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NHC Beyond 4 Walls Podcast

Preservation and Sustainable Development

Through preservation initiatives, communities can simultaneously accomplish the dual goals of preserving existing affordable rental homes and promoting sustainable development. Preservation achieves these dual goals in several ways.

Strategic location in transit-friendly communities

According to the National Housing Trust, 250,000 subsidized rental units can be found within one-half mile of public transit, not to mention thousands more unassisted units. These homes provide ready access to affordable transportation and the option to forgo car ownership, or at least reduce reliance on a personal vehicle, allowing residents to dramatically reduce both their energy consumption and the combined cost of housing and transportation.

Affordable housing near transit is also crucial for many older adults who cannot or choose not to drive. Easy access to reliable public transportation enables these households to retain their mobility and travel independently to visit with family and friends and access services.

As gas prices remain high and demand for transit continues to grow, these affordable units will be difficult, if not impossible, to replace.

A report from the AARP Public Policy Institute, in collaboration with the National Housing Trust and Reconnecting America, Preserving Affordability and Access in Livable Communities: Subsidized Housing Opportunities near Transit and the 50+ Population, explores the importance of rental homes near transit for older adults.

Conservation of energy and building materials

Energy-efficient rehab of older rental homes provides an opportunity for communities to recapitalize the existing affordable housing stock while using less energy and raw materials and generating less waste than new construction.

Preservation of open space 

In metropolitan areas that continue to experience population growth, the preservation of existing homes helps communities meet their housing needs without expanding into previously undeveloped areas. In general, existing homes are already served by roads and utilities and so do not require the extension of infrastructure into new areas.

Challenges to preserving and extending affordability in location-efficient areas

The growing popularity of mixed-use, transit-oriented development has contributed to substantial increases in property values in many communities with new or redeveloping transit stations. While this growth can be positive for the overall neighborhood, it can also threaten the continued availability of existing affordable homes — both subsidized and unsubsidized — especially for families with very low incomes. The transit and infrastructure improvements are essentially permanent, and they contribute to continued increases in housing costs over the long term. However, the affordability periods for any new units created through conventional affordable housing programs typically expire within 15 to 30 years, at which point property owners have the option to increase rents to market levels, convert rentals to homeownership units or allow resale restrictions on affordable homeownership units to lapse. The higher property values induce owners of subsidized rental housing to opt out of their subsidy contracts, contributing to the loss of affordable housing in these communities. A 2009 study of 20 metropolitan areas across the country found there were nearly 200,000 federally subsidized affordable rental units within one quarter-mile of public transportation (over 250,000 such units within one half-mile of public transit). Moreover, the subsidies for more than two-thirds of location-efficient assisted apartments are at risk of expiring within the next five years. Many more below-market unsubsidized rentals can also be found in transit-accessible areas.  Once the affordability periods have lapsed, the cost of replacing the affordable units is often prohibitive, undermining the goal of ensuring that families of all incomes can afford to live in transit-rich, location-efficient areas.

Without specific government action, these units are at risk of loss as housing markets near transit stations heat up. Without a preservation strategy in place, the sustainable communities we are building today may become out of reach for seniors on a fixed income, low-income families, persons with disabilities and others who rely most on public transit. States and localities can take several steps to preserve and extend affordability near transit centers and in other location-efficient areas. In addition to programs that stimulate the development of affordable units in new construction, communities with an existing supply of rental homes can implement a preservation strategy that focuses on identifying and preserving existing subsidized and unsubsidized below-marketproperties and minimizes displacement of current residents. A second and equally important step is to protect substantial public investment in affordable housing by developing and employing mechanisms to ensure that assisted rental and ownership housing remains affordable over the long term. Finally, communities can layer additional subsidy assistance onto below-market units created through inclusionary zoning and other programs to bring the rents to levels affordable to very low-income families.

Identify subsidized housing close to transit that is at highest risk of loss

Research suggests that the subsidized rental properties most likely to be lost when affordability controls expire share several common characteristics. One of these is being located in an area where rents are substantially higher at nearby market-rate properties. While not all neighborhoods experience price appreciation upon the introduction of a new transit station, those that do risk losing the existing stock of assisted rentals when property owners have the opportunity to opt out of subsidy programs.

To prevent the loss of these much-needed affordable housing options, some state and local governments create preservation catalogs that enable easy identification of at-risk properties. With key details easily on hand, including the date when affordability controls expire, communities can get ahead of the curve and work with existing owners to encourage them to continue participation in subsidy programs or to transfer properties to a new owner who will. This information can be further targeted to help jurisdictions prioritize the preservation of existing subsidized rental housing close to public transit.

Focus funding for preservation efforts in location-efficient areas 

Owners of rent-restricted rental properties have limited cash flows; unlike market-rate rental property owners, they cannot raise rents to compensate for a larger property tax bill or to cover the cost of needed repairs. This means that established subsidized properties may well need access to additional financing if they are to stay in the subsidized inventory. States and localities can use an array of funding tools to help preserve the affordability of rental units near transit and in other location-efficient areas. Some of these tools may already be in use, others may need to be cultivated. These include:

  • Give preference to projects close to transit when allocating Low-Income Housing Tax Credits. The Low-Income Housing Tax Credit (LIHTC) can be used both to create new rental housing and to help recapitalize and modernize existing affordable rental housing to preserve it as an affordable resource over time. Although the federal government provides funds for this program (in the form of a credit against federal tax liability for corporations), criteria for scoring project proposals and allocating tax credits are set out in the Qualified Allocation Plans (QAPs) each state prepares. “Project location” is listed as a required selection criterion under federal guidelines; however the guidelines do not specify that this criterion should apply to proximity to transit or other amenities. In 2014, over 30 states and Washington, D.C., awarded points based on proximity to transit. The weight assigned to this preference and the way in which the preference is structured varies significantly from state to state.
  • Create flexible preservation funds intended for use in high-demand, location-efficient areas. States and localities with flexible preservation funds as discussed earlier may choose to prioritize location-efficient properties, or those in areas where housing costs are expected to rise, when selecting the recipients of preservation fund awards.
  • Using the 30 percent basis boost to promote sustainable and equitable development. Projects in high-poverty areas (Qualified Census Tracts) and communities where construction costs are high relative to incomes (Difficult Development Areas) have always qualified to receive a 30-percent increase in the amount of tax credits for which they would otherwise be eligible, sometimes called a “basis boost.” The Housing and Economic Recovery Act of 2008 (HERA) gave states broader authority to award these basis boosts to projects in areas where higher development costs are likely to be incurred. The additional costs associated with transit- oriented development — including structured parking, place-making infrastructure including sidewalks and bike paths, and green space — could be reasonable grounds for a state to apply the 30-percent basis boost to projects close to project transit.

    Several states, including MissouriOregon and Utah, have used their expanded authority to apply a 30-percent basis boost to systematically support projects near transit; others have applied the boost on a case-by-case basis for projects that meet a number of conditions that necessitate higher development costs, including proximity to transit.

  • Create tax incentives for preservation. In addition to the federal Low Income Housing Tax Credit, some states and localities provide tax incentives that encourage the preservation of affordable rentals by enabling owners to recapitalize their properties without raising rents to levels unaffordable to low- and moderate-income families. Some programs limit eligibility to targeted property types or neighborhoods. The Class S program in Cook County, Ill., for example, reduces the property tax assessment level of rental units that receive project-based Section 8 assistance in high-cost markets in exchange for an agreement from the owner to renew the initial contract under Mark-Up-To-Market.

Help property owners combine programs and resources that fund rehabilitation of affordable homes

Localities can make use of programs that offer rehabilitation funding for goals other than affordable housing — for example, programs used to fund energy-efficient property renovations — to simultaneously achieve preservation goals. Since the construction of many subsidized rental units predated energy efficiency and environmental standards, local governments can use funds available through the U.S. Department of Energy (DOE) to support preservation while providing needed energy-efficiency upgrades.

The Weatherization Assistance Program (WAP), for example, provides funding to state and local agencies to fund energy-efficient improvements for low-income households. Traditionally, WAP funds have been used for single-family homes. However, DOE and HUD have partnered in recent years to make WAP funds more easily available for use in affordable multifamily rehabilitation projects. The National Housing Trust collected best practices on how different states have utilized WAP for multifamily housing.

Preserving affordable homeownership in transit-accessible areas

Neighborhoods close to transit can experience rapid increases in property values that not only affect renters but leave low- and moderate-income homeowners in these areas susceptible to dramatic property tax increases, which compromise their ability to afford the combined cost of mortgage payments and property taxes. To address this challenge, some communities offer “circuit breaker” programs that limit the extent to which property tax bills can increase to provide relief to low-income families. Some communities also provide reduced assessments and real estate tax rates to lower-income families who live in resale-restricted shared equity By implementing these policy tools, localities can help encourage and sustain affordable homeownership opportunities in areas with access to transit and services vital to lower-income families.

 

Build Long-Term Affordability Requirements into New and Existing Housing Programs

For most states and localities, the majority of funding for affordable housing comes from federal programs. Many of these federal funding streams allow state and local governments to determine how they administer the funds, how they structure the program criteria and, to a large extent, how they determine the specific regulations that govern how the program works. This flexibility offers communities the opportunity to structure their housing programs so that they foster long-term affordability in location-efficient areas.

Ideally, housing near transit would remain affordable as long as the infrastructure exists. A transit system can last for many decades. So housing that remains affordable for 20 to 30 years would not effectively preserve affordability as long as the transit amenities existed and contributed to escalating home prices in the surrounding neighborhood. Many advocates for long-term affordability use 30 years as the minimum affordability term that constitutes “long-term affordability.” The ideal for many advocates, however, is permanently affordable housing — in the context of transit-oriented development, housing that remains affordable as long as transit improvements last.

Most HUD programs provide localities with substantial discretion in determining the required duration of affordability restrictions. If communities choose to follow only the HUD minimum affordability periods rather than extending affordability over the long-term, the value of the public subsidy will dissipate over time and it may be expensive or even impossible to recreate the lost affordability in the future. This is particularly a concern in well-located location-efficient communities where property values are expected to rise over time. Communities can address this concern by extending affordability periods for the longest-practicable time in areas where property values are expected to rise — or are at risk of rising — faster than incomes. 

Several states and localities require relatively longer periods of affordability for their respective state or local housing programs. California, for instance, requires that any housing developed with state assistance remain affordable for a minimum of 45 years for homeownership units or 55 years for rental unitsMontgomery County, Md., places 30-year restrictions on new homeownership units that are part of its inclusionary housing program. By itself, a 30-year period may not last long enough to ensure housing stays affordable over the long term, but the Montgomery County restrictions renew upon resale of the property, in most cases preserving the affordability of the units well beyond 30 years.

In Austin, Texas, down payment assistance loans above $15,000 funded through the HOME program have an extended affordability period of 30 years. In addition, the city uses a shared appreciation mechanism on these larger loans to preserve subsidies for future low-income homebuyers. Borrowers must pay back the loan in full along with a share of any appreciation realized upon resale of the home. The share of appreciation repaid can supplement future loans and help keep the value of subsidy in line with the rising costs of housing in high-cost areas, like those near transit.

Create targeted homeownership programs that provide long-term housing affordability near transit

Since new transit centers and other location-efficient areas often attract substantial new residential development, the inclusionary zoning mechanism is often an effective way to generate a substantial number of affordable homeownership units. The deed restrictions enable the affordable housing generated to remain affordable over the long term as prices in these location-efficient areas escalate. Long-term affordable homeownership programs that incorporate shared equity mechanisms are particularly useful for providing affordable homes in targeted areas close to transit. The purpose of shared equity homeownership programs is to bring homeownership within reach of low- or moderate-income families and then preserve affordability over time through a formula that balances the goals of long-term affordability and individual asset accumulation.

Convert housing choice vouchers to project-based vouchers in transit-oriented developments

Very low- and extremely low-income households often rely heavily on public transportation to connect them to employment and vital services, such as health care. If communities do not provide and preserve housing affordable to such families close to transit in communities with quality jobs, schools and hospitals at the outset of major transit investments, it will only become more difficult to do so in the future as rents and home prices in these areas increase. While local government policies such as inclusionary zoning or density bonuses can be used to help bring housing costs down to levels affordable to low- and moderate-income families, they generally cannot reach very low-income families (defined by HUD as a family making 50 percent or less of the area median income) or extremely low-income families (30 percent or less of the area median income). Many such families do not earn enough to afford a rent that covers basic operating costs, let alone the capital costs of developing or rehabilitating the unit.

The Section 8 housing choice voucher program provides rental subsidies to cover the gap between the amount extremely low- and very-low-income families can afford to pay and the rent of a basic unit in the private sector. As a general rule, vouchers are tenant-based – in other words, they travel to where the tenant goes and are used wherever the family wants to lease up. However, public housing authorities (PHAs) – the agencies that administer the voucher program – can attach up to 20 percent of their allocated housing choice vouchers to specific projects. Though the Housing Opportunity Through Modernization Act passed in 2016, PHAs can project-base up to 30 percent of their vouchers, instead of 20 percent, if the agency uses the added 10 percent for developments in areas where vouchers are difficult to use, to house homeless people or veterans or to provide supportive housing to people with disabilities and the elderly.

If applied to well-located units near transit or other amenities, this authority can be used to ensure that extremely low-income families have access to location-efficient communities. Local governments can work closely with their PHAs to encourage conversion of tenant-based vouchers to project-based vouchers in location-efficient areas.

At the end of the time period, it may or may not be possible to renew the contract or find another suitable development willing to accept the voucher. For this reason, it makes sense to consider providing incentives to encourage property owners to renew their project-based Section 8 contracts, such as access to a preferred property tax rate or low-cost financing for improvements.

Housing authorities also have some degree of flexibility to take public housing subsidies and assign them to specific developments on a scattered-site basis. This authority could also be used to acquire units in developments near transit and make them affordable to very low- and extremely low-income families.

Ensure that voucher holders receive a preference for affordable housing near transit

Local governments can also work closely with their local housing authorities to ensure that owners of properties near new or existing transit stations give priority to housing choice voucher holders. This requirement could potentially be made a condition of receiving funding for rehabilitation through block grant programs like HOME or CDBG. For example, say a community wants to use CDBG funds for grants to improve the energy efficiency of multifamily housing located in close proximity to transit. The community could make the grants available on the condition that the owner agrees to give voucher holders first priority to rent units in the development for the next 10 years whenever 15 percent or fewer of the units are occupied by families with vouchers.

Some local governments also allocate block grant funds, such as those for HOME and CDBG, to fund the construction or substantial rehabilitation of projects near transit stops. In the case of these larger funding commitments, communities may wish to implement more robust preference systems to require those who receive funds from these programs to give priority to housing choice voucher holders. For example, in order for a developer building multifamily rental housing within a quarter-mile of a subway station to receive HOME funds, a community might require the developer to agree to set aside 20 percent of their units for voucher holders. The local government could then coordinate with the local public housing agencies to ensure the units were occupied with voucher holders at a target income level — 30 percent of AMI, for instance.

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