Photographer: Timothy Hiatt/Getty Images

A Lot of Cheap Housing Is About to Get Very Expensive

With 400,000 affordable units expiring, housing advocates fear that owners will seek to cash in on gentrifying neighborhoods.

Urban Institute fellow Erika Poethig has a poster in her office showing 22 apartment buildings along Chicago's Lake Shore Drive. They were all built with U.S. government dollars to provide affordable housing to thousands of low-income households—and have since been converted to market-rate apartments and condominiums.

For Poethig, a former official at the Department of Housing and Urban Development, those apartments are a warning.

There are currently about 1.34 million units of affordable housing created by a HUD program known as Section 8 project-based rental assistance, according to a blog post published on Wednesday by Poethig and her Urban Institute colleague Reed Jordan. More than 30 percent of those units are kept affordable by contracts that are set to expire by the end of 2017.

That raises the possibility that property owners, especially in gentrifying neighborhoods, will seek to cash out, wiping affordable units off the books. "Congress doesn't let HUD do new contracts," she said. "Once a project is lost, it's lost."

Under Housing and Urban Development's system, tenants who meet income requirements pay 30 percent of their income in rent, and HUD pays the landlord a subsidy on top of that rent. The average subsidy was $665 a month (PDF) in 2011, according to the National Low Income Housing Coalition. New York, where 33 percent of units are set to expire by 2017, has more than 123,000 units in the program; Dallas, where 47 percent of units are at risk, has about 8,800.

Why the coming wave of expiring contracts? Most of the units at risk were built from 1974 through 1983 through a federal program that provides cash payments to landlords charging below-market rents. Typically, the original contracts were for 20 years, said Michael Bodaken, executive director of the National Housing Trust. If they were renewed for 20 years in the mid-1990s, they're likely to be coming up now. Since the '90s, HUD has also let landlords renew for one- or five-year periods, adding to the wave.

Most of those contracts are likely to be renewed. Historically, about 8 percent of expiring contracts are allowed to lapse, according to Poethig's blog post.

That figure may understate the current stakes. Subsidized units are more likely to be converted if they’re in areas with highly rated schools, good public safety, and other neighborhood amenities that make them attractive to low-income households and market-rate developers alike. The loss of affordable housing in nice neighborhoods is particularly alarming in light of research showing that poor children raised in better neighborhoods have better upward mobility than those raised in high-poverty communities.

The city with the greatest risk of losing subsidized apartments may be Washington, where 34 percent of the project-based rental assistance apartments soon to expire are in neighborhoods in which less than 10 percent of the population lives below the poverty line. In Dallas, by contrast, less than 2 percent of expiring units are in low-poverty neighborhoods. New York has the highest number of expiring units in good neighborhoods, but those apartments make up a smaller share—20 percent—of units in the project-based program.

HUD, which didn't respond to a request for comment, has expressed its eagerness to preserve affordable units.

The system for preserving affordable units varies from place to place. State law gives cities in Massachusetts the right of first refusal when property owners want to let a HUD contract expire, and a number of nonprofit groups and a state-affiliated agency are devoted to preserving it. In 2013, a nonprofit called Preservation of Affordable Housing paid $234 million for about 850 apartments in Boston, Cape Cod, and elsewhere in the state to prevent the units form being converted to market rate. Washington, Chicago, and other cities require landlords to notify tenants in advance of conversions and, in some cases, give them the opportunity to buy the apartment.

Here's another point suggested by the second chart. Because most of the housing in the project-based rental assistance program was created in the 1970s, it tends to be focused in cities that had matured by that time. Cities that grew during the subsequent population booms in the South and Southwest generally have fewer subsidized units.

“We have a housing policy that has not kept up with the geography of poverty,” Poethig said.

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