Overcoming Threats To Affordable Housing With Creative Solutions

In a series of four articles Conduit Street takes a look at Housing Maryland: A Housing and Policy Framework for Today and Tomorrow as well as state and local government efforts to address sustainable housing, revitalization and community stabilization. In the first article Conduit Street set the foundation by taking a look at trends in Maryland’s housing landscape. In the second installment, we took a look at housing affordability in the State. In this third article we will look at what is being done to address housing affordability.

People Care About Affordable Housing

As reported in Governing Magazine the role of government in providing affordable housing remains on the minds of many Americans:

A majority of Americans (58 percent) think their state and local governments should do more to ensure communities have enough affordable housing, according to a national survey released June 3.

The finding comes from the second annual How Housing Matters survey, conducted in April by Hart Research Associates on behalf of the MacArthur Foundation.

The article continues to explain that while affordable housing is important to Americans, the supply of affordable housing has not kept up with demand:

But the survey indicates that Americans believe it’s also important for states, counties and cities to focus on the cost of housing. After all, rent or a mortgage usually represents the single largest monthly expense in a household budget — about 33 percent of spending for the typical U.S. household in 2012, according to the U.S. Bureau of Labor Statistics.

The nation’s stock of affordable rental housing hasn’t kept up with demand: About 24 percent of the 19 million eligible households receive federal rental assistance, according to data collected by the Urban Institute, a nonpartisan think tank. For every 100 extremely low-income renter households in the country, there are only 29 affordable and available units, the institute also found. Part of the problem is that renters’ income declined by 13 percent between 2000 and 2012 even as the median gross rent climbed by 6 percent, according to the Joint Center for Housing Studies at Harvard University.

Both Private and Publicly Owned Affordable Rental Housing Stock Face Threats

Many factors threaten affordable housing. A HUD Report Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions, details some of the threats to privately owned, unsubsidized rentals, which form the majority (~10.1 million units or nearly 3x the number of subsidized units) of the nation’s affordable housing stock. Highlight’s include:

  • The individual-level ownership and the small scale of these unsubsidized properties make financing their upkeep difficult, says Shekar Narasimhan, managing director at Beekman Advisors, because of the high cost of doing business with an individual property owner. “The same amount of energy will go into making a $5 million loan as will go into making a $500,000 loan. But banks charge for these services on a percentage basis. If I charge 1.0 percent, I make $5,000 on the smaller loan and $50,000 on the larger loan. If my cost of making the loan is $10,000 per loan, I lose money on the smaller loan and make money on the larger loan. It’s the law of numbers.”19 Banks may also balk at lending to these smaller owners because of the fixed costs incurred if a development goes into foreclosure, such as fees for lawyers, court filings, and appraisals.
  • Poor physical condition of properties is another challenge to addressing this housing through economies of scale. Research shows that privately owned multifamily rentals typically are older and therefore have higher upkeep. Such properties often have insignificant reserves, in part because of their low rents, and require substantial rehabilitation.20 In addition, because of their small scale and scattered ownership, these multifamily rentals often miss out on energy-efficiency programs offered through utility companies.
  • In stronger markets, privately owned, low-cost rentals have been lost through conversion to condominiums.
  • Gentrification poses a special threat to the continued affordability of privately owned stock.

The HUD report also notes that subsidized housing is also receiving its share of pressures including owners not re-enrolling into the subsidy programs after the agreements expire and unmet needs of bridging the gap between congressional appropriations and the costs of physical repairs.

While the Low Income Housing Tax Credit Program (LIHTC), which provides tax credits in exchange for the private market to build affordable housing, has not been threatened by expiring affordability provisions (remaining affordable after the expiration of credits, unlike some other subsidized housing programs), the program faces long term threats to viability with the costs of per-unit rehabilitation costs exceeding reserve funds. As these units age, rehab costs will increase and pose an increasing threat to affordability.


As reported in Governing Magazine, the national survey does not provide a strategy for governments should take to address the issues of affordable rental housing. But it did indicate that changes in zoning to increase housing supply is not the answer community members surveyed are looking for:

The questionnaire asked respondents if government should relax zoning regulations, allowing developers to meet local housing demand. It also asked if government should keep current zoning in place to preserve the current character and quality of the neighborhood. More respondents (52 percent) said they favored keeping the current zoning in place than removing regulations (36 percent) or doing both (9 percent).

One of Housing Maryland’s policy goals is to expand the choice and supply of sustainable housing. The report proposes five strategies to achieve this including increasing the production and preservation of affordable rental housing, supporting sustainable homeownership, and coordinating and leveraging public and private sector financial resources.

The HUD report primarily advocates for preserving affordable housing rather than constructing new units noting that this approach is less costly and allows people to stay within their homes and communities:

In addition to meeting demand for affordable rentals and upgrading housing stock that has already been built, preservation can offer economic benefits. Affordable rentals redeveloped through the MacArthur Foundation’s Window of Opportunity initiative, which has rehabilitated rentals in 37 states, cost about $81,000 per unit, half the cost of comparable new units.35 According to a 2013 study by the Center for Housing Policy on affordable multifamily rental housing, these savings are realized even when accounting for the full life cycle of a property. Although costs such as maintenance expenses may be higher over the life of a rehabilitated property, rehabilitation is still more cost effective than new construction. Including such long-term considerations and controlling for “location, project size, average unit size, building type, [and] year of development,” the study finds that new construction costs between $40,000 and $71,000 more than acquiring and rehabilitating existing developments.36

The report also cites that the restoration of vacant buildings creates housing where none existed. Adding to a community’s housing stock and helping to raise the area median income, through an influx of moderate-income families, without displacing existing families.

Additional federal tools for the preservation of affordable rental housing mentioned in the HUD report include the Mark-to-Market (M2M) program, the Rental Assistance Demonstration (RAD) program and Senior Preservation Rental Assistance Contracts (SPRACs).

On the state and local front, the report discusses the use of tax increment financing (TIF), bridge financing, tax abatement and codes requiring one-to-one replacement of affordable housing. Creative local programs also exists. For instance, in Maryland some housing programs are working to increase housing affordability and homeownership through programs aimed at helping renters become homeowners.