Housing Preservation Strategies and Tools
The following represent strategies in use by governments and organizations around the region to maximize the utility of the region's existing housing stock. Many of the strategies outlined in the Teardowns report are not repeated here, but are also applicable to preservation.
Regional and County Strategies
The Preservation Compact, an assembly of public, private, and nonprofit leaders committed to preserving affordable rental housing in the Chicago region, was formed in 2005. With the assistance of over 100 housing experts and regional community and civic leaders, a Rental Housing Action Plan was created. The goal of the plan is to preserve at least 75,000 affordable rental units in Cook County by the year 2020.
The Rental Housing Action Plan is built on the following six key initiatives:
- The creation of a Preservation Fund that will increase the flow of capital to properties at risk of being lost from the affordable rental market.
- The creation of an Interagency Council of governmental partners who are essential to preserving housing in northeastern Illinois. Creation of this Council would improve coordination and information flow toward the goal of preserving at-risk rental properties.
- The creation of a Rental Housing Data Clearinghouse, as well as an early warning system for properties at risk of being lost from the affordable rental market, whether it be from expiring subsidies or other factors.
- The creation of an Energy Savers Program geared towards decreasing energy-related operating costs for owners of affordable rental properties.
- The creation of a Chicago-area Rental Housing Alliance that would help tenants seek new ownership in at-risk properties.
- Advocacy for lowered property taxes on multi-family rental properties to bring them in line with those on single-family homes as well as reduce the burden on both owners and tenants (Urban Land Institute & MacArthur Foundation, 2007).
There have been many successes under the banner of the Preservation Compact since its creation. A $50 million Preservation Loan Fund is being created to provide gap, or "bridge", financing to acquire and hold at-risk properties while long-term financing is assembled. The Center for Neighborhood Technology (CNT) has completed energy audits for over 1300 rental units. CNT has also provided recommendations for energy-saving improvements, investments, and techniques for these units. Cook County Assessor James Houlihan has proposed simplifying the county's 6-tiered assessment levels to two tiers. This effectively eliminates the bias against multi-family housing and allows for the assessment of multi-family housing at the same levels as other forms of residential housing. The Preservation Compact has been working diligently, but there is still much to be accomplished by 2020.
Troubled Buildings Initiative
The City of Chicago created the Troubled Buildings Initiative (TBI) in 2003 to prevent neglected and damaged properties from harboring crime activities and save affordable multi-family stock. TBI has effectively mobilized the resources and expertise of nine city departments and the Community Investment Corporation (CIC), a nonprofit housing organization. In a partnership between the City of Chicago and CIC, TBI works proactively through the Cook County Housing Court to pressure landlords to comply with a repair and maintenance orders. If the landlord fails to meet the court orders, the housing court appoints a receiver with specific responsibilities, for which CIC may play a facilitating role. CIC can also acquire the troubled properties and resell them to responsible owners, who are usually committed to keep the properties as affordable housing. TBI has successfully recovered 1,183 units as of April 2006; 1,107 units are under rehabilitation, and 686 units are under court-ordered receivership (Metropolitan Planning Council, 2006). The Troubled Buildings Initiative is a model strategy for many local governments that want to preserve affordable units (Urban Land Institute & MacArthur Foundation, 2007).
The Cook County Class S Program is a tax incentive program designed to preserve project-based Section 8 multi-family rental housing as decent, safe and affordable for low- and moderate-income households in Cook County. Eligible properties are those subject to a project-based Section 8 contract in an area where market-rate rents exceed otherwise allowed rents through the project-based Section 8 program. Qualified properties must renew their contracts through the Mark-Up-to-Market program (see "Federal Preservation Strategies and Tools" below). Section 8 apartments must be retained during the five-year term of the renewed contract. The number of Section 8 units must be at least 20 percent of the living units (Cook County Assessor's Office). The assessment reduction is calculated according to the proportion of Section 8 apartments in the building's residential uses (National Housing Trust, 2007). For example, a landlord owning a 20-unit apartment building with 5 section-8 units would only receive the reduced assessment level of 16% on ¼ of the entire building.
Class 9, a property tax classification in Cook County, has provided a sizable reduction in property taxes to multi-family buildings with seven or more rental dwelling units since 1998. Property owners must apply for Class 9 before beginning major rehabilitation projects. From the date of completion of major rehabilitation and upon application and approval of the Assessor, property owners receive a reduced assessment level (16 percent) for both land and building for ten years. To be eligible, property owners are required to keep at least 35 percent of the units affordable to low- and moderate-income households for the duration of the incentive. Class 9 may be renewed for additional ten-year period. Expanding Class 9 to include a broader range of rental housing would result in the preservation of more affordable units. Members of the Preservation Compact (see below) are seeking an expansion of Class 9, which will allow buildings in good condition that are wholly or primarily dedicated to affordable housing to qualify for an assessment level reduction without the "substantial rehab" requirement (Urban Land Institute & MacArthur Foundation, 2007).
Historic Chicago Bungalow Initiative
The Historic Chicago Bungalow Initiative was launched in 2000. This program was created to meet the goals of preserving aging housing stock, preserving the architectural integrity of these historic homes, and generating excitement about improving neighborhoods. Traditional bungalows were built between 1910 and 1940. These one-and-a-half story brick homes consist of almost one-third of the city's single-family homes. The initiative encourages bungalow rehabilitation, through the not-for-profit Historic Chicago Bungalow Association (HCBA), by offering various financial resources, from grants to loans, and technical resources, including how-to seminars, resource guides, and pattern drawings, to assisting bungalow owners with home repairs. Matching grants are available to individual bungalows certified by HCBA for the purposes of restoring or replacing windows and doors, upgrading or adding energy systems, creating affordable housing for residents who have restricted incomes, and purchasing an energy-efficient appliance with a voucher if an HCBA-certified rehabilitation project costs at least $5,000. For bungalow homeowners who are on restricted incomes, the grant size is $3,000 for homeowners with incomes between 50 percent to 80 percent of the Area Median Income (AMI*) (Illinois Housing Development Authority 2007) and $5,000 for homeowners with incomes less than 50 percent AMI. In order to qualify for home improvement grants, improvements must be consistent with bungalow design guidelines. The bungalow program is flexible in that it allows homeowners to mix and match incentives, which has helped many on fixed incomes make necessary repairs to their homes (Chicago Bungalow Association, 2008; Metropolitan Planning Council, 2007)
Historic Chicago Greystone Initiative
The Historic Chicago Greystone Initiative is led by Neighborhood Housing Services (NHS) of Chicago – North Lawndale in partnership with the City of Chicago, the City Design Center of the University of Illinois at Chicago, the Civic Committee, neighborhood residents, foundations and various other stakeholders. The initiative seeks to preserve affordable housing for the neighborhood's current residents while also creating incentives for new residents to invest in the neighborhood's historic housing stock.
The neighborhood of North Lawndale on Chicago's West Side is home to nearly 2,000 greystones, more than any other Chicago community. The neighborhood has a rich cultural and economic past but has been negatively affected by disinvestment and urban flight for the last 40 years. This initiative is meant to build community pride, stimulate reinvestment, increase homeownership, and promote improvements in existing properties throughout North Lawndale. With the committed support of $1 million in tax-increment financing (TIF) funding through the TIF Neighborhood Improvement Program for homeowners participating in the Greystone Initiative, NHS is seeking to preserve existing housing stock as well as a part of history for homeowners and new residents (Neighborhood Housing Services of Chicago, 2008).
Tax Increment Finance-Neighborhood Improvement Program
Administered by Chicago DOH, the Tax Increment Finance-Neighborhood Improvement Program (TIF-NIP) is a program that provides home repair grants. There have been TIF-NIP projects in thirteen districts of the City's TIF Districts: Bronzeville, Woodlawn, South Chicago, Lawrence/Kedzie (Albany Park), Midwest (Lawndale and Garfield Park), Chicago/ Central Park (Humboldt Park) and Englewood, Division/Homan, 119th /I-57, 119th/Halsted, Roosevelt/Homan, Devon/Sheridan and Harrison/Central. The TIF-NIP program currently provides home repair grants for both single and multi-family residences within two TIF districts with least one more to be rolled out in the near future (City of Chicago 2008). Grants are primarily for exterior repairs; however, up to 30% of the grant may be used for interior repairs that are health and safety related. Grant amounts are based on the number of units per residence. Single-family homeowners with household incomes at or below 100% of the area median income (AMI) are eligible for grants. Those with incomes between 101-120% of AMI may qualify, but must match, dollar for dollar, the grant amount. To be eligible for TIF-NIP grants, multi-family building owners must structure their rents so they are affordable to households at or below 80% of AMI*.
Highland Park, Evanston and Lake Forest have all passed ordinances that require developers to pay large fees in exchange for demolition permits. The strategy is used as a means to simultaneously preserve community character and generate revenue for affordable housing production. In all three municipalities' ordinances, some or all of the revenues generated from these fees are used to finance local affordable housing initiatives. Highland Park and Lake Forest use revenues from their own demolition taxes to help to finance municipal affordable housing trust funds (Metropolitan Planning Council 2006).
Other Specific Local Programs
The City of Elgin has established two home rehabilitation grant programs to assist current residents - both owners and renters - to rehabilitate their properties in the city's historic districts. Elgin's "50/50" and "75/25" programs allow for a reimbursement of a percentage (50% or 75%, depending on which grant program) of funds spent on rehabilitation to the applicant, up to a certain dollar amount. In particular, Elgin's 75/25 program specifically targets low- and moderate-income households. The goal of these grant programs is to encourage residents to restore and maintain the original features of their homes, which ultimately preserve the character of these historic neighborhoods, while assisting families who otherwise could not otherwise afford to make these improvements (Metropolitan Planning Council, 2007).
The City of Evanston's multi-family rehabilitation loan program was established to encourage the revitalization, preservation and stabilization of Evanston's neighborhoods, as well as to conserve and rehabilitate housing for low-income households. Landlords with two or more apartments and 51 percent of tenants earning at or below 80 percent of area median income (AMI*) are eligible to apply for multi-family rehab loans. For these loans, the interest rate is one-half of the 30-year Treasury Bond, adjusted monthly, and amortized over 20 years. The loan distribution is capped at $20,000 per rehabbed unit. The City of Evanston also provides revolving rehabilitation loans at zero percent interest for owner-occupied buildings, including single-family homes and condominiums. These loans are available to households earning at or below 80 percent of the AMI, and are provided through several specific programs (Metropolitan Planning Council 2007), including an Abandoned/Board-Up Building Loan Program, an Emergency Rehabilitation Assistance Program, and a Self-Help Exterior Paint Program (City of Evanston, 2008).
The Village of Oak Park has a single-family rehabilitation grant/loan program that makes it possible for qualified low-income residents to maintain their homes at safe and desirable standards while preserving the village's existing housing stock. This program disbursed over $2 million between 1997 and 2004, with an average allocation of $24,380 per year and includes several initiatives. As with Evanston's loan programs, eligibility for Oak Park's programs is determined by HUD. Under the village's Diversity Assurance Program, owners of multi-family properties (four or more units) can receive matching grants of up to $2,000 per unit ($1 of village money for every $2 contributed by the property owner) for the purposes of rehabilitating properties, as well as below market interest loans of up to $50,000 to finance major property rehabilitation. Building owners, as a stipulation to receiving these funds, must sign a Marketing Services Agreement to list vacancies through the Oak Park Regional Housing Center, which promotes racial diversity within the village's rental housing stock. If a building involved in the grant program is sold within five years after the grant is made, the entire grant must be repaid to the village, plus interest (Metropolitan Planning Council, 2006).
*As determined by the U.S. Department of Housing and Urban Development (HUD), 50 to 80 percent of the AMI for northeastern Illinois equals $37,700 to $59,600 for a family of four in 2007.
Housing Trust Funds
The Illinois Affordable Housing Trust Fund, administered by the Illinois Housing Development Agency (IHDA), will assist private developers and local governments in the acquisition and rehabilitation of existing housing. The primary use of funds is rehabilitation for single-family or multi-family housing. Funding comes from a real estate transfer fee and is generally in excess of $50 million each year. Rehabilitation properties can receive no more than $1 million each. Applications are accepted year round and are meant as last resort funding. Most transactions are low interest loans although grants are available to non-profits with extraordinary projects that would not be capable of repaying a loan. Projects which use multiple funding sources are given a priority and historically awards are leveraged at a ratio of over 4 to 1 (National Housing Trust, 2007).
Some municipalities have successfully developed their own trust funds. One example of how local Housing Trust Funds work can be found in Highland Park. Highland Park's housing commission has overseen the Housing Trust Fund since its inception in 2002. The Trust Fund received $1 million in seed money from the housing commission and is expected to get one half million annually in revenues derived from residential demolition permit fees. As such, and especially in times of economic downturn, it is important to consider a variety of funding sources for affordable housing. The Trust Fund provides funding for a variety of affordable housing activities including preservation and rehabilitation of existing housing. It also gives preference to multi-family rehabilitation and preservation projects (National Housing Trust, 2007). Additionally, the Trust Fund provides operational support for the Highland Park Illinois Community Land Trust, one of the first of its kind in northeastern Illinois.
Grants can be given for affordable housing proposals that incorporate energy efficient technologies and building techniques. Illinois Clean Energy Community Foundation grants, special assessment for property tax purposes, rebates for renewable energy systems, and a green tag purchasing program are available. Housing is an eligible activity under the Illinois Department of Commerce and Economic Opportunity (DCEO)'s Energy Efficiency Grant Program (National Housing Trust, 2007). These grants, though used for new construction, can also be used for rehabilitation projects.
Other IHDA Resources
IHDA has a Multi-family Department that works with existing owners to help meet the rehabilitation needs of older developments and to encourage owners to keep their developments affordable. The department helps IHDA-financed properties to refinance to help rehab and preserve the property and acts as a Participant Administrative Entity in HUD's Mark-to-Market process (HUD, 2003).
The Illinois Affordable Housing Tax Credit (IAHTC) allows individuals or organizations to donate cash, securities, personal property or real estate to participating non-profit housing developers in exchange for a 50 cent credit toward their state income tax for every $1 donated for approved affordable housing creation. Aggregated amount of donation must be at least $10,000. Technical assistance and general support have a $1 million earmark with another $2 million for Employer Assisted Housing. Funds must be used for properties that meet the definition of affordable housing. IHDA is the IAHTC administrator for the state and gives preference to properties that "emphasize preservation, serve lower-income people, are ready to proceed financially and serve special needs populations (Illinois Housing Development Authority, 2008).
Historic Preservation Tax Incentives
Since 1976, the National Park Service has administered the program in partnership with the Internal Revenue Service and with State Historic Preservation Officers (SHPOs). The tax incentives have spurred the rehabilitation of historic structures of every period, size, style and type. These tax incentives have also helped to create moderate and low-income housing in historic buildings. Through this program, abandoned or under-used schools, warehouses, factories, churches, retail stores, apartments, hotels, houses, and offices throughout the country have been restored to life in a manner that maintains their historic character (National Park Service, 2008).
Current tax incentives for preservation include a 20% tax credit for the certified rehabilitation of certified historic structures, and a 10% tax credit for the rehabilitation of non-historic, non-residential buildings built before 1936. For both credits, the rehabilitation must be substantial, meaning that during a 24-month taxpayer-selected period, rehabilitation expenditures must be more than $5,000 or the adjusted basis of the building and its structural components. The adjusted basis is generally the purchase price, minus the cost of land, plus improvements already made, minus depreciation already taken. The rehabilitation must involve a depreciable building, which means that it must be used in a trade or business or held for the production of income, or in this case, for rental housing. It may not serve exclusively as the owner's private residence (National Park Service, 2008).
When a Section 8 contract expires, certain properties can be renewed under Mark-Up-To-Market. This option raises assisted rents up to the comparable market level (capped at 150% of fair market rent for a specific region) and provides for at least a five-year term and annual rent increase based on the Operating Cost Adjustment Factor. HUD will allow owners with 100% Section 8 projects to take increased distributions and keep all available surplus cash. This option offers owners a financial incentive to renew Section 8 contracts and to continue to provide affordable housing in strong markets.
HUD can also use its discretionary authority to mark Section 8 rents up to market levels for projects that meet any one of the following characteristics: 1) the project is located in a low-vacancy area, 2) the project serves vulnerable populations, such as the elderly, disabled or large families, OR 3) the project is a high priority for the local community, demonstrated by a contribution of state or local funds to the property. Under this authority, HUD may also mark rents up to market to facilitate a change from a for-profit or limited distribution owner to a non-profit owner. Contracts are renewed for a minimum of five-year terms and can be extended for as long as twenty years (Urban Land Institute & MacArthur Foundation, 2008d).
Mark-to-Market (M2M) and New Green Initiative
The Office of Affordable Housing Preservation (OAHP) within HUD administers the Mark-To-Market program, which offers incentives to property owners with project-based Section 8 units, an FHA-insured mortgage, and contract rents that are above the market. M2M brings the Section 8 contract to market rents, provides for debt restructuring of the FHA-insured mortgage to a level that can be serviced by markets rents, and addresses the immediate and long-term physical needs of the property.
The owner can qualify for an incentive package, including closing and rehabilitation costs repaid with interest (Capital Recovery Payment), payment to owners equal to 3% of effective gross income (Incentive Performance Fee) and a Cash Flow Split (up to 25% of cash flow). Non-profit purchasers of M2M projects can potentially get secondary notes assigned to their organization. Finally, OAHP encourages sustainable green building principles by reducing the owner's contribution to rehabilitation costs and increasing the Incentive Performance Fee (Urban Land Institute & MacArthur Foundation, 2008d).
All benefits are available to owners who renew the Section 8 contract for a 20-year term and agree to a new 30-year Use Agreement for the property (Urban Land Institute & MacArthur Foundation, 2008d).