Chairman Reed, and members of the Housing and Transportation Subcommittee, I am Tom Slemmer, President of National Church Residences (NCR). NCR is one of the nation's largest not-for-profit sponsors and managers of affordable housing for seniors, including over 14,000 federally assisted housing units located in 25 states. I am pleased to represent the views of NCR and the American Association of Homes and Services for the Aging (AAHSA), where I serve on the Board of Directors and Chair the Housing Steering Committee.
AAHSA represents more than 5,600 mission-driven, not-for-profit members providing affordable senior housing, assisted living, nursing homes, continuing care retirement communities, and community services. Every day, our members serve more than one million older persons across the country. AAHSA is committed to advancing the vision of healthy, affordable, ethical long-term care for America. Senior housing is a critical part of the long-term care continuum. Our members, mostly faith-based organizations, own and manage more than 300,000 units of federally assisted housing, including the largest number of sponsors of Section 202 Supportive Housing for the Elderly.
First of all, we would like to thank you, Chairman Reed and members of the Subcommittee for holding this very timely and important hearing on preservation, the third in a series of hearings to bring national attention to the plight of affordable housing in this country. We commend the Subcommittee for convening the recent hearings on housing production needs. As witness after witness testified, there is a critical shortage of affordable housing in local communities throughout our country. As documented by the National Low-income Housing Coalition's (NLIHC) recent study on income needs for housing, affordable housing is "out of reach" for most working families.
For many low-income retired older persons, this situation is compounded by their struggle to meet housing and other basic needs on a fixed income -- primarily social security. More than 7.4 million elderly households pay more than they can afford for their housing, including 1.4 million elderly classified by a HUD 1999 study as having "worst case" housing needs (paying more than 50 percent of income on shelter or living in substandard housing). Unfortunately, most of these older persons receive no housing assistance and are confronted with multi-year waiting lists for existing federally assisted housing. Examples of this include:
The B'nai B'rith International Center for Senior Services, the largest U.S. national Jewish sponsor of federally subsidized elderly housing (37 facilities with over 4,000 units), indicated that it is about to open a new 42 unit addition to its 242 unit facility in Boston. However, if and older person is not already on the waiting list, they will not likely get admitted soon to the expanded facility. With a waiting list of over 90 applicants (representing a 2 - 3 year wait), the new facility will clearly be filled with those applicants already on the waiting list. Similarly, a five year old facility in North Hollywood, CA has over 300 on its waiting list with an undetermined wait for occupancy; and in Queens, NY, a twenty year old facility has a waiting list of approximately 1,500 applicants for an anticipated turnover of only 10 units per year. There clearly is a great need for subsidized elderly housing, and this need will only increase as the elderly live longer and remain healthy for a longer period of time.
The Volunteers of America reported that they are seeing their new HUD 202 elderly facilities lease up almost as quickly as they are opened. Throughout their coast to coast portfolio, the average waiting list now comes to 16 months and it is getting longer. Many of the properties have closed their list at 3 years worth of future residents. This program is filling a need that is growing rapidly regardless of where you look in the nation.
The Retirement Housing Foundation (RHF) reports that many of their waiting lists, especially in Southern California, are closed because they have grown to over 1,000 names. Angelus Plaza, one of the nation's largest affordable housing communities recently opened their waiting list and within two months, they received over 2,800 new applications for this downtown Los Angeles facility of 1,030 units. Currently, Angelus has only 100 vacancies per year. Pilgrim Tower East in Pasadena has 158 units but they have had to close their waiting list. Wilshire House has 72 units in Santa Monica and their waiting list is closed. MacArthur Park Tower in Los Angeles has 183 units but the waiting list had to be closed for now. Culver City Rotary Plaza has 100 units but the waiting list is closed. When the lists get this long, some older persons are forced into other alternatives which may include homelessness. In the Los Angeles area, housing costs have skyrocketed and the population of homeless women, children and seniors has grown significantly.
In addition to concerns for the development of affordable housing to address current and projected needs (particularly important for the projected doubling of the elderly population by 2030), there is a simultaneous concern with the loss of current affordable housing. NCR and AAHSA believes that one of the most critical housing issues confronting affordable housing in this country is to stop the hemorrhage and to replace the loss affordable housing. As the Committee knows from your June 27 hearings on the Seniors Commission, preservation was designated as the top priority of the Senior's Commission and one of the major recommendations of the Millennial Housing Commission. As we seek domestic security for our country, we must also ensure a fundamental need of "housing security" for the elderly and other special populations.
Out of concerns for the preservation of affordable elderly housing, AAHSA established this year, a Task Force on Preservation which I am pleased to chair. We are pleased to participate in these hearings and look forward to working with the Committee to preserve the supply of affordable housing in this country.
In my testimony, I will share some of NCR's and AAHSA member's experiences with recent efforts to preserve affordable housing for older Americans. My testimony will focus on a series of local examples (short stories) that NCR and other AAHSA members have experienced which illustrate the struggle in our efforts to fulfill our mission to provide suitable and affordable housing for older persons in the context of existing resource priorities, public policies, market forces, and government regulations.
My testimony will focus on five major preservation issues:
I. Loss of the existing supply of affordable housing as current owners "opt out" of federally assisted housing and convert these properties to market rate housing
II. Limited funds and other barriers confronting not-for-profit organizations in their efforts to acquire potential properties to preserve affordable housing
III. Concerns with foreclosure and refinancing of Section 202 elderly housing projects
IV. Use of enhanced vouchers and other counter-productive policies; our housing members report that vouchers are "ouchers" for many older persons, i.e., they simply don't work very well for older Americans.
V. Modernization, rehabilitation needs of "aging" buildings.
One of the most critical needs confronting affordable housing in this country is the need to preserve the current supply. According to the 2001 State of the Nation's Housing by the Joint Center for Housing Studies of Harvard University, more than a million units of affordable housing have been lost for low-income persons over the past ten years (900,000 between 1993-1995 and 300,000 units between1997 and 1999). In fact, there have been more affordable housing units lost over the past few years than have been produced, including rural housing through the Section 515 program, as testified at your recent hearings by the Housing Assistance Council (HAC). Additionally, the National Housing Trust (NHT) estimates that if current trends and policies continue, between 500,000 and 600,000 federally assisted housing units are at-risk of prepayment and potential loss to market rate. For various reasons, owners are prepaying their federal mortgage, opting out of federally assisted housing, and converting affordable housing to market rate.
Earlier this year, NHT conducted a study of housing loss. They noted that in recent years, nearly 200,000 units, in over 1000 properties that served lower income households, had been lost to the affordable, regulated housing inventory. In a separate study for the Seniors Housing Commission, NHT documented that owners of more than 250 properties that primarily serve the elderly (where more than 50% of the households were 62 or over) have prepaid in recent years their HUD FHA-insured mortgage or opted out of their Section 8 contracts; and therefore, losing over 20,000 apartments from previously regulated affordable rents. Unless there is a change in policies and market conditions, we expect that this trend will continue since many properties that primarily serve older persons have high interest rates with current rents below market rate.
Because of the timing, relevancy, and depth of this NHT study, "Preserving and Improving Subsidized Rental Housing Stock Serving Older Persons: Research and Recommendations for the Commission on Affordable Housing and Health Care Facility Needs for the 21st Century," we would like to request that the study be included as part of our testimony.
NCR and other AAHSA members have a mission and long-term commitment to provide suitable and affordable housing for low- and moderate older persons, including extremely low-income persons. To achieve our mission, many AAHSA members have worked in partnership with other public and private organizations, including the federal government. With growing concerns over recent and potential loss of affordable housing units, NCR and other AAHSA members have sought to acquire some of these properties that are "at risk" of converting to market rate housing -- out of reach for most low-income older persons. We firmly believe that it is significantly less costly to preserve these housing units rather than to replace them. In fact, NCR experiences indicate that it costs over twice as much to replace these housing units than it does to preserve them
As a CEO of a major non-profit/faith-based organization, as an AAHSA Board member, as a founding member of SAHF* (Stewards of Affordable Housing for the Future -- a recently established coalition of national non-profit organizations dedicated to the preservation of affordable housing), and as a tax payer, I have very serious concerns with the loss of the investment of public dollars in affordable housing. I am particularly concerned when I experience first hand the consequences of the conversion to market rate of many of these desperately needed affordable housing properties, primarily to increase the profit by their for-profit owners. I do not have a problem with for-profit owners seeking to maximize their investment in rental housing; however, I do have very serious concerns with public policies that thwart efforts by not-for-profit organizations seeking to preserve the public investment in these affordable housing properties for low-income older persons.
Yet, under current policies, NCR and other non-profit organizations are being forced to "compete" with for-profits for the preservation of these affordable housing facilities that were developed with public dollars to assist low-income persons. Owners of federally assisted housing have the legal right to "opt out" of federal use restrictions after a specified period of time, usually in 20 years when their Section 8 contract expires, and an option to maximize their investment by converting the property to market rate housing.
Some owners may seek to opt out because they are tired of the bureaucratic and capricious rules and regulations of federal programs. I can certainly relate and empathize with their frustration. However, what concerns many AAHSA members and me is that we are willing to endure the regulations and other bureaucratic complexities because we need the resources and partnership with the federal government in order to fulfill our long-term commitment of providing affordable housing for low-income older persons. Unfortunately, in too many situations not-for-profit organizations do not have the resources or means to compete with for-profit owners who are seeking to convert the property to market rate -- even at the expense of critical affordable housing needs of low-income older persons. The typical older person residing in our facilities is an older woman living alone on a fixed income (primarily Social Security less than $10,000.
In some situations, we have been successful in acquiring and preserving properties. We are however, concerned that HUD is not often willing to provide adequate distribution or cash flow to non-profit organizations. As a consequence, too often we have not been able to compete successfully due to a lack of adequate resources to acquire, disincentives of the existing owner to sell, including exit taxes, timing, local market conditions, bureaucratic red-tape, and other factors which have thwarted preservation efforts. As with most real estate, is it often a case of location, i.e., the likely success of the converted property to compete in the local market. Older Section 236 affordable housing properties located in good market areas - in neighborhoods or communities with tight housing markets or areas undergoing revitalization, are at great risk of being lost. NHT developed documents that depict state-by-state comparisons of housing properties that have opted out and those that are at-risk of opting out. I would like to request that these charts be included as part of my testimony.
To illustrate real situations of some of the positive preservation efforts, as well as some of these unsuccessful efforts, I would like to cite a few examples (short stories) of NCR and other AAHSA members' experiences with acquisitions and preservation of affordable elderly housing. NCR has documented some of these experiences in a short video which we would be pleased to provide for the committee members and staff to give a better understanding of the quality of some of these properties and our efforts to preserve them. It is very gratifying when we and/or other non-profit organizations are able to preserve these affordable elderly housing properties. It is clearly a win-win situation for older persons, the local community, and the taxpayer. Here are a few examples of when the system works.
In late 1999, NCR accepted title to two 52-unit affordable senior housing communities in eastern Ohio. Formerly owned by a for-profit organization, Bridgeport Manor and Barnesville Manor operated under the Section 8 program. In what marks a milestone in the transfer of property from a for-profit entity to a not-for-profit organization, HUD approved the transfer of the two facilities to NCR, citing NCR's commitment to the preservation of quality, affordable senior housing. NCR's acquisition of these two properties was part of HUD's Re-Engineering Demonstration project. The project was created to offset the number of for-profit entities that are opting out of the affordable housing program. In 1999, many 20-year HUD contracts expired, leaving affordable housing owners the option to either withdraw from the program or to re-negotiate their contracts with HUD. In re-evaluating the contracts, HUD lowers resident rent structures, thereby causing a substantial decrease in owner profit. Of approximately 169 eligible properties in Ohio in 1999, only 23 were approved for transfer by HUD. The acquisition of Bridgeport Manor and Barnesville Manor is the result of a transfer of physical assets, which amounts to a contribution to NCR from the former owner.
According to the National Low Income Housing Coalition, as of 1999, an estimated 38,000 affordable housing units had been lost to owner "opt-outs," while an additional 60,000 units have been lost due to owner pre-payment of the mortgage. Pre-payment of mortgages allows owners to pay off their debt and convert affordable housing to market-rate rents. On average, opt-out rents have increased 44%; pre-payment units have increased an average of 57%. In the next five years, 66% of existing Section 8 contract (14,000 sites) will expire, and in that same time, 50% of the housing stock in 40 states will expire and be eligible for renewal.
In spring 2002, NCR purchased four affordable senior communities in North Carolina (Charlotte, Clinton, Monroe, and Rocky Mount). Totaling 232 units, the facilities, which were spread over 500 miles throughout North Carolina, were in such a state of disrepair that they were virtually unlivable. No maintenance had been done in years. Heaters, air conditioners, and plumbing systems worked sporadically. Maintenance requests went unanswered for weeks, and were often times simply ignored. Low-income, elderly residents were forced to live in dangerous, squalid conditions. Rents were even calculated incorrectly, with many residents paying far more than the 30% maximum. All four communities were infested with roaches, vermin, and fire ants. In some cases, residents were forced to use their stoves as heaters. The $4.2 million acquisition of the four properties was funded through HUD and the North Carolina Finance Agency. A portion of the transaction included funds for significant renovation and rehabilitation of the aging buildings.
Yet, despite the fact that these are win-win situations, that they are politically popular and cost effective (a bargain), there are too many failures to acquire and preserve these properties for an assortment of reasons. While there are some similar factors, most of these preservation efforts are on a project-by-project situation. A few examples where these properties "have gotten away" and/or are currently caught up in negotiations are:
Long -Term Commitment of Rent Subsidy Needed for Preservation
However, preservation efforts that began this year to acquire eighteen additional properties (approximately 2,450 units in MA and, Mr. Chairman, 265 units in your state of RI) are being thwarted by a number of technical and administrative issues. These properties are intended to be financed with tax exempt bonds, 4% tax credits, and assumption of existing Section 236 mortgages, "co-first" mortgage loans and 501(c) (3) bonds from MassHousing Finance Agency (MHFA). While one of the tax credit acquisitions in MA, and three of the 501(c )(3) bond acquisitions can be completed this year without any special allowances being made either by HUD or through legislative actions, there are two issues that could derail the rest of the acquisitions.
In order to raise enough money both to pay the seller an acceptable price and to fund necessary capital expenditures, each of the projects requires a new twenty-year Housing Assistance Payments (HAP) contract, several of which must be marked-up-to-market. The HAP contracts can be subject to annual appropriations in accordance with current HUD and Congressional policy. However, beneath this overarching issue, are two separate technical issues: 1) ELIHPA and 2) the original HAP contract
The ELIHPA Issue. Of the projects to be financed under the first two structures, four are subject to a Plan of Action (POA) and a subsequent Use Agreement deriving from participation in the 1994 Emergency Low Income Housing Preservation Act (ELIHPA) Program. While HUD policy provides for the discretionary granting of Mark-Up-To Market HAP contracts for ELIHPA projects in the context of a sale to a non-profit, conflicting statutes effectively remove that discretion by limiting renewals to one-year terms that resulted from limitation from appropriation language. As a result, while it may be technically feasible under existing law to achieve market rents, no HAP contract for an ELIHPA project can run longer than one year. From an underwriting standpoint both higher rents and a twenty-year term are required for a satisfactory price.
HAP Contract Mark-Up The projects to be financed with 501 (c) (3) bonds are covered under original Housing Assistance Payment (HAP) contracts that are still in effect, and as a result are technically ineligible for Mark-Up-To-Market. There is a need to remove barriers stopping efforts by non-profit faith-based organizations to preserve affordable elderly housing.
The Section 202 elderly housing program has long been recognized as one of the most successful federally assisted housing programs, earning strong bi-partisan support for its sound management, mission to serve low-income older persons, and strong public-private partnership. There have been a number of revisions and improvements throughout its forty year history, including significant changes over the past few years enabling the program to leverage additional resources to expand supply. The attached chart illustrates the four phases of the Section 202 program, the number of units, and characteristics under each phase.
In addition to concerns over stagnant, level-funding that the program has received in recent years despite critical need and projected demographic increases, there are several preservation issues including Section 202 foreclosures, and difficulties with refinancing options.
Sale of Section 202 Elderly Housing Properties
Last summer, I testified before the House Financial Services Committee about our concerns with an unprecedented sale last year of a Section 202 elderly housing facility in Detroit. In addition to misgivings over the loss of more than 200 affordable elderly housing units, we expressed concerns that the sale of the previously not-for-profit sponsored property was sold to a for-profit (out-of-state) owner and converted to family/student housing. Since that time, at least two other Section 202s have been foreclosed and sold to for-profit owners, a second project in Detroit and one in New York.
The Detroit Experience - To date, two large Section 202 projects in Detroit totaling 532 units have been foreclosed by HUD and auctioned to for-profit developers with the result that both the buildings and their project-based Section 8 subsidies are lost forever to low-income older persons in the community. The first Section 202 "lost" is Cathedral Towers (formerly Cathedral Terrace) a nineteen story, 212 unit, Section 202 built in 1971. Approximately 50% of the units are efficiencies. It was originally sponsored by the Episcopal Cathedral of St. Paul's which is located directly across the street and next to Hannan House, a four story facility where a number of senior services and activities and providers are located.
In the 1980's the Episcopal Diocese gave up its right to appoint the majority of the Board of Directors for Cathedral Towers. The Cathedral also sponsored Williams Pavilion, a 150 unit Section 202 that was built in the mid 1980's and has all one bedroom units. Cathedral Towers has had a long history of management problems and as it got older and with the additional burden of having a large number of efficiency apartments, vacancies increased. Efforts by the Cathedral and senior service providers were rebuffed by a Board that seemed to be unaware of the problems they were facing and/or unwilling to take any meaningful action. The HUD Area Office has been aware of the problems for over a decade. In an effort to fill vacant efficiency units the Administrator and Board requested permission from HUD to rent to Wayne State University students. HUD granted this permission on a year to year basis.
When the State of Michigan discovered that the building was no longer being rented exclusively to older persons, it revoked the tax exemption and stopped reimbursing the City of Detroit for the real estate taxes. The City then initiated a tax foreclosure and it was at this point that HUD stepped in and negotiated a payment to the City to prevent foreclosure. HUD then placed the building in enforcement (Dallas office) and brought in its own management. However, it did not remove the Board and the Board refused attempts by the Cathedral and a coalition of non-profit housing providers to take over control of the building and preserve it as senior housing. It was only when the foreclosure proceedings were already underway that the Board agreed but by then HUD said it was too late.
The building was sold on August 31, 2000 at foreclosure auction to Kohner Properties, a St.Louis based for-profit organization. HUD indicated that they had sent a letter to the City offering the property for a minimal amount. However, the City has never located the letter and, in any case, HUD said that the property would lose all of its project-based subsidy in the transfer (in other words the Section 8 subsidy would be lost forever). HUD did place a number of deed restrictions on the property that, among other things, required the new owner to keep the units affordable for twenty years and give priority to seniors and disabled. The amount offered by Kohner was less than one million dollars which is less than a third of the assessed value of the property (the result was a bargain price for Kohner and a loss by the City of more than two thirds of the tax revenues in addition to the project based senior housing). The new owner has interpreted that to mean that they do not need to market to seniors and they have made only modest attempts to do so. Instead they have marketed to single individuals with advertising particularly aimed at students
The second Section 202 facility sold in Detroit is Four Freedoms, a 22 story building with 320 units (57% are efficiencies) that was constructed in the 1960's, originally as a non-profit Section 236 but later converted to Section 202. This facility has just recently gone through the foreclosure process but the high bid has not yet been accepted because of a legal dispute. This project also has had a long history of problems, including vacancies caused by the high number of unmarketable efficiency units. The result of this foreclosure will also be a permanent loss of project-based subsidies and a loss of tax revenue to the City. In these instances, it appears that HUD did not intervene to provide timely technical assistance, to provide oversight, and to take other actions to preserve the affordable housing that was quickly sold to a for- profit buyer at a price far below the assessed value. This resulted in not only losing the affordable housing project, but compromising the integrity and long-term reputation of the program by opening a "Pandora's box" for potential future sales of other Section 202 properties. Additionally, in another pending situation, a group of non-profit organizations are working to bring adequate resources together to purchase another failing Section 202. However, HUD is insisting on modernization resources that the group does not have while not providing any of its own resources nor agreeing to hold the foreclosure in abeyance.
Lightening Strikes Again: The New York Story
We assumed that the Michigan situation was unique; however, before corrective legislative actions could be taken (provisions were added during committee mark-up of H.R. 3995 to provide non-profits with a first right of purchase of any Section 202), another Section 202 elderly housing facility located in southwestern rural New York was foreclosed and sold this past spring to a for-profit owner. The facility, Oak Apartments built in 1987 with 40 units, is located in Alfred, New York where there is a strong market for housing students attending Alfred University at rent that exceeds the affordable rents offered to qualified HUD residents. NCR had been contacted by the local community in New York to acquire the Section 202 property to preserve it for affordable elderly housing. However, despite our interest, organizational capacity, and local support, NCR was not able to acquire the property at a price that would have allowed it to remain affordable to low-income seniors. Although the sale from HUD to the owner included a legislative "use restriction" initiated during a previous1983 sale to remain "affordable senior housing", it is unclear the specific terms of the restriction, what state regulatory body was is charge of enforcing the restriction, or how easily the restriction could be removed. In fact, just weeks after the sale of the property, the new owners were making inquiries on how to convert the property to student housing even after promising the community during the public comment period the property would remain affordable senior housing. It is clearly shortsighted and not cost-effective to use public funds that were invested into these affordable housing facilities and then, despite need, to sell these facilities at significant discount to for-profit owners to convert them to market rate housing. Non-profit affordable housing advocates simply cannot move fast enough to compete with market forces without more effective tools and a proactive HUD office. Not-for-profit owners must often receive approval from a majority of a volunteer board of directors, that may not be able to meet, develop an adequate market study, and vote for a purchase in the current time-line for HUD foreclosure sales. In recent years, local communities in NY lost more affordable elderly housing units through opt outs and conversions than the state's entire Section 202 allocation to construct new units.
Refinancing 202s and Limited Partnerships
Because of the need for funds to expand the number of units in a Section 202 elderly housing, (funding has been reduced in recent years to an average of less than 50 units per project); as well as a need for capital improvements. AAHSA sought legislative changes to enable options to leverage Section 202 funds and equity to attract other public and private resources. This effort evolved from an earlier AAHSA supported proposal to have the federal mortgage forgiven on pre-1990 Section 202 elderly housing facilities, as a means to de-couple the Section 8 rent subsidy and to tap the equity in the facility. Unfortunately, while a Senate requested HUD study indicated this is budget neutral (debt forgiveness off set by reduced future Section 8 payments), it would require a change in budget scoring legislation that was not politically feasible at the time.
We are pleased that Congress has made a number of reforms to the Section 202 program over the past couple years, to provide increased flexibility and financial options for attracting public and private capital for Section 202 projects. For example, with new legislative authority enacted (PL106-569) to enable refinancing and limited partnerships between private investors and the traditional non-for-profit sponsors of Section 202 projects, it will be easier for Section 202 elderly housing sponsors to bring private financing into the development and/or refinancing of the projects. As the sole general partner of a limited partnership, not-for-profit sponsors can partner with for-profits to leverage additional funds through low-income housing tax credits, private activity bonds, and other resources used in combination with Section 202 funds.
Refining Needs Speedy Processing
In 1999, MassHousing staff developed a proposal for refinancing HUD-held Section 202 mortgages with high interest rates. This proposal won a national award from the National Council of State Housing Agencies (NCSHA) in September 2000. At the same time, MassHousing approved the refinancing of Peter Sanborn Place, a Section 202 development in Reading, Massachusetts that had a 30-day right to prepay without HUD's consent. The MassHousing loan will lower the interest rate for the project from 9.25% to less than 6.0% and recast the amortization schedule for 40 years. This refinancing will lower annual debt service costs for the project and generate proceeds of at least $1,049,000 above the existing debt to be used for physical improvements to the property and to establish an escrow to fund resident services. The funds generated by the refinancing will enhance the quality of life for the residents and enable them to remain in their apartments as they age in place. Unfortunately, MassHousing has reported that they have received great resistance from HUD at both the local and national level for over two years in approving the refinancing. Widespread support for the proposal was received from Congressional leaders in both the House and the Senate; but it was not until this past summer (July 2002), after direct Congressional intervention, that MassHousing received a conditional approval letter from HUD. However, the letter did not resolve all policy questions nor permit flexible interpretations of the Use Agreement in the notice for HFA/FHA Risk Share refinancings. As a result, MassHousing still lacks HUD final approval for this beneficial refinancing. Clearly, if not-for-profit organizations are going to be able to refinance Section 202 housing facilities, as Congress enabled, HUD needs to provide timely leadership, guidance and processing.
Vouchers are Ouchers for Older Persons
While vouchers may be a useful tool for providing safe, decent affordable housing for low-income families, vouchers are not as effective in providing affordable housing for older persons. Vouchers (when available and acceptable by landlords) tend to focus on affordability issues through private sector, mixed-income and scattered-sites strategies. The eligible low-income person is empowered to locate housing in the community and to use the voucher to reduce their portion of the rent by paying 30% of their income and having the federal government pay the landlord the difference.
Elderly housing is more complex and addresses multiple needs of older persons beyond simply affordable housing. One of the primary benefits of elderly housing is the fostering of formal and informal supportive services. While vouchers tend to emphasize scattered site strategies, senior housing is project-based and works well with higher density facilities. Elderly housing provides a base for the delivery of support services that become more crucial as older persons age in the facility. Non-profit, often faith-based housing also tends to serve as a catalyst for increased volunteers and community support.
One of the primary benefits of age-distinct elderly housing is the fostering of informal support systems for older persons, which is particularly beneficial in ending isolation for older residents, particularly since the typical resident is an older women living alone on a low and fixed income. Senior housing tends to be a catalyst for community services and often serves as a community focal point for assisting older persons in the surrounding area. From a public policy perspective, elderly housing with supportive services is very cost effective in assisting frail elderly to delay and or avoid costly institutions, such as assisted living and nursing homes. In fact, supportive elderly housing is a bargain from a comparative cost perspective.
In recent years there has been increased recognition of the emerging role that elderly housing with supportive services (and service coordinators, etc) can have with long-term care strategies. Yet, many elderly residents have aged-in-place and are becoming more frail and at-risk of higher level of care facilities (assisted living or nursing homes). For many of these older facilities there is a need to rehabilitate or modernize to accommodate supportive services. For example, many federally assisted housing facilities were developed as "independent" housing; yet have begun to facilitate an increased number of community services.
From a preservation perspective, many of the older housing facilities, such as a Section 236 facility, are being refinanced as a means to make capital improvement to accommodate supportive service needs, including the conversion of some units to affordable assisted living. Since some older persons may prefer to live in mixed-age, family settings, a range of housing options should be available in local communities. In this situation, vouchers could be helpful to make housing more affordable. However, project-based rent subsidies work best in senior housing for older persons - affordable senior housing is an American success story.
With concerns over the adverse impact that conversion to market rate housing would have on existing residents, i.e., being forced to pay increased rent or move to more affordable housing, Congress provided a number of protections, such as: advance notices, moving assistance, and enhanced vouchers. With an enhanced voucher, an existing resident in a federally assisted housing facility involved with Mark-to-Market would have the option to continue to remain at the facility and to continue to pay their current rent structure (i.e., 30% of their adjusted income). The federal government would subsidize the qualified low-income resident's rent, but at the increased, ("enhanced") market rate level.
At first observation, it would seem that enhanced vouchers provides a "win-win" solution enabling residents to remain in their homes and encouraging owners to continue to provide affordable housing. However, while some protection is being provided for existing residents, in some regards, enhanced vouchers may actually be a mixed blessing with unintended consequence of masking the extent of recent losses of affordable housing. Without enhanced vouchers, the adverse impact of dramatic increases in rents as units are converted to market rate would certainly contribute to a public outcry among existing residents and local communities. However, with enhanced vouchers, affordable housing units are gradually lost, unit-by-unit, as existing residents move out or die but generally, without public awareness.
In many ways, the enhanced vouchers contribute to a "silent crisis" with the gradual loss of affordable housing. We believe that enhanced vouchers provide only a short-term solution to accommodate affordable housing needs of existing residents. In the long run, however, they also contribute to the gradual loss of affordable housing. To illustrate this point, I would like to discuss two recent NCR preservation efforts: one in Pacifica, CA was able to acquire the at-risk property where there were no enhanced vouchers and one in Baltimore, Ohio where enhanced vouchers were used and we were not able to acquire and preserve for future affordable housing.
Pacificia, CA: Resident Outcries Preserves Elderly Housing
In fall 1998, the owners of 100-unit Ocean View Senior Apartments in Pacifica, California, a small town just 12 miles south of the Golden Gate bridge, decided to turn the 20-year-old property into a market-rate building. The HUD loan had been satisfied, and the owners, who had purchased the property only a year before, quietly taped 30-day eviction notices to the elderly residents doors at 2:00 a.m. With no affordable housing options within 60 miles, residents had no housing options, and were effectively rendered virtually "homeless." All of the residents were receiving Section 8 low-income housing assistance and the new rent rates exceeded government standards, so enhanced vouchers were not even an option. Many of the residents suffered serious physical setbacks brought on by the stress of the situation. Needless to say, the public outcry was deafening, especially after the local newspaper, The Pacifica Tribune, editorialized against the owners, and in favor of maintaining the property as affordable.
In an unprecedented move, the City of Pacifica seized the property by eminent domain in a desperate move to halt the process. NCR joined the fight and quickly moved to assemble the $11.1 million needed to purchase the building and maintain it as affordable senior housing. Financing eventually came from a combination of loans and grants from the California Housing Finance Agency; the County of San Mateo; and the City of Pacifica. NCR put over $300,000 of renovations into the property. The $11.1 million purchase price was over $1 million more than the property owners had paid for the building the previous year. The Pacifica story is a classic example of the effective collaboration of residents, the general public, government, and the not-for-profit sector working together to effect positive change. NCR developed a video of the Pacifica, and a few other preserved housing facilities which we would like to include as part of our testimony.
In addition to preservation needs with the loss of affordable housing facilities, AAHSA believes that there is also a critical need to preserve the existing stock of federally assisted affordable housing that serves moderate and low-income households. As reported by the Millennial Housing Commission, there are 4,200 properties with 450,000 units developed between 1966 - 1978 under the Section 236 and Section 221(d)(d) that are now over 25 years old. Structural and mechanical systems of older building start to require significant upgrade and replacement by their 20th or 25th years.
The Section 236 non-profit elderly developments appear to be most in need of modernization funds. During a moratorium on the Section 202 program, the only federally assisted program available for non-profit organizations seeking to develop affordable elderly housing between 1969 and 1975 was the Section 236 program. As noted, the Section 236 projects have aged considerably since 1973 and are in dire need of capital for modernization. Their lack of access to adequate capital puts them at risk of deteriorating to the extent that they are no longer viable properties. Many Section 236s have only partial Section 8 or other types of rent subsidies which could cause an adverse impact on unsubsidized tenants should rents be increased to pay for capital improvements. Depending upon the local market conditions, some Section 236s are at risk of being converted to market rate housing and/or are being refinanced as a means to generate funds for capital improvements.
In addition, there are over 5,000 properties with over 250,000 units that were developed with the pre-1990 Section 202 loan program -- including 2,800 projects developed under "cost containment" policies (1980's) that severely limit common space, reduce amenities, use less quality materials, and emphasis on efficiencies. In addition to structural needs, many of these older facilities need capital improvements to accommodate residents' present and future service needs. These structural changes include increased common space to facilitate supportive services for older residents; converting unmarketable efficiencies into one bedrooms and/or common space; retrofitting to comply with fair housing and ADA requirements; and becoming more competitive with newer and/or market-rate facilities.
A recent AARP study found that 20% of the oldest Section 202 facilities reported that their capital reserves are inadequate to meet current repair needs and that 36% reported that reserves are inadequate to meet projected repair needs. We believe that it is sound public policy to protect the public investment in federally assisted elderly housing facilities. AAHSA fears that ignoring these needs now will only increase affordable elderly housing needs in the near future as the health of these properties continues to deteriorate…"pay now, pay later."
AAHSA remains disappointed therefore, that the Administration sought and Congress concurred with the rescission in the FY2002 Supplemental Appropriations bill of over $300 million from the recaptured Section 531, Interest Reduction Payments (IRP). These IRP subsidies from Section 236 insured multifamily properties recaptured through refinancing are intended for rehabilitation grants or loans to qualified owners who demonstrate need and have insufficient project income to support rehabilitation. While HUD indicated earlier its intent to issue rules to allocate these funds, to date, HUD has not yet allocated any of these IRP funds. About a quarter of the eligible Section 236 properties have elderly-headed households.
The Retirement Housing Foundation (RHF) is an organization based in Long Beach, California, which has been building and acquiring housing communities for mostly low-income elderly since 1961. Some of their more than 135 properties are over 35 years old. Therefore, the process of maintaining these buildings while safely housing frail elderly can be costly over the years. Anyone who has undergone home repairs and renovation can imagine how expensive it can be to simply paint, replace fixtures, carpeting, windows, roofs, heating/AC systems, etc. Multiply those costs by 135 buildings and you are talking sizable amounts of money.
Unlike for-profit companies, RHF can't sell off its aging buildings for a profit for conversion into market-rates. Besides, that's not what our mission is about. RHF prides itself as a faith-based, non-profit organization founded to provide a range of housing options and services for the elderly, low-income families, and persons with disabilities, according to their needs, in an environment reinforcing the quality of life as it relates to their physical, mental, and spiritual well-being. A recent poll found that the shortage of affordable housing ranks second only to health care costs as a concern for citizens.
RHF's University Center in Indianapolis, Indiana, which was completed in 1986, is in desperate need of upgrades and repairs. This HUD 202 senior community of 50 units recently underwent some unexpected repairs because of an "act of nature." The ground settled beneath, leaving cracks in the floors. The problem was exacerbated on the second and third floors of the building where lightweight concrete was used to provide soundproofing. The cost to fix the flooring exceeded $80,000. The parking lot needs to be repaved, cabinets need replacing (estimated cost $60,000), heaters are wearing out, and the old frost type refrigerators have outlived their useful life, not to mention being very energy inefficient. The building will need a new roof soon. Considering the needs of the facility and the lack of financial resources to make needed repairs is a dilemma for RHF and other non-profit housing providers.
The Concord in Pasadena, California, a building built around 1966 has had to have its tired and weary elevators replaced at a cost of $230,000. Ralston Tower in Modesto, California, has also had to modernize elevators, which was a long drawn out costly ordeal. Pilgrim Tower East in Pasadena, California, a 158-unit bustling building of seniors was built in 1979, and the two elevators served the residents for almost 25 years before they had to be replaced. Replacement is generally due to the need for frequent repairs. Fortunately, the elevators were safe to use, however their unreliability became a nuisance to the elderly residents in the facilities. In addition, when the elevators were being repaired, the residents endured long waiting periods when trying to enter and leave their apartments. Every 5 to 7 years, common areas need to be renovated. The average cost is in excess of $25,000 per building.
RHF buildings-- such as Harbor Tower in San Pedro, California, which was recently painted after 15 years-- can look good for quite a while but they eventually need a fresh coat of paint. RHF is also in the process of investing in automatic doors for all of its buildings at a cost of $5,000 to $8,000 for each building to make access easier for frail residents and those in wheelchairs. The automatic doors are also one way to increase security. Those entering need to have a key fob or must enter a code into an entry device located outside the entrance doors. Also, in high-crime neighborhoods, an investment in security cameras and monitoring equipment has been a necessity at a cost of $10,000 or more per facility.
The true concern of non-profit building managers is locating sufficient financial resources to address capital repairs when Replacement Reserve funds are either inadequate or non-existent. That is why many housing providers have become concerned with the Administration and Congress and recent actions to divert funding away from HUD to other uses. Many housing providers try to maintain their properties for the benefit of the residents, while at the same time attempting to reduce operating expenses such as utilities. However in order to purchase energy efficient refrigerators, water heaters/boilers, HVAC equipment and water saving devices, additional funding is needed.
Modernization Funding Needs
B'nai B'rith Parkview Apartments (BBPA) in New York, a Section 236 project that has 118 Section 8 apartments and 59 market-rate apartments, (73 studio apartments). must maintain extremely competitive market rents to maintain a high occupancy rate. In turn, the monthly replacement reserve amount that coincides with apartment rents made it difficult for the facility to maintain an adequate reserve needed to complete all the needed capital repairs and replacement needs.
In spring of 2002, the infrastructure of the building façade failed and bricks began falling off the12 story building. Scaffolding was immediately placed around the building to protect the safety of the residents. Work to secure the bricks has begun and the cost of the initial stabilization of the bricks will cost approximately $90,000, or over half of their replacement reserve account. The current budget allows for $6,211 per month into the replacement reserve account. With this schedule, it would take B'nai B'rith Apartments 14 months to recoup the cost of just stabilizing the bricks to retain a minimum replacement reserve account.
Additional façade work is scheduled for next year to remove the bricks that could deplete the entire replacement reserve account. Any additional capital needs could compromise the financial stability of the project if funds are needed from the operating budget for additional capital repairs. Access to the $300 million IRP funds could have helped in preserving the replacement reserve account for B'nai B'rith Parkview Apartments for expected capital needs.
NCR and AAHSA recommend a number of actions to preserve the supply of affordable housing for older persons and other low-income persons. These include:
Because of the urgency, complexities of funding, and multitude of issues to preserve the existing supply of affordable housing, AAHSA urges that HUD establish an Office of Preservation. National leadership is essential if we are not to lose virtually every affordable senior housing facility that is currently located in a good market area. The establishment of this office would serve as a focal point within the federal government to provide national leadership, including a partnership with HUD local offices, national organizations, and others, to develop and administer a comprehensive strategy to preserve the nation's supply of affordable housing. HUD already has many tools to facilitate preservation including: data on opt outs; mortgage insurance programs; OHMAR; vouchers; Home funds, etc. However, NCR and other AAHSA members have had mixed experiences with working with HUD both at central and various field offices. One of the primary concerns expressed by members has been the lack of prompt action by HUD to expedite refinancing, acquisitions, and preservation efforts.
The Preservation Office should have the resources and authority to take quick actions to assist non-profits, state and local governments, consumers, financial community, and others with resources and technical assistance to preserve affordable housing. The office should establish special processing for HUD financing to facilitate the necessary speed of preservation transactions. The office would also serve as a wake-up call to the silent crisis that is rapidly eroding the existing supply of affordable housing. Presently, the word "preservation" does not even appear in HUD's strategic planning documents.
Yet, this valuable housing stock is steadily and quietly being lost. Unfortunately, when the nation comes to fully appreciate the gradual lost of this precious housing resource, it will be too late unless we do something about it now to ensure that these much needed affordable housing properties will be preserved. Once gone, we will have to start production programs to replace these units; unfortunately at a much higher overall cost to the taxpayers. We would recommend that the Subcommittee request that the General Accounting Office (GAO) conduct a study on the financial impact of the loss of these affordable housing units.
The scope of the responsibilities of the Preservation Office would be broader than the Office of Multifamily Housing Assistance Restructuring (OMHAR). The Office would coordinate and oversee preservation actions of the Office of Housing and PIH, such as assurance of compliance with congressional mandates, promulgating regulations, and/or guidelines. Among suggested actions that the office could take include: technical assistance to non-profits and others on preservation needs; facilitate with transfer of ownership, i.e., opt-outs with opt-ins; develop a database of potential at-risk properties; assist states and local governments to develop preservation programs in their state (such as the establishment of Housing Trust Funds or support bi-partisan matching state program provided in H.R. 425/S.1365) funds (grants or loans) that could be quickly accessed by non-profits to acquire at-risk affordable elderly housing. In addition, the office could also identify best practices and develop demonstration programs and provide incentives for existing owners to transfer ownership to a non-profit committed to sustain affordability.
AAHSA recommends that HUD be required to report to Congress monthly on the loss of affordable housing stock, including at-risk and lost properties listed by Congressional district and to publish the reports in the Congressional Record. [We believe that it is important for Congress to realize the extent of loss and potential losses, particularly in their own local districts] Our concern is where low-income persons will live in the future once these affordable housing properties are gone and when we consider that many of these local communities will be coming to Congress in the future to seek production programs once the voucher holders are gone. It will require significantly more tax dollars to rebuild these housing facilities than to preserve them now. It certainly doesn't make economic sense to the taxpayer and does an incredible disservice to our communities not to preserve these properties before there are converted to market rate. We would further recommend that HUD should post on its websites, information on projects that are vulnerable to market rate conversion so that non-profits are given ample lead times to acquire, rehabilitate, and preserve these facilities.
AAHSA recommends that statutory provision be made with the Section 202 program to ensure that any sale or disposition of a Section 202 would be to a qualified non-profit organization. AAHSA actively supported the provisions related to Section 202 foreclosure and sale included in H.R. 3995, the Affordable Housing for American Act, as amended. We would recommend that HUD be instructed to take prompt actions to assist current owners in preventing foreclosure, including technical assistance, adjustments to the operating budget and operational issues. However, if a transfer of ownership is still necessary or desired by the owner to prevent foreclosure or to improve operations of the facility, that HUD assist with the transfer of ownership to a qualified not-for-profit organization. AAHSA supports use restrictions remaining with the foreclosed or transferred project until the expiration of the original term of the loan; although we would urge that some flexibility be provided to adjust the income limit (up to 80% of area median income) if necessary for the financial soundness of the project.
Similarly, AAHSA recommends that preference for the transfer of ownership or control of existing federally assisted elderly housing, including Section 515 rural housing, be given to qualified nonprofit organizations. In addition to technical assistance to assist current and potential not-for-profit owners, AAHSA recommends that HUD and USDA/RHS be directed to give priority for modernization and rehabilitation funding to qualified not-for-profits to prevent foreclosure or upon transfer of ownership to another qualified not-for-profit. AAHSA supports similar provisions that were added to HR. 3995 for this purpose.
AAHSA recommends that grants be provided to assist qualified not-for-profit organizations in acquiring affordable housing for low and moderate income older persons. In addition to provisions that were amended to H.R. 3995 to provide operational assistance, AAHSA recommends that funds be provided for the acquisitions of at-risk properties to preserve affordable elderly housing. AAHSA further recommends that additional guidance and authority be given to HUD that not-for-profit organization seeking to acquire existing federally assisted housing, will be assured of long-term (20 years) commitment of Section 8 rent subsidies, including Mart-up-to Markets vouchers, to satisfy underwriters, including ELIHPA and original HAP contracts.
At the present time, there is a catch-22 with underwriters wanting long-term commitment for rent subsidy; yet counter-productive with current budget scoring system discouraging long-term commitments. AAHSA recommends that the Committee collaborate with the Budget Committee and other appropriate agencies to changes existing budget scoring requirements to accommodate long-term commitment of rent subsidy funds without front-loading budget requirements. AAHSA also recommends that fund be earmarked for not-for-profit preservation efforts with the establishment of a national housing trust fund, and/or encouraged preservation funds for state or local housing trust funds.
AAHSA recommends that a specific line-item program be established to provide modernization and rehabilitation grants for qualified not-for-profit sponsored affordable elderly housing. These funds would complement the use of recaptured IRP funds targeted for modernization/ rehabilitation of non-profit sponsored federally assisted elderly housing. These funds could be used for rehabilitation, retrofitting and modernization, including conversion of efficiencies into one-bedroom apartments, community space, and/or other uses to improve the quality of life of older residents and financial soundness of the facility. AAHSA supported similar language that was enacted earlier, and supports provisions included in HR 3995. AAHSA recommends that HUD be instructed to implement promptly this program and that Congress provide specific modernization funds for this purpose.
AAHSA recommends that HUD be instructed to expedite compliance with Congressional intent to enable owner options with refinancing Section 202s, including clear guidance that "once a Section 202" always considered as a Section 202 for purposes of option to participate in legislative or administrative actions earmarked for non-profit sponsors of federally assisted housing. In addition, AAHSA recommends that multi-facility owners have the option to combine the refinancing of federally assisted properties within their portfolio, including statewide, regional, or other economic groups; and have the option to pool the savings from refinancing all or portions of their portfolio, as well as access to pooled residual receipts and reserve accounts, for purposes of refinancing, enhancing services, expanding supply or other benefits to preserve or expand the supply of affordable housing for older persons. With this increased flexibility, the multi-facility sponsor will ensure that the resources pooled among the facilities will be available for each of the specific projects within the pool, as needed. AAHSA recommends that not-for-profit organizations be entitled to developer fees and distribution rates similar to the level provided by state housing finance agencies for refinancing federally assisted housing projects.
AAHSA recommends that transition vouchers be provided for existing residents that choose to remain in their facility that is being converted to market rate (similar to enhanced vouchers). However, for each affordable housing unit that is converted to market rate we recommend that a companion Preservation Voucher be provided for non-profits to develop replacement long-term affordable housing in that local community, state, or region. In addition, we would recommend that special project-base vouchers be established to accompany the transfer of ownership to qualified non-profit preservation entities.
In closing, I would like to express again our appreciation for the leadership that the committee is taking to preserve affordable housing in this country. We have serious concerns that critically needed affordable housing is gradually being lost, culminating in a "silent crisis" -- below the radar screen of the general public and policy makers. We would hope that these hearings will serve as a wake-up call to this looming crisis. Some of the gradual loss of affordable housing may be due to unintended consequences of enhanced vouchers which have tended to numb or neutralize outcries from existing residents as their unit is converted to market rate. As stated earlier, we believe that enhanced vouchers only provide a short-term solution for existing residents and tend to mask, hide the need for affordable housing for the scores of low-income seniors on multi-year waiting lists and for the future waves of older persons, including aging baby-boomers who will be turning 65 in less than a decade.
In addition, some of the gradual decline in affordable housing may be due to a lack of consistency with both production and preservation strategies between congressional intent and implementation by the Administration. Some of the loss may also be attributed to simply HUD and other agencies being understaffed and/or with inexperienced staff that have misunderstood Congressional intent. Finally, some of the loss of federally assisted housing may be attributed to a gradual devolution of housing from the federal government to state and local governments and to the private sector; as well as market forces and other factors.
Some of the recommended solutions to halt the loss of affordable housing are beyond the jurisdiction of this Subcommittee. These include: revisions to exit and other tax policies; the need to improve HUD-HHS collaboration to "preserve" existing elderly housing facilities by adapting the facility to accommodate services and health care; and even budget scoring constraints, such as long-term commitments for Section 8 or other rent subsidies; and budget scoring with debt forgiveness of the existing federal Section 202 mortgage. Therefore, we would urge that the Subcommittee seek collaborative solutions with other committees and agencies to address preservation needs. The Subcommittee may want to conduct an Inter-agency Task Force to examine cross-cutting preservation issues.
We are pleased to contribute to your deliberation on these critical issues, and we urge your support for the recommendations outlined in our testimony. For additional information on this testimony, please contact Larry McNickle
* SAHF is comprised of eight major national nonprofit organizations that own and operate over 65,000 affordable apartments serving low-income elderly and families in 46 states and DC. Members are committed to the mission of providing and preserving affordable housing for the long-term, keeping well-maintained and enhancing resident services for the people who call it home. Members of SAHF are: the National Housing Trust; Mercy Housing, Inc; National Church Residencies; the NHP Foundation; NHT-Enterprise Preservation Corporation; Preservation of Affordable Housing, Inc; Retirement Housing Foundation; and Volunteers of America.
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