Greetings all.
This is a bit longer than some of my past messages, but there has been so much about affordable housing in the news, so I wanted to share some information from our perspective at CPAH.
I want to reassure you that affordable housing developers and operators, like CPAH, are experiencing a range of situations, and some agencies are struggling more than others. At CPAH, we are grateful that, for the most part, we are not struggling with vacancy issues and that our balance sheet is strong. However, there are serious issues facing the affordable housing industry, and much of it has been covered in the media.
Here is a list of stories you might find interesting, with some additional information from CPAH.
Vacancy Rates
Vacancy rates reflect several factors, and I generally think of them in different categories.
One set of increased vacancies has to do with rents, mainly ones set for households at 60% of area median income (AMI). Generally, affordable housing developers can set rents between 30% AMI to 60% AMI. For a one-bedroom apartment, a rent set to be affordable to a family at 30% AMI would be around $700 a month and a rent set at 60% could be as high as $ 1,400 a month. Developers can also set them at 40% or 50%, and the lower the rent, the more subsidy the unit requires. Right now, due to a moment in the market, rents set at 60% are competing with the market, particularly with older unregulated units. This has to do with some units entering the market at the same time. It is also worth pointing out that most units built with the bond funding were for households at 60% AMI. The reason for this is that it maximizes the number of apartments that could be built, as those are the least expensive. The argument against that is that those rents, right now anyway, are not that different from some of the unsubsidized rents and are also too expensive for people who have lower incomes. Which is a lot of people.
The second reason for vacancies has to do with challenges connected to housing extremely vulnerable populations. There are additional inspections that can add time to the leasing process; we may need to go through other systems to get referrals and services, particularly mental health services, as those are not always accessible (more about that later). Sometimes, if someone is really struggling, and especially if they are not accessing resources, there can be tremendous damage to an apartment. All this can increase the length of time a unit is vacant.
Finally, when it comes to vacancy, we pay attention to whether it is physical vacancy (the unit is empty) or an economic vacancy (no one is paying rent). Some agencies have a portion of residents not paying rent.
Escalating Operational Costs due to Increased Costs
This article includes issues around vacancy rates, but also the increases in the costs of operating affordable housing.
Although escalating costs are not limited to affordable housing providers, we can’t simply raise the rent when our costs increase because we are regulated. As described in the article, cost increases include significant increases in the cost of insurance and increases in utilities. And, as stated in the article, the cost of security for those buildings that are in challenging neighborhoods or that have occupants (on the lease or not) who are causing trouble from inside the building.
Most buildings are paying back permanent debt every month. In the article, they refer to a request to Portland City Council to release a small amount of funds to assist organizations in paying down that debt. This would mean the mortgage is no longer needed, and they can focus the monthly income on bills, repairs, and the ongoing costs of operations.
Escalating Operational Costs due to Decreased Services
This article includes information on much of what you have read; however, it also describes the impact of the loss of services.
In mid-June, I attended a panel presentation about changes to Medicaid. It’s already exceedingly difficult for our residents, along with many others, to access health care, including behavioral health care. In fact, Oregon is rated as one of the lowest performers in the country in providing behavioral health care, and in 2027, accessing Medicaid will become even more difficult. There will be work requirements, with some exceptions. And instead of qualifying every two years, everyone will need to qualify every six months. Our staff will need to assist residents in staying enrolled in health care, which will make it harder for them to do other things that they need to do. And some people will still lose care, which will increase the number of evictions and expensive unit turns, all while not serving the people who most need help.
Some agencies have said that Permanent Supportive Housing (PSH) isn’t working because of the lack of services. While in some cases, that is true, CPAH wouldn’t make that a blanket statement yet.
What are these Tax Credits Anyway?
Once again, there is a lot you have already read that is repeated in this article. But it does assign some problems, in particular vacancies, to the tax credit program and suggests that we should move from tax credits and just provide rent assistance. Well, at CPAH, we believe we need to keep building, especially in this region where new construction has dropped over the last few decades and is now barely happening. We have a shortage of housing for many different people.
Section 8 is immensely powerful when we can combine it with an apartment, so we need both. Section 8 helps us to use the Low-Income Housing Tax Credit (LIHTC) program to provide lower rents, so that we are not just adding units for households at 60% AMI. Nobody is going to argue that the LIHTC program is perfect or that it isn’t costly. But even though it is expensive, for each project it adds hugely more in value to the community than it costs, and the program is the engine that pulls along 90% of the nation’s affordable housing development.
Death by 1000 Cuts – Property Management
Some of these articles also mention the need for consistent and quality property management. Affordable housing is so complicated and so regulated that we need property management companies who can manage through these regulations. We have a shortage of quality property management options, but there are some.
CPAH appreciates the companies we are working with right now, but we would love to see additional options for the industry.
SOLUTIONS
Many solutions cost money – debt buy downs for affordable housing providers, investment in rent assistance, adequate public safety resources, health care, adequately funding operations at the beginning of the project.
Some solutions also require creativity – state insurance pools, new pathways into permanent supportive housing that ensure residents have been accessing and can access services, better alignment between housing and healthcare, development of a mission-aligned property management company, and ongoing improvements in permits and jurisdictional coordination.
CPAH, and agencies like us, are stewards of extremely precious resources. We are always looking to the future and hoping to create more. We need our funders to come to the table in a different way as we solve these issues.
