The trap of caring
By David A. Smith
5 min read
In the November 2012 issue of Tax Credit Advisor, I wrote about “the people niche,” and described affordable housing’s value proposition as plus – housing plus services as an integrated and coordinated ladder toward self-sufficiency or longer and healthier lives for seniors.
That column made the compelling policy case for the Low-Income Housing Tax Credit and affordable housing as the essential, irreplaceable delivery locus for truly resident-centric services. But it did not address one critical element – the business case from the owner’s perspective – and right now, there is no compelling business case, wherein lies our trap. When owners and managers get paid to provide quality affordable housing units and then go beyond that to provide quality resident-centric life services for free, residents and government agencies come to believe this will go on indefinitely, because the owner and manager must be getting something out of it.
The Trap of Caring
The trouble is, the owners and managers aren’t getting any economic return. Rather, they’ve fallen into the trap of caring.
Owners and managers see their residents every day. Over the months and years, a tenant household transforms into a living breathing family of people – just like us – that is part of the healthy community that is our goal. Bonding occurs between the owners and managers who commit to this business and the residents whom they house. That commitment wasn’t there a quarter century ago, and whatever the reason, this industry no longer engages in fake caring. We do care, and it costs us on the bottom line.
We see the social value proposition. Of LIHTC properties, 26% house the elderly and 14% special need residents. Of the remaining 60% that are notionally family apartments, many house multi-generational families or immigrants. Those LIHTC households able to access resident services consistently rate them more highly than services they obtain directly from government.
Evidence abounds of the benefits of service-enriched housing. A recent Journal of Housing and Community Development article highlighted the innovative Quality of Life multi-stakeholder partnership at the Harbor Point development in Boston. The article cited statistics and case study histories of low-cost high-touch interventions that avert evictions and restore residents to lease-compliant happy tenancy. Separately, at a recent housing conference in San Diego, one panel focused exclusively on resident-services case studies. One property provided services for veterans who emphatically stated their preference for working with the resident manager over dealing with the U.S. Department of Veterans Affairs. Other examples were senior properties that serve their residents with volunteer services, intergenerational programs, lifelong learning and enrichment, and wellness promotion and low-impact/low-stress social exercise like tai-chi, producing measurable improvements in the residents’ blood pressure, obesity, and nutrition, while reducing depression.
Delivering resident services or even just coordinating them costs money, for which there is no corresponding, reliable funding source. The social-service pledges made explicitly in LIHTC applications or implicitly during rent-up and initial operations can only be funded from the initial capitalization of the property (via a sinking fund) or from the annual operating budget (which few properties can afford). Moreover, sinking funds are economic traps: capital alone can’t plug a structural deficit hole. When the fund runs dry, the property and its manager get stuck with the expectation burdens of the residents and offstage government parties.
It’s Time to Quantify
Because owners and managers bear the burden in silence, nobody realizes what these services actually cost. It’s time the industry took steps to quantify the costs, both per resident and for the housing inventory overall. We need to determine:
- The quantum of social services provided to residents in existing affordable properties.
- The donated service-coordination and service-support cost by the owner/manager, and/or the embedded cost in the property operating budget.
- The outside services levered because of the owner and manager’s work, their quantum, their impact, and their cost.
- The counterfactual savings – how much it would cost the government to provide those services, or deal with the consequences of failure, if the owner/manager did not provide supportive services.
I don’t want our industry to stop caring. If we’re going to be resident-centric, we cannot be in the business of simply warehousing the poor indefinitely. America has to avert the culture of dependency. To do this requires not helping those who will not help themselves, while caring for those who do need our assistance. We must build the ladder upwards, providing a boost up the ladder to those residents with genuine needs.
Caring about residents is a trap if we let our caring silence us. If budget cuts occur because we are silent, the trap will be sprung upon us.
David A. Smith is Chairman of Recap Real Estate Advisors, a Boston-based real estate services firm that optimizes the value of clients’ financial assets in multifamily residential properties, particularly affordable housing. He also writes Recap’s free monthly essay State of the Market, available by emailing [email protected].
