On July 20, the House Financial Services Subcommittee on Housing and Community Opportunity held a hearing to discuss a Government Accountability Office (GAO) report on multifamily housing. The report examined programs administered by the Department of Housing and Urban Development (HUD), which provide below-market interest rates on mortgages for the development of affordable rental housing for low-income individuals.
In his opening statement, Chair Robert Ney (R-OH) explained that there are currently 11,267 HUD-subsidized properties in the United States, and the mortgages on two-thirds of these properties will “mature” in the next ten years. “Properties subsidized under these programs represent a significant source of affordable housing across the country. Many of the commitment periods will be completed within the next 10 years. When owners pay off mortgages, in most cases the subsidized financing ends and so does the requirement to keep units affordable; raising the possibility that rents will increase,” he stated, adding that many families unable to pay the higher rent will be forced to seek housing in more affordable neighborhoods.
Pointing out that “the nation’s supply of affordable housing does not meet demand,” Ranking Member Maxine Waters (D-CA) expressed her disappointment that HUD does not currently offer incentives to keep housing affordable once the mortgages on subsidized housing have matured. She voiced her support for a bill sponsored by Rep. Barney Frank (D-MA) that would be “a cost-effective method to preserve affordable housing.”
The Displacement Prevention Act (H.R. 4679) would authorize HUD to use $675 million in previously appropriated, but unused, housing funds as incentives to keep multifamily housing affordable. Property owners could use the funding to renovate existing units or could receive an annual payment to cover the difference between the tenants’ subsidized rent and the comparable market-rate rent. Nonprofit organizations also could use the funding to purchase the properties and maintain them as affordable housing.
Summarizing the findings of the GAO report, Financial Markets and Community Investment Director David Wood explained that low-income families “in over 101,000 units that do not receive rental assistance may have to pay higher rents or move when the HUD mortgages on these properties mature and rent restrictions are lifted. Further, owners are not required to notify tenants when a property’s mortgage is about to mature.” He added, “HUD does not offer any tools or incentives to keep properties affordable after HUD mortgages mature, although it does offer incentives to maintain affordability for properties that also have expiring rental assistance contracts. According to officials from the four national housing and community development organizations we contacted, because few HUD mortgages have matured to date, their member state and local agencies have not experienced the need to develop programs to deal with mortgage maturity. They noted that their member agencies could offer tools and incentives, such as loans and grants, which might be used by owners to keep properties affordable after mortgage maturity. However, about three-quarters of the state and local agencies that responded to our survey reported that they do not track the maturity dates on HUD mortgages, and none provided examples of tools or incentives used to keep units affordable after mortgage maturity.” Mr. Wood recommended that HUD “take steps to provide more widely available and useful information” on maturing mortgages, so state and local agencies could take action to preserve affordable housing for low-income families.
Assistant Secretary for Housing and Federal Housing Commissioner John Weicher explained that HUD worked with Congress to provide incentives to maintain affordability in cases of rental assistance contract expirations, and although these incentives do not specifically address mortgage maturity, they have “extended the affordability restrictions beyond the maturity of the insured mortgage.” He added, “We have over 1,000 projects with over 86,000 units processed under the Mark to Market Program, over 350 projects with approximately 32,000 units processed under the Section 236 Decoupling Program and approximately 800 projects with 80,500 units processed under the Mark Up to Market Program. In these three programs combined, the Department has preserved the affordability of over 2,000 projects with about 200,000 units.” In examining 32 properties where the HUD mortgage had matured between January 1, 1993 and December 31, 2002, Mr. Weicher stated, “Of these 32 properties, sixteen are still serving low-income residents through rental assistance contracts and ten properties that have no rental assistance contracts were identified as affordable to residents with incomes below 50% of area median income. After mortgage maturity, over 80% of the properties (26 of 32) remain affordable to low-income and moderate-income residents,” adding, “Therefore, because of incentives provided currently, such as vouchers and actual experience, it would appear that there are few projects at risk of lowering the affordable housing units.”
Angie Nwanodi, director of policy for the National Housing Development Corporation, argued that Congress must work with HUD to preserve existing affordable housing units because: 1) preservation is cheaper than new construction on a per unit basis; 2) preservation is more politically palatable than new affordable developments; 3) preservation is a more cost-effective use of current federal housing funds than new construction deals, and it helps retain past federal investments in housing; and 4) preservation is necessary to meet federal housing goals and to avoid falling further behind in meeting the national demand for affordable housing. Ms. Nwanodi also expressed her concern that the GAO report “minimizes” the impact that funding reductions could have on low-income families. “While it is true that to date a high percentage of rental assistance contracts have been renewed, it does not necessarily follow that the trend will continue, particularly as we approach the later years of the study when large numbers of units face both mortgage maturity and rental assistance contract expiration,” she stated, adding, “This year’s debate over the calculation of Section 8 voucher funding as well as recent concerns regarding the rising costs of funding Section 8 should cause us to pay close attention to whether full funding for existing subsidies is likely to exist by the end of the coming decade, particularly given the persistent growth in demand for affordable units and rental assistance nationwide.” Ms. Nwanodi recommended that Congress should expand the current definition of affordable housing preservation to include maturing mortgages; create a new, separate, revolving source of preservation funding; provide incentives for owners to plan for project rehabilitation; and enact an affordable housing preservation tax credit.
