The Role of Rehabilitation in Housing Preservation
Our nation’s affordable housing is facing a supply crisis. Government and industry initiatives often focus on new construction; preserving existing affordable housing is seldom discussed, let alone prioritized. While new construction is one part of the solution, expiring rental covenants and aging buildings require preserving the existing supply of housing. Without this vital piece of the puzzle, the affordable supply that took so much time and resources to build will be lost.
Affordable housing ‘preservation’ has two meanings:
- Preserving units’ long-term affordability, usually through extending government subsidies and rental covenants to maintain the affordability requirement.
- Preserving and improving the physical units through rehabilitation.
These two definitions are not mutually exclusive: preserving long-term affordability often requires rehabilitation, and rehabilitation programs often require affordability restrictions. However, affordable housing preservation has, historically, largely focused on the long-term affordability of unitsi. Consequently, this has resulted in an aging rental stock that is degrading as we speak. With affordable housing developers facing increasing costs and lower reliable cash flow, we must invest in our existing affordable housing stock through continued maintenance and capital improvements. If not addressed, our growing affordable housing crisis will not be solved to the detriment of low-income households.
To combat this growing need, there are a number of strategies that address today’s preservation challenges. States and localities in particular, are tackling this crisis by creating programs to address affordability preservation, rehabilitation preservation, or both. They are employing grants, loans, or tax incentives to help ensure the long-term viability of the existing affordable housing stock. Some of the examples presented below have only recently been implemented and so, their success is yet to be realized. Below NHT profiles four policies, programs, and tools that support the preservation of affordable housing through rehabilitation, or through affordability and rehabilitation, to support existing affordable housing.
Why Preservation?
Preservation not only ensures that existing housing units remain affordable for residents, but also provides a stable home for low-income households- an essential precondition for their economic, physical, and mental well-being. New construction is one part of the solution, but without support for our current housing stock, we will consistently lose affordable units, requiring us to build more new housing than what would be required otherwise. Additionally, preservation can be effective at maintaining affordable units with limited resources:
- Preservation is less expensive than new construction
- Rehabilitating an existing building generates fewer carbon emissions than constructing new buildings
- A faster way to provide affordable housing available to families in need compared to building new
- An effective way to maintain existing homes for existing families and limit the displacement of residents
To increase the affordable housing supply, we need to invest in both preservation and new construction
Preservation as Rehabilitation of Affordable Housing
Preserving a physical housing asset and ensuring that an affordable housing owner is providing quality housing is equally important as ensuring that the housing remains affordable long-term. Jurisdictions around the country, acknowledging this, have implemented housing policies that solely address rehabilitation of affordable housing. While some programs or policies may include a minimum affordability eligibility requirement to ensure that the housing is currently affordable at a defined level, the primary goal of these programs is not to extend affordability, but to rehabilitate existing affordable units and provide quality housing for a continued number of years. Oftentimes this is through a grant or a loan with amenable terms to finance improvements and renovations. The Vermont Housing Improvement Program and the Minnesota Rental Rehabilitation Deferred Loan program are two examples of state rehabilitation programs that support the renovation and rehabilitation of affordable housing.
Their guidelines are outlined in the table below:
| Program Name | Vermont Housing Improvement Program | Minnesota Rental Rehabilitation Deferred Loan |
|---|---|---|
| Type of Solution | 5 Year Grant or 10 Year Forgivable Loan | 0% Interest loans for rehabilitation |
| Terms of Solution | Owners must charge fair market rent at the time of loan/grant application. Requirement to rent to a certain number of households exiting homelessness Owner required to match and invest 20% of the award amount | Funds can only be used for units at 80% of Area Median Income. Eligible properties must be 8+ units. Rents must meet the "affordable to the local workforce" requirement |
| Intended Use | Improvements or additions to existing housing. | Improvements and/or renovations to existing housing. |
| Grant Amount | Up to $30,000 for the rehabilitation of each 0-2 bedroom unit. Up to $50,000 for the rehabilitation of each 3+ bedroom unit. Up to $50,000 for the creation of new units in an existing building Up to $50,000 for the creation of accessory dwelling units (ADUs) | Minimum loan amount: $1,000 Maximum loan amount: $37,500 |
| Total Amount Invested | $37.6 million (as of Jan 2025; includes both VHIP and VHIP 2.0) | $36.2 million (as of 2023) |
Vermont’s Housing Improvement Program, including both VHIP and VHIP 2.0, has funded over 1,000 units, with an average award of $38k per unitii. Unfortunately, similar data on Minnesota’s Rental Rehabilitation Deferred Loan Program is not readily available.
In addition to programs that separately extend the long-term affordability and those that encourage the rehabilitation of existing affordable housing, there are programs that accomplish or encourage both. Depending upon the state, combining both rehabilitation and affordability into a single preservation tool can be an effective way of tackling two pressing issues with one policy.
Both Affordability and Rehabilitation of Affordable Housing
Based on available research, programs addressing both affordability and rehabilitation are more common than rehabilitation programs solely. Two examples of preservation policies that address both affordability and rehabilitation are the San Francisco Small Sites Program and the Illinois Capital Bill Preservation Program. The San Francisco Small Sites Program addresses affordability and rehabilitation simultaneously, awarding funds for acquisition and rehabilitation in exchange for affordability. Illinois’ program, however, awards grant funding for either affordability, rehabilitation, or both. An outline of both programs is shown in the table below:
| Program Name | San Francisco Small Sites Program | Illinois Capital Bill Preservation Program |
|---|---|---|
| Type of Solution | 30 Year loan 3% interest rate (if an owner demonstrates insufficient cash flow to pay interest, it may be forgiven) | Grant funding for preservation or rehabilitation |
| Terms of Solution | Acquisition, 75% of tenants must acknowledge purchase, 66% must income certify 2/3 households must report to be at or below 80% AMI at acquisition and the building must retain an average of 80% AMI over time Rent restricted for the longer of either life of the project or 75 years | Applicants must meet at least two of the below conditions: Direct financial risk to the Illinois Housing Development Authority or another funder Existing physical needs, if not repaired threaten the sustainability of the development Challenged marketability based on: Security issues, or chronic physical issues Risk of loss of affordability due to expiration of use restrictions or loan maturity Inability to sustain operations with existing financing and income/rent restrictions |
| Intended Use | Acquisition/ Rehabilitation/ Preservation of Existing Affordability | Rent-stabilized housing in need of repairs or housing at risk of losing existing affordability |
| Subsidy Amount | Maximum: $555,000 per ADU studio unit (additional $50,000 per bedroom added) $500,000 per 3BD unit $450,000 per 2BD unit $400,000 per 1BD unit $350,000 per Studio unit $275,000 per Group Housing bedroom or Single Room Occupancy (SRO) unit (additional $25,000 if in-unit bathroom) | Maximum: $475,000 |
| Funding Amount | $3 million (as of 2022) | $28 million (2022/23) |
Data from January 2022 states that the Small Sites Program has supported the preservation of 53 properties and 655 units in addition to capacity building grants for community based organizationsiii. Illinois’s Capital Bill Preservation program does not have impact data available, but the Governor’s 2022 allocation of $12 million was for improvements to 27 affordable buildings, and over 1,400 affordable unitsiv.
Conclusion
Amid the country’s current housing shortage, building new housing is necessary. However, to truly grow the supply of housing, it is vital that existing housing continues to remain livable and affordable. Preserving affordability remains critical, with as many as 223,000 rent-restricted affordable units set to lose their affordability nationwide in the next five years. But preserving affordability alone is insufficient. We have seemingly forgotten about the need to equally invest in the physical condition of our existing affordable housing, with many units being lost due to disinvestment and physical obsolescence. Thankfully, as profiled above, jurisdictions around the country are recognizing dual preservation needs, and starting to put real dollars towards rehabilitation to preserve existing affordable properties. Thus, demonstrating a response to the industry’s call, filling a much-needed financing gap, and encouraging property rehabilitation to ensure owners are able to provide stable quality affordable homes.
Read NHT CEO Priya Jayachandran’s recent op-ed and call to action on the “New Preservation Crisis” here in Shelterforce.
Read our NHT update kicking of the National Preservation Campaign.
To learn more about Preservation and Long Term Affordability in the Low Income Housing Tax Credit program, check out NHT’s Infobriefs here.
Footnotes
i. Preservation efforts focused on the long-term affordability of housing involve restricting or extending restrictions on the allowable cost of rental housing for low-income households. Affordability restrictions are most often implemented through a government subsidy or program that offers an owner a financial incentive in exchange for agreeing to price rental housing below market-rate housing, at a level that is below a defined Area Median Income. Affordability restrictions can be placed on previously unsubsidized housing, or naturally occurring affordable housing (NOAH), to ensure its affordability. Affordability restrictions can also be extended on an existing subsidized affordable unit through the extension of an existing rental subsidy, or implementation of a new rental subsidy. Both strategies ensure that existing affordable housing remains affordable in the longer term.
ii. Data from the VHIP Dashboard on accd.vermont.gov
iii. Scaling Impact of Acquisition and Preservation Programs (February 2022). https://sfmohcd.org/sites/default/files/Documents/MOH/Small%20Sites/Scaling%20Impact%20of%20Acquisition%20and%20Preservation%20Programs.pdf
iv. Pritzker Administration Awards $12 million in Rebuild Illinois funds for Affordable Housing Preservation. Illinois.gov. (July 2022). https://www.illinois.gov/news/press-release.25194.html