Expiring Use of Federal Subsidies

Federally subsidized rental housing is a valuable resource for low-income families. Under a contract with the Department of Housing and Community Development (HUD), property owners provide reduced-rent units to very-low income households for a number of years (typically, 20 years). However, federal subsidies on an unprecedented number of apartments set aside for low-income tenants nationwide will expire between now and 2006. At the end of the contract period, owners of the rental properties have the option of converting the once subsidized units to market-rate rental housing. Such units are known as Expiring Use Housing. Localities may try to find additional funding to preserve expiring federal subsidized housing.

Highlights

  • Extends the life of affordable housing units for communities.
  • Potential to adopt various affordable housing models to the property in order to keep the units affordable once the subsidy expires.

In Practice

San Francisco, California. San Francisco guarantees lenders, owners and purchasers of federally assisted housing that it will pay the difference between restricted rents and market rate rents if the federal government fails to provide Section 8 vouchers to existing properties. Restricted rents are the tax credit eligible or tax-exempt bond-eligible rents ranging between 45-60 % of the adjusted area median income. The program’s success is attributed to local ordinances and code enforcement requirements, financial assistance for tenant organizing, substantial local funding and efficient use of additional fiscal resources. The San Francisco Redevelopment Agency (SFRDA) also utilizes a leasehold structure where the city or SFRDA purchases the land under affordable housing developments and leases it to owners of the improvements for use as affordable housing for up to 99 years. This contributes to maintaining the developments’ affordability as the federally-assisted developments are scheduled to be converted to market-rate housing.

State of Michigan. In 2006, the Michigan State Housing Development Authority allocated $75 million in tax-exempt bonding capacity to the Section 236 Preservation Program. The program is used for the acquisition and preservation of affordable housing apartments in developments currently assisted under the federal Section 236 program. The program will be made up of a Part A and Part B loan. The Part A loan will be established using rent levels targeted to be affordable to the level of income currently served by the development and will have a 35 year term. The Part B is the debt that can be supported by the continuing stream of income from the decoupled Interest Reduction Payments contract.

 
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