Inside the $1 Billion Bid to Rescue Affordable Housing

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In normal times, the deal to rehab Coggins Square Apartments might have been a very minor victory for advocates of preserving affordable housing. But these are not normal times.

The nearly 20-year-old building — a modest transit-adjacent apartment building in Walnut Creek, California, just northeast of Oakland — is getting a $16 million facelift, and its developers will preserve its existing 86 units as affordable housing for residents making under 60% of area median household income, with some units set aside for tenants earning much less.

In the Covid-19 era, with construction of new affordable housing in the U.S.slowing to a crawl as a massive wave of housing instability looms, the scheme represents a potentially life-saving win. The Coggins Square deal is an example of a project financed through the Low Income Housing Tax Credit (LIHTC), an investment incentive program that has subsidized more than 3 million low-income housing units since its inception in 1986. Two nonprofits were involved in the project — theNational Affordable Housing Trust (NAHT) andBRIDGE Housing Corporation, with an investment from JP Morgan Chase.  It was the first deal during the pandemic to close for NAHT, a LIHTC syndicator that partners with developers and investors to build and preserve affordable housing.

Now, a pair of nonprofit institutions — the Low Income Investment Fund (LIIF) and the Stewards of Affordable Housing for the Future (SAHF) — have entered into a joint venture with this national housing trust with a plan to dramatically accelerate this kind of work: On Oct. 6, the group announced a plan to raise $1 billion over the next five years to subsidize thousands of affordable homes. In dollar value, it’s a commitment to building affordable housing on the same scale as pledges made byFacebook orApple.

The stakes are indeed high. The nation was in the grip of a severe affordability crisis even before the pandemic. According to Census Bureau data, half of all renter households (49.7%) are housing cost burdened, meaning they pay more than 30% of their household income toward the rent. For people living in poverty, this burden is severe: Nearly nine in ten renter households (88.5%) earning less than $20,000 annually pay an outsized part of their income toward rent.

“Broadly, the pandemic has laid bare the affordability crisis,” says Andrea Ponsor, president and CEO of SAHF. “What we’re seeing in our network, though, where you have affordable housing, those impacts aren’t as immediate or sharp. People can afford their homes and there are safeguards in place.”

Affordable housing is hard to find because it’s hard to build, and housing tax credits — the best tool around for making and keeping subsidized housing — involves complicated triangulation between entities such as LIIF, SAHF and NAHT. In the acronym-heavy world of nonprofit housing finance, these institutions have specialized roles, and describing them means serving up even more alphabet soup. LIIF is a San Francisco–based Community Development Financial Institution (CDFI), a private financial group certified by theCDFI Fund, a mission-driven program under the Treasury Department. CDFIs serve to promote equitable development and economic revitalization, and LIIF aims over the next four years to drive $5 billion in investments in racial equity — including opportunities in early education, food retail and affordable housing for underserved communities.

The second partner in this effort, Washington, D.C.–based SAHF, is a collective of 13 affordable multifamily housing providers who work together on housing policy. The SAHF roster boasts the Evangelical Lutheran Good Samaritan Society, Mercy Housing and the BRIDGE Housing Corporation, the nonprofit behind the rehabilitation for Coggins Square Apartments. Members comprising SAHF have been working closely with the Columbus, Ohio–based NAHT for years. In 2013, SAHF became the sole member of the NAHT nonprofit. And in 2017, all three organizations (LIIF, SAHF and NAHT) launched a $100 million Fund to Preserve Affordable Communities (FPAC), with a second offering in 2019 (FPAC 2.0).

Are you still with us? These details might seem obscure — even the Tax Foundation concedes that LIHTCs are an“exceptionally complex tax expenditure” — but the purpose behind the fund itself is simple. The FPAC credit facility is designed to give nonprofit developers access to capital, fast, so they can seize affordable housing properties at risk of converting to market rate. That capacity for quick action is enormously consequential, since nonprofit developers are often going up against private equity funds that can pay in cash. The idea behind the joint initiative between LIIF and SAHF with NAHT is to expand this capacity and streamline deals so that nonprofit developers can go toe-to-toe with private equity.

“In the last crisis, in 2008, we saw a lot of affordable projects really struggle. The private market was very quick to come in and snap those projects up,” says Lori Little, president and CEO of NAHT. “We are working on finding ways to provide capital that will allow the affordable housing developers we work with to be bold during this crisis.”

It’s not just the pandemic that has dealt a blow to affordable housing. Many original LIHTC-funded projects were financed under long-term arrangement that are now coming due. Property owners are under no obligation to continue setting aside units for low-income families once the subsidy expires. Hundreds of thousands of apartment dwellings financed with housing tax credits will hit their 30-year mark between 2020 and 2030. Buildings such as Coggins Square are also aging. Not only do these properties need another source of subsidy once the tax credit expires, they also often need capital improvements.

“Many syndicators are motivated by financial gain,” says Kimberly Latimer-Nelligan, president of LIIF. “It makes the residents of those low-income tax credit–funded homes especially vulnerable.”

Over the short term, the new Team NAHT collaborative will raise capital for the construction and preservation of 10,000 affordable homes. That’s only a penny in the well: The nation suffers a shortage of some 7 million rental homes for extremely low-income renters living below the poverty line. Building these homes is tremendously expensive, due in large part to exclusionary zoning that prevents multifamily apartment buildings from going up. Increasingly, housing serves as health care: Little says that affordable housing investors want to see on-site health services rolled into developments, so more partnerships along the lines of a$100 million investment from UnitedHealthcare are likely in the works. Adding services makes deals more complicated, but for many vulnerable households, the alternative may be homelessness.

In the long term, Little says that the collaborative has to find ways to use capital to move the needle on racial equity. That means understanding better the services and buildings that communities need. It’s early still, but Little says that finding ways to support developers of color who work in these communities — to find and nurture future housing leaders where access to capital is a significant obstacle — is a high priority.

The first order of business is to weather the downturn and play good defense for affordable homes.

“It’s not a time to say, ‘How do I stay stable?’” Little says. “It’s a time to say, ‘How do we make certain we preserve and keep all the affordable stock?’”

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