The New Age of Public Affordable Housing: Salvation Lies Within
While luxury apartment and condo living continues to rise as the largest multi-family construction boom ever continues into its 10th year, the United States faces a critical shortage of homes that are affordable to low- and moderate-income households. This is a crisis made even more severe when accounting for the number of affordable units in need of critical repairs. Plans to temper this crisis have been proposed by well-informed and forward-thinking individuals, but those plans tend to come with “strings attached” and/or budgets that makes the requisite bi-partisan support from legislators difficult, suggesting the bleak statistics and disheartening personal stories are doomed to continue. However, innovation, creativity, urgency and advocacy can unlock the solutions to repairing and even expanding our nation’s affordable housing with readily available tools.
The most immediately effective remedy is one which does not require approval of additional public funding, utilizes existing policy tools, is immune to Congressional impasse, and capitalizes on private investors’ currently insatiable appetite for affordable housing investment opportunities. The expansion of Public-Private Partnerships will allow government agencies and public housing authorities (PHAs) to align themselves with private firms and their access to private capital, forming partnerships that achieve their shared goals of creating, preserving, and improving affordable housing.
The tremendous flexibility with which Public-Private Partnerships can be structured has allowed many states and PHAs to customize solutions that have improved conditions of the current affordable housing stock, created new affordable housing, or provided resources that can provide additional public benefit. As an example, the State of Hawaii, in partnership with Standard Communities (of which the authors are the founding principals) and their local joint venture partner – Stanford Carr Development – recently completed an innovative repositioning of an affordable housing portfolio without any direct involvement from the federal government or allocation of Low Income Housing Tax Credits (LIHTCs). Hawaii Housing Finance & Development Corporation (HHFDC) selected a private partner that committed to serving resident’s interests and will complete an $85 million rehabilitation of the 6-property, 1,221-unit portfolio without displacing residents, many of whom are senior citizens. The State retained control rights over the properties, which are leased to the private partner, and received an upfront lease payment of more than $100 million, which will be put to work benefitting thousands of other families in Hawaii. There are hundreds, if not thousands, of similar success stories that can be told in short order if the public and private sectors embrace opportunities to work together to achieve their common goals.
Innovative approaches, such as the Public-Private Partnership described above, must guide the expanded uses of the existing ‘Affordable Housing Toolkit’ if we are going to deliver effective results. Government agencies tasked with providing affordable housing must embrace the expertise and capital that private parties can bring to the table and form partnerships that align interests. Many agencies have done so and subsequently realized extraordinary results on quick timeframes, but most have yet to take advantage of the ability to access an expanded toolkit that will allow for the more efficient repair of run-down public housing, the creation of new dedicated affordable units, or the renovation and long-term preservation of existing units.
There are considerable benefits to Public-Private Partnerships for all parties involved. The most important stakeholder – low-income households – receive long-term affordability protections and newly-constructed or extensively renovated homes. The public partner gets to have their cake and eat it, too, as they get to assign the cost and responsibility of addressing deferred maintenance needs or construction to the private partner, and receive funds that can be used to advance other agenda items such as establishing social services, repairing other properties, or creating new housing units. The private partner has an opportunity to use their expertise and private capital to enrich the lives of residents and transform communities that otherwise would have remained out of reach given their public ownership and receive a return on their investment if they do so successfully.
One concentrated area of opportunity is the 1.2 million existing housing units in the U.S. under the purview of roughly 3,300 PHAs, which are 100% reliant on public funds to complete maintenance, repairs, and operations. Without a private partner, PHAs and their residents cannot benefit from LIHTCs or private capital investments that facilitate property repairs and upgrades. The result is oftentimes catastrophic, with low-income families and seniors living in public housing plagued by unmet repair needs, health and safety hazards, and staff unable to provide resolution even if they have the best intentions.
To overcome these obstacles, PHAs should increasingly turn to private capital investment and expertise, which can be accessed via Public-Private Partnerships. One example is HUD’s budget-neutral Rental Assistance Demonstration (RAD) program, which is designed to facilitate partnerships between PHAs and private owners, who then work together to renovate in-need public housing, oftentimes extending the life of affordable units that would otherwise be left uninhabitable. Since RAD’s inception five years ago, over $4 billion have been invested into more than 61,000 units of public housing through the program. For every $1 of public funds invested, there has been $19 of private capital invested alongside it, and an estimated 75,000 jobs have been created from the renovation activity, with many of those jobs going to public housing residents. For the PHAs to fund the renovations completed under the RAD program from their operating budgets, it would have taken them 46 years to have adequate funds. In addition to private capital, Public-Private Partnerships provide the ability to leverage other existing programs that are not available to PHAs or government agencies acting on their own, such as the new Opportunity Zones legislation, LIHTCs, or Federal Rental Assistance.
Without immediate action, the affordable housing stories and statistics will not improve. The tools we need to start making a difference, such as Public Private Partnerships, already exist, and everybody should demand that the public and private sectors embrace opportunities to innovate and work together in order to enrich the lives of residents and transform communities
Scott J. Alter is a Co-Founder and Principal of Standard Communities. Prior to co-founding Standard, Mr. Alter was an investment professional at Stockbridge Real Estate Funds, a real estate opportunity fund. Previously, he worked as a Financial Analyst in Merrill Lynch & Co.’s real estate, hospitality and leisure investment banking division. Mr. Alter is a current Board Member and Co-Founder of Housing on Merit, a California-based non-profit focused on providing housing for homeless, female veterans. He recently served as a Board Member of The Giving Circles Fund, a movement of next-generation philanthropists who utilize the power of collective action to create lasting change. Mr. Alter earned a Bachelor of Science degree in Industrial and Labor Relations from Cornell University.
Jeffrey E. Jaeger is a Co-Founder and Principal of Standard Communities. Mr. Jaeger is also the Co-Founder and former Chief Operating Officer of Jackson Square Properties, a value-add investment company which managed a portfolio of over 10,000 apartments and 1,000 mobile-home units at the time of his departure. Prior to joining Jackson Square Properties, Mr. Jaeger worked in the capital transactions department at Lend Lease Real Estate Investments. A licensed California real estate broker, he is a current Board Member and Co-Founder of Housing on Merit, a California-based non-profit focused on providing housing for homeless, female veterans. Mr. Jaeger is also a current Board Member of Inner City Arts, one of the nation’s most effective arts-education providers located in the heart of Skid Row, Los Angeles. He earned a Bachelor of Arts degree from the University of California, Berkeley.