New Developments, The Preservation Challenge
By Thom Amdur
4 min read
When I started my career in affordable housing, the term “preservation” generally was attributable to strategies and resources aimed at extending the affordability of HUD Assisted or USDA Rural Development properties. After a wave of opt-outs in the late 1980s, Congress enacted the Emergency Low Income Housing Preservation Act (ELIHPA) in 1987, which authorized the first federal funding for affordable housing preservation and was targeted for preserving Section 236 and Section 221(d) Below Market Interest Rate (BMIR) loans that were eligible for prepayment. The Act provided incentives for maintaining the property as affordable housing.
Three years later, in 1990, Congress replaced ELIHPA with the enactment of the Low Income Housing Preservation and Resident Homeownership Act (LIHPRHA), which provided further incentives for these properties, including FHA-insured loans for capital improvements, additional Section 8 subsidies or rent increases and capital grants in exchange for use agreements that sometimes restricted distributions and refinancings. In 1997, Congress took an additional step to provide resources for these properties by enacting the Multifamily Assisted Housing Reform and Affordability Act (MAHRA), which created the Mark-To-Market (M2M) program.
During this period, the Low Income Housing Tax Credit (LIHTC) was enacted and bloomed into a major affordable housing production program. As the first waves of LIHTC properties reached the end of their initial 15-year compliance periods, the conversation around preservation expanded to include the recapitalization of tax credit properties entering into their extended-use period. As the program has matured and the first generation of LIHTC properties have aged, a new preservation challenge now presents itself. Federal law requires most LIHTC properties to remain affordable for 30 years, and though some states have longer affordability periods, a significant number of properties are now approaching the end of their affordability period.
The National Low-Income Housing Coalition (NLIHC) and the Public and Affordable Housing Research Corporation (PAHRC) recently published a sobering report entitled, “Balance Priorities: Preservation and Neighborhood Opportunity in the Low Income Housing Tax Credit Program Beyond Year 30,” which estimates that, “Between 2020 and 2029, nearly half a million current LIHTC units, or nearly a quarter of the total stock, will reach their 30-year mark and the end of their federally mandated affordability restrictions.” The report estimates that 8,420 of these properties (totaling 486,799 units) do not receive other types of subsidies that extend their affordability and will reach Year 30 during this time.
Housing finance agencies, advocates and affordable housing developers face a real challenge in the years to come if we are going to preserve these critical community assets. Congress, at least at present, seems unlikely to adopt a modern-day equivalent of ELIHPA or LIHPRHA for the LIHTC portfolio. Efforts to expand the LIHTC would certainly help immensely; however, with the need for new production so great, even increasing allocations of nine percent credits by 50 percent and fixing the four percent credit at four percent are not likely to be sufficient to address both production and preservation needs. States and local jurisdictions will need to get creative.
Recently, the Florida Housing Finance Corporation (FHFC) took the proactive step of developing a Portfolio Preservation Action Plan, which it presented at its December 13, 2018, board meeting. The plan outlines a series of policy strategies to assist owners of properties in Year 15, as well as owners of properties approaching Year 30 in preserving their affordable assets. FHFC will be presenting its analysis and plan at the 2019 NH&RA Annual Meeting later this month, which we will likely cover in next month’s issue of Tax Credit Advisor.
Addressing the Year 30 challenge is a major priority for NH&RA in the coming year and aligns closely with the development of our Bond Policy Toolkit (see my column from January 2019). We think taking steps to maximize the production of the Multifamily Tax-Exempt Bond Program is a critical strategy that HFAs should pursue and that owners should be encouraged to recapitalize their properties with bonds earlier (in Year 15) when rehabilitation needs are lower, as opposed to deferring recapitalization discussions further out when the physical needs of a property may exceed the abilities of the four percent TEB program.
I am excited that NLIHC/PAHRC and others are raising this issue now and that other states, like Florida, will take such bold and forward-thinking actions to address the challenge. Although it may seem daunting to take on the task presented by preserving multiple generations of affordable housing, now is the time to address it, head on, before use restrictions expire. Every state HFA, trade association and advocacy organization should be organizing to develop a comprehensive preservation plan that meets their local housing needs. NH&RA will continue to explore the issue and potential solutions in the coming year and challenge you to raise this issue in your home state.
