Public Housing Authorities and Affordable Housing

The bulk of this report will focus on the ways that Public Housing Authorities are expanding beyond their primary role as administers of HUD programs to increase housing supply. But before doing so, it is important to reinforce the critical role that these programs play in protecting vulnerable populations.

THE BREAD AND BUTTER: PUBLIC HOUSING, VOUCHERS, AND PROJECT BASED SECTION 8

PHAs directly administer dozens of Federal programs, but the bulk of their portfolios include three major subsidy programs: 1) Public Housing, where a government entity owns the housing directly; 2) Housing Choice Vouchers (formerly Section 8), where families are given a voucher to live in modestly priced privately owned housing; and 3) Project Based Section 8, which subsidizes the units in privately owned housing. All three of these programs are targeted at the bottom of the income spectrum; families pay 30% of their income in rent, with HUD making up the rest (either directly in the case of Public Housing or in payments to a private landlord).

The scale of these programs dwarfs all other housing subsidies (except for the Low Income Housing Tax Credit, described below, and the Mortgage Interest Tax Deduction which subsidizes homeownership). In 2018, there were just over 1 million units of Public Housing available nationally, combined with 2.5 million Housing Choice Vouchers (HCV) and 1.3 million units of Project Based Section 8 (PBS8).

All three of these programs exist in Hawaii with HPHA managing all of the State’s Public Housing (HCV and PBS8 being distributed between HPHA and the county housing offices). Together these programs support roughly 22,000 households in the state. In other words, roughly 1 in 20 families live in HUD subsidized housing in Hawaii.

Beyond the numbers, these programs are essential because they serve a population for which no market-based housing solution exists. While dramatically increasing unsubsidized supply will help alleviate affordability pressure on middle-income families, the poor households served by Public Housing, HCV, and PBS8 have incomes too low to participate in housing markets at any price point (short of slums and self-help housing). Consider a single-earner family making the Hawaii minimum wage of $10.10 and working half time (1000 hours per year). Given the 30 percent threshold that HUD considers a reasonable percentage of income to pay for housing, this family could only “afford” an apartment renting below $253 per month including utilities. This is not a price point that a landlord (for profit or non-profit) could provide and hope to maintain the unit at a legally permissible quality standard. For families like the one above, the only options are homelessness, doubling up with family or friends, constant cycles of eviction, or the PHA’s subsidy programs.

LEVERAGING ASSETS: MIXED FINANCE AND PHA CATALYZED DEVELOPMENT

But beyond these essential services, PHAs have increasingly begun to assist in the development of affordable housing above and beyond HUD’s programs. For the most part, this is done through “mixed finance,” a broad term that reflects the reality that almost no affordable housing gets built without multiple finance streams including traditional lending, private equity, and a slew of Federal, state, and local programs that provide either direct capital or below-market loans to projects that agree to charge below a specified rent.

As shown in Tables 2 and 3 (see Appendix), the use of mixed finance was extremely common across our sample, with significant projects to be found at small, medium, and large Public Housing Authorities. Of the 40 PHAs randomly sampled, we could identify some level of mixed finance development for 58 percent of the sample. The volume of participation varied by PHA size, ranging from 50 percent of small and medium PHAs to 80 percent of larger ones. In total, we could identify 7,524 housing units in which our 40 PHAs were development partners.

In our conversations, many Housing Authorities noted that they first started building capacity for more complex projects during the 1990s when HUD’s HOPE VI project began. At the risk of oversimplification, HOPE VI was a program that funded the demolition of distressed Public Housing projects and their replacement with mixed income communities. PHAs were given significant latitude in terms of what would be built within the demolished Public Housing footprint, generally combining Public Housing, market rate housing, and other affordable units (generally offered to low income families earning above the threshold that would qualify them for public housing). All told, HOPE VI demolished 96,226 units (about 1/10th of the stock) and built 111,059. However only 55% of the new units served populations equivalent to those who were displaced (Schwartz 2015).2

HOPE VI was responsible for the removal of some of the worst housing conditions in the United States — conditions that the evidence suggests were harmful to tenants’ health and potential for economic mobility — but it has been rightly criticized for how it did so (Goetz 2003). Specifically, many families living in HOPE VI housing were given housing vouchers to be used in the private market with little consideration for how these families might navigate the complexities of such a transition (Popkin 2016). For some of these families, the opportunity to move was likely a welcome one, but what little tracking there was of displaced residents shows that many encountered real challenges with using the voucher, particularly elderly households and those with disabilities (Popkin 2016). On average, families living in buildings demolished via HOPE VI do seem to being doing better than those in similarly dilapidated housing that was not renovated – at least in term of their lifetime earnings (Pollakowski et al. 2019). Those that stayed within the footprint of the demolished housing (roughly 25% of the original families (Schwartz 2015)) were more stably housed, but do not seem to have benefited much from the new income mix, perhaps because of limitations to the design of the new housing (Chaskin and Joseph 2015).

As our data shows, HOPE VI was not limited just to the massive PHAs of cities like Chicago, Baltimore, and Atlanta. Larger cities certainly made up the bulk of the units redeveloped through the program, but HUD funded HOPE VI grants across the country, helping to build competence and confidence among smaller PHAs that would catalyze both development and redevelopment.

After HOPE VI ended in the late 2000s, our data suggest that PHAs took one of two paths. Either they simply continued to manage their housing units in the traditional manner or they became increasingly active in the development of affordable housing through the Low Income Housing Tax Credit (LIHTC). This program, described in detail below, provides almost-as-good-as-cash tax credits to developers who agree to develop housing for low to moderate income families – generally earning more than families who qualify for Public Housing, or Housing Choice Vouchers. As is clear in Table 3, the vast majority of mixed finance housing uses LIHTC credits to some degree. The program was designed to encourage affordable housing development in the private and non-profit sectors, but PHAs are also able to take advantage of the program (and many do).

In recent years, a relatively new program has been created (and recently expanded): the Rental Assistance Demonstration (RAD). This program allows PHAs to convert their Public Housing stock to Project Based Section 8, which in turn allows them to either pass the property to private ownership and/or access financing that is otherwise unavailable for Public Housing. In a couple of instances, PHAs in our sample simply made the conversion to PBS8, but in the vast majority of cases this transition was accompanied by substantial renovations or demolition and redevelopment. Unlike HOPE VI, RAD essentially guarantees 1-for-1 replacement of all public housing units with PBS8 (which has similar eligibility requirements), but does allow families that wish to convert their housing to vouchers to do so (see below for more on RAD). If they are not already, nearly all PHAs are actively pursuing RAD funds and HUD has stated its intention to expand the program.

While RAD and/or LIHTC were used in the vast majority of mixed finance developments in our sample, dozens of smaller programs were also in evidence. Some Housing Authorities, particularly those in California, have the additional benefit of floating bonds to finance the development of affordable housing. As government entities, these authorities are allowed to collaborate with state bond agencies to offer tax-exempt bonds, the proceeds of which can be used to fund housing. Other revolving funds were also found in our data as well as investment of Community Development Block Grant (CDBG) funds and HOME funds. Finally, several of the PHAs were able to use their land assets (or those available to them from the state or city) to catalyze the development of housing.

In the sections that follow, we present several case studies that illustrate the novel ways that PHAs have been able to get into the mixed-finance game.

CASE STUDY 1: NORTH HILL, FAIRFAX COUNTY REDEVELOPMENT AND HOUSING AUTHORITY

Way back in 1981, the Fairfax County Redevelopment and Housing Authority (FCRHA) purchased a 48 acre piece of land using funds from the Community Development Block Grant (CDBG) program. Ten years later, a portion of the property was developed into a mobile home park, while the rest was left to sit vacant for decades due to a combination of political inertia and marine clay, which needed to be removed prior to building due to its proclivity to swell and collapse foundations.

Over those ten years, however, the housing market in Fairfax County, Virginia, was changing rapidly. Once a largely rural area, the county’s proximity to Washington, DC (and recently the proposed Amazon Q2 site) meant that housing prices were rising steadily presenting challenges to a county that wanted to be more than a commuter suburb. As noted in the Community Wide Housing Strategic Plan, “a lack of housing options is putting the County’s well-being and future prosperity at risk” (2018, p. 2).

While Fairfax’s growth presented challenges, it also meant that the lot purchased nearly forty years early had gone from a worthless piece of salty dirt to a valuable asset held by the FCRHA. Moreover, because FCRHA is a part of Fairfax County government, it was able to rezone the land to residential uses, further increasing its value. FCRHA was able to capitalize on this appreciation by selling one third of the land for roughly 12 million dollars to a market rate townhouse developer.

The PHA then combined these proceeds with 3 million dollars in local funding and tax credits from the Low Income Housing Tax Credit Program to build 279 affordable units on the second third of the property. Sixty-eight of those units had a guaranteed revenue stream through the Project Based Voucher Program, while the others were developed to house families earning below 60 percent of AMI.

As shown in the proposed site plan, the remaining third is being preserved as a park, satisfying not only CDBG’s area-wide benefit requirements, but also offering a valuable amenity to both the market rate owners and the affordable tenants on the site.

Some aspects of this case are clearly idiosyncratic to the site. It is a rare administrator who would purchase land so that 40 years in the future is could catalyze affordable housing development. Moreover, unlike many PHAs, FCRHA is a part of county government rather than an independent agency, meaning that it has historically been able to coordinate more smoothly with planning and land use agencies.

Nevertheless, this example is informative for the way the FCRHA was able to leverage an asset — in this case a vacant site — to expand the supply of affordable housing in its jurisdiction. This was not a linear process; the affordable housing developer’s need for gap financing combined with a number of requirements related to the CDBG funds pushed the PHA into its “a third-a third-a third” strategy. By selling one third of the now desirable land, the development could proceed with a minimum of local funds – just three million dollars. And the third reserved for park land provided an amenity (and thus benefits) to the surrounding community, while allowing for CDBG funds to be expended.

FCRHA’s position within county government greatly facilitated the project. The reason why the PHA was able to gain $12 million via the sale of just a third of its land, was the willingness of the county to rezone on their behalf, essentially increasing their value of their asset with minimal up-front costs to local residents.

And third, the usage of PBVP ensures that a substantial segment of units will remain affordable to very low income families for the foreseeable future, creating a bankable revenue model which the affordable housing developer can use to maintain the property.

CASE STUDY 2: PARK AND MARKET, SAN DIEGO HOUSING COMMISSION

The San Diego Housing Commission (SDHC) works as both the city’s PHA but also administers most of the City of San Diego’s affordable housing programs such as the local Inclusionary Zoning (IZ) ordinance. More significantly, SDHC may authorize the issuance of Multifamily Mortgage Revenue Bonds for affordable housing development (subject, of course, to the approval of the California Debt Limit Allocation Committee).

The Multifamily Mortgage Revenue Bond program6 allows SDHC to issue tax exempt bonds to investors which it then uses to offer below market mortgages to finance projects in the City. In order for a project to be eligible it must offer on-site affordable housing. Either 20% of units must be set aside for households earning less than 50% AMI or 40% of units must be set aside for families earning less than 60% AMI.

4. Source: www.fairfaxcounty. gov/housing/sites/housing/ files/assets/documents/ north%20hill/northhillfactsheetrevised_final_010517.pdf

In the case of Park and Market the builders are using MMRB financing (a 40 year loan of $216.5 million at 3.515% interest) to cover the majority of the developments costs associated with residential portions of the structure (with additional developer equity and 4% Low Income Housing Tax Credits).

Once completed, Park and Market will consist of 426 apartments, 340 market rate and 85 affordable. The affordable housing will be available to households earning less and 50% AMI for 55 years. The commercial portion of the development will be owned and operated by the University of California San Diego and a small historic home on the site will be preserved (and possibly converted into a restaurant). For this reason many local officials are assuming that the affordable units will be attractive to graduate students from UC San Diego who would likely qualify in terms of income.

The Park and Market project has several important implications. First the power of MMRB issuance (an authority not typically held by Public Housing Authorities). Investors in the bond receive a low-return, low-risk, tax-free investment vehicle with which to balance more aggressive investments. The PHA receives a source of revenue that they can use to finance development. Because their support is in the form of a low-interest loan (rather than a grant), they sacrifice only the opportunity costs associated with lending the money at a higher rate (which would not be permissible for tax-exempt bonds). In exchange, they are able to catalyze the development of 85 new affordable units in the heart of the city.

Of course, the likelihood that many of these apartments will go to graduate students will strike some people amiss. Individuals actively engaged in building human capital are generally seen as lower priority for government subsidization because of their anticipation of increased earning power. But, of course, the affordable housing crisis is a multifaceted problem and supporting the educational aspirations of mostly local students has value for the regional economy more broadly. It is important to agencies to strike a balance between supporting projects that address a range of housing burdened households and those in the direst circumstances.

CASE STUDY 3: CENTRE MEADOWS, HOUSING AUTHORITY OF LEXINGTON, KY

In the early 2010s, Pimlico Apartments in Lexington, Kentucky was in rough shape. Consisting of 206 town home units, the complex had suffered from years of disrepair and neglect. Having been constructed in 1977, the apartments had deteriorated rapidly with cracks emerging in mortar joists at the corners of the brick structures. This had prompted the Housing Authority to install wooden support pillars to minimize the chance of collapse.

Lacking adequate capital funds to maintain the complex, the HAL was considering demolition, and thus a dramatic loss of subsidized housing in the community. Instead the Housing Authority of Lexington Kentucky utilized HUD’s Rental Assistance Demonstration to apply for tax credits that it could use to rehabilitate the units, converting them from public housing to Project Based Section 8. Unlike some RAD conversions, the Housing Authority retained ownership of the newly renamed Centre Meadows, thus retaining public control of the unit.

Despite HAL’s success in preserving a rapidly deteriorating portion of its portfolio, the tenant communication and relocation process seems to have fallen short of best practice. As reported by local media, the families who were living in the complex were given two options – either they could receive a Housing Choice Voucher or they could relocate to another Public Housing complex. If they choose the latter, they were given first priority to return to the complex after the two years it took to renovate. The primary controversy appears to emerge from the timeline — tenants were given just one or two weeks to decide which option they preferred and then the standard 60 days to move. While the Housing Authority emphatically noted that they weren’t going to push anyone out simply because they could not find a place, the lack of resident engagement around the process combined with a sense of fear among the tenants added to the general confusion (Spears 2013).

This case thus suggests two things. First, RAD can be a powerful tool to preserve affordable housing when other sources of funds are inadequate. But it also speaks to the reality that despite the 1-for-1 hard unit replaced that RAD generally requires, there can still be disruption for families. It appears that roughly 140 of the 165 families selected vouchers rather than relocation to Public Housing, thus jeopardizing their rights to return to the newly renovated units.

7. https://www.kentucky.com/ news/local/counties/ fayette-county/article44415096.html

A number of solutions to these issues exist. First and foremost, a robust communication process with tenants is necessary, well before any relocations are initiated. This often means more than simply hosting a few public meetings, as only a select group of tenants attend such things. Instead it means a proactive process of communication with each and every resident to ensure that their needs at met during a time of disruption. Second, project phasing can be implemented to reduce disruption. This means building affordable housing first or renovating already vacant units, allowing families to relocate within the development footprint. This is, of course, not always possible and almost always adds to the overall expense of the redevelopment, but often times it is worth it to respect residents’ attachment to place.

8. https://www.scbarchitects. com/projects/centre-meadows/

On its face, the 82 unit Laurel Grove Apartments seems like a fairly standard PHA lead mixed finance development in California, using $18 million in Low Income Housing Tax Credits and a $42 million tax-exempt construction bonds. But it is the smaller sources of funding that make the project interesting: $8 million from the State of California Department of Housing & Community Development (HCD) from monies devoted to support Transit Oriented Development and the Affordable Housing & Sustainable Communities (AHSC) program, funded through the state’s cap-and-trade program.

The Laurel Grove Apartments are located in downtown San Jose near the Diridon Transit Center allowing residents to access to the area’s rail and bus networks. Not only does this potentially benefit the residents, it also helps the Laurel Grove Apartments serve a sort of double bottom line — providing affordable housing but doing so in a way that could potentially reduce greenhouse gas emission by reducing automotive miles. It was thus eligible for funding via AHSC which requires applicants quantify their emissions reduction to receive funds (more information is available here: http://sgc.ca.gov/programs/ahsc/)

While the causal impact of such construction on emission reduction is certainly up for debate, the linking of densification, transit oriented development, and environmental sustainability can clearly help local Housing Authorities build a broader coalition in support of affordable housing while also opening up new funding sources not singularly focused on housing affordability.

9. https://fpisccha.com/ property/laurel-grove/