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Determining the duration of required affordability for dedicated affordable housing
Some affordable housing programs are designed to preserve affordability for a set period of time, sometimes called a “control period.” During the control period, covered units are subject to rent or sales price limitations and new occupants must meet established income requirements.
These regulatory restrictions help to ensure that homes created through affordability programs serve their intended purpose and do not immediately convert to market rates. After the control period has expired, the units can be rented or sold at market levels or converted to other uses. While some owners, particularly non-profit or mission-oriented organizations, choose to keep the affordability provisions in place even after the legal requirements expire, others opt out and allow the units to convert to market rates.
To serve the most people possible, and maximize the return on the public investment, it’s generally a good practice for localities to aim to preserve affordability for the longest possible time. Cities, towns, and counties can strive for “permanent” affordability in their housing programs, where use restrictions remain in place in perpetuity or, at minimum, require affordability that persists for the full 50-year lifecycle of a property. While federal regulations allow for shorter periods of affordability—new rental housing developed with HOME funding, for example, must remain affordable for at least 20 years and projects funded with Low Income Housing Tax CreditA dollar-for-dollar tax reduction against federal tax liability, provided to developers based on the criteria set out in the states’ qualified allocations plan. It is the primary source of funding for increasing and preserving supply of affordable rental homes.s (LIHTC) are required to have an affordability term of at least 30 years—these federal requirements are minimums, not maximums, and should be viewed as starting points to be exceeded where possible.
While long-term affordability is the best way to get the most value from every dollar of investment, it does bring some trade-offs that need to be considered when designing policies. This brief describes some of those considerations, as well as steps that localities can take to mitigate potential downsides.
Homeownership units: balancing wealth generation with long-term affordability
Rental units: planning for long-term capital needs
Monitoring and oversight
Families who purchase affordable homes agree to comply with a variety of conditions. These include resale restrictions that limit the price of the property as well as other provisions, such as requirements to use the property as a principal residence. Ongoing monitoring helps to ensure that these conditions are met. Income-restricted rental properties also need some level of oversight to ensure that new tenants meet income requirements, affordable rent levels are maintained, and the property is maintained effectively.
Localities that do not have the staff capacity to fill this monitoring and oversight role sometimes certify third-party organizations to act as partners that can monitor compliance and review requests for exceptions to program regulations. Partner organizations may also deliver homeownership counseling and foreclosure prevention assistance and qualify new buyers. Localities can also build notification requirements and rights of first refusal into the deed restrictionPrivate agreements that limit the use of property, as noted in a deed. It helps to maintain the long-term affordability of homes built with significant subsidy. that limits the resale price of affordable ownership properties. These provisions can help to alert the sponsoring agency to any pending sales, so it can step in if the sale does not comply with program requirements. Smaller localities can consider regional partnerships to jointly manage compliance with the terms of affordability programs, either through a jointly managed entity or shared management of partner organizations.
While there is a cost to ensuring compliance over time, in most cases it will be substantially lower than the cost of providing additional subsidy dollars year after year in programs where long-term affordability is not maintained. However, it is not always cost-effective to do so. Where the administrative costs of monitoring sales begin to approach the value of the subsidy—for example, for a first-time homeownership program that provides $2,500 in closing cost assistance—cities may determine that it makes more sense to structure the assistance as grant funding (or a forgivable loanLoans that are partially or entirely forgiven for a specified period of time, if requirements are met.) with no expectation of continued affordability. In other cases, however, the per-unit subsidy cost will be large enough to justify the investment in maintaining it. This threshold will vary by market, but a potential minimum may be a per-unit subsidy of $10,000.
Flexibility to weather downturns
Long-term affordability requirements help to promote a stable supply of affordable housing, particularly in neighborhoods where local real estate market trends and community opposition limit the feasibility of replacing units that convert to market rate in the same or similar locations. As home prices increase, long-term affordability requirements become increasingly important. When prices drop substantially, however, it may be difficult for owners of resale-restricted properties to find buyers. In extreme cases, homeowners may be “trapped” in units they are unable to sell, as buyers choose comparably-priced units that don’t carry any resale restrictions. In anticipation of this scenario, localities can build provisions into the program regulations that allow for a relaxation of affordability covenants in extenuating circumstances.
It is also important to acknowledge neighborhood change, and recognize that areas that were once rich in amenities and resources may deteriorate over time. In mature high-cost markets, preserving the long-term affordability of specific housing units may be critical to providing continued access to good schools and other services for lower-income households. In less stable markets, however, municipalities may wish to consider policies that provide for the long-term preservation of subsidies, rather than specific units. This approach provides flexibility to shift the location of affordable housing, while helping to ensure the public subsidy keeps pace with the need.
 See Balancing Affordability and Opportunity: An Evaluation of Affordable Homeownership Programs with Long-Term Affordability Controls by Kenneth Temkin, Brett Theodos, and David Price for an evaluation of eight shared equity programs. The authors find that homebuyers are able to earn competitive returns while keeping home prices affordable to additional lower income buyers.
 In declining market scenarios, shared equity programs can even result in greater returns than might otherwise be possible in traditional homeownership. See Filling the Void Between Homeownership and Rental Housing: A Case for Expanding the Use of Shared Equity Homeownership by Jeffrey Lubell, pages 9-11, for a discussion of how shared-equity homeownership can be used to mitigate the risks of traditional homeownership.
 See Lifecycle Underwriting: Potential Policy and Practical Implications by Maya Brennan, Amy Deora, Ethan Handelman, Anker Heegaard, Albert Lee, Jeffrey Lubell, and Charlie Wilkins for more information on lifecycle underwriting.