Shortage of Low-Income Apartments Seen With Conversions to Condos

When the imposing Bay Towers apartments were built on a grassy field overlooking Boston harbor in 1974, they seemed to be an ingenious solution to an old urban problem: decent housing for low-income people at a price that developers could afford.

The harbor-side high-rise, constructed with private funds backed by federal mortgage subsidies, offered rents of $200 to $300 for working-class tenants, largely of Irish descent. City officials were confident that the 153 units would provide affordable housing for years to come.

But now these apartments--like hundreds of thousands more across the nation--could be lost to their low-income tenants.

Subsidies Dwindling

Federal law allows the developers of such units to pay off mortgages after 20 years and convert their low-income housing to luxury condominiums or high-rent apartments. In addition, federal subsidies for low-cost housing are dwindling and some owners may choose to demolish or abandon their properties in the face of sharply increased costs for fuel, daily maintenance and rehabilitation.

Altogether, up to 1.5 million federally subsidized apartments--more than half of the 2.9 million now in operation--could be lost within 10 years, according to one estimate.

“We may not see it now, but the potential loss of this housing is like a time bomb waiting to go off,” said Philip Clay, a Massachusetts Institute of Technology urbanologist who has studied the problem. “If there is no solution, it could make our present homeless situation look like the tip of the iceberg.”

There is no help from Washington on the horizon. Over the protests of many low-income housing owners, Congress last year enacted an emergency 24-month ban on efforts to convert subsidized housing units to other purposes. But a Senate aide called that only “a holding action to catch our breath and decide what we can do about any of this.”

Not Paying Attention

Peter Dreier, housing director for the Boston Redevelopment Agency, said: “Nobody has really been paying much attention to this issue until recently. And now that they are, it’s very complicated to resolve. It’s basically crept up on a lot of people.”

The high cost of preserving low-income housing is one factor blocking a long-term solution. A blue-ribbon congressional panel has estimated that it could cost $17.7 billion over the next 10 years to avert these housing losses, either by purchasing threatened units or by providing additional aid to owners in exchange for continued low rents.

Another problem is that a substantial part of the subsidized housing was built in neighborhoods that were blighted in the 1960s but are undergoing gentrification now. That is making it increasingly profitable for many developers to convert their units to other uses.

U.S. Estimate Is Lower

Officials of the federal Housing and Urban Development Department insist that the number of subsidized units that stand to be lost has been vastly exaggerated. They put the figure at 150,000, contrasted with the estimate of up to 1.5 million made by the National Housing Preservation Task Force, which consists of the HUD agents who manage the subsidized units.

Whatever the magnitude of the problem, it is not confined to Northeastern cities. In Los Angeles County, for example, there are an estimated 38,941 units at risk through the year 2008, according to the Northern California Assn. for Non-Profit Housing.

Most of these apartments could be lost in the next six years, a trend also found in San Diego, Santa Clara and San Francisco counties. Overall, there are an estimated 90,000 California units at risk through 1999, said Buck Bagot, who directs the nonprofit group.

Launched in 1960s

Few housing officials could have expected such problems back in the 1960s, when the federal government launched a program to spur the construction of low- and moderate-income housing in concert with the private sector.

To get developers involved, officials had to offer a package of financial inducements. Most of these came in the form of tax breaks, rent subsidies--which enable low-income tenants to live in apartments they could not otherwise afford--and federal mortgage subsidies.

But the most attractive benefit of all may have been the promise that developers who put their private capital at risk could pay off their mortgages early, usually after 20 years. At that point, they could convert their units to more profitable uses, such as condominiums or apartments.

Change in Housing Market

“At the time, no one envisioned that these provisions would erode the nation’s supply of low-income units,” said Conrad Egan, vice president of the National Housing Partnerships, a national development company. “But the housing market has changed drastically.”

A key change, Egan said, is shrinking federal support for low-income housing. At the time they offered inducements to developers, federal officials expected a “continuing stream” of new units to replace those converted by their owners, he noted.

In the last seven years, however, Congress and the Reagan Administration have slashed budget authority for subsidized low-income housing from $27 billion to less than $11 billion. These subsidies are not spent in one year but typically are spread over 15 to 20 years.

As it has slowed the construction of subsidized units, HUD has begun offering housing “vouchers” to low-income tenants to rent units that might otherwise be too expensive. Like food stamps, housing vouchers have a cash value but may be used only to purchase one particular kind of item.

Vouchers Disparaged

Critics say housing vouchers are next to useless because of the national shortage of affordable rental housing. Handing a voucher to a poor person seeking shelter, said a Senate aide, “is like giving out food stamps when the markets have no food on the shelves.”

A second development that could not have been foreseen is gentrification. Few planners had any idea that once-blighted areas of Boston, New York, Los Angeles and Chicago would become magnets for young urban professionals seeking luxury condominiums and expensive apartments.

In Boston, for example, owners of the Bay Towers apartments could sell their units--after some basic remodeling--as $150,000 condominiums or rent them for $900, according to city officials. The owners, who have not yet announced their intentions, “are sitting on a gold mine,” one redevelopment expert said.

Rising Fuel Costs

Finally, the cost of operating federally subsidized housing has increased, thanks in part to rising fuel costs in the 1970s. That, too, may drive some developers out of the low-income housing business.

Gauging the extent of the problem is difficult because there are no precise federal figures on the number of subsidized units nationwide. Estimates of the number of units that could be lost vary enormously.

The National Housing Preservation Task Force’s estimate of up to 1.5 million units covered the years through 1995. MIT’s Clay puts the figure at more than 900,000 through that year. The National Low Income Housing Preservation Commission, a study group commissioned by Congress, concluded that 523,000 units were at risk over the next 15 years.

The Reagan Administration finds all of those figures far too high. Assistant HUD Secretary Thomas T. Demery, supporting his estimate of only 150,000 units that are likely to be converted, says many owners will decide to preserve the affordable housing.

But Demery has urged Congress not to restrict owners’ rights to prepay their mortgages and convert their properties to more profitable uses.

‘Old Switcheroo Hits’

“Let’s not forget how these units were built in the first place,” Demery said. “Congress induced these guys to put their capital at risk for very low returns for 20 years. Now, when it comes time for Congress to uphold its end of the bargain, the old switcheroo hits.”

Not surprisingly, the developers agree. David Smith, a Boston attorney who heads a national group of low-income-housing owners, said that changing the rules now would represent “a breach of legal and moral contracts. We think there’s got to be a middle ground . . . a way to work things out with local governments, because this is where real initiatives to save the housing can be devised.”

Locally, there is plenty of action, with decidedly mixed results.

Housing activists in Dallas, for example, are battling to save the 240-unit Webb Forrest apartments, located near an airport and a freeway. Three years ago, the owners announced their intent to prepay the mortgage and replace the subsidized housing with an office tower.

Tenants Went to Court

Members of the Texas Tenants Union challenged that action in court and persuaded the owners to rebuild the units elsewhere. The deal fell through, however, and about 145 of the units are now boarded up. Renters continue to occupy the remaining units.

In Mountain View, Calif., a Silicon Valley suburb, housing activists are trying to acquire a 56-unit housing project that is in danger of being converted to condominiums. Built for $845,000 in 1971, the apartment complex is now selling for $2.7 million.

Richard Mandel, a housing specialist with the Mid-Peninsula Housing Coalition, said his organization has been negotiating a purchase contract with the owners. But he cautioned that its success is not assured because HUD has not promised to provide new rental subsidies.

Dukakis’ Crash Program

The most ambitious response from a local government may be in Massachusetts, where Gov. Michael S. Dukakis and other state officials have embarked on a crash program to bring owners, tenant groups and local politicians together to preserve low-cost housing.

Carl White, a state housing official, said the new program requires sacrifices from all parties. The federal government would have to provide more subsidies and tax breaks for owners, the state would contribute additional funds, developers would agree to preserve the housing or sell it to nonprofit corporations and tenants would have to pay higher rents.

It is too early to tell whether the approach will succeed in preserving any of the state’s estimated 30,000 housing units that are at risk. But Smith, the attorney for low-income-housing owners, is encouraged.

“This may be a national model because at least it’s realistic,” he said. “If the federal government is serious about preserving this housing, then it’s got to realize this will cost money. A lot of money. And we’ve got to start working on the problem now, before these units start to disappear.”