Over a 20-year period of affordability, developers should plan for more than $250,000 in subsidy and administrative costs per unit, or a similar reduction in gross potential rent.
Policy makers must understand the costs needed per unit to sustain affordability as they consider adding supply. The average monthly Housing Assistance Payment (HAP) the Public Housing Authority (PHA) made to private landlords that participate in our 5,000 voucher Housing Choice Voucher (HCV) program was $820 in July 2022. Including administrative costs of 10%, the total cost to sustain deeply affordable housing for the average household in the HCV program is $10,800 per unit, per year. Ensuring housing stability for extremely low-income households requires a sustainable funding commitment far beyond initial development.
In 2021, there were approximately 142 million housing units in the United States (combined homeownership and rental units). Approximately 5 million housing units receive deep subsidies from the U.S. Department of Housing and Urban Development that help households with incomes below 30% average monthly income (AMI) live in safe, affordable, quality housing. Because this limited supply of deeply affordable housing (accounting for less than 4% of all U.S. housing) serves approximately one of four households that qualify, many state, county and local governmental officials, as well as non-profit and for-profit developers, seek to add supply. But initial supply creation is not sufficient to ensure ongoing housing stability and affordability for extremely low income households.
Community support and initial capital resources needed to produce 30% AMI units are wonderful accomplishments that should be celebrated. Yet construction is just the beginning of an ongoing financial obligation to sustain completed units as deeply affordable housing. The number of households an affordable housing provider can serve at 30% AMI is directly related to how much money is provided in capital and annual operating subsidy. De-regulation, building code review, internal or cross-subsidizing of units in market rate developments, smart design, inclusionary zoning, etc. are important but not sufficient to guarantee neutral to positive net operating income when providing 30% AMI housing.
Eighty-five percent of households served by the PHA’s HCV program have incomes below 30% AMI. (AMI for a family of four in the Twin Cities metro area is $118,200; 30% of AMI is $35,460.) It’s the HCV program’s subsidy structure that ensures housing is affordable for these households. Tenant rents for the 5,000 households participating in the HCV program are a function of tenant income, not the market cost for the home they are renting. Basing tenant rent on household income enables households at or below 30% AMI to sustain housing in a rental market where they would otherwise be extremely rent burdened.
The average monthly Housing Assistance Payment (HAP) the PHA made to private landlords participating in our program was $820 in July 2022. Including administrative costs, the total annual cost to sustain deeply affordable housing for the average household in the HCV program is about $10,800. Ensuring housing stability for extremely low-income households requires a sustainable funding commitment beyond initial development. To serve a tenant population similar to that of the PHA’s HCV program over a 20-year period of affordability, developers should plan for over $250,000 in subsidy and administrative costs per unit, or a similar reduction in gross potential rent.
Though the number of households the PHA’s HCV program serves is impressive, there is still a large unmet need for deeply affordable housing in the Twin Cities. As of May 2022, 61% of rental vacancies in the Twin Cities were affordable at 60% AMI and 30% were affordable at 50% AMI. Only 2% of rental vacancies were affordable at 30% AMI. Considering that 13% of Twin Cities households have incomes below $25,000 per year (roughly equivalent to 30% AMI for a one-person household), the mismatch between the available supply and community need is evident. Developing housing that is affordable at 50% or 60% AMI, or at 30% AMI without ongoing subsidies fails to address this need.
The Twin Cities needs more affordable housing. While developing more affordable units is an obvious solution, development alone is not enough. Government entities, non-profits, developers and other community partners need to work together to ensure that the “affordable” projects developed include units affordable at all income levels, including those at or below 30% AMI. In addition, proposals seeking funding to develop “30% AMI units” must explain and ensure how they will keep those units deeply affordable for the entire period of affordability, whether by ongoing subsidies or other means. Failure to ensure a sustainable, ongoing funding beyond development brings the viability of keeping units deeply affordable into question, jeopardizing the housing stability of extremely low-income households.
Excerpts from an Issue Brief by Jon Gutzmann, MPA, executive director; and Lisa Feidler, JD, housing policy director of the Public Housing Agency of St. Paul.