Preservation of Assisted Housing


The loss of affordability restrictions on a substantial portion of government-assisted rental housing stock will be one of the largest housing-related problems for California cities and counties. The housing most at risk of being converted to market-rate housing currently shelters very low-income seniors and families with children.

The nature of conversion risk and the prospective displacement of low-income tenants differs significantly depending on the government program that was used to finance the property. Units most affected have Section 8 contracts that expire and owners who may choose to opt out of the contracts. There are also many units with HUD-assisted mortgages containing rental restrictions (Section 236, Section 221(d)13 BMIR) that can be prepaid and converted to market-rate. In addition, most properties assisted by Mortgage Revenue Bonds (MRBs) are expected to convert to market-rate housing upon expiration of their rent targeting requirements. Unlike federally assisted housing, there are no agencies or programs to provide rental assistance vouchers or other transition assistance for MRB-subsidized housing.

Conversion risk is also much greater for properties that are in good physical condition and in high-cost, tight rental housing markets like most of the Bay Area. Properties managed by non-profit developers and properties in areas where the local government makes affordable housing preservation a priority by dedicating funds are in less danger of being converted to market-rate housing.

Benefits

  • Responds to one of the most pressing housing issues in many California cities.
  • Preserves the affordability of previously subsidized units.
  • Reduces the potential for displacement of low- and very low-income seniors and families, many who might otherwise be forced into homelessness or substandard housing conditions.

During the Housing Element Process...
  • Conduct an Assessment of At-Risk Units. An effective program for the preservation of assisted units requires a thorough inventory of all assisted units at risk of conversion and an assessment of conversion risk, based on condition of housing, the local rental market, and the availability of funds to support preservation.
  • Ensure the Participation of All Stakeholders. Involve residents of the units, individuals, and organizations that manage the units, program officials, and other social service providers to develop effective responses on a case-by-case basis, preserving affordable units whenever possible and providing residents with assistance through short- and long-term displacement.
  • Develop Workable Preservation Strategies. The Housing Element must identify a workable strategy for responding to the potential loss of at-risk units.

Potential Programs and Actions

  • Make Use of State Funding Resources. Several State programs provide specific funds for affordable housing at risk of conversion. These include California Housing Finance Agency's Preservation Financing Program, which provides tax-exempt financing for the acquisition or refinancing of a project with expiring Section 8 contracts, and the Multi-family Housing Program (MHP), which will also provide low interest, deferred long-term loans. Additionally, the California Tax Credit Allocation Committee (CTCAC) and the California Debt Limit Allocation Committee (CDLAC) both provide preferences for federally assisted atrisk projects.
  • Collaborate with Other Agencies. Local jurisdictions should work closely with the county housing authority, local non-profits, state agencies, and others who are affected by or interested in the potential loss of assisted units. These agencies can play a key role in designing and carrying out effective preservation strategies.

Resources:

Preservation of Affordable Multifamily Rental Units (Resources from HCD)
In California, there are approximately 149,000 units of privately-owned, federally-assisted multifamily rental housing plus additional tax credit and mortgage revenue bond properties, many with project-based rental assistance. A large percentage of these units may convert to market rate as subsidy contracts or regulatory agreements expire. Potential conversion of affordable units to market rate units is an ongoing and critical statewide problem. Affordable Rental Housing at Risk of Conversion(Adobe PDF), an excerpt from the Statewide Housing Plan, provides an overview of this issue in California.

California Government Code Section 65863.10 requires owners of specified federally-assisted projects to provide Notices of Intent to prepay a federally-assisted mortgage, terminate mortgage insurance, or terminate rent subsidies or restrictions at twelve and six months, unless the projects are exempted. These Notices of Intent must be sent to all affected tenant households and to affected public agencies. Affected public agencies include the City or County where the project is located, the local Public Housing Authority, and the Department of Housing and Community Development (HCD).

Pursuant to California Government Code Section 65863.11, owners of government-assisted projects cannot terminate subsidy contracts, prepay a federally-assisted mortgage, or discontinue use restrictions without first providing an exclusive Notice of Opportunity to Submit an Offer to Purchase. This Notice is required to be sent to Qualified Entities at least twelve months prior to sale or termination of use restrictions. Qualified Entities are nonprofit or for profit organizations or individuals that agree to maintain the long-term affordability of projects. See HCD's current list of Qualified Entities (Microsoft Excel).

See the Self Certification as a Qualified Entity(Adobe PDF) and Qualified Entity Certification(Adobe PDF) to request placement on the list of Qualified Entities.

California Government Code Section 65863.13 was adopted as an urgency measure and became effective July 2001. These provisions exempt certain preservation projects that meet specific criteria from the State Notice requirements. This exemption only applies to projects where an owner is prepaying a federally- assisted mortgage and comparable long-term affordability restrictions on the project will be maintained.

It is advisable that owners contemplating prepayment, termination, or restructuring under applicable federal or State programs, or selling affected properties, contact HCD prior to taking any action. Contact our staff, Mario Angel at (916) 445-3485 or the Division of Housing Policy Development at (916) 445-4728 for additional information.

California Housing Partnership Corporation (CHPC)
The mission of the California Housing Partnership Corporation is to assist non-profit and government housing agencies to create, acquire, and preserve housing affordable to lower income households, while providing leadership on housing preservation policy and funding. CHPC provides information about local preservation strategies, California notice law provisions, as well as at-risk data for all counties in California.

Local Initiatives Support Corporation (LISC)
LISC established its Affordable Housing Preservation Initiative in 2001 to strengthen efforts toward the preservation of affordable rental apartments whose uses were in jeopardy because of expiring federal subsidies, and to promote preservation-oriented public policies. Since then, LISC has helped nonprofit community development corporations acquire and preserve housing developments, build partnerships with housing authorities and other organizations, and advocate for government policies that can reduce the loss of affordable homes and apartments. Learn more in LISC's report, Preserving America's Affordable Housing: Retooling a 20th Century Asset for 21st Century Needs.


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