struggle such as food service and retail sales.

Providing housing stability, technology access, and workforce development in apartment communities are needed as part of the comeback, according to McCulloch, who was a longtime executive at Fannie Mae, serving as senior vice president for credit and housing access as well as deputy general counsel.

“These are pretty big challenges so what is the best way to take them on?” she says. “By delivering services and support and making change where we can have the most impact—in our affordable rental housing communities: We have to use our communities to deliver immediate housing stability, by deploying funding to landlords to close the gaps on what residents cannot pay. We have to use our communities to close the digital divide and deliver a new connection to the outside world through full internet access. And, we have to use our communities as places to receive job training and reentry support.”

McCulloch sees the crisis having three phases for most families and business: survive, stabilize, and thrive.

“In order to survive and stabilize, we immediately need to channel rental assistance through the system as efficiently as we can,” she says. “That means scaling existing programs like HUD’s Disaster Housing Assistance Program to serve people who haven’t previously been served. But delivering rental assistance family by family when over 20% of the workforce is out of work is too cumbersome so we need to fill the gaps at scale by delivering funding directly to landlords to enable them to pay their workforce and provide critical maintenance.”

For example, she’s heard several thought leaders advocate for utilizing the HOME and CDBG programs to provide funding to landlords to cover up to six months of lost income, using states to administer the funds. Additionally, any mortgage forbearance programs have to be structured to provide repayment as an end of loan balloon or long-term reamortization so near-term assistance can be deployed to the most immediate needs. Additionally, many residents are unlikely to be able to make up missed rental payments, leaving landlords without resources to fund immediate repayments.

To limit the total cost of such assistance, funding could be limited to rents that would be affordable at up to 80% of the AMI.

In order to thrive, it will be critical to deliver full technology access and workforce development directly into affordable housing communities and homes, McCulloch says.

McCulloch, who has spent her career in affordable housing, reflects on the lessons learned from the Great Recession, rebuilding after hurricanes Katrina and Rita, and the savings-and-loan crisis of the late 1980s and 1990s that may be applicable today.

First, you need to be flexible enough to get out of your own way—the governance that served you well in normal times may need to be adjusted to enable you to respond effectively in an extraordinary time.

“Second, you need to do more, to move more quickly and to keep moving longer than you might ever expect,” she says. “The faster you get scaled relief and support to vulnerable households, the faster you cut off the cascade of damage through the entire system. But you have to keep moving and be prepared to keep adding tools to your tool kit, because you will need very individualized solutions for some parts of the housing economy and global solutions for others.”

Third, partners count. “In a crisis like this, I am happy that my company, Housing Partnership Equity Trust, is partnered with strong nonprofit affordable housing providers who have deep experience in serving families of modest means and have well-established roots in their neighborhoods,” McCulloch says. “Their ability to react in real time, with targeted responses to the conditions in their communities is extraordinarily valuable.”

“Fourth, as our chairman Michael Pitchford keeps reminding me, you have to keep an eye on the longer term—a global crisis of this scale will change the landscape for a long time to come so we have to continue to assess our longer-term strategies, even while we are addressing immediate needs. I think different markets will stabilize, find a new normal, and begin to grow at different times so we are preparing for that difference.”