Will the rent rise? When affordability rules expire, agencies can be outbid and out-hustled by private firms

As real estate developers and landlords buy into a limited housing market in the Pittsburgh region, affordable housing advocates see preservation of cheaper rental housing as a way to counter market forces.

In an attempt to do just that, nonprofit ACTION-Housing attempted last year to buy a 43-apartment Penn Hills complex with an expiring affordable housing mandate. It offered $2 million. A private property management company, CityLife, outbid them by $261,500 and got the property — a scenario some advocates fear could become common as rent controls sunset. 

“There are these traumatic, acute cases like the Penn Hills property . . . where affordability requirements expired,” said Matt Madia, director of real estate services for Neighborhood Allies, a nonprofit focused on building strong community ties. “We’re not powerful enough to push back on the investor market.”

The Melvin Court apartments sit on both sides of Beulah Road in suburban Penn Hills. In 2006, the apartments received Low-Income Housing Tax Credits [LIHTC] that required all units to be occupied by tenants who made no more than 60% of the area’s median income.  

While that requirement is ticking away, the new owners say they have no intention to displace rent-paying residents. 

“We got it for a good purchase price and we don’t have to immediately kick a bunch of residents out to try and get maximum rents for renovations,” said Casey Quinn, the owner of CityLife. “With this purchase price, we could put a good maintenance program in place to update over time and we don’t have to kick tenants out.”

Outpaced by the private market

In 1986, the federal government created the LIHTC program, which grants tax credits to developers in return for building, maintaining or rehabilitating properties and keeping them as affordable housing for 15 to 30 years.

From 1987 to 2009, there were about 2.2 million units throughout the country developed through LIHTC. During the program’s first 20 years, LIHTC properties represented nearly a third of all newly constructed multifamily rental housing, according to the federal Department of Housing and Urban Development. 

Both for-profit and nonprofit developers can participate in the program. Statewide, funding is allocated by the Pennsylvania Housing Finance Agency [PHFA]. 

Aside from Melvin Court, there is one other property in Allegheny County, a 79-unit facility also located in Penn Hills, set to have its LIHTC designation expire this year, according to PHFA. Last year, the designation on a Findlay Township property with 38 units expired, and another in West Deer Township, with 40-plus units, will follow in 2024. Overall, there are more than a hundred LIHTC properties in the county, with the state awarding tax credits to six more properties last year. 

When the mandate expired for the affordable housing mandate for Melvin Court, ACTION-Housing tried its luck. They asked the seller for a 90-day hold on the property to gather the $2 million, according to Lena Andrews, ACTION’s director of real estate development. She said the plan was to keep the complex’s one- and two-bedroom units at their affordable housing designation without trying to extend the LIHTC compliance period because they didn’t plan on doing any major renovations that would require tax credit investment.

But CityLife’s quarter-million extra landed it the complex in December for $2,261,500, according to Allegheny County’s real estate website.

The glancing meeting between private and nonprofit showed the limitations nonprofits and publicly funded pools of money face when competing in the private housing market. 

“As demand to purchase property in Pittsburgh increases, it becomes harder for nonprofit developers to compete in the private market,” Andrews said. “It takes time for us to pull financing together from the plethora of sources that are a part of acquiring and developing affordable housing.

“In the case of the Penn Hills apartments, by the time we got out to see it, the broker was already calling for offers,” Andrews said. “While we did end up making an offer to purchase it, the entity that bought it was able to close faster than we would have been able to.”

No plan for mass eviction

There’s no plan to evict low-income residents, Quinn of CityLife said, and they will continue to accept tenants who have housing choice vouchers.

“We’re not trying to make anything high end,” he said. 

Quinn said that his company wasn’t an out-of-town investor looking to flip property. He said CityLife is a minority stakeholder in the limited liability company [LLC] used to buy the property. He declined to share the identity of the majority owner.

“We’re local,” he said. “We all live in these communities. Our model is not to kick people out. We don’t want to do that.”

According to court records, CityLife filed 75 landlord-tenant cases, seeking evictions, since 2020. According to the company’s website, CityLife manages 547 units. Quinn noted that they often file evictions against tenants as a way to motivate them to pay rent. 

“We try to abide by all the rules. Some of those tenants want to live for free and don’t abide by the rules,” he said. “A lot of tenants see the eviction notice and then pay their rent.”

Quinn said they do not plan on evicting tenants who pay rent from Melvin Court. They also have no plans to apply for another LIHTC that would bind them to keep rents low.

“If I had to summarize it, our plan is to run the building similarly to how it has for the last 20 years but much better — maintenance, cleaning up, being responsible to tenants,” he said. “We’re going to take care of any of their issues. We’re going to keep this affordable.”

More money, same limitations

The City of Pittsburgh is working with the Urban Redevelopment Authority [URA] to create a pool of funds that can be used to buy affordable housing. But even with increased funds, there are other challenges.

In Pittsburgh, the median asking rent is $1,240, up 13% from last year, according to the apartment listing company Dwellsy. When rents rise, investor interest can, too.

“There’s currently no agile source that could stave off the loss of affordable housing,” said Evan Miller, the acting director of housing lending for URA. 

Miller said the URA would be receiving American Rescue Plan funds through the city to be used for housing preservation efforts. In July, Pittsburgh City Council reallocated $8.9 million of American Rescue funds to the URA.

“We’re working through the process of creating a program that would do multiple things, including providing quick access to cash so that organizations like ACTION-Housing can compete with the private market and preserve housing that might have a LIHTC expiration,” he said.

The money, Miller said, could also be used to rehabilitate buildings, something the URA has focused on for some time.

“This is a potential shot in the arm to help us continue this mission,” Miller said.

But even with added funds, government-funded organizations will have to contend with the high speed at which real estate transactions take place now.

“You have companies offering cash, on the spot, 20% above market rate, sight unseen,” said Lance Chimka, director of Allegheny County Economic Development. 

“The biggest thing to consider, any time you use public money: rigidity,” he continued. “There’s due diligence and serious constraints to moving money that private funders don’t have to do. So even if we had a pool of money, it would be hard to move it as quickly as private offers.”

Chimka said the county tried to build and preserve affordable housing by working with housing owners to apply for or extend their tax credit compliance.

“We usually invest in three to four LIHTC deals a year,” Chimka said.

But in situations like Melvin Court, Chimka said that “even if something goes market rate, it depends where it is and the condition of the building, leading to what they can charge. So often you see new owners have rent stay at similar prices.”

“But there’s no promise that those price points won’t increase in the future.”

Eric Jankiewicz is PublicSource’s economic development reporter, and can be reached at ericj@publicsource.org or on Twitter @ericjankiewicz.

This story was fact-checked by Jack Troy.