MacArthur has announced a 10-year, $50 million effort to preserve and improve the nation's supply of affordable rental housing.
Through the initiative, national and regional nonprofit organizations that own and operate large rental housing portfolios across 25 states are receiving $35 million in grants and low-cost loans. The funds will be used by them to acquire, refinance, and renovate rental housing that might otherwise become too expensive or run-down to remain available to low and moderate-income households. Another $10 million in low-cost loans will help specialized lending intermediaries finance transactions for these and other nonprofit owners across the country. An additional $5 million in grants will support research, policy analysis, and public education to improve understanding of the pressures on the supply of affordable rental housing and strategies to address them.
"Rental housing of all types is an essential component of a balanced national housing supply," said Jonathan F. Fanton, president of the Foundation. "Virtually all of us, at one time or another, have relied on rental housing, and for millions of people, affordable rental housing is a necessity. Through this initiative, the Foundation expects to directly support the preservation of 100,000 existing affordable rental units in urban, suburban, and rural markets; encourage additional preservation investments by public and private sector sources; and stimulate public policies that give a new generation of owners the motivation and means to preserve at least one million affordable rental units in the decade ahead."
Investment in Established, Nonprofit Owners
The funds provided through the Foundation's initiative are designed to be highly flexible and will enable 10-15 leading nonprofit preservation owners to acquire and improve a substantial inventory of rental housing throughout the country. In addition to physical upgrades such as replacement of windows, roofs and kitchens, the owners will bring in new services and amenities, including child care and after-school programs, computer and Internet access, community centers and playgrounds. To help the owners successfully manage the rapid expansion of their rental portfolios, a portion of the funds will be used to strengthen staffing, information systems and other aspects of their organizations.
The nonprofit housing organizations receiving loans and grants currently own 43,000 units of affordable rental housing. Over the next ten years, the Foundation anticipates that its funds will enable these owners to expand their portfolios by an additional 100,000 units.
"Our resources are designed to provide risk capital that is essential for nonprofit preservation leaders to succeed," said Julia Stasch, vice president of the Foundation's Program on Human and Community Development. "It enables them to identify and evaluate potential preservation targets, move effectively in the marketplace to acquire available properties, turn them around if necessary, and assemble the permanent financing and other resources needed to keep existing rental housing stable and affordable for years to come."
Initiative Relies on Loans, not Grants
In a variation on the philanthropic tradition of giving grants, most of the funds are being provided in the form of 5- to 10-year loans. Known as Program-Related Investments, the loans are made for charitable purposes and carry a below-market rate of interest. Over time, they will be repaid to the Foundation, which can then re-use the proceeds. Such loans are a growing aspect of philanthropy and are particularly useful in projects designed to leverage additional support from other investors. MacArthur, which makes grants totaling approximately $175 million each year has, in addition, a portfolio of Program-Related Investments totaling $180 million.
The Enduring Need for Affordable Rental Housing
The Foundation developed the initiative, called Window of Opportunity: Preserving Affordable Rental Housing, because the existing supply of affordable rental housing is under growing pressure at a time when the need for such housing has never been greater.
Approximately 35 million households live in rental housing today - one-third of all US households - and all but 5 million have incomes of $60,000 or less. An estimated 12 million unsubsidized renter households spend more than 35 percent of their income for rent, exceeding the 30 percent level typically considered affordable, an increase of one million over the past decade.
"Affordability is the primary issue for renters today," said Nicolas Retsinas, Director of Harvard University's Joint Center for Housing Studies. "Controlling for inflation, incomes among the bottom two-thirds of renter households have been virtually flat for three decades. Meanwhile, rents have climbed substantially. An effective way to lessen their housing burden is to expand the supply of affordable rental units. High costs, community resistance and scarce public resources make it hard to build new affordable rental housing, so it is essential to maintain the stock already in hand."
Major federal tax incentives and programs for multifamily rental housing ended in the mid-1980s. Since that time, only about 100,000 new affordable rental units have been built each year, principally with development subsidies provided by the Low Income Housing Tax Credit program.
Preservation as a National Housing Priority
"Ongoing additions to the affordable stock are important but modest in comparison to the overall need," said Debra Schwartz, director of Program-related Investments for the MacArthur Foundation. "If losses of existing affordable units are left unchecked, we will be running harder than ever just to stay in place."
Nationally there are approximately 37 million rental units. Of that number, three-quarters were built before 1980, meaning that the vast majority of rental units in the United States are more than 20 years old, and increasingly in need of reinvestment and repair.
Other pressures jeopardizing affordable units within the existing rental stock include:
Increasing rents or condominium conversions in hot real estate markets
Severely deferred maintenance of rental buildings in weak markets
Decisions by aging rental property owners to sell their holdings
Expiration of long-term government subsidies and restrictions that previously required owners to keep apartments affordable to low-income renters.
Since 1997, nearly 200,000 privately owned, government-subsidized rental units were lost as owners opted out of expired contracts, causing the stock of such units--the country's most affordable apartments--to drop by ten percent. And by the third quarter of 2002, the US Census Bureau reported that the median rent for a newly constructed rental apartment reached $928 per month, nearly two and a half times the maximum amount that is affordable to the ten million lowest income renters.
"The confluence of these market and historical forces creates the need for action," said Schwartz. "It also presents an important window of opportunity. Many of the affordable units at risk of being lost of over the next decade can be preserved. They can be acquired, refinanced and improved. Based on the experience of early preservation leaders, this typically involves half the cost of new construction. It is also an opportunity to revitalize communities, maintain a mix of housing options, and conserve billions of taxpayer dollars already invested in these vital housing assets."