Housing Complex

Why D.C. Is About to Have Even Less Affordable Housing

Housing_MTvernonPlaza-1

They called it a discount. Trayawn Brown had lived at the Mount Vernon Plaza apartments at 930 M St. NW for 10 years when she received a letter from the building managers on Nov. 16, 2013, informing her that she had a month and a half to choose among three unsavory options: sign a new lease and start paying 66 percent more in rent each month; do nothing and have her rent more than double; or move out.

“Market rate for your apartment is $2,175.00 and your current rent is $935.00,” the letter from the property owner read. “The difference between the market rent and your current rental rate is $1,240,00. Management is offering a 50% discount in the amount of $620.00 for the next 12 months which will result in your lease renewal rate being $1,555.00 per month.”

Her decision was due by Dec. 30; otherwise she’d forfeit her right to the “discount” and have to pay $2,175 a month. She looked for other apartments in the area, since her 7-year-old son goes to school nearby, but there was nothing in her price range. “The rent is just outrageous in D.C.,” says Brown, 34, who works at the Department of Homeland Security. So she took the discount.

Azieb Tesfamariam got the same letter in November. She’d moved to Mount Vernon Plaza in April 2013, after her previous landlord had raised her rent several times. Tesfamariam, a native of Eritrea and single mother of three, settled on Mount Vernon Plaza after the property manager assured her there would be no substantial rent increases. Seven months later, she was informed that her rent would jump by more than 50 percent, or much more if she didn’t agree to the terms.

A part-time hotel housekeeper, the 49-year-old Tesfamariam doubted she could afford the higher rent. But she also couldn’t find another place to live on such short notice. So she took the discount, too.

The owner of Mount Vernon Plaza, the Bush Companies of Williamsburg, Va., had received a federally insured $12 million loan financed through city-issued bonds in 1987 and a subsequent $4 million city grant in exchange for an agreement to charge below-market rents in a quarter of the building’s units to low-income tenants like Brown and Tesfamariam. But the agreements required only a limited period of affordability, and Bush’s obligation to maintain affordable units at Mount Vernon Plaza had recently expired.

With rents in the Shaw neighborhood rapidly rising, Bush had every incentive to start charging something closer to market prices. The tenants were upset by what they considered indecently short notice, but they understood Bush’s reasoning.

“I was a realtor for 10 years,” says Ebony, a 39-year old Mount Vernon Plaza resident who asked to be identified by only her first name, and who likewise signed a new lease at the higher rate, “so I understand capitalism and the developer trying to make money.”

For Ebony, Brown, and Tesfamariam, the expiration of Bush’s tax-credit obligations has meant paying more rent, struggling to get by, and most likely trying to move in a year’s time, when the rent will rise to the full market rate. For some of their neighbors, it meant moving out immediately. In both cases, the previously affordable units were lost forever to the ever-rising demands of the free market.

This isn’t the first time the Bush Companies saw financial opportunity in a recently valuable neighborhood, at the expense of affordable housing. In June, after stating its intention to opt out of its Section 8 contract for the Museum Square Apartments in nearby Mount Vernon Triangle, Bush informed the residents there that their building would be demolished unless they could come up with $250 million to buy it—a sum beyond the means of the 100 percent low-income tenants, and one so seemingly exorbitant that it led At-Large Councilmember David Catania to draft legislation restricting the price developers can charge in such situations. Last week, Bush reversed course and announced it would not opt out of the contract.

At Mount Vernon Plaza, however, no one’s accusing Bush of wrongdoing, other than perhaps a lack of courtesy. (Bush did not return calls for comment.) Instead, this loss of affordable housing is fairly routine. And that’s what makes it so dangerous.

* * *

There are several ways for the government to subsidize the development of affordable housing, but the most prevalent one is the Low Income Housing Tax Credit program. According to the U.S. Department of Housing and Urban Development, one-third of all rental apartments constructed between 1987 and 2006 took advantage of these tax credits. Apartments subsidized through what’s known as LIHTC (pronounced lie-tech) must keep their rents below a specified level for 15 years. (Those built after 1990 have an additional 15-year “restricted use period” after the first ends, although property owners can opt out under certain circumstances.)

A 2012 report prepared for HUD by the Bethesda-based Abt Associates warned that thousands of LIHTC-financed properties had reached the end of their affordable housing requirements, and that “in the worst-case scenario, more than 1 million LIHTC units could leave the stock of affordable housing by 2020, a potentially serious setback to the goal of expanding housing choices for low-income households.” While most properties don’t immediately move to market-rate rents once the 15-year mandatory affordability period ends, the report states, “the risk of this shift occurring is greatest in strong housing markets.”

The District certainly qualifies, especially in changing neighborhoods like Shaw. And the threat is particularly acute in the coming years. The total number of LIHTC-financed properties completed in D.C. in the program’s first 13 years, through 1999—in other words, the properties whose initial 15-year affordability period has expired or will expire by the end of this year—was 19, according to HUD’s LIHTC database. In the 13 years that followed, through 2012, that number was 105. (Figures provided by the D.C. Department of Housing and Community Development differ slightly.)

In fact, just in the next five years, 45 properties will reach the end of their mandated 15 years of affordability. These include the 224-unit Rockburne Estates in Buena Vista (expiring next year), the 406-unit Columbia Heights Village along 14th Street NW (expiring 2017), and the 422-low-income-unit Capitol Park Plaza in Southwest (expiring 2018). Some of these properties, particularly those in poorer areas east of the Anacostia River, are likely to remain affordable. But for owners of properties with expiring obligations in newly high-demand parts of town, the allure of market rents may be irresistible.

“Good urban planning would anticipate how many buildings are going to age out of the tax credit program,” says Will Merrifield, an attorney with the Washington Legal Clinic for the Homeless who’s working with Mount Vernon Plaza tenants. “Instead of doing that, the city wants to maximize economic impact with all their developments, which means bringing in high-end retail and condos and attracting people with a lot of disposable income.”

Merrifield suggests that the city could protect tenants in buildings with expiring affordability requirements by subsidizing their rent, such that the developer makes a profit but the tenants don’t experience sudden rent increases. Ebony, who’s organizing a tenant association for the building, also proposes a kind of rent control for tenants in her situation, in which the city would ensure tenants don’t see their rent increase by more than the rent-control standard of inflation plus 2 percent annually, and would make up the difference to the property owner.

There are several legal means by which property owners can erode the city’s stock of affordable housing. They can offer buyouts to rent-control tenants and replace them with higher-income residents. They can file so-called hardship petitions, which allow them to raise rents beyond the rent-control limits in order to ensure a 12 percent annual rate of return. They can opt not to renew Section 8 contracts when they expire.

But of all these threats to the city’s affordable housing in the coming years, the end of tax-credit obligations might be both the largest in scale and the most predictable. It’s no secret when the properties’ 15-year (or, if they don’t manage to opt out, 30-year) commitments end; they’re all listed in HUD’s database. And yet tenants are being surprised by the announcements, and the city has no apparent plan to help these residents.

In the absence of help, their options are limited. The D.C. Housing Authority closed its waiting list for public housing and subsidy vouchers last year after it grew to an unwieldy length or more than 70,000 names. The waits for affordable units at private apartment buildings often take longer than a year, and competition for those units is fierce.

Asked if she looked for other housing after receiving her letter from Bush, Ebony replies, “Did I! I looked everywhere. But how much can you look in two months? All the affordable housing places are full. You have to be on the waiting list for at least a year. Market-rate units in the area are $3,000 a month.”

And so low-income Mount Vernon Plaza residents like her have been paying the “discount” rent, which is well beyond some of their budgets.

“Right now I’m scared,” says Tesfamariam, unsure of whether she’ll be able to pay next month’s rent. “I don’t want to be homeless with my kids.”

Photo by Darrow Montgomery

  • chris lee

    @an9n7..how about a society of adults coping responsibly with.reality and not half measures based on sentiment that can't possibly subsidize everyone that wants to live in an area they can't find work in or afford

  • an9n7

    Not really sure what you arguing here, but if you are against social safety nets say so. If it's just housing form an argument for why along the lines of Northwesterneer. I cant even begin answering the question you just asked.

  • an9n7

    Sorry not Northwesterneer, but Meh

  • chris lee

    An9n7..this is a discussion over principles ..you can't possibly do this for everyone who wants it and needs it so you're singling out a select few to be subsidized by tax payers who can't afford to live in neighborhoods they're setting others up in..meanwhile "normal " people are expected to cope with the realities of labor and housing markets

  • Northwesterneer

    There's another angle here. Yes, we are primarily talking about the individual welfare of people, however I just chatted with someone on my block about this...

    When DC was dying the city government could not afford to let parts of the city go the way of Detroit. A partial reason for subsidizing housing was so that areas would not be empty- When the demand for real estate is low, then the city offers incentives to move into certain locations.

    One such incentive was the $5000 tax rebate that many of us got when we bought our houses in the 1990s.

    Another incentive was below market rate apartment rents which were subsidies provided by the DC City Government to make DC apartments more attractive than suburban apartments.

    When the market failed DC, the city government helped prop up the failed real estate market.

    At this point there is no failed real estate market for the city to prop up with taxpayer dollars so that units don't remain empty.

    So from the angle of keeping residents in the District, this is no longer an issue, residents are pouring in from VA and MD. This angle for spending our tax money to do rent subsidies has ended.

  • Northwesterneer

    Here's another angle in response to Chris Lee. The market is so hot right now and jobs are so plentiful, It's coming down to not keeping residents in the District, but keeping residents in particular neighborhoods in the district. For instance, keeping one of the above residents at 9th and M instead of letting them move to a higher numbered ward.

    I DO support creating an amount of money to guarantee student loans for DCPS graduates who have undergraduate degrees to achieve Masters and Doctorate degrees. This is rarely discussed, but I would like to set up a program where residents who graduated from DCPS schools and earned undergraduate Bachelors degrees could borrow money to earn Masters and Doctorate degrees at very low interest rates. This would allow our local, long-time residents the chance to get that Masters degree which makes them competitive in DC's job market.

    Let's get our residents educated and competitive again so that we're one of the most educated cities in the world. Because we all know the DC graduates from St Albans and Sidwell Friends did not stop with a Bachelors degree, neither should the graduates of Wilson and Ballou.

    (and I did not graduate from DCPS, so this doesn't benefit me)

  • Chris Lee

    "I DO support creating an amount of money to guarantee student loans for DCPS graduates who have undergraduate degrees to achieve Masters and Doctorate degrees. This is rarely discussed, but I would like to set up a program where residents who graduated from DCPS schools and earned undergraduate Bachelors degrees could borrow money to earn Masters and Doctorate degrees at very low interest rates. This would allow our local, long-time residents the chance to get that Masters degree which makes them competitive in DC's job market. "
    I believe these funds already exist, but good luck with the polyanna fantasy of thousands of DC black college grads rushing to get their masters.

  • Will

    Great discussion in this article thread today. I concur with "Renting does not equal owning" that the city and media behaving as if long-term renters have extra rights is a troubling pattern not based in reality or Western tradition. Individuals such as those who live in Museum Square are deeply sympathetic, but using duration of stay or age of occupants should have no more legal or political weight than a 22 year old who has rented in a place for the past six months.

    I'd like to add a few thoughts about the economics of the standard rent control law, which only allows rent to increase by 2% + Consumer Price Index (CPI has been 0 for some years) every year. One effect of this control is that any landlord who has an available unit will dread renting it out for anything less than the top of the market. Since price appreciation is much more than 2%, an available unit is the landlord's only chance to get back up to market rate, and as soon as the rent is established, any year after the first year the rent is below market rate. This is why you frequently find longer term residents paying ~$1,000 for some amazing apartments in desirable areas, the landlords can't raise the price to match the market. The collective effect of all landlords looking at this economic picture is high prices for all newly available apartments since they have to maximize their revenue from newly available units, not the ones currently occupied.

    Imagine instead if landlords were able to raise the rent more every year, and at least keep up with the market. A couple things would happen. Current residents wouldn't have the same incentive to keep a death grip on a below-market price apartment, and would be more willing to move to a brand new apartment, the only major cost being moving expenses. That kind of mobility would put downward price pressure on existing older units since landlords would need to offer incentives to keep current tenants from moving out to new luxury buildings. Landlords would also have more incentive, and more revenue to use on upkeep since the quality of a building would be more directly tied to keeping tenants happy.

    Most importantly, such a scenario would find a new equilibrium in the rental market where older units that are more geographically disperse across the city would likely fill the affordable housing tranche, new developments would fill the luxury tranche, and prospective new renters would find a greater degree of diversity in housing stock, and long term renters would find a greater incentive to buy a home or condo if they are in a position to do so, rather than become a long-time, protected middle-class renter.

    The best examples of why having long-term rent controls are a bad idea is NYC where upper income people I know pay $845 for a midtown 2 bedroom apartment they've had for 40 years, or Afghani princesses live out their golden years paying $390/month (http://www.nytimes.com/2014/08/05/nyregion/princess-fights-leaks-and-an-eviction-notice-in-manhattan.html)

    Abolishing rent control is hugely controversial, but from a pure economics standpoint, it takes the same pie and merely slices it differently, with both the renters' side and the landlords' side staying roughly the same, but rearranging the slices so there isn't as big of a disparity between those who've been sitting and eating for a while, and those who just sat down at the table.

  • Northwesterneer

    Chris... not sure about your comment about black college grads rushing to get masters degrees. I'm from the era of the black college professor who got their degree in 1980 after they quit the Panthers in '76.

    There is local money to help students pay "in-state" rates for undergrad, but no non-federal money to pay for grad school loans or back said loans at ultra-low rates.

  • Northwesterneer

    " I concur with "Renting does not equal owning" that the city and media behaving as if long-term renters have extra rights is a troubling pattern not based in reality or Western tradition."

    Weird but true, this follows the Western European tradition of giving rights to squatters. Actually, Europeans have incredibly bizarre laws regarding that, including one where Gypsy squatters can move onto your land- IN THE UK- and if you don't kick them off in time, they can legally own your land... or they legally have a right to live there and you can't sell it... it's not quite like they can sell your land, but you can't sell it when they have parked their caravans on it.

    I am very much against those laws, but they do exist and are more of a part of Western law than you suggest.

  • natty_dread

    Another fine article, Aaron, on the hyperbolic rent inflation that has resulted from a housing market of avarice & in cases, pure speculation. 1 last compliment, promise, & that is I appreciate the investigative nature of this & other stories that have drawn a necessary light to the plight of low-&-middle income families who've literally woken up to discover they've been priced-out of their homes.

    While in some cases I believe this has led to justice being served (or, @ least a stay of execution, as in the recent case of the Bush company backing off it's opt-out of section 8, & proactive corrective measures being taken by the city council), I believe this to only be temporary. I agree there are market forces @ work & there are property owners/landlords, & developers only too happy to supply what the market is apparently willing to pay. The good work of reporters like yourself, and tenant advocacy groups such as TENAC and DHCD are fighting a losing battle to the promise of $$ signs, & the allure of high-end luxury livin-er, a gated community.

    As for some of the attitude in the comments.. not very Christ-like, eh? But "what would Jesus do?" does not apply when you can have a built-in washer/dryer; bacon maple cupcakes @ the corner, & the un-educated, drug-deaing riff raff safely off to the far end of PG county. Surprising to find out, though, that it is the abnormal who are unlucky enough to be making < $50K/yr.

  • Chris Lee

    @Northwesterner..funds and grants already exist, but only a neglible amount of people will do it..

  • Chris Lee

    “the objective of a city plan is the improvement of living conditions, the stimulation of prosperity, and the creation of intangible values in added health, comfort, convenience, and community well-being.”

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