The Housing Crisis – The Adaptive Re-Use Model
Video (above): The Sanders Institute Founder and Fellow, Dr. Jane Sanders, recently visited California to see the homelessness problem in Los Angeles firsthand. Jane walked Skid Row and the surrounding neighborhood and witnessed the excellent work that The Healthy Housing Foundation is doing in LA to convert old hotels to affordable single room occupancy units. She met with tenants who until recently were living on the street and heard repeatedly how much of a difference having a place to call home has made in their lives. HHF has demonstrated that the model not only works, but that adaptive re-use can be one of the fastest and most cost effective ways to provide housing to those in need.
What is Affordable Housing Preservation?
Affordable housing preservation refers to the acquisition and rehabilitation of existing properties as an alternative to new construction while ensuring long-term affordability for residents. Affordable housing preservation along with more recent adaptive reuse strategies are key to tackling our nation’s affordability housing crisis. The strategy can take many forms and be applied across building types — from single family homes and apartment buildings to commercial buildings and hotels. While preservation can look many different ways, there are three general categories:
- stabilizing housing, both subsidized or unsubsidized, as long-term affordable housing for current residents
- converting market-rate housing to affordable housing for new residents
- converting a building from a non-housing use, such as a hotel, office or industrial space, to affordable housing for new residents
The following is a brief history of and case for preservation, as well as an overview of four critical strategies taking place across the country. This includes the stabilization of communities at risk of speculator-displacement to strategies designed to house our growing un-housed population.
A Brief History of Affordable Housing Preservation
In the 1960s, the preservation of affordable homes through acquisition and rehabilitation took off as a focus for localized community development efforts. Community development corporations (CDCs) leveraged grant and loan programs to convert existing housing stock into long-term affordable housing. From that period through 2010, most preservation efforts remained focused on extending affordability terms of subsidized or income-restricted housing and funding capital improvements for these projects. Between 1999 to 2009, the U.S. lost one-third of the affordable rental units affordable to a person making minimum wage. Some were converted from subsidized to market-rate units and some were converted from rentals to ownership. In response to the rapid loss of affordable rentals nationwide, practitioners focused on both keeping the original pool of subsidized homes affordable and mounting a defense to displacement by taking homes off the private market to grow the stock of permanent (or semi-permanent) affordable housing. The trend is nationwide, with standout models in New York, Washington, D.C., Minneapolis, and San Francisco.
Why Housing Preservation?
While preservation and new housing production are hardly an “either or” tradeoff, situations of scarce funding availability create the question, “Why fund existing housing when you could build new units instead?” Preservation has a unique value proposition, and is a critical complement to new construction in our comprehensive affordable housing strategy.
Affordable housing preservation is uniquely:
Effective at preventing displacement in areas where residents face the risk of gentrification and displacement. Preservation provides a targeted intervention to keep low and middle-income individuals housed in their existing communities. Especially in low-income communities of color, the impact of preservation extends far beyond units and residents directly housed. By keeping long-term community members housed in place, preservation stabilizes relationships, businesses, and other organizations upheld by long-term community members.
Fast and cost-effective – Preservation relies on existing housing stock. One study found that it cost 25 to 40% more to build new affordable housing than acquire and rehabilitate an existing unit. In order to convert market-rate housing to affordable housing, the building often needs to be refinanced and changes ownership structure. In addition, buildings require small to medium scale rehabilitation to ensure safe conditions for current and future residents. Still, the approach is significantly faster and more cost-effective than building new units from the ground up, especially in urban markets experiencing a scarcity of available land for development and escalating construction costs.
Environmentally Sustainable – Preservation is significantly less material intensive than building new housing from the ground up. When paired with energy-efficient upgrades, rehabilitation can reduce building emissions while saving residents and government long-term utility costs.
Brennan M, Deora A, Heegaard A, Lee A, Lubell J, Wilkins C. Washington D.C. Center for Housing Policy. Comparing the Costs of New Construction and Acquisition-Rehab In Affordable Multifamily Rental Housing: Applying a New Methodology for Estimating Lifecycle Costs. 2013.
Enterprise Community Partners. “Preserving Affordability, Preventing Displacement: Acquisition- Rehabilitation of Unsubsidized Affordable Housing in the Bay Area.” 2020.
U.S. Department of Housing and Urban Development. Preserving Affordable Rental Housing: A Snapshot of Growing Need, Current Threats, and Innovative Solutions. 2013.
ChangeLab Solutions, “Preserving, Protecting, and Expanding Affordable Housing: A Policy Toolkit for Public Health,” April 2015.
Graham, Darwin Bond. “Is the Only Way to Make Housing Affordable by De-Commodifying It?” East Bay Express, September 19, 2018.
Four Models of Preservation
1. Naturally Occurring Affordable Housing (NOAH)
Naturally Occurring Affordable Housing (NOAH), refers to aging residential units that can be renovated and dedicated as permanently affordable housing through a process that is both quicker and cheaper than constructing new housing units. NOAH developments rely less on government subsidies which can lengthen the development process and tend to only prioritize housing for very low-income individuals.. Once NOAH building stock is acquired and rehabilitated by the owner, the building owner is able to maintain affordable rents.
US Department of Housing and Urban Development, “Models for Affordable Housing Preservation.”
Williams, Stockton. The Urban Land Institute and Neighborworks, Preserving, Multifamily Workforce and Affordable Housing.
Alvarez, Thyria and Steffen, Barry. U.S. Department of Housing and Urban Development Office of Policy Development and Research. “Worst Case Housing Needs: 2021 Report to Congress.” July 2021.
Arechiga De Leon, Hector and Bates, Jonathan. USC Price Case Study: Normandie Lofts and the Los Angeles County Naturally Occurring Affordable Housing (NOAH) Impact Investment Fund
2. Affordable Housing Conversion of Market-Rate Housing
There is also an effort to acquire and remove market-rate housing from the speculative market and convert these homes to permanently affordable homes through deed restrictions particularly in low-income and working class communities experiencing rapid gentrification. Unlike NOAH projects, these projects usually have city and or state financing which subsidize the acquisition, rehabilitation, and ongoing affordability of the site.
Unlike traditional multi-family acquisitions, the conversion of market rate buildings to affordable housing projects requires a high level of tenant participation and the buildings are legally required to maintain affordable rents due to receipt of public financing. Tenants are required to verify their income in order to remain or move into building to meet public subsidy requirements.
Conversion is one of the few anti-displacement strategies which combats neighborhood gentrification directly by stabilizing residents in their homes in sensitive communities and securing the long-term affordability of these homes.
3. Models of Adaptive Re-Use
During the COVID-19 pandemic, the tourism and hotel industry faced severe economic ramifications. Owners of hotels, motels and other forms of short-term rental housing had to evaluate whether staying in business during a global pandemic made economic sense, with the alternative being to sell their building. Cities and developers encountered a unique opportunity to acquire buildings that could be repurposed to rental housing at a discount given a lack of demand for hotel rooms.
An example of a statewide response to this economic phenomenon is California’s Project Homekey. Project Homekey is a state program that provides funding for the acquisition and occupancy of hotels, motels, and other properties to house people experiencing homelessness during the COVID-19 pandemic.
From July to December 2020, Homekey facilitated the acquisition of more than 6,000 housing units amongst 94 properties, 5,000 of which will become permanently affordable housing. Homekey is the fastest, largest, most cost-effective effort to grow permanently affordable housing in California history. The average cost per unit was $129,254 compared to California’s average new construction cost of $380,000 – $570,000.
Similar efforts are taking place across the country. In Vermont, nonprofit housing developers purchased hotels and motels, converted commercial buildings, and placed manufactured homes on empty lots to create 247 new permanent homes, most with supportive services. Every project is subject to a housing subsidy covenant ensuring the homes remain permanently affordable.
In Oregon, the state established a preservation initiative to acquire 800 to 1,000 units. Initially, the goal was to create non-congregate shelter during the COVID-19 pandemic. Approximately two thirds of local entities applying for the state funds are aiming to convert these properties to transitional or permanent supportive housing over the next five years. As of July 2021, 19 properties were approved, representing 867 units and $71.7M in state funds.
In Minnesota, Hennepin County acquired 165 units to shelter unhoused seniors and adults with pre-existing medical conditions during the pandemic. The county plans to convert all units to permanently affordable single room occupancy housing by 2022.
For additional hotel conversion case studies visit The National Alliance to End Homelessness.
Tingerthal, Mary. The National Alliance to End Homelessness, “HOMEKEY: CA Statewide Hotels-to-Housing Initiative” , “Vermont Housing & Conservation Board Coronavirus Relief Fund: Vermont’s Statewide Initiative” , “PROJECT TURNKEY: Oregon’s Statewide Hotels-to-Housing Initiative”, HENNEPIN COUNTY Hotel/Motel Acquisition Initiative”
CA Department of Housing and Community Development, Project Homekey. Homekey: A Journey Home 2021 Legislative Report
4. Rental Assistance Demonstration (RAD)
Rental Assistance Demonstration (RAD) is an affordable housing preservation initiative developed in consultation with residents, public housing authorities (PHAs), property owners, lenders, investors, and other stakeholders. During a RAD conversion, a property managed by the public housing authority is converted to a project-based Section 8 project. The Section 8 platform provides predictable and stable rental assistance which is well understood by lenders and investors and ensures long-term affordability of housing units.
Public housing faces a massive capital needs backlog, plus significant modernization challenges. Under RAD, the property has access to the new financing tools used by the rest of the affordable housing industry. Public housing properties converted through RAD must address 100% of their current capital needs and remain affordable through long-term HAP contracts and use agreements which preserve HUD’s interest in the property. The property must be owned or controlled by a public or non-profit owner. Residents preserve the rights they had as public housing residents and the right to request a tenant-based voucher after living at the property for a period of time.