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Balancing the preservation of existing affordable housing with new construction
The potential loss of these affordable rentals has prompted many localities and non-profit organizations to target their efforts (and resources) on preserving the long-term availability and affordability of these properties. Since housing development resources and capacity are largely finite, a greater focus on preservation may require a reduced focus on new construction. How should cities, towns, and counties approach this trade-off?
This question is more complex than it may appear, as circumstances often vary substantially from property to property and to community. This brief identifies a series of questions that cities, towns, and counties can use to determine whether to prioritize a particular property for preservation. Cities and counties should customize this approach based on local circumstances and experiences.
Is the property located where needed and desirable?
It is important to consider the location of an affordable property in determining whether it should be targeted for preservation. Affordable rentals in resource-richA term to define neighborhoods that offer abundant amenities, such as access to quality schools and public libraries, streets and parks that are free from violence and provide a safe place to play, and fresh and healthy food. neighborhoods will likely be high priorities for preservation—particularly those located in neighborhoods with good schools (for families with children) or in close proximity to services (for seniors and persons with disabilities). A compelling case for preservation can also be made when a development with affordability restrictions is in a gentrifying neighborhood with robust public transit connections and other amenities. If rents are becoming unaffordable in the neighborhood, it makes sense to preserve the opportunity for low-income households to live there. It may be difficult or impossible to replace lost affordable rentals in these areas, where land costs tend to be high due to high levels of demand.
In contrast, properties located in areas of concentrated poverty may be less of a priority for preservation unless the neighborhood has been targeted for substantial investment through a formal redevelopment plan. The same holds true for areas with an abundant supply of affordable housing units. In many cases, the subsidy associated with the affordable units can be transferred to another part of town (see question 2), and the subsidy can be used to create affordable housing opportunities in areas where there are few.
When private owners of existing affordable developments are interested in continuing to participate in subsidy programs, it is important to consider the overall market context. In cases where there is a critical shortage of affordable housing throughout the market, there are few alternative locations to which those subsidies can be transferred, and families with housing vouchers are having difficulty finding housing outside areas of concentrated poverty, the preservation of dedicated affordable housing in such areas may be worth considering.
Is preservation required to retain deep housing subsidies?
Is preservation less expensive?
All else being equal, redeveloping an existing property tends to be less expensive than developing a new property in the same location. This doesn’t necessarily mean that preserving an existing affordable property will always be less expensive. For example, there may be other properties nearby and in better condition than an existing building nearing the end of its affordability period. Acquisition and redevelopment of these properties as affordable rentals could be comparable or even lower in cost than preservation of the existing development. In some regions, new construction opportunities in greenfields locations may also be available. The cost of new construction in these previously-undeveloped areas may be similar or even lower than the cost of rehabilitating an existing affordable housing development in a different location. In considering all available alternatives, and the relative costs, localities should be mindful of the relative merits of the two locations in terms of public resources, amenities and other neighborhood characteristics. Wherever possible, cities should try to evaluate the cost tradeoffs of preservation and new construction on the basis of actual, ripe development opportunities, rather than hypothetical development costs that may not reflect current market conditions.
In weighing project costs, cities may also want to differentiate between the overall costs of a project, which are borne by multiple stakeholders, and the costs of the project to the locality. The type of subsidy used, and the overall effects on development in the city and the state, also factor into this decision. For example, rehab projects are often done with 4 percent LIHTC credits, which are essentially unlimited in availability, while new construction generally uses 9 percent credits. Choosing to preserve and rehab an existing property, rather than building new, may “free up” 9 percent credits to fund other projects, expanding the overall supply of dedicated affordable units. However, the cost to the municipality of a rehab deal funded with 4 percent credits could be higher than a new construction project because 9 percent credits provide twice as much subsidy as a share of total development costs.
How difficult is preservation?
To what extent will each option require resident relocation?
Will the redeveloped property meet the needs of residents?
What happens without preservation?
Circumstances favoring new construction
Apart from the factors described in this brief, there are a number of circumstances in which cities, towns, and counties may wish to focus on new construction in particular as an approach for producing affordable housing. Examples include:
- The municipality wants to create low-cost housing in a particular neighborhood in which there are no existing buildings that are available and suitable for acquisition and rehabilitation.
- The city has identified a specific site that would be an advantageous place on which to build affordable housing—for example, because the land already has the appropriate zoning or is a publicly-owned landLand owned by the government including school buildings, public hospitals, and parking lots, among others., or for some other reason.
- On a large parcel of land, redevelopment of existing lower-density buildings would not yield the economies of scale that could be achieved through new construction of a large mixed-income or mixed-use complex.
- Buildings available for acquisition-rehab do not have a suitable shell to attract market-rate residents to a new mixed-income project.
 Wilkins, Charles, et al. 2015. “Comparing the Life-Cycle Costs of New Construction and Acquisition Rehab of Affordable Multifamily Rental Housing.” Housing Policy Debate 25:4, 684-714.