The most overall cost-effective method of providing affordable housing opportunities in gentrifying neighborhoods is to preserve existing affordable rental housing instead of subsidizing the construction of new affordable housing. Without intervention, many existing subsidized and non-subsidized rental properties will no longer be affordable over the next ten years. In particular, in Texas thousands of units in the Low-Income Housing Tax Credit program–the largest affordable housing program in the country–are at risk of exiting the program and losing their affordable rents without preservation interventions. Other affordable properties are at risk because of deteriorating property conditions, especially aging properties where owners fail to provide improvements and repairs in anticipation of future redevelopment on the site.
Strategy #3a: Create programs and policies for proactively identifying, monitoring, and preserving at-risk affordable multifamily rental properties in gentrifying neighborhoods.
The following programs and policies would enhance Texas cities’ ability to identify and monitor affordable multifamily properties that are at risk in gentrifying neighborhoods–either because of expiring affordability restrictions or deteriorating physical condition–and facilitate early interventions to safely preserve them. Some funding mechanisms targeted towards preservation–critical components of any preservation program–are discussed below, while general funding mechanisms for affordable housing are discussed in a separate section of this toolkit. Ideally, the adoption and implementation of these policies would be part of a comprehensive preservation strategy and program. Cities with comprehensive preservation programs include New York City (Proactive Preservation Initiative), Los Angeles (Affordable Housing Preservation Program), and Chicago/Cook County (Preservation Compact).
• Affordable housing preservation officer
An affordable housing preservation officer is a city employee who is tasked with overseeing and coordinating the city’s programming related to the preservation of multifamily affordable housing and mobile home parks, including: (1) implementing a citywide preservation policy, (2) coordinating a preservation network (see the tools below), (3) coordinating preservation interventions, (4) matching apartment owners with preservation-minded buyers, and (5) working with tenants to ensure they are notified and aware of their rights and preservation options.
Examples: Washington, D.C.
Considerations: Local funding commitments required to fund the position. Will help Texas cities shift towards a proactive rather than reactive posture regarding affordable rental housing preservation.
• Affordable housing preservation network
Affordable housing preservation networks regularly convene community-based organizations, tenant groups, government agencies, and other stakeholders to identify and monitor at-risk multifamily properties and collaborate on preservation efforts, including engaging with property owners. Around the country, preservation networks have played a key role in the preservation of affordable housing at the local and state levels–tracking cities’ inventory of at-risk housing and mobilizing and coordinating preservation interventions among a variety of stakeholders.
Considerations: On-going funding needed to hire staff or out source the coordination of the network through a nonprofit organization. Funders would likely be interested in providing seed funding for this work.
• Database to track at-risk properties
An effective affordable housing preservation program is impossible without an inventory of affordable properties that are at risk of displacing tenants. Preservation databases track at-risk properties by incorporating detailed information about properties’ expiring subsidies, habitability and code violations, and other indicators of vulnerability by gathering information from on-the-ground resources, including preservation stakeholders. A comprehensive database can focus not only on properties with expiring subsidies but also those in disrepair and otherwise at risk of displacing low-income renters.
Examples: Washington, D.C. (DC Preservation Catalog); Colorado (Housing Preservation Network); Chicago (Chicago Rehab Network Preservation Database); New York City (Proactive Preservation Initiative).
Considerations: Costs associated with maintaining and updating the database, although funders would likely be interested in providing seed funding to get a database off the ground.
• Notice requirements
Notice ordinances require a subsidized affordable property owner to provide cities and tenants with advance notice when the owner intends to sell the property or convert the property to market-rate rents. Notice requirements provide cities with the time to formulate a strategy to minimize the impact of the property’s conversion, such as securing financing to purchase the units, locating alternative housing for tenants, and coordinating with the local school district regarding changes in school enrollment.
Most affordable housing subsidy programs, including the federal Low-Income Housing Tax Credit (LIHTC) program, have a notice requirement, but notice is typically only required for the tenants and not the city. And for some LIHTC properties exiting the program, the notice requirement for tenants ends 30 years after the property came online, even if the property committed to a longer affordability term with the state. Several cities and states require notice terms that exceed the minimum notice period and notice triggers required by federal housing programs (e.g., expiration of affordability term, sale, pre-payment, and early exit from the program).
Considerations: Requires active compliance monitoring by city staff or another organization.
• Right-to-purchase ordinance
Right-to-purchase ordinances are a powerful tool for minimizing the displacement of low- and moderate- income residents by providing cities, tenants, and preservation organizations with a right to purchase a rental property when the owner decides to sell the property or convert it to market rate. A “right of first refusal” (ROFR) provides the preservation buyer with a right to match a private offer to purchase the property during a set period of time. A “purchase right” gives a preservation buyer the right to purchase the property at fair market value when the property is exiting the affordability program. ROFR and purchase rights can extend to: (1) all subsidized apartments requiring city funding or approval (such as 4% LIHTC/tax-exempt bond projects); (2) all subsidized apartments, regardless of the source of funding; or (3) all apartments, regardless of whether the property is subsidized.
Examples: Washington, D.C. (Tenant Opportunity to Purchase Act and District Opportunity to Purchase Act; covers all multifamily rental properties); Denver (federally subsidized rental properties); Maryland (condominiums); Illinois (Federally Assisted Housing Preservation Act).
Considerations: Requires significant funding and capacity building support from the city and nonprofit organizations. Close attention needed upfront when drafting the ordinance to address potential loopholes. In Washington, D.C., scattered cases of tenants gaming the system to their advantage (e.g., by selling their right to purchase) have been widely publicized and undermined support for an otherwise helpful ordinance.
• Rental registration and proactive inspection program
Conducting proactive inspections of rental properties on a rotating schedule is a key tool used by cities around the country to identify rental properties at risk because of deteriorating conditions and, after identifying an at- risk property, to engage in appropriate interventions. These programs, when coupled with effective enforcement, provide a disincentive for landlords to “milk” properties while awaiting redevelopment opportunities.
Considerations: To effectively address displacement, inspection programs must be accompanied by adequately-funded programs to help with repairs that landlords are unable or refuse to make. A city may need to incentivize landlords to keep rents low after making extensive repairs, such as by offering tax abatements; otherwise the improvements could lead to increased rents and displacement of current renters.
• Small site acquisition program
Small site acquisition programs target the preservation of smaller multifamily buildings. In general, small, older rental housing is more likely to be owned by local landlords who manage their own properties. Many of these properties, which are concentrated in central city neighborhoods near transit corridors, are being purchased by investors who renovate them and then raise their rents.
Examples: San Francisco (Small Sites Program, buildings with 4 to 25 units)
Considerations: Most preservation funding programs, such as the Low Income Housing Tax Credit program, are geared to larger, contiguous properties, making it harder to leverage funds to support preservation of these smaller properties.
Strategy #3b: Enact land use restrictions that disincentivize redevelopment and demolitions of current affordable homes in gentrifying neighborhoods.
• Neighborhood stabilization overlay
A neighborhood stabilization overlay (NSO), also called a neighborhood conservation district, is deployed at a neighborhood scale and requires new development to meet standards more stringent than the zoning baseline, such as setbacks, building height, floor-to-ratio, etc. While communities have many different goals for adopting neighborhood stabilization strategies, some communities have adopted these policies with the specific goal of slowing down displacement of vulnerable residents. For example, in 2012, residents in Dallas’s La Bajada neighborhood, a low-income neighborhood in a gentrifying area, voted to adopt an overlay restricting building heights through Dallas’s NSO ordinance, with the goal of preserving the affordable single-family homes in the neighborhood that were threatened by redevelopment pressures spreading into West Dallas. The process of creating the overlay, which required community buy-in along with approval by the City Council, enhanced the political capital of the neighborhood and created a strong political statement that preservation of the low-income neighborhood is a priority. The NSO has been used to defeat rezoning requests that threaten existing affordable single-family units.
Considerations: Slows down redevelopment pressures in a neighborhood; helpful as a short-term intervention in neighborhoods with accelerating teardowns and housing costs. There is no evidence yet of this tool permanently halting displacement of vulnerable residents–as long as the real estate market in a city is hot, market pressures will eventually catch up in a neighborhood where these tools are used. Depending on how an NSO is structured, the overlay could make it more difficult to build new rent-restricted affordable housing. The overlay could also lead to a reduction in property values for owners of single-family houses.
• Residential infill project
A variation of an NSO is the Residential Infill Project, which is under consideration in Portland, Oregon. Portland’s proposed Residential Infill Project would restrict the size of new developments to avoid super-sized single-family homes, called “McMansions,” by lowering the maximum size of a new home. At the same time, the ordinance would loosen restrictions on internal subdivisions and accessory dwelling units (ADUs) with the intention of increasing the number of less expensive housing options in the city.
Examples: Portland (draft rules for Residential Infill Project).
Considerations: If coupled with requirements to include a percentage of affordable units, a residential infill project could have a greater impact on generating long- term affordable housing than a neighborhood stabilization overlay.
• Deconstruction ordinance
A deconstruction ordinance requires projects seeking a demolition permit to deconstruct the building, meaning the home or other building must be disassembled, rather than simply demolished, in a manner that salvages as much material as possible for reuse.
Examples: Portland (deconstruction ordinance for houses built prior to 1916 or designated historic).
Considerations: Beyond its environmental benefits, acts as a brake on demolition of existing housing by effectively increasing the demolition cost. Unless exceptions are built into the ordinance, would increase costs of new affordable housing development involving housing demolition.
Strategy #3c: Create preservation funds to provide private and public capital targeted towards acquiring and rehabilitating at-risk apartments.
• Public-private strike funds
Public-private strike funds offer low-cost loans to acquire and preserve existing affordable housing. They are capitalized with funds from a combination of public, private, and philanthropic institutions. The structure allows for greater flexibility than government subsidy programs (such as Low Income Housing Tax Credits) and lower interest rates than what the market can offer. The funds are typically “revolving,” meaning that as loans are repaid, new loans can be made. These funds are most viable in markets with a high-capacity city housing department and where there is interest from a strong local philanthropic community. The loans are typically acquisition loans of five to seven years, at which time the properties are refinanced with other loans or other subsidies, such as federal Low Income Housing Tax Credits.
Examples: Denver Regional Transit-Oriented Development Fund; The Bay Area Transit-Oriented Affordable Housing Fund; New Generation Fund (Los Angeles); Chicago Opportunity Investment Fund; Enterprise Multifamily Opportunity Fund.
Considerations: In contrast with private investment funds, public-private funds are able to provide deeper income targeting and thus more likely to serve current renters. These funds, however, require significant public investment to seed the fund and strong interest from local foundations. Administration can be complex.
Strategy #3d: Utilize property tax relief to promote preservation of rental properties.
Providing property tax breaks is an important strategy for incentivizing private owners of multifamily housing to preserve their units as affordable housing. Property tax breaks are of particular importance in Texas, where property taxes are high and assessed values reset every year. The following are two property tax relief tools that can be used in Texas to promote preservation of affordable multifamily housing.
• Property tax abatement program
Owners of multifamily properties who make extensive upgrades to their properties are typically hit with increased property bills, making it harder to keep rents affordable. To offset this impact, Texas cities have authority under the Texas Tax Code to provide up to 10 years of a property tax abatement for part or all of the increase in property taxes on multifamily rental properties in exchange for the property owner making repairs to the property. Texas cities are also allowed to condition the abatement on the owner agreeing to continue to rent to low-income renters.
Considerations: Incentivizes multifamily property owners to maintain and repair their properties while also incentivizing them to maintain affordable rents. Costs associated with monitoring compliance.
• Property tax exemptions via publicly-owned land
As a preservation strategy, Texas cities, counties, and housing authorities–along with public facility corporations owned by a government entity (see Local Government Code, Chapters 303 and 392)–can acquire the land under multifamily properties and then lease the land to a third party under a long-term ground lease, which results in the land being 100 percent exempt from all property taxes. The private entity maintains ownership of the buildings. Several public entities across Texas, including the Housing Authority of the City of Austin, have been using this tax break tool.
Examples: Housing Authority of the City of Austin; San Antonio Housing Public Trust Corporation.
Considerations: Gives cities the ability to provide large property tax breaks and thus subsidize rents. Concerns about the transparency and oversight of these deals and impacts on public school finance. Past and potential abuses of this tool, with developments providing limited affordable housing in exchange for large tax breaks.