🏡💚 Making profit off affordable housing
March 29, 2024
Did you know that a significant number of subsidized affordable housing are owned for profit? In the Bay Area, about half of the homes that receive public subsidies for affordable housing are owned by for-profit corporations or nonprofits with for-profit characteristics (those that are technically not-for-profit, but functionally do not operate as mission-driven). Nationally, roughly 80% of developers that use public affordable housing funds are for-profit institutions.
Maybe this isn’t too surprising. After all, we have a housing system that relies almost entirely on the market and profit motive for construction and ownership. But there is something that seems inherently off about dedicated affordable housing being driven by profits instead of a social mission.
And it’s not just that they are owned for profit. It’s also the growing awareness of how for-profit corporations use public subsidies to make money for themselves and shareholders at the direct expense of tenants. They use predatory practices to skimp on maintenance, property management, and overall habitability, causing many affordable housing tenants to live with mold, broken appliances, and substandard conditions.
All of this (and more) is the focus of a new report by Urban Habitat and the East Bay Community Law Center, The Failure of For-Profit Affordable Housing — and How Tenants Are Organizing for Change. Cataloguing recent tenant organizing campaigns, the report illustrates the contradictions of for-profit ownership of affordable housing and how corporations exploit public affording housing funds.
A lot of this comes back to one particular program called the Low-Income Housing Tax Credit (LIHTC). I won’t go into the history and complicated ways that LIHTC works (though there’s a great primer in the report), but one important thing to know is that LIHTC is how the vast majority of affordable housing gets built today. It isn’t the only source of new construction funds for affordable rental housing in the country, but it is the largest by far and it is a crucial funding source for most affordable housing projects. In the Bay Area, 85% of all state and federally-subsidized affordable rental properties use LIHTC.
One issue with LIHTC affordable housing projects is that their requirements to stay affordable have a time limit. When that affordability requirement expires, many buildings convert to market rate. As I’ve discussed in a previous newsletter, this means that California is actually losing thousands of affordable homes every year. The California Housing Partnership has also found that profit-seeking entities are much more likely to convert affordable housing to market rate when the affordability terms expire.
Another challenge with this program is that what is considered ‘affordable’ is not set by a tenants’ income, but instead by a percentage of area median income (AMI). While this should mean that LIHTC properties are generally cheaper than a comparable market-rate unit in the area, it also means that a relatively low-income person in a relatively more affluent area will pay way more than they can reasonably afford. Across California, 40% of LIHTC residents are housing cost-burdened, meaning they pay more than one-third of their income on rent.
This also means that LIHTC residents can get priced out of their homes as their neighborhood gentrifies and becomes more affluent (and the AMI increases). We’ve seen this unfold across the state over the past decades, and for-profit affordable housing owners have no problem jacking up the rent when they can.
That brings me to the last point — in California, low-income renters in LIHTC buildings often have less protections than those in unsubsidized housing. That’s because the state rent cap law (AB 1482, the Tenant Protection Act of 2019) specifically exempts all affordable housing, including LIHTC properties. That means that as long as they are within the AMI limits required by the program, LIHTC landlords can raise the rent as big a percentage as possible, and issue rent increases as frequently as they want. The report gives one stark example of residents in Antioch receiving rent increases of 30% or more — far beyond the rent cap set in AB 1482 that was allowed, ironically, because the tenants lived in affordable housing.
The end of the report has a list of detailed recommendations on how we can better protect tenants in affordable housing, reign in corporate for-profit ownership and promote mission-driven nonprofits, and take local action to raise the standards above those set by the state and federal government. Two of these recommendations are being addressed through active legislation this year:
AB 846 (Bonta) closes the loophole that exempts LIHTC affordable housing from the state rent cap, adding those same rent increase protections to LIHTC units that apply to unsubsidized homes.
AB 2926 (Kalra) tries to reduce the number of affordable housing units that convert to market rate by requiring the owners to accept an offer at fair market value if the potential buyers are willing to keep the building affordable.
These bills and the other recommendations are important steps towards working to reform LIHTC and the existing affordable housing system that does not provide nearly enough actually affordable homes for people. But these alone don’t get to the root causes of the contradictions in a system where corporations can profit off of making affordable housing units that eventually expire. We need permanently affordable and decommodified housing. That is the vision for green social housing — one that transforms the housing system to put people over profit.
Tenants rally for protections and housing as a human right. Source: Chris Schildt via the report
WHAT WE’RE READING
The Failure of For-Profit Affordable Housing — and How Tenants Are Organizing for Change (Urban Habitat, East Bay Community Law Center) - read the report!
Building on the Best of New York’s Social Housing Policy (Jacobin)
Barcelona's "best projects are being done in the field of social housing" (Dezeen)
We’ve sent this out to everyone on the current CA GND listserv. If you don’t want to get these weekly newsletters, feel free to unsubscribe below. If you know someone that would be interested, send me their email, or you can forward this along to them and they can use this link to subscribe.
