Low Rents May Come to an End at ‘Test Case’ Units
Randy Jagger and his four daughters live in a small, three-bedroom apartment in a complex whose style could best be described as basic box with balcony.
It is a decent, simple place, distinguished only by rents so reasonable they seem like fossils. Jagger, a city trash collector, pays about $400 a month for his unit in the Parwood Apartments in North Long Beach, thanks to the federal mortgage subsidy that was used to build the complex in the late 1960s.
But the future of Parwood’s bargain rent is uncertain. The complex’s private owners--like the owners of 19 local projects and hundreds of thousands of low- and moderate-income apartments across the country--may soon be able to charge whatever rent they want, cutting deeply into the city’s dwindling supply of affordable rental housing.
Under federal law, developers with federally subsidized mortgages can pay them off after 20 years, rid themselves of government rent restrictions and start charging market rents that would be intolerably high for the vast majority of tenants.
It is a scenario that chills housing officials, who are searching for ways to keep the projects for low- and moderate-income tenants without handcuffing developers who have long been looking forward to their chance for a payoff on their investments.
Hardship for Tenants
The situation is particularly threatening in Southern California, where the rise in housing prices makes the potential loss of inexpensive apartments acutely painful for tenants.
“There’s no place for those people to go,” said Audrey Langslet of the city’s Homeless Services Advisory Committee.
Parwood’s 530 units are among 3,209 federally subsidized apartments in Long Beach that could switch to market rents within the next 15 years. The company that owns the Parwood complex is technically already eligible to pay off the mortgage on half of the project, and could pay off the other half as of August, 1990.
But Congress, worried that subsidized projects throughout the country are approaching the 20-year payoff mark, adopted a temporary housing preservation act in 1987, making it extremely difficult to convert the projects to market rents. The law is likely to be extended in some form this year. In the meantime, Congress is searching for answers amid pressures from both developers and housing advocates.
Solutions Won’t Be Easy
Whatever the solutions, they will not come easily. “It’s going to cost a lot of money to keep the projects affordable or it’s going to require restrictions of the owners’ ability to (pay off their mortgages),” said Ben Field, a staff member for the U.S. Senate housing and urban affairs subcommittee.
Countering the enormous need for low-income housing is the developers’ argument that “a deal is a deal,” Field said, noting that they went into the low-income housing business on the assumption that they would one day be able to substantially increase their profits.
The Parwood Apartments will be something of a local test case, because the complex is the first in Long Beach to be eligible for the mortgage payoff.
The company that owns Parwood, Gersten Management Co. of Beverly Hills, wants to make more money off the complex, but if it can do that and stay in the federal program, it will, Gersten President Martin D. Collier said.
Government Enticements
In particular, Gersten has its eye on various financial carrots the federal Department of Housing and Urban Development (HUD) can offer developers to keep them in the low-income program. For instance, HUD could let a developer take out loans against a complex’s increased equity, or HUD could allow a rise in rents and then help tenants pay the higher rents by giving them additional federal rent subsidies.
When Gersten built the Parwood complex 20 years ago, the firm obtained a 40-year mortgage at a 3% interest rate subsidized by HUD, agreeing to make no more than a 6% return on its original investment. That amounts to a maximum of $58,500 a year, according to Collier, who says the company has not made even that much. Collier, calling the 6% limit “totally unrealistic,” would like to have a 9% to 12% return.
Both developers and housing officials are watching Washington to see what Congress does. But if Congress fails to find a way of keeping the projects for low-income and moderate-income tenants, it will be the cities that will be left with the herculean challenge of saving what they can.
“Without preservation, there are going to be a lot of homeless or near-homeless people on (the cities’) hands,” Field said.
900 Eligible in 5 Years
Although more than 3,000 Long Beach apartments--the majority of Long Beach’s subsidized housing--will be eligible for conversion to market rents in the next 15 years, the 900 apartments that could be converted within the next five years are of greatest concern to the city’s Housing and Neighborhoods Bureau, which is also negotiating with Gersten over Parwood’s future.
Rumors about rent increases already have floated around the well-kept complex, where a one-bedroom rents for less than $250 and a two-bedroom for about $340. Jokingly, Jagger recalls that more than a year ago he heard from neighbors that the owners were going “to put in air conditioning and carpeting and dishwashers and the rent was going to be $3,000.”
That didn’t happen, but Jagger knows his rent would probably double if the owners were allowed to charge the going rate. Most tenants would “be gone” if that happened, Jagger said.
Where to?
To friends, relatives or the streets, he expects.
