Affordable Housing & Preservation FAQs
Q: What do we mean by "affordable housing?"
A: According to the U.S. Department of Housing and Urban Development, housing is considered affordable when a household pays no more than 30 percent of its annual income on housing. For many, affordable housing is out of reach and there are several types of subsidized affordable housing programs to help meet the need for such housing. Examples of federally subsidized affordable housing include the following programs:
- Project-Based & Tenant Based Section 8
The Section 8 Project-Based Assistance provides rental assistance for very low (below 50% of area median income) and extremely low income (below 30% of area median income) households. Project-based subsidies are tied to a specific unit for the length of the term of a Housing Assistance Payment (HAP) contract. Under a HAP contract, HUD provides a rental subsidy to the owner of the project equal to the difference between the HUD approved rent for an assisted unit and the HUD required contribution from the eligible tenant, generally no more than 30% of their income.1 These include Section 202 Supportive Housing for the Elderly and Section 811 Supportive Housing for Persons with Disabilities programs. Section 8 vouchers, on the other hand, increase affordable housing choices for very low-income families. Individuals and families with tenant-based vouchers are able to select any privately owned housing unit that participates in the program.
- Rural Development Section 515
Section 515 Rural Rental Housing Loans are direct, competitive mortgage loans made by the U.S. Department of Agriculture (USDA) to provide affordable multifamily rental housing for very low, low-and moderate income families, elderly individuals and individuals with disabilities. Moderate-income tenants in Section 515 have an income cap of $5,500 above the low-income limit (between 50% AMI and 80% AMI). Persons with very low and low incomes, the elderly, and persons with disabilities are eligible for rental assistance if they are unable to pay the basic monthly rent within 30 percent of their monthly income. For an explanation of AMI, see below.
- Low Income Housing Tax Credits (LIHTC)
The Low Income Housing Tax Credit Program (LIHTC) is a federal tax incentive program established in 1986 that assists private developers to finance the development of affordable housing. These tax credits are sold to investors to raise capital to build the project. These affordable housing units are then rented to income qualified households in need of safe, quality, affordable housing. Eligibility to rent an affordable unit is restricted to those households that are at or below 60% of the area median income. Low Income Housing Tax Credits ("tax credits") are allocated by housing credit agencies, usually state housing finance agencies (HFA). The tax credits must be allocated in accordance with a Qualified Allocation Plan (QAP). While certain federal requirements must be included in the QAP, HFAs have the flexibility to establish priorities and criteria that respond to the needs of the state's population. Tax credits are allocated in a highly competitive process that relies on an assessment of the financial viability of a project and the need for the project in the community.
- Public Housing
Public housing is built and managed by local housing authorities in 75 counties in Ohio and administered by the U.S. Department of Housing and Urban Development (HUD). Rents are set at 30% of the tenants income with the remainder of the costs paid by an Annual Contributions Contract from HUD. Eligibility for public housing is based on annual gross income, elderly or disabled status and citizenship.
- Section 236
In past years HUD provided Section 236 Low Interest Mortgages to developers, for rental or cooperative housing owned by private nonprofit or limited-profit landlords. Section 236, provides subsidies to eligible multi-family projects to help owners who are unable to afford typical mortgage payments of monthly principal, interest and mortgage insurance. Rents in Section 236 developments are capped and there are income eligibility requirements for tenants. 236 projects have a minimum rent and a maximum rent and tenants pay the higher of 30% of monthly adjusted income or basic rent and no more than market rent.
1 - HUD Section 8 Background Information. Retrieved June 11, 2010 from the World Wide Web: http://www.hud.gov/offices/hsg/mfh/rfp/s8bkinfo.cfm.
Q: Why preserve affordable housing?
Snapshot of Ohio -- Economic and Demographic Trends That Generate the Need for Affordable Housing
According to data compiled by the National Low Income Housing Coalition, the estimated average wage for a renter in Ohio is $12.24 per hour. In order for that person to earn enough money to rent the average 2-bedroom apartment, he or she would have to work 44 hours a week and 52 weeks a year. If that person earned only minimum wage (about $7.75 per hour) he or she would have to work 72 hours a week. If that person's only source of income was monthly Social Security Income, he or she could afford to spend $202 dollars a month for rent. With the fair market rent of a 1-bedroom apartment in Ohio averaging $550 per month, there is clearly a need for rental assistance and housing developed with rent and income restrictions.2
The Ohio foreclosure crisis also is generating the need for affordable rental units. The financial devastation of foreclosure as well as the damage to one's credit rating makes buying another house after foreclosure impossible for most people. As reported by Policy Matters Ohio in Home Insecurity: Foreclosure Growth in Ohio 2010, foreclosure filings in 2009 increased 3.8 percent from the previous year for a total of 89,053. Since 1995, foreclosure filings have quintupled statewide, 2009 marking the 14th straight year of record foreclosures. Almost all Ohio counties, urban as well as rural areas, are affected.3
In April 2007, the Ohio Department of Development Office of Strategic Research issued The Ohio Poverty Report. According to their research, which was based mainly on the 2000 Census Data and the 2006 American Community Survey (ACS), they determined that an estimated 1,392,000 people (12.3%) and an estimated 304,000 families in Ohio (9.7%) met the definition of poverty in 2005. ACS data for 2004-2005 show significant increases in poverty rates since 1999 for some counties and cities â€“ but not others; poverty rates also appear higher for urban and metropolitan areas.
As reported in the State of Ohio's Ohio Labor Market Information, the June 2010 unemployment rate for the state was 10.4% as compared to the national rate of 9.5%. Among the state's 88 counties, unemployment rates ranged from a low of 7.3 percent in Geauga County to a high of 16.8 percent in Clinton County. Only 6 counties had unemployment rates below 8.0 percent. The counties with the lowest rates, other than Geauga were: Holmes, 7.7; Mercer, 7.6 and Delaware, 7.6. Eight counties had unemployment rates at or above 14 percent. The counties with the highest rates, other than Clinton were: Highland, 16.0; Meigs, 15.0; Pike, 14.5; Noble, 14.4; Adams, 14.3; Jefferson, 14.2; Morgan 14.1.
According to Ohio Economic Analysis 20074 , Ohio's labor demographics are changing as the overall population ages. The baby boom cohort of workers has already begun to exit the workforce. More acute shortages of skilled labor may occur in the coming years. Nationwide, manufacturing employment has been in significant decline over the last six years. Ohio has been particularly hard hit with the loss of more than 100,000 manufacturing jobs since December 20075 Ohio has a high concentration of employment in durable goods production, which is more adversely affected during business downturns. In addition, restructuring in the automotive and related industries has resulted in major layoffs recently. Ohio's per capita income is higher than three neighboring states, but growth has been lagging the nation. About 23.3 percent of adults 25 or older have a bachelor's degree. The share of Ohio adults with an advanced degree is 8.5 percent (ranked 30th). The level of educational attainment tends to be higher in more urbanized areas.
In summary, the State of Ohio is facing several economic challenges over the next several years. Having a good, stable supply of affordable housing for all residents is a key strategy in turning the State's economy around. Preserving Ohio's large portfolio of assisted housing will help maintain this affordable housing supply.
Over the next decade, approximately 21,000 project-based HUD Section 8 units in 424 projects are in danger of being taken out of the affordable, subsidized housing pool in Ohio due to the impending expiration of their Housing Assistance Payments (HAP) contracts. This is fully half of the active units in the Ohio HUD inventory. Ohio's inventory has already lost over 11,000 subsidized units since 1995 through contract expiration. Preservation of units with expiring contracts is a high priority for the state.
Ohio's affordable housing inventory also includes nearly 9,000 project-based Rural Development subsidized units in 397 properties. According to the Columbus RD field office, about 80% of the portfolio is suitable for preservation. The other 20% include units either located in strong market areas where it is difficult to preserve their affordability status, or are in such poor condition that rehab is not a viable option. Of the 320 projects eligible for preservation, 100 have already recently been preserved through RD demonstration grants, dedicated RD funds for rehabilitation and the LIHTC program. That leaves about 220 properties in the RD assisted portfolio for which preservation is viable.
The Ohio Housing Finance Agency (OHFA) maintains a portfolio of over 1,200 projects that were developed using Low-Income Housing Tax Credits. All projects funded between 1987 through 1989 did not have extended long-term use requirements and are no longer part of the program. Fifteen thousand units in 264 projects developed between 1990 and 1994. The initial compliance period for these projects has or will expire soon. These properties are potential preservation candidates and all projects expiring thereafter.
Based on the above, Ohio has a potential universe of 43,100 units in about 1,000 projects that meet the Compact's definitions for affordability and preservation. This number will continue to increase over the next 10 years as more projects expire. Sixty-five percent of those units carry project-based rental subsidies. Generally, once a project-based unit is lost, it is gone forever. That coupled with the chronic uncertainty of the funding levels for tenant-based rental subsidies further indicates the need to preserve as many project-based subsidized units as possible.
2 - NLIHC's Out of Reach Report 2009: Ohio Data. Retrieved July 19, 2010 from the World Wide Web: htt://www.nlihc.org/oor/oor2009/
3 - Home Insecurity: Foreclosure Growth in Ohio in 2010. Retrieved July 19, 2010 from the World Wide Web: http://www.policymattersohio.org/ForeclosureGrowthOhio2010.htm
4 - Ohio Labor Market Information, Research Publications. Retrieved July 19, 2010 from the World Wide Web: http://lmi.state.oh.us/research/research.htm
5 - Employment Loss in Ohio's Manufacturing Industry: Economic Trends: 3.30.09: Federal Reserve Bank of Cleveland. Retrieved July 19, 2010 from the World Wide Web: http://www.clevelandfed.org/research/trends/2009/0409/02regact.cfm
Q: How much federally assisted affordable housing is there in Ohio?
A: There are approximately 162,000 units of federally assisted affordable housing units in the State of Ohio in over 2,600 projects6.
6 - From the Ohio Preservation Compact (OPC) statewide assisted housing database, completed by Eben Dowell of the Community Research Partners (CRP).
Q: How much public housing is there in the State of Ohio?
A: There are approximately 42,650 units in 244 public housing developments statewide, bringing the total universe of federally subsidized affordable housing to over 200,000 units.7
7 - From the Ohio Preservation Compact (OPC) statewide assisted housing database, completed by Eben Dowell of the Community Research Partners (CRP).
Q: What is AMI?
A. Eligibility for subsidized housing programs is typically determined by area median income (AMI). HUD uses the U.S. Census Bureau's median income for families in metropolitan and non-metropolitan areas to calculate income limits for eligibility. HUD estimates the median family income for an area in the current year and adjusts that amount for different family sizes so that family incomes may be expressed as a percentage of the area median income.8 Below are the definitions of extremely low-income, very low-income and low-income:9
- Individuals with incomes below 30% of area median income (AMI) are considered to be "extremely low income."
- Individuals with incomes below 50% of area median income (AMI) are considered to be "very low income."
- Individuals with incomes between 50% and 80% of area median income (AMI) are considered to be "low income."
To find HUD's FY 2010 Income Limits, please visit:
8 - Florida Housing Data Clearinghouse: Area Median Income. Retrieved July 23, 2010 from the World Wide Web: http://flhousingdata.shimberg.ufl.edu/apps/azindex.pl?t=18.
9 - HUD User Data Sets: FY 2010 Income Limits. Retrieved July 23, 2010 from the World Wide Web: http://www.huduser.org/portal/datasets/il/il10/index.html
Q: What are the threats to affordable housing?
A. Threats include:
Gentrification is the buying and renovation of houses and stores in deteriorated urban neighborhoods by upper- or middle-income families or individuals. Often gentrification improves property values, but also displaces low-income families when affordable housing is converted to market rate housing.As property values in a neighborhood increase due to gentrification, owners of affordable housing may be tempted to "opt-out" of their contracts by prepaying their mortgage. "Opting out" is when a multifamily owner chooses not to renew an expiring Section 8 contract and decides to opt out of the Section 8 program. This allows owners to relieve themselves of rent restrictions and charge higher rents.10
- Physical deterioration and neglect of properties:
Many subsidized properties have significant physical improvement needs in the immediate future. Often, due to undercapitalization, property owners do not have enough money in their reserves to address its physical needs over time, leading some to leave the subsidy program in order to sell the property or charge higher rents. Reserves are funds set aside to ensure that money is available to replace items that were installed during development. Items that are often replaced with reserves include ranges, refrigerators, water heaters, air conditioners, etc.11 Programs like the HUD Mark-to-Market program exist to enable property owners to restructure their debt, improve cash flow and make necessary improvements to their property. As properties near the mortgage expiration dates, the Mark-to-Market program will help reduce rents to fair market rent levels and allow owners to restructure debt to levels that can be supported by the new rents.12
- Prepaid mortgages, HUD rental assistance contract opt-outs & potential opt-outs:
The owners of affordable housing developments may choose to prepay their mortgage and not refinance under a HUD program, allowing the owner to sell or alter the use of the property. Owners may also choose to opt-out of their HUD rental assistance contract, allowing the owner to sell or alter the use of the property. Prepayments and opt-outs can lead to the loss of affordable housing units.
10 - HUD Office of Policy Development and Research. Multifamily Properties: Opting In, Opting Out and Remaining Affordable. Published January 2006.
11 - NAHRO, Glossary of Housing/CD Terms. Retrieved July 19, 2010 from the World Wide Web: http://www.nahro.org/reference/glossary.cfm
12 - Office of Affordable Housing Preservation. Retrieved July 19, 2010 from the World Wide Web: http://hud.gov/hsg/omhar
Q: How do I find affordable housing in my community?
A: There are several resources to help you find affordable rental housing in your community:
- Ohio rental housing locator
"Search for housing in Ohio"
- HUD National Housing Locator
- HUD Low-rent Apartment Search
- Housing Cleveland
A free service to list and to find affordable housing in Cuyahoga County, Ohio
Q: Who lives in assisted housing?
A: Table 1 provides a demographic profile of different types of affordable housing based on HUD Picture of Subsidized Households 2008.13
- Table 1 - Assisted Housing Demographics (44 KB Adobe PDF File)
More information can be found on HUD's website: http://www.huduser.org/portal/datasets/assthsg.html
13 - HUD Picture of Subsidized Households in 2008. Retrieved July 19, 2010 from the World Wide Web: http://www.huduser.org/portal/picture2008/index.html