As regional housing policy discussions focus largely on how to fund and incentivize new affordable housing, Housing Development Center (HDC) has been working with a broad group of partners to investigate, and develop strategies to improve, the condition of Oregon’s existing rent-restricted affordable housing stock.
This existing stock is tremendously valuable to Oregonians. It…
- Comprises hundreds of rental properties owned and operated by nonprofits, housing authorities and private entities in communities throughout the state.
- Provides affordable homes to tens of thousands of low-income and moderate-income people, a large portion of whom are children and disabled and elderly residents.
- Represents billions of dollars in public and private capital investments, and acts as a magnet for millions more in annual federal rent subsidies that close the housing affordability gap for Oregon’s lowest-income residents.
With funding from Meyer Memorial Trust and JPMorgan Chase, HDC completed an analysis of financial data for 241 rent-restricted affordable housing properties comprising 9,816 units in Oregon. Building on HDC's work with the Meyer Memorial Trust–funded Sustaining Portfolios Strategy initiative, the analysis sought answers to these questions:
How well are Oregon’s existing rent-restricted affordable housing properties sustaining themselves financially?
To what extent are property owners optimizing use of available resources to keep their properties financially and physically healthy?
What strategies and resources are needed to assure Oregon’s existing rent-restricted properties will sustain themselves and continue to serve low-income Oregonians in the future?
Get details about the analysis on our Resources page.
Here is a quick summary of key findings:
Overall, the properties are doing well, with 97% average economic occupancy in 2014/2015, 1.48 average hard-debt coverage ratio and $690 average 2014/2015 net cash flow per unit before waterfall payments (excluding some outliers).
But 23% of the properties (55 of 241) are underperforming, with underperformers defined as having two of the following three indicators for the year analyzed (2014 or 2015): (1) negative net cash flow, (2) debt coverage of 1.10 or less, (3) an expense-to-revenue ratio of more than 70%.
Underperforming properties are not concentrated in any single set of organizations, jurisdictions or regions. Moreover, their hard-debt profiles are similar to those of “OK” performers, meaning underperformers and “OK” performers have similar levels of hard debt per unit, hard debt payments per unit, and total debt per unit.
But underperforming properties do have some common characteristics. Two examples, among five identified:
- Properties having two or more bedrooms per unit, on average, were disproportionately represented in the underperforming group by 10 percentage points. (Properties with higher bedroom density cost about $380 more, per unit, to operate annually than the portfolio average.)
- Properties with fewer than 10 units per building were disproportionately represented in the underperforming group by 14 percentage points. (They also had higher maintenance and utility costs.)
For many properties, undercapitalization is leading to a backlog of physical needs that compound over time. An imbalance between capitalization levels and rent restrictions makes it impossible for some properties to address physical needs as they age. Moreover, poor materials choices and lack of quality control during construction have led to expensive building envelope failures in a high number of properties.
For many properties, the useful life of building components is shorter than the property’s affordability period; yet current funding policies do not offer a solution to this problem. Not only do many existing properties face an uncertain future owing to undercapitalization; many new projects are being underwritten to meet a similar fate.
What are we doing with these findings? With additional funding and support from Meyer Memorial Trust, HDC is convening a work group of practitioners to develop policies to assist affordable housing providers with preservation of rent-restricted properties. The work group will explore these questions:
- What are the biggest challenges to ensuring sustainable properties?
- What policy changes would help?
- What can we do together as an industry to preserve these assets?
The knowledge gained from this process will be used to develop messaging to help affordable housing partners communicate about the need to preserve rent-restricted properties.
For more information, contact Emily Schelling, HDC director of asset management and initiatives, at 503-335-3668 or emily (at) housingdevelopmentcenter (dot) org.