A Foundation for Housing Stability: Prioritizing Preservation Today and Tomorrow

June 06, 2024

Housing Stability Cohort yellow logo

Four years ago, I joined a call with funders, policymakers and affordable housing practitioners to discuss how to best support renters as pandemic-related closures rendered millions of people unable to pay their rent. I was proud to share then, as I am today, that the twelve nonprofit members of Stewards of Affordable Housing for the Future (SAHF), were building on the work they have been doing for decades—creating and operating homes that are affordable and healthy for people with the lowest incomes, often in communities that have been left of out of investment for decades, such as communities of color.  SAHF members also doubled-down on their housing stability commitment to engage residents in designing and delivering services that improve their lives and met the moment by providing access to food, health care, internet and emergency financial assistance. All of this worked- residents from SAHF member properties with resident services are less likely to experience housing instability, including those residents usually at higher risk such as female-headed households and Black and Hispanic households. This commitment didn’t end with the public health crisis. SAHF members have made bold commitments to housing stability, and as part of our Housing Stability Cohort (HSC) are focused on new approaches to supporting residents and shared communications tools, staffing models and data to understand risk factors and patterns.  

While mission-driven housing providers continue to rise to the challenges of supporting housing stability in a dynamic environment, a perfect storm of unpaid rent, maintenance deferred during the pandemic, skyrocketing insurance costs, higher staffing costs and increased operating expenses are threatening the physical and financial sustainability of affordable, quality rental homes and the mission-driven organizations that provide those homes and make them places of stability and opportunity. Affordable housing properties are asked to serve a broad range of needs and provided with no buffer for fluctuations in operating costs and few tools for long-term needs. The combined financial shocks of the last few years have accelerated a problem that was already brewing pre-pandemic– especially for the most rent-burdened renters and the organizations that serve those with the deepest needs. It’s time to look to policies that address these systemic challenges to ensure housing stability for residents today and ensure that the homes and operators providing them are around tomorrow.  

Stability and Sustainability 

Housing providers can and should focus on ways to help residents remain stably in their homes, however, this requires that homes be physically and financially sustainable. Sustainability relies on revenue, manageable expenses and a reliable path for long term investment.  Right now, we’re challenged on all fronts. 

A recent survey we conducted shows that rent collected—the key driver of revenue for affordable housing providers—has dropped significantly since 2018. Among nine of our nonprofit members, past due rent now exceeds $57M (336% increase since 2018).  And that’s with the benefit of emergency rental assistance. SAHF members connected residents with a conservative estimate of $29M in rental assistance.  But emergency rental assistance is temporary and does not resolve long-term economic challenges that make rents unaffordable, such as rising costs for food, childcare, transportation and wages that aren’t keeping up with inflation. Residents also owe more now: according to our HSC data, 1 in 8 households owed more than $500 in 2023 (compared to 1 in 20 in 2020).   

While housing providers are collecting less revenue through rent, the cost to maintain good affordable homes is rising rapidly. Over the last five years, SAHF members in our survey saw: 

  • Operating costs/expenses: ↑ 36% 
  • Staffing costs: ↑ 28% (even in the face of significant staffing vacancies) 
  • Properties operating at a deficit: ↑79%  (*These numbers do not tell the full story of the cost of rent concession, advances to the properties and reserves used to address property needs.)

Simply raising the rents isn’t the answer. First, the homes operated by SAHF members and housing providers like them have limitations on the rents they can charge to keep them affordable.  That means there is limited revenue to address expenses and rent doesn’t necessarily keep real-time pace with the market or with costs.  

We also know that many of the people living in homes provided by SAHF members and other mission driven nonprofit affordable housing providers have extremely low incomes. On average, working-age families in the SAHF member portfolio earn $23,000 annually, and seniors have incomes of just $17,500.  Unless they have rental assistance, many of these people simply can’t afford even “affordable” rent. Our HSC data makes this clear: the more rent burdened a household is, the more likely they are to be behind in their rent. And as we examine data from the years before the pandemic, we see that this storm was already brewing– rent burdens had become too high and in some markets arrears (unpaid rent) were already on the rise. 

If revenue is insufficient to meet the costs of operating a property, there are near- and long-term impacts for people and communities.  In the near term, properties may have to defer maintenance, reduce or discontinue resident services and make other tough decisions that immediately impact quality of life. We are starting to hear of housing providers making these tough choices. In the long term, deferred maintenance can threaten the physical condition and habitability of the property.  When properties aren’t cash flowing and their physical needs have been deferred, it can also be more difficult and expensive to obtain the loans and investments that might address their needs and restore them to financial health.  When a housing provider owns several properties that operate at a deficit and require owner advances to sustain them, the health of the provider is quick eroded; in the case of nonprofits, there is no ability for equity infusions to reinvest in that “parent’ organization.  Broad scale problems in the portfolio can threaten the sustainability of the organizations and the services they provide– not just in the properties that are struggling, but across the board.  We’ve seen early examples of this with organizations in Los Angeles and Chicago. 

Preservation financing is a key strategy for addressing physical needs and finding a financial structure that will ensure rental homes remain affordable and in good condition for years to come. State Housing Finance Agencies and local governments who allocate limited resources like Low Income Housing Tax Credits (Housing Credits) and soft funding have given heavy priority to new construction and this focus plus rising costs have left insufficient resources for longer term solutions for struggling properties.   

A Way Forward 

At a time when people of limited economic means face overwhelming financial pressures and we know the urgency of advancing racial justice and more equitable communities, we cannot afford to put people, their homes and their communities, and the organizations committed to partnering with them at risk.  So, what can we do? 

We must start by acknowledging the health and wellbeing of people is tied to the health of the buildings and communities they call home, and the ecosystem of actors that create and operate those homes.  We need actions that address the immediate challenges where revenue is no longer adequate is to cover the rising expenses for affordable rental homes, solutions to preserve the homes we have and improve the systems we use to create new homes so that we don’t replicate the mistakes of the past.  We shouldn’t be trying to get things “back to normal” – we need to move forward to an ecosystem that puts people and communities at the center. 

1. Preserving People and Homes: Sustainable revenue and expenses  

SAHF members and groups like them create and preserve homes so that people can have better lives. Those better lives can only be realized if those homes are stable.  In the long term, that means focusing on additional rental assistance and sustainable ways to fund resident engagement and services.  But we can start now by: 

  • Prioritizing resident engagement and services.   
  • Holding accountable providers to reasonable renter protections to ensure good property conditions, proper notices, right to counsel and a fair process. Holding accountable residents to pay rent if able and targeting emergency rental assistance for those unable to pay. 
  • Improving referral processes for Section 8 vouchers and coordinated entry systems to reduce vacancies and deliver homes faster to those who need them. 

2. Preserving Our Investment in Affordable Rental Homes  

We need a better toolbox and approach to financing preservation so that homes can be kept in good repair and financially viable to provide opportunities for the next generation. In the long term, that means new sources of preservation funding (i.e. the Housing Credit and new resources for lighter preservation needs).  But these homes and the residents that need them can’t wait, so owners, lenders, investors, HFAs and government partners should act now by: 

  • Allowing property owners to access operating or other reserves as needed for preservation /capital uses.   
  • Assessing portfolios for opportunities to leverage Inflation Reduction Act funding as a preservation and expense reduction source.     
  • Providing flexibility on soft debt. Many rental homes that serve people with the lowest incomes have “soft debt”- funds provided to create the most affordable homes and address the most challenging circumstances.  These were structured as loans for tax reasons. Instead of requiring repayment, state and local government partners should sustain their investment in these communities when it’s time to finance preservation by allowing reamortization and subordination of soft debt where needed.  
  • Exploring operating relief for owners, especially those serving people with the lowest incomes and most acute needs. 

3. Building a People- and Preservation-Centered Future 

Finally, as we preserve the homes we have and continue to expand the supply of affordable homes, we should learn from our past and present, and structure more equitable and sustainable transactions that put people at the center of decisions and deliver on the public promise of quality affordable rental homes. 

We have to begin thinking differently now, by:  

  • Allocating resources, including the Housing Credit, in a way that balances prioritization of new supply with a strong preservation focus; adding units at the price of preservation is at best a zero-sum game. 
  • Assessing underwriting practices and considering what assumptions should be made about expense and revenue trends.   
  • Supporting resident engagement and services that improve housing stability, and therefore property stability, through underwriting and financing. 
  • Minimizing the number of sources and layers of compliance/income targeting to help reduce the cost of transactions upfront, reduce management costs, fill unit vacancies faster and free up staff to focus on resident needs.  
  • Being realistic about what it takes. When prioritizing policy objectives such as PSH and deep income targeting, development and financing decisions shouldn’t be made only on a cost basis.  These properties are complex and a race to the bottom on costs is a recipe for thin deals that can’t weather disruption.  

Forward-looking preservation is not an easy task, but housing providers like SAHF members believe in a world where we can all have a healthy home where we can flourish. We’re ready to bring the lessons of the past and innovations in the present to build this more equitable future.  Join us.