Why Some Housing Authorities are Buying Existing Buildings for Affordable Housing

(The Austin housing authority purchased this 452-unit apartment complex to operate as non-profit housing | Image: Community Development Trust)

Everyone would like to see a lot more affordable housing created in Philadelphia, but the most common ways that capital-A Affordable Housing is created today makes this unaffordable to scale

Not only do the current cost structure and public funding levels prevent below-market-rate housing construction from reaching anything close to the mass scale needed to clear the backlog of need, but the most popular vehicle for financing affordable housing—the Low-Income Housing Tax Credit—also only comes with a 15-year compliance requirement, after which time those units can be transitioned to market-rate housing. 

In several high-profile projects built recently, construction costs came in somewhere between $300-400,000 per dwelling, or sometimes even more—quite a bit more than Philadelphia's roughly $150,000 median home value. But these projects won't even be permanently affordable because of the 15-year compliance requirement.

City Council made some positive changes in their affordable housing package last fall that opened the door to some more affordable affordable housing strategies, like allowing Housing Trust Fund resources to be spent on repairs and rehabs of existing buildings. And Council member Maria Quinones-Sanchez has also been working on a turnkey rental housing pilot in McPhearson Square in Kensington that will supposedly come in around $170,000 per unit—a huge improvement over the status quo that could potentially be replicated elsewhere if it's considered successful. 

Broadly speaking, the goal needs to be getting more permanently affordable housing for the public dollars we're spending, and to do that, we're going to need a higher-capacity, well-governed Philadelphia Housing Authority that can competently oversee construction, acquisition, and maintenance of more publicly-owned rental housing.

One approach that hasn't been tried here yet, that the Philadelphia Housing Authority might consider as a more practical and potentially more cost-effective alternative to new construction, is an acquisition strategy of purchasing some existing older apartment buildings and renting out the units at below-market rates. 

Jared Brey, writing at Next City, reports that the Austin, Texas housing authority has been deploying this strategy as a way to open up more rental units for people using Housing Choice Vouchers (formerly Section 8 vouchers), and so has the King County housing authority in Seattle.

So as part of its effort to make more housing available to voucher holders, the housing authority is continuing to expand a strategy of acquiring housing units on the private market and making some of them affordable for low and moderate-income people. Recently, the housing authority, in partnership with the affordable-housing investment group Community Development Trust, bought a 452-unit apartment complex in Southeast Austin, as the Austin American-Statesman reported. The authority is planning to rent the units to tenants earning no more than 80 percent of median family income, which works out to $48,200 for an individual or $68,800 for a family of four. And it’s planning to market at least 15 percent of the units to voucher holders and tenants receiving assistance through HUD’s Veterans Affairs Supportive Housing program [...]

The project, called The Bridge at Asher Apartments, is pushing into more valuable real-estate territory than a lot of the Authority’s other projects, Gerber says. It’s adjacent to a growing commercial area, and none of the other properties in that area were accepting housing choice vouchers, according to Gerber. It’s also near high-quality schools, which is why the Kresge Foundation and the National Housing Trust supported the project with a $4 million grant from the HOPE Fund, which helps establish low-income housing near good schools. It’s also a shorter commute to downtown, where the jobs are, Gerber says.

Housing Choice vouchers help bridge the gap between what tenants earn and what area rents are. Even when tenants are granted housing vouchers, which operate more like a lottery than an entitlement, not all landlords will accept them. A 2018 Urban Institute study found two-thirds of Philadelphia landlords won't accept tenants who pay with Housing Choice Vouchers even when the person can afford the rent, despite a Philadelphia law prohibiting this. When the Housing Authority is the landlord, that's not a problem. 

One interesting thing about the Austin example is that the housing authority has purchased buildings in some high-opportunity areas near in-demand schools, and rents out some percentage of the units at market rates to help finance the below-market ones. 

At this location on Wells Branch Parkway, the Housing Authority of the City of Austin recently acquired a property with 308 units of “luxury” housing, including a pool, a clubhouse with a billiard table, a fitness center and a business center. With a few swipes of the pen, half of those units became permanently affordable housing. The property wasn’t previously in foreclosure, nor was it seized through eminent domain. In a highly unusual move for a local public housing authority, in these times especially, it simply went out and purchased the property on the open market.

It wasn’t the first property that the Housing Authority of the City of Austin acquired in that manner, and it won’t be the last. Since 2012, the housing authority has acquired more than 2,100 units of existing housing, reserving half of those units to rent at rates affordable to families between 30 to 120 percent of area median income. The rest of the units rent out at market rates, although families with Section 8 rental assistance vouchers can rent those market-rate units and still only pay 30 percent of their monthly income in rent.

This essentially achieves the same end goal social housing proponents want—a mix of socioeconomic groups in non-profit housing that avoids the issues with concentrated poverty in high-density housing—while skipping the ultimately unimportant issue of which entities should construct the housing. 

Scaling something like this up in any significant way would frankly require a much greater level of trust and confidence in the governance of the Philadelphia Housing Authority than currently exists, and their execution of the $500 million Sharswood-Blumberg plan hasn't exactly helped matters, but that's exactly why it would be smart of PHA to build that trust up by proving they can competently manage a few mixed-income apartment buildings.

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  • Jon Geeting
    published this page in Blog 2019-08-09 09:49:17 -0400