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 These buildings often have roofs in desperate need of repair, outdated plumbing systems, windows that need replacing, dangerous flooring or stairs, and other issues.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.”