New Developments: 50 Years of Resiliency
By Thom Amdur
5 min read
Over the past five decades, the affordable housing delivery system has evolved to meet the changing needs of low-income Americans, the waxing and waning of political will and ideologies, and constantly evolving financial and housing market conditions. Tools and strategies evolved to address specific challenges and/or weaknesses in earlier iterations. Earlier this year, I put together a timeline of major events in NH&RA history as part of our 50th Anniversary commemoration. It struck me that there are many lessons to be learned from our affordable housing legacy that may inform our work in the future.
You may be surprised to learn (as I was) that the federal government began studying the affordable housing problem as far back as 1892, when Congress first authorized funds to investigate slum conditions in cities. After a few starts and stops, in 1918, during the height of World War I, Congress made its first foray into funding workforce housing with an appropriation to the U.S. Ship-Building Corporation to build war-worker housing projects. The New Deal and post-World War II years brought about the formation of key housing agencies, including the Federal Housing Administration (FHA), Federal National Mortgage Association (Fannie Mae), the U.S. Department of Agriculture’s Resettlement Administration (predecessor to USDA’s Rural Development), as well as the establishment of the public housing system.
Our story began to take shape in the late 1950s and early 1960s with the enactment of the Housing Act of 1959 and the creation of the Department of Housing & Urban Development’s (HUD) Section 202 program, which made direct loans to nonprofit developers building affordable housing for the elderly. Over the next several years, Congress enacted other programs that focused on creating affordable housing through debt subsidies while gradually creating paths for the private sector to participate. These mainly took the form of interest rate subsidies, FHA mortgage insurance, and loan guarantees and included the HUD 221(d)(3) Below Market Interest Rate (BMIR) program, as well as the Section 236 and Farmers Home Section 515 programs.
These programs were initially effective in producing and rehabbing affordable housing but proved inflexible, especially when the economy entered an inflationary period in the late 1960s and 70s, peaking initially during the 1973 oil crisis. Subsidizing affordable housing through debt alone proved insufficient, and Congress eventually filled the gap first through operating subsidies, including rent supplement payments and later Section 8. To keep up with inflation, rents were raised annually by published annual adjustment factors. During this period, tax incentives for affordable housing projects also entered the fray, including the ability to deduct construction period interest, accelerated depreciation, and the five-year write-off of qualified rehab expenses, launching the first affordable housing equity syndications.
In 1973, President Nixon enforced a moratorium on HUD-funded construction of new rental and homeownership housing, but the effective advocacy of rehab developers allowed affordable housing rehab projects to continue until a new production program was created. This came to fruition with the creation of the Section 8 Housing program in 1974 and later the creation of various local urban and economic development programs during the Carter administration.
After nearly a decade of production, Congress ended funding for “new” New Construction and Substantial Rehab Section 8 projects in 1983. It was not until the enactment of the Tax Reform Act of 1986 that the industry had another major housing production program with the Low Income Housing Tax Credit (LIHTC). As with any new program, it would take time for the Internal Revenue Service and states to enact regulations and Qualified Allocation Plans (QAPs) to launch the program and more time for developers and debt and equity partners to develop efficient syndication markets. By 1993, the program was made permanent, and the industry hit a stride that has continued, with some bumps in the road, to the current day.
While the LIHTC incubated and eventually blossomed, new challenges faced the existing affordable housing portfolio. Operating cost increases, inflation, and declining appropriations led to waves of pre-payments and opt-outs, first in the rural housing portfolio and later in the HUD-assisted portfolio. Affordable housing preservation is a distinct issue with its challenges developed alongside the LIHTC. In time, this would lead to the Emergency Low Income Preservation Act of 1987 (ELIPHA), the enactment and repeal of the Low-Income Housing Preservation and Resident Homeownership Act (LIPHRHA) of 1990, IRP Decouplings and later the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA) and the Mark-Up-to-Market Program.
By the time I joined NH&RA in 2004, creative professionals were working through the existing preservation portfolio with new tools and innovative new structures, including the twinning of resources, like the Historic Tax Credit and the New Markets Tax Credit with LIHTC and HUD tools. The LIHTC became the primary tool for preservation and new affordable housing production, equity pricing gradually increased from $0.40s to $0.90s+, and tax-exempt bond-financed development soared. Then the global economy collapsed, and with it went the tax credit equity and bond markets and several developers and financial institutions.
Yet, our industry remained resilient. Congress bridged the immediate crisis felt across our industry when it enacted the American Recovery and Reinvestment Act (ARRA), and affordable housing helped lead the economic recovery. In the following years, we rebuilt our business and advocacy models, defending the programs through tax reform efforts and expanding them around the edges as we benefited from low-interest rates and new state tax credits.
In the next 50 years, NH&RA and the affordable housing community will undoubtedly face many new challenges but probably just as many echoes of challenges past, like cost and wage inflation, rising interest rates, and the specter of a new generation of opt-outs through qualified contracts and Year 30 expirations, to name a few. As we plan for the future, it is important to remember the lessons from the past and build on historical tools and experiences as we seek solutions to sustain the future.
