I have been deliberately silent on the rollout of the Trump Administration’s various policies relating to urban communities. In part out of dismay, in part out of confusion, and in part out of deference to others who seem to understand it better than myself. I will freely admit that while I did foresee Trump’s election as a disenfranchised Rust Belt Bernie supporter myself, all bets are off now that he’s in office: I have no idea what he will do, or even can.
Trump’s Section 8 Amnesia
The assumption was that a real estate developer with significant Section 8 portfolio experience would not necessarily be a disaster for urban programs. After all, Trump himself made $600 million from the sale of rent-assisted properties in NYC’s Outer Boroughs. Furthermore, even Trump’s marquee properties were frequently developed with sophisticated financing and hefty public assistance (excellent piece in the Village Voice which has covered his business practices for 40 years), which although unsurprising, should ground him in the reality of how projects actually get done.
That turned out to be untrue as it is clear as mud that the traditional neocons surrounding Trump are driving the bus on most policy decisions. I think the rollout and rollback of Trumpcare also shows that Trump may have even less interest in actual policy than previously believed during the campaign. That said, there has to be policy, and policy has to come from somewhere.
Surprise, it’s the same hardline neocons proposing to eliminate HUD, shift LIHTC to the states’ discretion (charity?), eliminate public transit, eliminate subsidies for Amtrak and the Washington Metro, and other old ideas.
The hardest hit will be absorbed by the Section 8 program, it appears, with 13% cuts across the board to PHAs and HCVs. In my personal experience writing housing studies across the nation, I have only encountered 1 out of 10 PHAs that have an open wait list for vouchers, and usually the wait list is years long. People typically die on these wait lists, in substandard or unaffordable housing, waiting to receive housing assistance that often never comes. PHAs have a common practice of purging these wait lists, typically thousands of households long, to remove all of the deceased or otherwise no longer eligible households. Local policy initiatives such as priority for homeless veterans on the wait list further lengthen the wait list time for all others.
Furthermore, Section 811 (disability/HOPWA housing) is proposed to be cut by 20%, Section 202 (elderly housing) by 10%, and Tribal housing programs by 20%.
Making Section 8 Great Again
Trump probably knows full-well the extent to which Section 8 owners can absorb 10-20% cuts. The problem is that that’s not how these cuts are going to be appropriated. When Trump was responsible for his Outer Boroughs portfolio, he would frequently play the contract rent game with HUD.
In NYC, operating safe and decent housing with long-term, loyal tenants is undesirable due to the city’s rent control, which controls rent growth as long as a tenant stays in a unit. Even LIHTC/LIHC properties in NYC can’t achieve maximum allowable tax credit rents unless a unit has X number of move-outs within a 10-year period, resulting in a credit boost that calculates how much a landlord can raise rents. No fun, right? What is fun: Converting a unit over to a voucher-holder, which is excluded from the city’s rent controls because nobody (besides the government) is actually paying that rent. The rent paid by a voucher can be insanely high, as the vouchers are good for HUD’s established Fair Market Rent (FMR) for each market.
When I presented my proposal for Connectus in the ULI Hines competition, I played the same game that Trump and every smart developer is doing: subsidy layering. One side of the street in Connectus is in a Qualified Census Tract (QCT), which we fully took advantage of in terms of what went on which side of Spring Street. Putting the LIHTC tower over there resulted in a 120% basis boost for credits, and then adding a theoretical HAP contract resulted in achieving HUD’s FMR for Atlanta ($820 for a 1BR, $949 for a 2BR, $1253 for a 3BR) on top of the excess equity flowing through the project as a result of the QCT basis boost. The ULI Hines guidelines pushed for 20% affordable units minimum, but probably was not intended to be manipulated with fully-blown low-income components. The local judges, Columbus developers and City Development Chief (all truly brilliant guys), did not believe our IRR of around 25% when all other teams were around 12-15%, and told us that our numbers were wrong. Kind of hard to rebut with a lecture on manipulative affordable housing finance on a judging stage, so I just took that one on the chin. Lesson learned: Hard to go wrong with less complicated.
So, this is all to say in my own limited professional and academic experience, that savvy Section 8 developers can take a hit in their cash flow. These projects don’t need to be the cash cows that they tend to be. However, that’s not going to change. These 13% voucher program cuts aren’t going to be absorbed by renegotiating contract rents or re-setting HUD FMR, but rather just by reducing the number of fellow human beings actually benefiting from these programs.
I am actually in favor of the common practice of concluding to fairly high contract rents on Section 8 units. I wish HUD, long Republicans’ favorite punching bag, had the resources it actually needs to address the nation’s housing situation. I don’t think affordable housing has to mean cheap, substandard housing. Efficient, yes; cheap, no. The above comments are just to point out who is actually going to be hurt by these proposed cuts.
Oh, and we know that federal support for transit is going away. Is that a tough blow though? We already knew it was coming, it’s been well-underway for some years now, and on the bright side fewer cities are offering premium transit service, putting transit users in a position without much to lose at this point. Angie Schmitt has the rundown on where transit is going.
I think that regardless of how short-lived the Trump Era may be, this period of history will be defined by those who can find a way to form partnerships with non-traditional partners. PHAs and RTAs that can find a way to delay major strategic decisions until post-Trump will be better off. Cleveland’s RTA, for instance, is in dire straits making it unable to delay such strategic decisions for much longer, meaning that they will have to re-evaluate the service they can provide during this era of austerity. For now, it may behoove us all to just get along to go along, fly under the radar, and put off major decisions until the stars realign over our great nation, or else take on the lasting impact and footprint of the policy flavor of the day.