The 50-year trends in affordable housing: Part 3, the public policies
[Continued from yesterday’s Part 1 and the preceding Part 2.]
So far we’ve had four physical market trends, and four capital market responses. That in turn led to four principal public-policy principles:
9. Rigid divisions give way to mixing: use, tenure, and income. Back in the Fifties,
· Homeownership. The American Dream, for returning GI’s and everyone else who worked hard.
· Market rental. Where sophisticates lived in the penthouse, ordinary working folk lived in walkup flats, and poor folk in tenements.
· Public housing. The glimmers of slum clearance and housing for the rest of us.
Ralph Kramden, bus driver, lived in an apartment
While society was founded on mobility, as between these three tenures there were clear demarcations. No one could mistake one for the other, and they never mixed. Suburbs, good urban neighborhoods, bad urban neighborhoods. Segregation by economic status meant segregation by tenure, and contributed, I believe, to segregation by race, especially after the white flight.
In 1956, Thurgood Marshall was leading desegregation marches
Starting with those National Housing Act programs (Trend 7), we unwittingly wandered toward income mixing. The Section 236 resident was not public housing, and at the income ceiling (80% of area median), a Section 236 renter could move into homeownership. Section 236 also had ‘excess rent’, for those residents whose affordable rent (at 30% of income, Trend 4) exceeded the budget-based Section 236 ‘basic’ rent.
For the first time, therefore, we were creating public-private affordable housing, a new interim income band. Later both Carter and Reagan used the ‘80/20′ — 20% of the apartments affordable, 80% market — and still later, we started mixing deep income targeting (Section 
into LIHTC properties.
And once she exposed her navel, well!
In fact, once the income-mixing genie was out of the bottle, variations proliferated. We started mixing tenures (some homeownership amid the rental) as well.
Today’s marketplace now has multiple levels of income and rent — often within the same development — and the new urbanism emphasized mixed use on top of mixed tenure and mixed income. Mixing, we have discovered, is more complicated (and harder to finance) … but leads to healthier communities.
10. We create a professional affordable rental industry. ‘Landlord’ as a term has acquired a bad reputation. Landlords were indolent superintendents who could never be found when the pipes broke but whose knock was peremptory on rent day.
When the public-private affordable housing model started, nobody knew how to manage the properties; everyone assumed that it involved little more than taking applications and collecting rent checks. Small wonder that there were few independent professional property management companies, and those were making it up as they went along.
[My good friend, now deceased, Donna Gibson, used to delight in telling her 1977 story of returning to Boston after flying to one of our properties, telling the cab driver she was a property manager, and having him answer brightly, “Oh, you’re the lady who collects money from the laundry machines!”]
With property management seen as a low-skill sinecure, small wonder that most owners managed their own property, so Bill & Ted’s Excellent Development Company spawned its affiliate, B&T Excellent Management.
Ex-cell-ent!
In 1977, the largest affordable housing property owner/ manager had about 7,500 apartments (it was either Glick or Carabetta).
Professionalism came to the industry with a maturing generation of younger executives [Like you? — Ed. Well, not in management. — Auth.]. By 1990 the largest owner/ manager (NHP) had 55,000 apartments (about half of which were controlled and managed). With the mid-Nineties REIT revival, consolidation boomed, so that by 2006 the largest apartment owner/ managers have 300,000 (AIMCO and Equity Residential vie for the honor).
The race to scale in ownership fueled and was fueled by the race to scale in financing. With that scale came renewed emphasis on squeezing the pips, both financially and in terms of resident service. With that came professionalization of the people who worked for the growing firms.
Today we have trade associations (NAHMA), professional certifications (CPM and NAHP), and continuing-education requirements.
Equity syndication likewise mainstreamed. The explosive growth of tax shelters in the first half of the 1980s, even though wiped out by the 1986 Tax Reform Act, left a legacy of more sophisticated financial firms.
[My old firm, little Boston Financial, eventually was sold to LendLease, an Australian property powerhouse assembling a comprehensive
As capital scaled up, these boutiques were one by one bought, by energy companies, banks, and financial institutions. Today only a handful of true independents remain.
Affordable housing ownership has gone national, and will not go back. The network efforts are decisive.
11. We gradually improve long-term affordable sustainability. Back in 1968, no one ever gave a thought to long-term sustainability. When they thought of it at all, people assumed that affordable properties simply had to float. After all, they were cheap housing, and we had plenty of poor, didn’t we?
How could it sink?
In the ensuing 35+ years, we’ve discovered to our sorrow —
For God’s sake, let us sit upon the ground
And tell sad stories of the death of kings;
How some have been deposed; some slain in war,
Some haunted by the ghosts they have deposed;
Some poison’d by their wives: some sleeping kill’d;
All murder’d
And tell sad stories of the loss of affordability
— that the ways properties can fall out of affordability are numerous and varied:
· Market conversion to occupant ownership, such as going condo.
· Opt out of subsidy, and convert to market apartments.
· Bad sponsors, who must be excised from their ownership without harming the property or its residents.
· Runaway operating expenses. Such as hazard insurance (2006) or utility costs (1974).
· Deterioration through lack of reinvestment.
And there are more ….
What we now understand is that permanent sustainable affordability is not an intrinsic or stable condition, but in fact transitory; from time to time it must be renewed through recapitalization of one sort or another — in each case, a complex financial transaction that also accomplishes the necessary physical, operational, or managerial changes.
Which brings us to the final trend:
12. Preservation becomes as important as production. Over the half-century, we have invested enormous resources into creating affordable housing — at one point I guesstimated we have spent $350 billion (2006 dollars) since 1968. For our efforts we now have constructed several million apartments, well over a million each in the public housing, HUD affordable, and LIHTC inventories.
We’ve also found that once built, properties do not by themselves remain affordable; affordability is a condition that must be managed toward.
Left alone, affordability topples over
And we’ve repeatedly hit what I’ve come to call the Neighborly Paradox:
The Neighborly Paradox
The very same people who go berserk if you try to bring affordable housing in to a community seem to rise up in equal wrath if you try to take affordable housing out of that same community. (The difference, to be sure, is that before they move in, the residences are those people, and afterwards they are everybody’s hard-working neighbors or elderly aunts.)
Very superior old properties may be physically or functionally obsolescent, but they are not politically obsolescent. If anything, they are more desired now than they were at their creation. Even though preservation is very complex — and expensive — it’s generally much cheaper and better than allowing properties to fall out of affordability, and then trying to build new ones to replace them.
