In city after city, affordable housing is disappearing. While buildings might be retired due to age and structural issues, others are being taken out of the affordability market and turned into market rate apartments. How is this possible?
For many low income apartment complexes built with tax credit funds, the complexes are required to maintain a low-income or affordability component within their complex for a set number of years. As those contracts expire, the owners are now free to take their complexes out into the open market and capture market rate rents.
When this happens, particularly in urban settings, the market demand for affordable housing increases while the inventory is decreased. At the same time, those landlords can now meet the overall market demand and charge significantly higher rents as well. Currently there are approximately 1.34 million units provided by the Section 8 program overseen by the U.S. Department of Housing and Urban Development (HUD). Roughly 30 percent of those units are under contracts set to expire in 2017, according to Crain’s Chicago Business.
Property owners, especially those in the up and coming neighborhoods, see these expiring contracts as an opportunity to cash in on the marketability of their properties. Once contracts expire, HUD is limited in their options. In many cases, once a project is taken out of the affordability market, the project is not replaced. Landlords must notify their tenants in advance of the conversion. In some states, the landlords must even offer their tenants the option of purchasing the unit themselves.
Still most of the tenants find themselves displaced as the complex becomes a market rate development
This situation is of particular concern for those relying on the subsidies to maintain their housing. These contracts have the tenants paying 30 percent of their income and HUD provides the landlord with an additional subsidy. Without the subsidy, most of these households would find themselves paying a majority of their income just to maintain housing. These families also become at greater risk of losing their housing altogether.
Cities such as New York, for example, are on the front lines of the affordability crisis. Their workforce is primarily low income, but the lack of affordable housing is pushing this workforce out of the city itself. As the rents continue to rise, many households are devoting more and more of their income to rent.
So why are so many of these contracts set to expire now? The original contracts were created in the 1970s and 1980s with a 20 year affordability clause. Many were renewed again in the 1990s and are now up for renewal again. While a majority may be renewed, those projects in neighborhoods with good schools and amenities are at highest risk of being converted. The owners can also choose to renew for one and five year periods, also contributing to the potential wave of conversions.
The answer to this crisis in multi-pronged. It means intense development of affordable units, particularly in areas of high poverty. In addition, affordable housing programs need to be expanded, especially those focused on preserving this type of housing. Still, most of these are long term solutions that will not address this current affordability crisis, as units are lost to the current market demand.