Time to fill a Crucial Gap in Affordable Housing Financing


There’s a housing problem brewing in the Bay Area – and not the one everyone is talking about. A growing number of local buildings containing affordable homes are many decades old. These buildings often have roofs in desperate need of repair, outdated plumbing systems, windows that need replacing, dangerous flooring or stairs, and other issues. However, to make significant repairs, the owners of these buildings need an influx of funding and most private sources of affordable housing financing don’t support rehab as a stand-alone activity. Building owners could pursue an infusion of tax credits and bond financing from the state but even then; 1) not every project is eligible for this financing, 2) there is less money in that pot than there used to be and, 3) the funding that does exist has become much more competitive.  

 This means owners of affordable housing developments may be left unable to improve conditions to an acceptable standard; in a worst case scenario, some might have to leave the building empty and take the units off the market. 

This chart below  provides an overview of the number of developments financed or assisted by HUD, low-income tax credits (LIHTC), and/or the USDA in the nine county Bay Area that have not received a funding award from a federal or state program since before 2000, 1990, and 1980. Some of these developments were placed in service as far back as the mid-1960s.  

According to the California Housing Partnership, when a building is 50 years old or more, typically structural work has to be done to the foundation, sewer and water piping, and/or electrical wiring, costing between $100-$300k+ per unit. At the 25-30 year mark, doors, windows, cabinetry, and roofs reach the end of their useful lives. These rehabs can cost as little as $50k but typically end up in the $100k+ range. The other components discussed much less are the quality of life improvements that typically occur with a rehab. Not only are units improved, but appliances and systems are more efficient (and quieter), air quality can improve, Americans with Disabilities Act (ADA) upgrades are made, windows and insulation can decrease sound transmission, and repairs can generally make the environment more pleasant and healthier for the residents. 

 Recently LISC, as fund manager for the Bay’s Future Fund (BFF), the largest loan fund in the Partnership for the Bay’s Future—started hearing about this struggle from its affordable housing developer partners.  

“These kinds of investment are a form of preservation and can be much more cost effective than tearing down and building new housing,” says Linda Mandolini, President of Eden Housing, a BFF partner. “Ensuring that financing tools exist to support rehabilitation means ensuring that new affordable units are actually adding options for residents in the Bay Area rather than just replacing existing ones. It is crucial that affordable housing developers have these resources.”  

Last Fall, the BFF Investor Advisory Committee approved an adjustment to the BFF’s Affordability Preservation and Production Loan product to include projects that renovate existing affordable units to extend the useful life and to improve quality of the housing. 

“We saw there was a serious gap, and a growing problem,” says Cindy Wu, Executive Director of Bay Area LISC. “These are not buildings just in need of a fresh coat of paint. Our partners were coming to us with stories of buildings that needed serious repair, without an avenue for financing. Given the fact that these buildings are full of affordable housing units, they are also buildings where the rental income is too low to support repairs when things start to wear down.” 

Though there has arguably never been enough money earmarked for rehab, because of increased competition for and the decreased availability of tax-exempt bonds for rehabbing an aging LIHTC property, the resources that affordable developers could access from tax credit re-syndication has diminished tremendously. Wu says she hopes that this new product helps fill some of that gap but, more impactfully, that it encourages other funds to follow suit.   

 “Everyone in the industry loves the ribbon cuttings or grand openings, but our partners told us to remember the less exciting parts of affordable housing— day to day operation and maintenance,” continues Wu. “These are people’s homes, not just a building. Making sure we hold onto these units is crucial, and maintaining dignity for people living in them is just as important. Having pride in your building and caring for your neighbors, that’s the dream.” 

Help Make Housing Solution Breakthroughs for the Bay Area 

As we start to emerge from the pandemic, low-income renters are facing perilous financial circumstances. At the same time, California is experiencing a housing shortage and affordability emergency, leading to more and more people facing housing insecurity. Today we have an important opportunity to reimagine our housing system to support economic inclusion and shared prosperity. Housing can and should be a building block for a better world post-COVID. 

According to a study from the Terner Center for Housing Innovation at UC Berkeley, 62% of affordable housing tenants who missed a rent payment in April 2020 had not caught up by December 2020. California recently extended the state’s eviction moratorium until September in order to stem the displacement of low-income residents, but this is a stopgap measure that doesn’t address the root of the problem.  

The consequences of rental arrears are exacerbated by the state’s insufficient supply of housing. The state has been unable to keep up with population growth since the 1980’s, and California will need to build 180,000 homes per year through 2025 to meet demand according to a recent survey by the state Department of Housing and Community Development. Currently, 80,000 homes are built each year. When housing supply does not meet demand, prices increase, and communities suffer. 

Solutions must be equity-centered 

A recent report revealed that for every 100 households in California that earn an extremely low income, only 24 affordable rental units are available. Concurrently, Black, Indigenous, and Latinx households are far more likely to be paid poverty-level wages than white households, which has profoundly contributed to the fact that more than two-thirds of Californians with unaffordable housing costs are Black, Indigenous or People of Color. 

There simply isn’t nearly enough affordable housing in California. According to the California Housing Partnership, 1.97 million of the 5.89 million renter households in California come from the two lowest income groups – extremely low-income (ELI) and very low-income (VLI). Meanwhile, only 668,000 rental homes are affordable and available to households at these income levels, resulting in a shortfall of 1.30 million affordable rental homes.

And once the pandemic started taking its toll on the economy, Black and Latinx renters were far more likely to fall behind on rent than their white counterparts. Black households have been hardest hit by the pandemic: more than 1 in 3 Black households missed a rent payment between April and December of 2020.   

Guided by racial equity, we must work together to pass tenant protection and affordable housing policies, as well as aggressively invest in the preservation and production of affordable housing, to prevent a rise in evictions, homelessness, and housing insecurity. 

Advancing people-powered housing policy 

At the Partnership for the Bay’s Future, we developed the Policy Fund to move tangible solutions to protect tenants and to produce and preserve affordable housing through the process of government at the local level. The world around us is changing rapidly, presenting us with the most complex set of issues facing our region in more than a generation. This is a moment when we can advance equitable policies and solutions that are truly transformative for our communities – for today, and for the next generation of Bay Area residents. 

The Policy Fund model strengthens local teams to pursue ambitious policy goals, while bridging people across the region and building momentum and synergy. We help connect local changemakers so that their efforts can be amplified across the region.  

The Challenge Grants is the Policy Fund’s inaugural program, supporting tenant protections and affordable housing preservation. During a year of unprecedented challenges, the cohort has made remarkable progress in equitable and community-driven housing policy. With $3.5 million in grant funding, collaboration with over 50 community organizations, and seven dynamic fellows dedicated to this work in local government offices, Challenge Grant teams have drafted and proposed model policies, engaged thousands of local residents, and shown the power of collaboration across sectors and regions.  

Launch of the Breakthrough Grants program 

Building on the success of the Challenge Grants, the Policy Fund is launching the Breakthrough Grants for Housing Production and Preservation (“Breakthrough Grants”). This program will catalyze policy innovation in building and preserving affordable housing in local communities. In a time of tough COVID-related budget and staffing constraints, the Breakthrough Grants provide increased capacity and tailored technical assistance that will support local breakthroughs in equitable housing solutions. 

The program is open to government entities in the Bay Area who apply in partnership with a community organization. The Policy Fund will select a cohort that proposes the most high-impact, yet realistically achievable plans to be a part of the Breakthrough Grants. Each Breakthrough Grant team will receive a support package valued at $500,000, including a Breakthrough Grant fellow who will work for the government partner, two years of grant funding for the community partner, and tailored cohort supports.  

Applications are due July 30, 2021 and awards will be announced in the Fall. Be a part of the solution for a more equitable Bay Area and apply today at baysfuture.org/breakthrough-grants