Housing Authorities Combine Financing to Build More Public Housing

Many public housing projects were in bad shape in the late 20th century. Crime was often rampant and the dense concentration of very poor people brought many social ills. Many municipalities felt they couldn't absorb more housing projects and in 1999, a federal law, the Faircloth Amendment, went into effect capping the number of public housing units in any city or town at the number of units that existed that year.For a deep dive into affordable housing vocabulary, see our previous blog here. Affordable housing continued to be built, as the Faircloth Amendment covered public housing projects - all-affordable developments that are operated by local housing authorities and that continue to sometimes have a bad reputation. These are technically known as Section 9 housing. The funding for construction of these units comes exclusively from the Federal Government (HUD) and per-unit funding is low, which is why they are shoddily constructed and frequently fall into disrepair.Section 8 housing, however, is more flexible and allows developers building such units to access bank financing (not exclusively HUD funding) for capital projects.Activists have tried to repeal the Faircloth Amendment and unit cap to no avail, but as the years have gone on, the number of very-low-income units has decreased due to demolition and redevelopment into market-rate units. Federally financed affordable units must be guaranteed to be income-restricted for 30 years, but after that they can come out of the affordable pool.So even though cities could have built more public housing to get back up to 1999 levels, the available funding from HUD (the required, exclusive funding source) was scarce and wasn't enough to build really good housing.In 2017, HUD itself created a workaround to allow Section 9 units to be converted into Section 8 units, which don't have a cap in numbers and which can be built using private financing, and which reimburse housing authorities at a higher rate.For an excellent and detailed overview of how the Section 9 to Section 8 process works, see this 2017 article from the Fulton County (NY) Daily Gazette. Cambridge and Holyoke's housing authorities are two communities that are taking this route to put together multi-faceted financing using the Section 8 vouchers to build more units. Holyoke is now 189 units under the 1999 level and is about to build 30 units to get closer to that upper limit, after adding 9 public units to an innovative development in South Holyoke that contains public (Section 8) units, 3 moderate-income units (up to 50% of the AMI) and that will contain 19 shared-equity townhouses, where the resident owns the building and the housing authority owns the land and the house is preserved as permanently affordable.Cambridge is about 1,500 units shy of the 1999 cap on public housing. Unlike Holyoke, residential real estate is in high demand in Cambridge, so more units that reached their 30 year affordability cap were turned into market rate units.Cambridge is currently in the process of building 124 new public housing units using the Section 8 conversion process. Cambridge's housing authority is also talking to neighboring Medford to build units there, according to the Boston Globe. Local housing authorities are allowed to operate anywhere in Massachusetts, so if the Cambridge-Medford deal goes through, Cambridge public housing tenants may live in Medford, where construction costs are lower.Boston is 2,900 units below the 1999 cap, but has not yet devised a plan to rebuild the units, per the Globe article.

Will Building More Market Rate Apartments Increase the Affordable Housing Stock?

Banker & Tradesman published an article on March 26, 2023 asking "Can Massachusetts Build Its Way to Affordability?". In short, they believe the answer is yes and that more market-rate housing will actually by itself create more affordable housing.It's a commonly-held belief that the construction of market-rate apartments increases the rent in the area where they are built. Existing landlords, it is thought, see how much new units are going for and hike their rental rates, which results in higher rents for older, possibly less well-maintained, units. Another commonly-held belief is that the construction of affordable housing depresses value in the area where it is built, as there is a conception that affordable housing brings with it poverty-related issues such as crime, drugs and violence.This may be a twentieth-century perspective. Low-income public housing was historically built in already economically depressed areas or in otherwise-unoccupied areas of vacant land. Low-income housing also used to be built as large tower blocks (the Cabrini Green project in Chicago springs to mind), where only very low-income people lived in high density with no support services on-site and poor transit infrastructure.In the twenty-first century, many large "projects" of low-income housing (including Cabrini Green) were demolished and new construction tended to be less-dense and less confined only to those considered low or very-low-income; i.e. those earning less than 60% of the Area Median Income are considered low income and those earning less than 30% of the Area Median Income are considered "very low income" and are usually not working for that income. Many states such as Massachusetts encouraged mixed-rate housing development. That meant that in a new housing development (be that a blocky apartment building or more dispersed townhouses), some percentage of the units would be reserved for people earning below the AMI and the rest would be market rate. Developers got preferential treatment and lower-interest loans if they included affordable units in their new builds.And what happened in the neighborhoods? Several studies published since 2000 have shown that building market-rate units actually helps with the demand for affordable (but not subsidized) rents in their neighborhood.The Upjohn Institute in 2019 and the Hudson Institute in 2017 both found that increased availability of market-rate or luxury units actually has a "filtering up" effect that results in more affordable units becoming available as local renters who can afford to do so upgrade their apartments by moving into the newer, more expensive units, leaving their old and now less-desirable units available for renters with a tighter budget.Similarly, a 2021 study by Redfin found that low-income housing developments had either no effect or a positive effect on housing resale values in the immediate area of the development.   Living in a socio-economically diverse neighborhood (or "economically integrated" neighborhoods as they are sometimes known) is beneficial for everyone along the income spectrum. Lower-income children in economically-diverse neighborhoods have better physical and mental health and are more upwardly mobile economically.For the people earning more, it can change their perceptions of poor people - unless the spread of incomes is too great, according to an interesting Urban Institute panel.  Their recommendation was to build more middle-income market rate units, rather than so many "luxury" units.                           However, as the Urban Institute notes, the return for developers is on luxury units. UI asks, what cangovernment do to incentivize new building that contains units that are market-rate but affordable to middle-income earners?