Affordable housing at risk

Solving the Massachusetts affordable housing crisis will not be possible unless we preserve existing housing as well as produce new homes.  Given the housing production constraints Massachusetts faces, losing even one unit of our current affordable housing stock strains an already-overburdened system.  Massachusetts is on the verge of losing thousands of units of affordable housing across the Commonwealth if the state does not move quickly to fix a problem decades in the making.

In the 1970s, the Commonwealth established the 13A program, an affordable rental development program modeled after a federal initiative.  The MassHousing 13A mortgage program provided an interest rate write-down to 1 percent for developers of affordable rental housing. A subsidy from the state made up the difference between the 1 percent interest rate and the market interest rate at the time that the loan was originated.  Through this mechanism, thousands of affordable housing units were created across Massachusetts.

But because of the way the program was financed, thousands of units are now at risk of conversion to market-rate rent: 4,200 in total, with 3,200 at higher risk.  The mortgages developers used to produce this housing are reaching the end of their 40-year terms and, if the property owners decide to convert these apartments into market-rate homes, the families and individuals living in them could face much higher rents.  It is worth noting that, over time, many of these units became home to elderly individuals.

The good news is that Massachusetts has a strong track record of preserving affordable housing in innovative, effective ways.  In 2009, the Commonwealth passed Chapter 40T, a landmark law designed to help preserve a broad range of affordable units built with state or federal funding in the 1960s, 1970s, and 1980s.  The law gave the state new tools to monitor and manage the Commonwealth’s affordable housing portfolio. These tools include expanded public notice requirements, a “right of first refusal” granted to the Massachusetts Department of Housing and Community Development (DHCD) if an affordable housing development is put on the market for sale, and new tenant protections when an owner terminates affordability.  Additionally, the Commonwealth established the $150 million Massachusetts Preservation Loan Fund, managed by the Community Economic Development Assistance Corporation (CEDAC) and the Massachusetts Housing Investment Corporation (MHIC), for predevelopment and acquisition financing for preservation projects. This loan fund has helped to preserve almost 5,000 units across Massachusetts.

Chapter 40T has played a crucial role in maintaining affordable housing units.  In June 2015, CEDAC, along with the Massachusetts Housing Finance Agency (MassHousing), issued an assessment of the effectiveness of Chapter 40T in preserving affordable housing.  The report found that more than 11,000 units across Massachusetts have been preserved since the inception of 40T.  Most importantly, no affordable developments have been lost to sale in the five years since Chapter 40T became law. The report showed that the law’s most innovative provision– DHCD’s right of first refusal – has worked effectively to help protect tenants while placing no undue burdens on owners.  In short, the law is working to protect vulnerable families.

The Commonwealth does not have years to preserve the 13A properties – the mortgages for these buildings are already maturing.  But Massachusetts can apply the same kind of creative thinking to this challenge as it has brought to other affordable housing properties at risk.  One solution has already been proposed.  State Representative Kevin Honan, House chairman of the Joint Committee on Housing and a champion of affordable housing for many years, has introduced a bill at the State House to allow for the use of up to $15 million in additional state low income housing tax credit to maintain the 13A properties.  The tax credits will generate about $53 million in funding that can be used for acquisition and renovation of these properties.  Rep. Honan’s legislation represents the single most important action that the state can make to preserve the housing units and protect the vulnerable residents.

Massachusetts has become a model state in both understanding the need for preservation and in finding innovative solutions to maintain affordable housing units.  Preserving the Section 13A portfolio will be a huge challenge but failing to act will result in the loss of thousands of affordable units and impact families and elderly residents across the state.   While there is a public cost to solving this problem through a preservation strategy, Massachusetts will face much larger costs from a failure to act now.

Roger Herzog is Executive Director of the Community Economic Development Assistance Corporation (CEDAC). Bill Brauner is CEDAC’s Director of Housing Preservation and Policy.