It's a Race We're Losing: The Case for Protecting Existing Affordable Housing While Expanding New Supply

By Elaine Acker for the Texas Affiliation of Affordable Housing Providers

In Texas, we talk a lot about the need for more affordable housing — and for good reason. But what if, even as we build new developments, we’re quietly losing more units accountable to stringent affordable housing restrictions than we’re adding? And what if some policies meant to help actually slow down the addition of overall supply?

When it comes to affordable housing, keeping our current stock of safe, high quality, affordable housing through preservation isn't a secondary issue. It’s a cornerstone of making sure we keep up with the demand from families moving to Texas and those Texans seeking housing where job opportunities are available. And right now, without changes, we’re caught in a frustrating one-step-forward, two-steps-back dance that’s costing families the homes they need.

The developers, nonprofit leaders, policymakers working hardest to solve this know this all too well. “We’re losing ground faster than we’re gaining it,” says Roger Arriaga, TAAHP executive director. “For every unit we create, we fall behind because of increased demand, insufficient resources and some obsolete regulatory barriers. While some of that loss is by design, most of it is because of lack of resources for rehab investment.” Additional units are lost once these long-standing developments have met their affordability requirement terms.

It’s time we tackle the real obstacles standing in the way and rethink the policies that are holding Texas back.

Mandatory Affordability Periods

When multi-family developments are awarded housing tax credits, they come with a number of requirements to ensure not only that the communities are developed to the highest standards but also that rents are kept low and the families living there are served with a variety of services to assist them. One of the incentives for housing providers to participate in the tax credit program is that once developments are completed and placed into service, there is a long, but limited, period of time that the development must remain affordable and subject to strict compliance guidelines. After that time is completed, the property owner may has the option to exit the program or to recapitalize the housing tax credits and extend the affordability requirements further. These decision points occur after the 15th year and again after the 30th year the community has been in the program.

Given that the tax credit program was initiated in 1986, the very first of these affordable developments reached the 30-year milestone in 2016. As each year progresses, these developments retain a high market value and more which reach this point are opting to leave the program after satisfying the agreed upon affordability periods.

A Policy with Good Intentions, Mixed Results

One of the biggest culprits? A powerful regulation called the Two-Mile Same Year Rule. Under current Texas law, no two affordable housing developments can be funded in the same year if they are located within two miles of each other, even if one of those developments is an existing property seeking funding for renovation.

Imagine you have an affordable housing community in downtown Austin that desperately needs rehab. They apply for 9-percent tax credits to preserve it. But then, a developer a mile away wants to build something new. Only one of those developments is eligible for a tax credit award that year. The other has to wait for another year.

In theory, the Two-Mile Rule was meant to prevent an overconcentration of poverty. In practice, it’s blocking exactly what we need most, both preserving what we already have and building new supply.

And in urban cities like Austin, Houston, Dallas, and San Antonio, two miles can cover enormous differences in neighborhood characteristics, business districts, and job opportunities. Those two miles in Austin might take you from the Rainey historic district just east of downtown all the way over to Clarksville. And no one would argue those are the same neighborhood or that they have the same needs.

For every unit we create, we fall behind because of increased demand, insufficient resources and some obsolete regulatory barriers. — Roger Arriaga, TAAHP Executive Director

The impact is clear:

• Existing affordable communities deteriorate while waiting for preservation funds.

• New developments are delayed, slowing the creation of new homes.

• And the state keeps losing valuable housing stock faster than it can be replaced.

Lack of Available Funding

Put simply, the lack of affordable housing is directly related to limited funding. No high quality affordable housing can exist without some level of subsidy from public sources. If there was sufficient funding, then preserving housing would not have to compete with creating new supply.

Why Preservation Matters Now More Than Ever

There’s a quiet ticking clock inside every affordable housing development: An expiration date.

In Texas, the minimum affordability period under the tax credit program is 30 years, says Cody Campbell, director of multifamily programs at TDHCA. “But once a development reaches that point, it can transition to the private market unless we step in to preserve it.

Preservation means recapturing, rehabbing, and extending affordability protections before they expire.

It’s far more efficient to preserve existing housing than it is to build new,” says Jeffrey Spicer, senior vice president and project partner at Dominium. “Once it’s built, you don't want to lose it.

But the never-ending challenge? Resources

Texas receives one “bucket” of 9-percent tax credits each year, and housing providers seeking to funding to make capital improvements to current properties and those seeking funding for new development must share the same pool.

When you preserve a property,” says Campbell, “it necessarily takes resources away from doing a new deal. Balancing those priorities is tough when the need for both is so urgent.

And despite a 15 percent set-aside for properties at-risk of exiting the tax credit program, preserving aging developments often feels like a race against time and funding.

What Happens When Preservation Fails?

When older affordable properties aren’t preserved, the consequences ripple across communities:

• High-quality affordable units disappear, sometimes permanently.

• Families lose stable housing and have limited choices on where to live. They will revert to chasing rent specials every few months, which means uprooting children from schools and longer commutes to jobs.

• Cities lose diversity and workforce resilience, as middle-income workers are priced out.

At the end of a property's affordability period, 30 or 40 years, developers have the right to transition it to market rate,” says Arriaga. “And after decades of keeping properties in good condition, some are located in newly gentrified areas where values have skyrocketed.” It’s a system designed to work that way, but it’s happening at a faster pace than many expected.

Due to economic conditions that limit the value of tax credits while having to absorb skyrocketing insurance rates and stubbornly high interest rates, new developments coming online today are often smaller than are needed. And every year we delay preservation efforts, the harder and more expensive it becomes to catch up. The long term risk is that working families will eventually be forced to live and work in other states where housing supply is more plentiful and costs are less expensive. Employers watch these trends and make growth decisions based on metrics such as the sufficient availability of affordable and workforce housing options.

Why the Two-Mile Rule Needs a Refresh

The original intent behind the Two-Mile Rule was solid: prevent the concentrated pockets of poverty that plagued older models of affordable housing. This rule was put into state law in 2003. But the modern affordable housing landscape has changed dramatically since then.

The public perception of affordable housing has shifted,” says Campbell. “The housing we’re building now is attractive, durable, and blends into the community. We're not concentrating poverty anymore.

Today's affordable housing serves the people who keep our communities running: teachers, first responders, veterans, bus drivers, baristas, delivery drivers — everyday Texans who deserve a safe, affordable place to live. "Everyone wants their morning coffee or next-day deliveries," says Spicer. "But the people who make that possible need a place to live, too."

Despite these realities, the Two-Mile Rule continues to treat every development the same, ignoring the evolution in how, and for whom, affordable housing is built. Campbell notes that the rule technically only applies in counties with over one million people. But in urban areas, it still seems an imperfect fit.

Policies built decades ago for a different time can't keep pace with today's needs. If Texas truly wants to expand housing opportunities, we need smarter, more flexible rules that reflect what affordable housing really is — not what it used to be.

Solutions Worth Fighting For

So how do we fix it? Here’s what industry leaders suggest:

Carve out an exemption for preservation developments from the Two-Mile Rule. Preservation shouldn't be penalized for proximity. And saving an existing community shouldn't block new supply.

Prioritize policies that promote BOTH preservation and new development. We need a true net gain, not trading one for the other.

Create additional funding streams for preservation. Right now, funding for preserving existing properties pulls from the same limited tax credit pool as new developments. Dedicated resources could ease the strain and save more properties. In the 88th Legislature, the first State Tax Credit program was authorized, but not sufficiently funded. This is one possible source of funding for these developments.

Reform local and state rules to reflect population density and urban context. For example, a two-mile radius in downtown Austin spans areas on different sides of the city, each with distinct neighborhoods that could never be described as being in the same area and shouldn't be treated as such.

Continue reshaping public perception. Affordable housing isn’t what it used to be — and that’s something Texans can be proud of. “Affordable housing today is attractive, built to high standards, and essential,” says Campbell.

“We’re not just housing people. We’re strengthening communities.” Plus, those eligible for this housing go well beyond the lowest income households. Many certified and degreed professionals meet the income necessary to live in these high quality communities.

The good news is, awareness is growing, conversations are happening and TAAHP is working tirelessly to advocate for smarter policies.

The choice is clear: We can keep patching holes and fall further behind. Or embrace the idea that preservation and new development are not enemies and build momentum for the future.