Developing and Preserving Affordability
One of our tools to build affordable housing could actually make the crisis worse. The complicated mess of Low Income Housing Tax Credits 🔍
In late September, I started a Master’s of Urban and Regional Planning (MURP) degree at Portland State University. I had grand plans to use this newsletter as a means of processing and sharing what I was learning, but as you can can probably tell, that didn’t go as expected. My first quarter ends in a few weeks, but at least I got another newsletter to you.
One of the big issues I’ve been working on in the lead up to the 2025 Oregon Legislative Session is preservation of affordable housing. We walked away from the 2024 short session without any preservations dollars, which is really bad news for the housing crisis.1
According to data from Oregon Housing and Community Services, over 4,000 homes are set to lose their subsidies in the next 10 years.2 That’s housing that may turn into market rate housing, and if that happens will result in the displacement of current tenants.
I have a lot of feelings about our affordable housing system. It’s on my never ending list of topics to pursue in this newsletter. But today, I want to discuss the challenge with preserving the very little subsidized housing we have.
Wait, why does Affordable Housing need to be preserved?
Affordable Housing™️ is a type of subsidized housing in America (™️ is an editorial emphasis by me). It’s the neoliberal response to the public housing established during the New Deal and built during the Post-War era. Affordable Housing™️ is a means of housing the poor in segregated buildings away from white families in their single-family homes, all while still benefitting private investors.
While there are many different forms of subsidized housing (vouchers, rent assistance, OG public housing), Affordable Housing™️ is one of the most popular subsidies (not counting the mortgage interest tax deduction). It was established in 1986 and buildings housing for poor families with a complicated capital stack made possible through Low Income Housing Tax Credits (LIHTC).3
A developer secures a traditional loan from a private mortgage lender or a public entity with equity from investors in exchange for tax credits. This means private equity is funding the construction at the cost of tax revenue.
Once developed the building caps rents according to the area median income (AMI) of a jurisdiction, usually a city. Caps are set anywhere between 30%, 60% and 80% AMI but it can depend on the state and other sources of funding that require their own compliance. States are also only allocated a specific number of tax credits each year.
Problem: Tax credits expire and with them rent caps!
After about 30 years (but it can be longer), these tax credits expire4 and with it the affordability restrictions. Owners that use LIHTC in their projects can seek out additional subsidies to keep rents capped, but it’s not required. This means rents that were set to be 30% AMI can more than double if the rents in the area are high.
Problem: Buildings are expensive!
LIHTC is only a private-public partnership to help fund the construction of a building. Without ongoing investment, these buildings fall into disrepair because rents are restricted and don’t keep up with the costs of maintenance and insurance, and ultimately threaten the habitability of the building.
Check out this video about how Affordable Housing™️ is often not even affordable after all.
We could have just built housing for people and paid for its maintenance but instead we decided to make this mess instead.
Like so many other parts of our housing system, even the most charitable view of LIHTC funding seems like it is set up to fail. In many discussions I’ve had with developers, and housing authorities around Oregon, the only good thing they can say about LIHTC is that it’s effective at providing deep subsidies that the market just isn’t capable of.
But even with that, it’s still dependent on the owner’s long-term interest either made profitable with tax credits.
Another complicating feature of affordable housing development is the necessity of gap financing. Unfortunately, LIHTC can’t always cover the costs of development so developers have to find more money to cover this gap. This can come from other jurisdictions often with additional requirements or from more private investment.
Housing desperately needs more funding, wider funding and more accessible funding, but the business of preserving this affordable housing is all made more complicated at the project level. There are many ways this funding could be used and it all depends on the building itself and the capital stack used to fund its construction.
Here’s why it’s important for housing nerds to care about preservation:
we literally designed the affordable housing system to eventually fail without substantial legislative fights
it’s a topic for all legislative bodies; in Oregon there are several bipartisan workgroups trying to address the issue in the upcoming 2025 session, we are looking at other states for ideas and bumping into issues defined at the federal level
there’s a really potent opportunity for tenant organizing and for communities to purchase their buildings
I want to bring this up because we can trace the legacy of this mechanism for providing subsidized housing back to the creation and implementation of the Low Income Housing Tax Credit. That was a policy choice made by individuals, and it’s another policy choice we can make to reform it and change it.
At various points we’ve seen changes made to LIHTC, expanding the affordability restrictions from 15 years to 30 years, and increasing the number of tax credits available.
Unfortunately, none of these reforms have actually challenged some of the fundamental issues with funding subsidized housing in this way, they’ve only kicked the can down the curb.
And that’s because this leverages a private-public partnership, essentially giving tax breaks to private equity to do work that should be done by the state. This creates long-term stability and profits for moneyed and private entities at the expense of tax payers.
Thinking about other policy ideas
Now the typical LIHTC critic is a developer who wants to see regulations, building codes and zoning codes relaxed, so they can build and speculate on land as much as they want. Which isn’t a solution I endorse.
I think the state has an obligation to house its people. This is housing that is financed, developed, and maintained by the state with public developers, public banks, and public property management.
Oregon is making some interesting steps towards substantial changes in our housing production frameworks.
Exploring social housing options
Luckily Oregon already has a system for publicly funding development called the Local Innovation and Fast Track program or LIFT. LIFT funds are essentially a revolving loan fund loaned out with a 0% interest rate and repaid. The interest rate stays at 0% so long as the affordability restriction remains. LIFT only supports construction, engineering, architectural, development contractor costs for new buildings and prioritizes rural communities and communities of color. LIFT also shares the income segregation issue LIHTC has by requiring all units to be subsidized. Oregon legislators are considering making changes to LIFT to allow mixed-income, preservation needs and expanding the bonding available.
Land banking and public developers
Another important part of the housing development equation is land acquisition. In Oregon everyone wants to expand their urban growth boundaries to get access to cheaper land at the cost of expanding urban sprawl. With a public land banking system, the state or local entities could acquire land within the urban growth boundary for housing development. Public land could be paired with public developers like the one Seattle is creating for their social housing program, or update the charters of housing authorities to be able to meet current needs.
Tenants have leverage here
Rent is costly, even subsidized rent. The difference between market rate rents and 60% AMI rents has been enough to snowball into a operations crisis within the nonprofit sector. And that’s power.
There is really potent ground for buildings with expiring subsidies. The stakes are really clear, either get organized or potentially lose your housing. As an organized building, the tenants are able to exert more control over their housing.
With adequate notice, organized tenants could secure funding to purchase their building if it goes up for sale. They also can organize around continuing to pay the same rents they were paying before, make demands for building improvements and other concessions.
An Introduction to the Low-Income Housing Tax Credit, Congressional Research Service
Expiring Use Restrictions on Low Income Housing Tax Credit Projects, National Housing Law Project