Detroit officials brace for affordable housing losses

Detroit — City officials fear Detroit could lose as many as 10,000 affordable housing units in buildings with expiring low-income housing tax credits in the next five years, threatening massive displacement of renters.

A bulk of properties are coming up on the end of a 15-year compliance or renewal period now through 2023, according to the city. Most at risk are areas ripe for redevelopment, including downtown, Corktown and Midtown.

Margaret Dewar, a professor with the University of Michigan who has researched the issue of low-income housing tax credits, believes the figure could be as many as 7,000 housing units through 2022 and a major threat to the city's low-income housing stock.

"That’s a huge number," she said. "It’s really close to half the total low-income housing units the city has."

Without adequate funding to make financial sense for developers to maintain low rents, they could be tempted to sell to developers who would increase rents with market-rate units, Dewar said.

There’s a temptation for building owners to sell, particularly in areas with an influx of residents. It's even more so for struggling properties, Dewar said.

"What we see is that a lot of them are having a great deal of trouble breaking even,” she said. “Especially ones that have hard debt from banks or are smaller projects like maybe 20 units instead of 80 or something like that. Ones that do not have housing-assistance vouchers."

City officials also say Detroit has a large number of affordable rental units throughout the city that have low rents but aren’t regulated through federal subsidies. Both regulated and unregulated units are aging and need investment, according to the city. 

To avoid a housing crisis, the city has begun planning for its Affordable Housing Leverage Fund, which will address those existing units and seek to create 2,000 more affordable housing units.

The City Council recently approved nonprofit Detroit Local Initiatives Support Corporation as fund managers to help plan a $250 million fund that will be a mix of grants, low-interest financing as well as city and federal funds. Contributors will include financial institutions, community development financial institutions and philanthropic organizations.

The city Housing and Revitalization Department estimates the $250 million figure is enough to cover the preservation of 10,000 existing units while creating 2,000 new affordable ones.

Without taking these steps, the consequences would be dire, officials warn.

“This fund is extremely important to help us address those needs,” Donald Rencher, director of the city’s Housing and Revitalization Department, said during a recent Detroit City Council Planning and Economic Committee meeting. “…If we don’t have the subsidy to continue to help and continue to keep the affordable units there, we can have a massive displacement.”

Rencher said his department receives about $5 million to $6 million in federal HOME Investment Partnerships Program funds that are used to finance about three or four projects each year. 

The U.S. Department of Housing and Urban Development awards HOME funds to state and local governments to  purchase properties for rehab or vacant land for new construction for affordable rental units; homebuyer assistance programs; and tenant-based rental assistance. 

“We simply don’t have enough funding to address the preservation that needs to happen with the affordable units around the city of Detroit,” he said. “So (the Affordable Housing Leverage Fund) is extremely important to help us address those needs.”

The $250 million fund will include $50 million in grant funds, $150 million in low-interest borrowing and $50 million in public money from federal and city funds.

The first available funding is expected to be announced at the beginning of 2019, said Julie Schneider, associate director for policy and implementation for the Housing and Revitalization Department.

“We’ve been working really hard to identify the financial needs in the marketplace in terms of how to actually get money into development,” Schneider said.

The federal government began the low-income housing tax credit program in 1986 to offset dollar-for-dollar a developer’s tax liability. This gives a developer an incentive to provide housing at below-market-rate rents for households that make less than 60 percent of the area median income. Those households pay 30 percent of their income.

The credits, available through the Michigan State Housing Development Authority, come with a 15-year compliance period with the option to renew for another 15 years.

So far no developers with a low-income housing tax credit property have opted out of the extended use period, according to MSHDA.  

Landlords with rental units with housing assistance vouchers, known as Section 8, receive from the federal government, through a public housing agency, a portion of rent on behalf of a qualified low-income family. The family pays the difference between the rent the landlord charges and the amount subsidized by the program. 

Michael Essian, vice president of American Community Developers, said his company has received several calls from developers interested in purchasing the Clement Kern Gardens, an 84-unit housing complex on Bagley at Trumbull. 

The development sits in the shadow of the Michigan Central Station, which Ford Motor Co. will redevelop as part of its $740 million plan to develop an autonomous and electric vehicle campus in Corktown.

“We know what’s going on,” Essian said. “The vultures are circling, going ‘Well, this is an opportunity here.’ We have to take a long hard look at it and say, you know, if we’re going to prevent this thing from going market rate, what’s it going to take to save it?”

Essian said his company is about preservation. The company owns 2,700 affordable housing units throughout the city.

“That’s what our company is founded to do, but it’s very difficult when you’ve got someone chasing you down to sell a property, and they’re throwing a big number out there,” he said. “If we don’t have funds to preserve it, it makes the choice a little harder.”

The city reached out to American Community Developers to schedule a meeting to prioritize which developments are most at risk, Essian said.

“The funds MSHDA has available and the funds that are available through low-income housing tax credits are limited, so the fact the city is taking the initiative to create this fund, I think it says a lot about the administration and what their goals are,” he said. “Making sure that Detroit is a city for everybody, you have to be proactive to achieve that goal. It just doesn’t happen by accident.”

Detroit resident Brian Demarest said he appreciates anything the city can do to preserve affordable housing. Demarest is a former resident of the Park Avenue House downtown where tenants in October initially received 30-day notices to move as the building is expected to soon change ownership.

Park Avenue House is a former hotel turned rental property that receives no federal subsidies, according to MSHDA. Due to its low rents, it's considered naturally occurring affordable housing. Demarest said he was paying $680 for a studio compared to renovated studios nearby costing more than $1,200 a month.

After some intervention from the city, tenants in the building were told they can stay until June 30. Demarest, a 50-year-old factory worker, has since found a new place to live less than a mile away: Heather Hall Apartments on Second Avenue in Midtown, where studios are about $350 a month. 

Demarest said he considers himself a success story, but he is mindful of the rising rents in the area.

“I hope they work something out for everybody,” he said. “I know owners got to make money and people got to live. There’s got to be some common ground there somewhere.”

City officials say they're working to create a shift in thinking regarding redevelopment in Detroit.

In 2013, developers Broder & Sachse received some criticism when the company purchased the Griswold at 1214 Griswold and decided not to renew participation in a tenant-based rental assistance program and instead converted the building in Capitol Park into a market-rate luxury building called The Albert.

The developers did provide a one-year notice to tenants and retained the services of United Community Housing Coalition to help tenants find new housing. Tenants also received monetary assistance to pay new security deposits and other moving expenses. 

But Broder & Sachse changed its approach with one of its most recent developments by preserving affordable housing in 28 units for the previous tenants of the former Milner Arms Apartments at 40 Davenport. This fall, the company celebrated the opening of the redeveloped building, renamed the Hamilton Midtown.

The city supported tax abatements and funding to supplement the rents of tenants who lived elsewhere during the renovation.

"With the Hamilton, we ensured the residents living there could return to the building, which hadn’t been done before in Detroit," said Richard Broder, CEO of Broder & Sachse. 

"It was an opportunity to preserve a historic building while also preserving a special community within the building that our residents had known and loved for years."

The city expects to provide development training in the first quarter of 2019 for the Affordable Housing Leverage Fund, Schneider said. 

“Developers will be able to understand what opportunities and incentives they have, including current property owners,” Schneider said. “The thought is this affordable housing leverage fund will have a number of tools and products that will incentivize property owners and developers to help meeting and exceeding the goal of 12,000 units to be preserved.”

If the affordable housing issue isn’t addressed now, it’s going to cost two or three times more in the future, said Tahirih Ziegler, the executive director of the Detroit Local Initiatives Support Corp., which helps organizations revitalize their neighborhoods.

“So that’s really the purpose -- to get the coordinated process, create the culture, create the tools that are needed and make sure that we have a way that we’re doing this for Detroit, not just for today or 2023, but beyond,” she said.

cwilliams@detroitnews.com

Twitter: @CWilliams_DN