Preservation of Affordable Rental Housing

167 Pages·2016·1.38 MB·English

Preservation of
Affordable Rental Housing
Evaluation of the MacArthur Foundation’s
Window of Opportunity Initiative
Heather L. Schwartz, Raphael W. Bostic, Richard K. Green, Vincent J. Reina,
Lois M. Davis, Catherine H. Augustine
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Foreword
The MacArthur Foundation is pleased to have been engaged in the most ambitious program
to preserve affordable rental housing since the advent of the Low Income Housing Tax Credit
program. Through grants and program-related investments, we hoped to promote rental hous-
ing as a critical element in a balanced national housing policy, and to facilitate preservation of
low-cost, multifamily rental housing at scale across the country. We saw the practice of acquir-
ing and owning affordable housing with federal and state incentives and subsidies as a powerful
lever for policy change that would make it easier for increasingly business-savvy, high-volume,
mission-driven organizations to acquire, renovate, and maintain properties for future renters.
Facilitating the preservation of 300,000 affordable homes by 2020 through financial sup-
port for nonprofit housing organizations, financial intermediaries, and specialized loan funds
is our goal. However, we are not necessarily disappointed with the results to date. In fact, when
Window of Opportunity began, most people understood “preservation” as extending the life
of a historical property. First, we believed that preservation activity would build over time. It
would start with a strong cadre of nonprofit housing owners who would engage in preservation
as part of their business model. Their complicated transactions would inform policymakers at
local, state, and federal levels about the importance of preservation and what changes would be
required to make it easier to implement at significant enough scale to protect and extend the
value of past public investment in this country’s increasingly critical affordable housing stock.
Second, we did not foresee the Great Recession. Its significant shock to the national
economy made it harder for nonprofit owners to acquire properties, and diminished the ability
of state and local governments to support preservation with grants and other sources of capi-
tal. The Great Recession created a perfect storm: a drop in the production of new affordable
housing; a lack of financing for preservation; and reduced institutional support for the most
committed nonprofit housing organizations. At the same time, it increased the need for low-
cost housing as people were forced from their homes through foreclosure or saw their incomes
decline with job loss.
While it is true that Window of Opportunity focused primarily on that portion of the
housing stock originally developed with federal and state incentives and subsidies, it was a
deliberate choice. Our goal was to affect public policy. We saw the relationship between the
mission-driven, long-term housing owners and their public-sector partners, and their com-
plicated transactions as the path to changes that would encourage and facilitate preservation
at greater scale. Preservation of unsubsidized, affordable housing is an essential, worthy chal-
lenge, but it lacks a clear, direct path to policy change. However, we are pleased efforts are
underway to increase financing options for this portion of the nation’s housing stock.
We embrace the conclusions of the report. Critically, we have made extensive changes in
how we track and measure progress and the impact of our programs. At the same time, there
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are important results we wish to emphasize further. Specifically, the initiative’s equity-like,
program-related investment support of the nonprofit owners has had a significant impact on
the structure and operations of these organizations. They have changed their business models,
increased the size of their portfolios, and, in many cases, improved their net asset position,
without default.
We hope that these organizations, strengthened through the Foundation’s investment, are
the legacy of Window of Opportunity. We believe they will continue to engage in preservation
at scale and, through their work, encourage new and more effective policies that support pres-
ervation at all levels of government, and safeguard the public investment made in this critical
national asset—housing for people of modest means.
Julia Stasch
President, MacArthur Foundation
Preface
In 2014, the MacArthur Foundation sponsored RAND Corporation’s Infrastructure Resil-
ience and Environmental Policy Program and the University of Southern California (USC)
Lusk Center for Real Estate to evaluate its Window of Opportunity initiative. The philan-
thropic initiative started in 2000 and will end in 2020, allocating $187 million in grants and
loans to preserve privately owned affordable rental housing. The purpose of the evaluation is
to assess whether the initiative achieved its goals, as well as to provide preservation actors and
policymakers with lessons learned about effective preservation practices and to describe the
prospects for the future of preservation. The evaluation also assesses the structure of Window
of Opportunity to yield lessons for future philanthropic initiatives.
The report includes an analysis of national demand for and supply of affordable rental
housing in the decade leading up to Window of Opportunity and then during 2000–2010,
while the Initiative was ongoing. The evaluation also draws on 83 interviews, a document
review, and four case studies to assess whether the foundation achieved its objectives.
The report is intended for several audiences. The first is the MacArthur Foundation itself
as it assesses lessons learned from what will be a 20-year initiative and applies them to the
design and management of its future philanthropic efforts. Affordable housing developers/
owners, advocates, and others in the field may also be interested in the report’s summary of the
evolution of practices in preserving affordable rental housing and challenges and opportuni-
ties for preservation. Finally, the report may help other philanthropies apply relevant lessons
learned here to their own philanthropic initiatives, even if they do not pertain to housing.
This report is the product of a collaboration between researchers at the RAND Corpora-
tion and at USC’s Lusk Center for Real Estate. The RAND Corporation authors are Heather
L. Schwartz, Lois M. Davis, and Catherine H. Augustine. The USC Lusk Center for Real
Estate authors are Raphael W. Bostic, Richard K. Green, and Vincent J. Reina.
RAND Infrastructure Resilience and Environmental Policy
The research reported here was conducted in the RAND Infrastructure Resilience and Envi-
ronmental Policy program, which performs analyses on urbanization and other stresses. This
includes research on infrastructure development; infrastructure financing; energy policy; urban
planning and the role of public-private partnerships; transportation policy; climate response,
mitigation, and adaptation; environmental sustainability; and water resource management and
coastal protection. Program research is supported by government agencies, foundations, and
the private sector.
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vi Preservation of Affordable Rental Housing: The Window of Opportunity Initiative
This program is part of RAND Justice, Infrastructure, and Environment, a division of
the RAND Corporation dedicated to improving policy- and decisionmaking in a wide range
of policy domains, including civil and criminal justice, infrastructure protection and home-
land security, transportation and energy policy, and environmental and natural resource policy.
Questions or comments about this report should be sent to the project leader, Heather
Schwartz ([email protected]). For more information about RAND Infrastruc-
ture Resilience and Environmental Policy, see www.rand.org/jie/irep or contact the director at
[email protected].
Contents
Foreword ........................................................................................................ iii
Preface ............................................................................................................ v
Figures and Tables ............................................................................................. ix
Summary ........................................................................................................ xi
Acknowledgments ........................................................................................... xvii
CHAPTER ONE
Introduction ..................................................................................................... 1
Overview of Window of Opportunity ......................................................................... 1
Purpose of the Evaluation ....................................................................................... 2
Methods ........................................................................................................... 3
Limitations ....................................................................................................... 3
Structure of the Report ......................................................................................... 4
CHAPTER TWO
Rental Housing and the Role of Preservation ............................................................. 7
An Overview of Rental Housing in the Decade Leading Up to Window of Opportunity:
1990–2000 ................................................................................................... 7
Rental Preservation as a Part of “Balanced Housing Policy” ..............................................16
Conclusion .......................................................................................................25
CHAPTER THREE
Window of Opportunity .................................................................................... 27
Overview ........................................................................................................ 27
Investments Made Through Window of Opportunity .....................................................33
Conclusion .......................................................................................................39
CHAPTER FOUR
Case Studies of Window of Opportunity .................................................................41
Seeding Innovative Preservation Finance Vehicles: Housing Partnership Equity Trust ............... 42
Networking Large Nonprofit Preservation Owners: Stewards of Affordable Housing for the
Future ....................................................................................................... 48
Local Partnerships: The Preservation Compact .............................................................55
State and Local Environment: The State and Local Housing Preservation Leaders Initiative ........ 66
Conclusions ......................................................................................................76
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CHAPTER FIVE
Outcomes of Window of Opportunity.....................................................................79
Outcome 1: Increased Standing of Large Nonprofit Owners ............................................ 80
Outcome 2: New and More Financing Structures for Preservation ..................................... 86
Outcome 3: Policy Framework in Place to Encourage the Preservation of 1,000,000 Affordable
Rentals by 2020 .......................................................................................... 88
Outcome 4: Greater Number of Groups Involved in Preservation .......................................95
Outcome 5: Greater Awareness of Preservation ............................................................ 97
Outcome 6: Preserve 300,000 Affordable Rentals by 2020 ............................................. 106
Conclusion ..................................................................................................... 109
CHAPTER SIX
Conclusion .................................................................................................... 111
WOO Outcomes in Context ................................................................................ 111
Lessons for MacArthur and Other Philanthropies ........................................................ 115
APPENDIXES
A. Methods for the Evaluation of Window of Opportunity ......................................... 117
B. Experts Interviewed for Chapter Four Evaluation of Window of Opportunity .............. 137
C. The Preservation Compact’s List of Events (2009–2014) ......................................... 141
Abbreviations ................................................................................................. 143
References .................................................................................................... 145
Figures and Tables
Figures
2.1. Homeownership Rate, by Age and Decade .....................................................12
2.2. Units of Federally Subsidized Housing, by Program, 1990–2000 ...........................16
3.1. Overview of the Design of Window of Opportunity .........................................32
3.2. Window of Opportunity Investments Were Intended to Be Mutually Reinforcing .......33
5.1. Number of States with Preferences for Preservation .......................................... 90
5.2. Dollar and Share of Tax Credit Investments in Preservation .................................91
5.3. Number and Share of LIHTC Units That Were Preservation Units ....................... 92
5.4. Number and Share of Units Exiting the Project-Based Section 8 Program, by Year .... 108
6.1. Units of Federally Subsidized Housing, by Program, 2000–2010 ......................... 113
A.1. Rent-to-Income Ratio for the 20th Percentile in 1990 ...................................... 121
A.2. Rent-to-Income Ratio for the 20th Percentile in 2000 ...................................... 122
A.3. Rent-to-Income Ratio for the 20th Percentile in 2011 ...................................... 123
A.4. Rent-to-Income Ratio for the 40th Percentile in 1990 ...................................... 124
A.5. Rent-to-Income Ratio for the 40th Percentile in 2000 ...................................... 125
A.6. Rent-to-Income Ratio for the 40th Percentile in 2011 ...................................... 126
A.7. Rent-to-Income Ratio for the 60th Percentile in 1990 ...................................... 127
A.8. Rent-to-Income Ratio for the 60th Percentile in 2000 ...................................... 128
A.9. Rent-to-Income Ratio for the 60th Percentile in 2011 ...................................... 129
A.10. Rent-to-Income Ratio for the 80th Percentile in 1990 ...................................... 130
A.11. Rent-to-Income Ratio for the 80th Percentile in 2000 ...................................... 131
A.12. Rent-to-Income Ratio for the 80th Percentile in 2011 ...................................... 132
Tables
S.1. Outcomes from Window of Opportunity ......................................................xii
2.1. Population and Race, 1990 and 2000 ...........................................................11
2.2. Forward-Looking Analysis: Where Did the 1991 Affordable Rental Stock Go
in 2001? .............................................................................................14
2.3. Backward-Looking Analysis: Where Did the 2001 Affordable Rental Stock Come
from in 1991? .......................................................................................15
2.4. The Most Common Types of Federally Subsidized Housing for Preservation .............17
3.1. Window of Opportunity Funding, by Recipient Type and Purpose ....................... 34
4.1. Stewards of Affordable Housing for the Future Initiatives .................................. 50
4.2. The Preservation Compact’s Strategies, Actions, and Accomplishments ....................59
4.3. State and Local Housing Preservation Leaders Awardees .....................................69
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4.4. Overview of Three Grantees’ Accomplishments ...............................................70
5.1. Outcomes from Window of Opportunity ..................................................... 80
5.2. Fifteen Reasons Experts Gave for Preservation .............................................. 103
C.1. The Preservation Compact’s List of Events (2009–2014) ................................... 143