Introduction to Affordable Housing
What’s the difference between "affordable housing" and housing that’s "affordable"?
Housing is affordable for any income level if it consumes no more than 30% of a family’s income for rent (or mortgage payment for homeowners) and utilities. This is also referred to as attainable housing and is a relationship between a household’s income and total housing expense. “Affordable housing” is housing that is affordable, and is set aside (or reserved) to low-income households by Land Use Restriction Agreement or similar contractual or written agreement. Both “affordability” and “restriction elements” must apply to be considered “affordable housing”.
Are “affordable housing” and “workforce housing” the same?
These terms are often interchanged but are not the same. In the housing industry, ‘workforce housing’ typically refers to those earning 60-80%, 60-100%, or 80-100% of Area Median Income whereas “affordable housing” is housing that is affordable, and is set aside (or reserved) to low-income households by Land Use Restriction Agreement or similar contractual or written agreement.
What is naturally occurring affordable housing?
Naturally occurring affordable housing (NOAH) exists and may be affordable for low-income households, but is not specifically restricted or set aside for only low-income households.
What is Transitional Housing?
Transitional housing is a temporary housing program for those working their way out of homelessness that includes a housing component, but also includes a focus on increasing long-term independence through vocational and life-skills assistance, job training, and other factors related to long-term sustainability. The goal is to transition residents into permanent, affordable housing.
What is Permanent Supportive Housing?
Permanent supportive housing is an intervention that combines affordable housing assistance with voluntary support services to address the needs of people experiencing chronic homelessness. The services are designed to build independent living and tenancy skills and connect people with community-based health care, treatment, and employment services.
What is inclusionary zoning?
This is another term whose meaning has changed somewhat over time. By the classic definition, inclusionary zoning is that which requires a certain number of affordable housing units for every market-rate unit produced. Income-restricted units have maximum allowable rents. Colorado has a constitutional prohibition against rent control so this classic strict definition of inclusionary zoning is illegal. However, local zoning may offer other variances (e.g. for height restrictions) if a certain amount of affordable housing units are included in the development. While the term “inclusionary zoning” is now generally accepted to include such incentives to meet a community priority for affordable housing developments, it is more accurately described as “incentivized zoning” rather than “inclusionary zoning”.
Affordable Housing Funding
How is affordable housing financed?
Funding for the development of affordable housing developments is often provided locally through the county, state, or federal government programs. Funds are provided at low-interest rates or interest-free grants or loans, in exchange for long-term guarantees that the development will be reserved for lower-income households. By providing a subsidy to the initial development, its debt service is reduced, thereby allowing for lower rents to support its operation. The investing entity has its priority of “affordable housing” preserved, and the housing development is able to remain financially self-sustaining even while charging lower rents. Other creative funding plans can also be implemented to develop affordable housing without government subsidies.
What is a Low Income Housing Tax Credit (LIHTC)?
LIHTC funding was originated in the Reagan era to incentivize investment in affordable housing properties by for-profit companies in exchange for future tax credits, thereby lowering future tax obligations. The program has oversight by the Internal Revenue Service and guarantees long-term affordability for low-income households.
Is LIHTC the same as the state’s Affordable Housing Tax Credit?
No. However, both tax credit systems work the same way. LIHTCs are federally-authorized, and Colorado’s AHTCs are a different but similar method to promote and fund affordable housing developments.
How do Developer Fees work?
Development projects are very highly scrutinized and financially underwritten to be sustainable without generating “profits.” Developing new affordable housing is time-consuming, requires an initial investment in design and planning, and carries a certain amount of risk. Developer fees are the incentive to take on this kind of risk, as there are not similar profits on the back end that come with market-rate rents. While many nonprofit organizations exist to develop and provide affordable housing, there are also some for-profit developers of new construction affordable housing. Organizations and companies must demonstrate financial stability to be considered for funding, to ensure the long-term sustainability of the organization and its housing investments.
Why are new-construction properties so expensive to build?
In addition to ‘hard costs’ of construction such as land, materials, and labor, other ‘soft costs’ include engineering, market and traffic studies, environmental analyses, legal review, loan fees, and many other local fees for infrastructure and approval.
How do low-income rental tenants qualify?
The qualification and certification process is typically even more stringent and highly regulated than traditional and market-rate apartments. The process includes verification of income and residency, background checks, frequent monitoring by various agencies and the property management company, and annual recertification of all information prior to renewal of a lease.
Do affordable housing tenants pay rent and are bound by regular leases?
Yes! Households with incomes up to 80% of AMI are wage-earners and must pay rent as part of their family budgets, just like everyone else. Even those with some sort of government assistance must still pay up to 30% of their income toward rent and utilities. Leases are typically for one year. Tenants must re-certify based on income and residency annually.
What is Area Median Income (AMI)?
Of all income earners in a metro area, the median income is that which one-half of all incomes are below and one-half of all incomes are above that particular household income. Low income is generally considered to be any income at 80% or less of the AMI. Very low income is 60% of the AMI, and extremely low income is any income at 30% or less of AMI. The department of Housing and Urban Development (HUD) analyzes incomes annually and issues data on AMI for every county each year.
Concerns about Affordable Housing
America’s economy is based on supply and demand, so why should taxpayers be responsible for paying for housing tax credits when the "free market" system works fine in other parts of the economy?
Supply and demand are important parts of our economy but do not address the basic human need for housing. Support for affordable housing is understood to benefit society and the overall economy by assisting a ready workforce that is stable and available for work, reducing the threat of homelessness and other related costs to society. In the case of LIHTC and AHTC investment opportunities, they incentivize the private sector to invest in a critical social and human need for housing, increasing supply in response to increasing demand.
Is "affordable housing" just another word for "Section 8" housing ?'
Section 8 is an old term that is still frequently used. It refers to Housing Assistance Payments for those who meet requirements of extreme need due to disability or similar life circumstances. Those with Housing Choice Vouchers or who qualify for “project-based vouchers” receive assistance under Housing and Urban Development (HUD) criteria. Recipients are often seniors, veterans, permanently disabled, or are unable to earn income, and still must contribute one-third of any income toward their monthly rent and must recertify annually.
Is it true that new affordable housing properties lower property values?
Absolutely not. Acquisition and renovation of older distressed properties increase the care and best use of the neighborhoods in which they exist. New construction properties are carefully selected and scrutinized to determine need and appropriateness prior to a funding award. Investment in an area is correlated with demand, sustainability, and professional care and management of the property. There is no evidence of the lowering of property values specifically due to the presence of an affordable housing development.
Why don’t we build affordable housing units exclusively in low-income areas?
Essential community workers such as new teachers, home-health workers, hospitality personnel, part-time food service workers or other entry-level or low-income wage earners exist in all areas of a community. The concentration of housing only in low-income areas restricts access to opportunity, increases transportation costs for low-income workers as they travel to jobs, and stratifies geographic areas by income.
What stops tenants from having friends or family members move in?
Leases clearly articulate who may or may not reside in the apartment. Frequent monitoring and contact with residents and neighbors ensure that managers know who is living on site. Corrective action up to and including eviction may occur if terms of leases are violated.
Are affordable housing properties just another place for the homeless?
No. Affordable housing is an important step in the continuum of housing, which ranges from homelessness to independent and stably housed. In between are ‘steps’ that may consist of shelter care, transitional housing, permanent supportive housing, affordable housing, market-rate rentals, affordable homeownership (specifically set aside for those earning 80% or less of AMI), and traditional homeownership. Affordable rents and housing prices are critical to support economic development and workforce housing for employees in lower-income ranges.