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Our country’s lack of affordable housing has reached a level of true crisis. There are ample statistics to prove this statement, but trust its accuracy by observing actions. “Rent control” is a dirty word to many multifamily investors, and it has been applied already in a manner more widespread than many would have guessed. New York , California and Oregon have passed laws limiting what private multifamily operators can charge at their properties. Multiple other areas across the country (such as the state of Illinois) are considering similar initiatives.
This trend was discussed at an affordable housing industry cocktail party I attended late last year. It occurred to me that existing affordable housing initiatives are forms of rent control that are voluntary and offer an incentive for investor cooperation. As a broker whose work is marketing and selling affordable housing investment property, I was preparing to speak at a market-rate-focused multifamily conference. I had planned to get the room’s attention by opening with the statement, “I’m here today to advocate for rent control.” (Dramatic pause.) “Profitable rent control.”
I believe the best way to fight off profit-restricting imposed rent control programs is to fight for the preservation and expansion of existing tools that address the affordable housing crisis. Most professionals in the multifamily housing business aren’t involved in these programs and don’t want to be. Running a professional apartment investment and management business is a steep challenge alone, without the added complexity of direct government involvement.
However, the larger and more effective these programs are, the less likely you are to have your unrestricted assets get hit with a restriction you weren’t anticipating. Let’s discuss three ways to fight the affordable housing crisis using existing tools: the Low-Income Housing Tax Credit, HUD subsidy programs and affordable housing industry organizations.
LIHTC
The Low-Income Housing Tax Credit is the largest, and widely considered to be the most successful, affordable housing creation tool to date. In my work as a broker of these properties, I have been exposed to the operations of many successful owners and developers, providing a unique perspective on solutions for creating access to affordable housing.
This IRS program provides a subsidy to a developer in the form of a tax credit, which can be monetized to provide capital to the project in exchange for a promise to cap rents and tenant incomes. The private housing developer creates the project and can make a profit. The government helps by providing a tax credit. Tenants pay their full rent but are given an option for housing at moderate income levels. I’d consider this to be part of the broader workforce housing category.
Last year, there was serious momentum in Congress behind a bill called the Affordable Housing Credit Improvement Act. With strong bipartisan support, this bill would provide one of the largest expansions of the program since its inception in 1986. While its provisions did not pass with this year’s budget, housing advocates are working hard to keep some version of this bill in play.
Whether you have any desire to invest in or operate a LIHTC property, I encourage supporters of the bill to make sure your local representatives are on board. The more successful this tool is, the less likely market-rate property owners will face new government rent control restrictions.
HUD Subsidy Programs
Dealing with U.S. Department of Housing and Urban Development programs is a specialized business that is not for every apartment investor. But I believe that anyone with a stake in this industry needs to do what they can to support this vital government investment. The more the government pulls back from allowing HUD to fund these existing programs, the more likely we are to be hit with rent control on private developments.
Our government is in a constant state of looking to reduce spending, and understandably so. But safety net programs like Section 8 are crucial to society, and crucial to your market-rate multifamily investment staying unrestricted. None of us like the idea of a freeloader taking advantage of our tax dollars, but understand that, according to the Center on Budget and Policy Priorities, 68% of tenants receiving housing subsidies are elderly, disabled or children. Understand that of the tenants who are of working age and nondisabled, 60% have at least one job. Freeloaders exist, but we have a housing crisis. HUD partners with private developers to house low-income tenants in what can be a profitable arrangement.
Industry Organizations
Anyone in commercial real estate should get involved in the affordable housing problem so that the solutions can be a win-win versus a win-lose for our industry to those in need of a home. Like all high-level fights, attempting to take on the issue of affordable housing can feel daunting. It’s easy to be paralyzed when you feel that your efforts couldn’t possibly dent the problem.
The good news, however, is that there are professionals across the country dedicated to the cause, and their organizations need your support. National groups such as the Institute for Responsible Housing Preservation (IRHP), the National Leased Housing Association (NLHA) and the National Low Income Housing Coalition are constantly lobbying lawmakers on behalf of this industry. There are affordable housing organizations in every state, working on this education at a local level.
Our representatives in Washington need to understand that the LIHTC is a proven job creator and a market-driven solution to a fundamental societal need. When each new budget fight comes along, let’s make sure HUD gets the dollars necessary to help house our most vulnerable. In my view, it’s simply the right thing to do and has the added benefit of securing the long-term value of your multifamily investment.
I believe that rent control is not a long-term affordable housing solution and that the commercial real estate industry should get more involved in understanding current programs, subsidies and organizations involved in the space. Together, favorable outcomes can be found for all involved.