Houston Chronicle, February 28, 2022
As soon as Rita Martinez saw a flyer on her door saying ownership had changed, she started Googling.
“I wanted to see what I was up against,” she later explained. “If I’d be able to keep a roof over my head along with the costs of food and gas and everything going up.”
The new owner was Avenue, an affordable housing nonprofit — and the purchase marked a pivot from building affordable housing to purchasing existing apartment complexes that already have low rents. Martinez watched as the nonprofit installed security cameras and installed new mailboxes, feeling that such upgrades would surely cost tenants. But nearly a year later, she has come to feel confident that Avenue is committed to keeping the units affordable.
In urban areas, land costs have soared in recent years, undermining affordability. Not only has building affordable housing in such areas become more and more difficult. Existing rental properties that were already offering low rents (usually because the buildings have aged and lack updates) are also being lost — torn down to make way for developments that can attract higher rents, or updated in ways that can justify increasing rates. So Avenue has moved from construction to preservation, something an increasing number of affordable housing providers are focusing on across the country.
“In theory, you can buy an existing apartment for $80,000 to $100,000, depending on the location,” explained Mary Lawler, Avenue’s executive director. “Building a new apartment could cost almost double that.”
Houston’s shrinking supply of affordable homes
The pandemic sent rents sky high, putting Houston’s strategy for affordable housing — long dependent on the market, rather than subsidies — to the test.
As of February, Houston rents had spiked a staggering 16 percent from the year before, according to the multifamily analytics company ApartmentData.com. That’s because, as vaccines became accessible, many who had hunkered down with family or roommates to weather the pandemic felt it was time to move out on their own. The accompanying demand for apartments hit the market at a time when builders, uncertain of the economy, had scaled back construction.
Those market dynamics have an outsized impact in the Houston area, where a smaller portion of affordable housing relies on public subsidies than in metropolitan areas such as New York City, Chicago and Philadelphia. In Harris County, a data analysis performed before the rent spike showed that 85 percent of affordable housing had offered low rates because of the market, not subsidies, according to the Rice University Kinder Institute for Urban Research. (It looked specifically at housing that would be affordable to a household making 80 percent of the area median income, which comes out to $999 for one bedroom or $1,199 for two.)
For Dorian Cockrell, the finding underscored the importance of finding ways to preserve affordable housing. The vice president of Global Philanthropy at JPMorgan Chase, which sponsored the Kinder study, he reached out to Avenue about investing $1 million in a fund to protect what’s known as naturally occurring affordable housing.
“We need to figure out how to make sure we don’t lose our (affordable) housing stock,” he said.
Hopeful
The trickiest part of Avenue’s approach is finding a property where the numbers can work in a frothy market. In the last year, the nonprofit has made offers on at least a dozen properties, out of which it has closed on one and received a signed letter of intent on a second.
“We have a lot of competition from a lot of investors out there who are looking to buy these properties because they are seen as safe and lucrative investments,” Lawler said.
Apartments are seen as safe investments in times of inflation because rents tend to rise. And investors — who value buildings based off of their cash flows — may be willing to bid more if they’re factoring in higher rents.
One of the ways Avenue is hoping to find deals at price points where it can afford to keep rents affordable is by calling landlords who haven’t yet listed their properties for sale with the hopes of getting lucky. Lawler also hopes some family owners looking to get out of the business will find a mission-driven nonprofit promising to keep rents low preferable to other buyers.
Avenue uses its social impact fund, which includes investors like JPMorgan, to cover 25 percent of the purchase price of an apartment complex and a line of credit to cover the rest of the costs, which it quickly refinances into a longterm loan. It commits to keeping rents affordable to households earning 80 percent of the area median income.
For Martinez, that commitment is a huge relief. She stays at home because two of her children have special needs, so the family relies on the income of her husband, who works in the construction industry.
“Food has gone up, gas has gone up, everything has gone up,” she said. “If rent goes up, I need to cut back on something else —necessities that my kids need.”