Rental preservation and rehab
Federal funding for rental preservation and rehab
Rental housing constructed with federal, state, or local subsidies is generally required to remain affordable for a certain period of time, often between five and 30 years. Typically, at the end of this period, the property owner may opt out of the program and can start charging market-rate rents. To avoid losing these dedicated affordable units, localities can work with owners to find ways to keep the property in good working condition while extending the affordability period. This often requires a new infusion of federal, state, or local funds.
The level of subsidy needed to maintain affordability. A careful assessment of the property’s financial standing, including its operating costs and capital needs, can help identify the extent to which new funds are needed to maintain long-term affordability. Some properties may benefit from capital subsidies like Low Income Housing Tax Credits (LIHTC) to help address deferred capital needs and from operating subsidies — such as project-based vouchers — to continue offering affordable rents. On the other hand, a property in good physical condition that can cover most of its costs through rental income or by refinancing to access accumulated equity may require fewer resources for preservation to continue operating at an affordable rent level. In addition to federal resources, local resources such as tax abatements may be useful to help keep properties affordable over time.
Choosing between nine percent and four percent LIHTCs. Localities commonly use nine and four percent Low Income Housing Tax Credits to preserve affordable rental properties, but there are important distinctions between the two subtypes. The higher-value nine percent credits generate sufficient equity to support substantial rehabilitation, but these credits are awarded competitively, and states have only a limited allocation. Four percent credits provide less subsidy but are awarded automatically to eligible projects financed with Private Activity Bonds. These smaller credits can often be sufficient for preservation requiring lighter rehabilitation.
Using State and Local Fiscal Recovery Funds (SLFRF) before they expire. SLFRF may be used to support the development of affordable rental housing but must be obligated by the end of 2024 and expended by the end of 2026. Jurisdictions wishing to use SLFRF for rental housing development should consider how to use this temporary resource to support rental preservation. For example, SLFRF could be paired with other capital subsidies, such as LIHTC, to support projects with a significant rehabilitation component.
For more information on this topic, see Preserving the Existing Stock of Dedicated Affordable Rental Housing.