End of tax credit period signals affordable housing crisis

Wayne Crawford: A wave of conversions is on the horizon for properties shifting from low-income to market-rating housing.

Debra Shantz Hart: Low-income units could make the shift to missing middle housing after tax credit period.

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A wave of affordable housing built in the 1990s through the federal Low-Income Housing Tax Credit are expected to revert to market rate housing in the next few years.

Developers who used the incentive established in 1987 committed to keeping the rents low for a specified period of time – generally 30 years. For many of the units, which number roughly 3.6 million nationwide, according to a report by the Associated Press, the sand has slipped from the hourglass, with assured low rental rates coming to an end.

According to the National Housing Preservation Database, by 2030, 350,000 LIHTC housing units could lose their affordability, or 1 million units by 2040.

The threat of losing affordable housing is the reality for some residents of the Queen City, among them Ramona Teeter, who resides in LIHTC housing at Rosewood Estates in the 600 block of East Sunset Street.

Teeter, 78, has rented her tidy single-family house for a decade and a half, surrounded by a close-knit group of neighbors who also benefitted from the existence of LIHTC tax credits that helped to fund building construction and keep rents low. In February 2024, Rosewood Estates was sold to Elevation Enterprises LLC by Wilhoit Properties Inc., and residents were initially informed that their current leases would be their last. A similar message was given to residents of Cedarwood Terrace, an associated property with townhome units that was also purchased by Elevation Enterprises from Wilhoit Properties. A copy of the April 1 letter from Bryan Properties, which manages Rosewood and Cedarwood, was provided to Springfield Business Journal. It indicates the Cedarwood townhomes are being converted to individually owned units rather than rentals.

This came after a Wilhoit Properties letter to tenants of both properties in January 2024 spelled out some of the protections afforded under LIHTC, noting that the property purchaser cannot evict except for good cause and cannot increase the rent by more than 7% per year, causing confusion for residents, according to Teeter.

Both of the housing developments are under LIHTC protection until 2026. In the event of a sale of a LITHC property, a three-year decontrol period begins where tenants must be permitted to remain in their homes with modest annual rent increases.

In June, the Springfield Tenants Unite advocacy organization on behalf of residents made contact with the Missouri Housing Development Corp., which administers the LIHTC program in the state, and in July, Rosewood and Cedarwood residents were sent a notice by Bryan Properties that they would be able to stay in their homes until 2026.

The tenants’ union reached out to multiple parties, from MHDC to members of Springfield City Council, to object to what they feel are violations of LIHTC rules, according to Teeter, who leads the resident association for the housing communities. It’s now seeking representation as it explores the possibility of a lawsuit against Elevation Enterprises, owned in part by Mitchell and Amanda Jenkins, who made news in 2022, when voters in the city of Springfield voted not to allow Elevation Enterprises to proceed with a housing development in Galloway Village. Teeter forwarded a letter she sent to a local attorney to ask for pro bono advice, specifically on whether the actions of the new owner were actionable violations under state or federal law.

SBJ reached out to Mitchell Jenkins by email and phone, but he did not respond to requests for comment. A message left with a receptionist at Wilhoit Properties also was not returned, with the receptionist saying there would likely be no response as the properties in question were no longer owned by the company.

Bob Jones, the city’s grants administrator and head of its affordable housing team, was aware of the Rosewood/Cedarwood troubles when contacted for this story.

“We were not directly involved. We heard about it after the bomb was dropped on the tenants,” he said. “The owner sold it, and the new developer said your rent’s going to triple what it was before. They called the Housing Authority; they called City Council – anyone they could holler at for help.”

Under LIHTC rules, Jones said, during the three-year decontrol period, a property owner’s ability to raise rental rates is limited.

“They can stay there three more years, and rent can never go up more than 7% a year in that period to give them a chance to find another place to live in three years,” he said. “The new owner said, ‘Here’s your new rent,’ and most of them ducked and ran and were never advised of the three-year option.”

Jones said in the current market, anywhere in the country, market-rate rent is going to be higher than restricted rents with tax credits.

“That makes it more attractive to sell it, or to opt out of doing affordable housing,” he said.

Housing crunch
Jones said there is a shortage of low-income housing, both in Springfield and nationwide. Many middle-income people, including empty nesters, opt to stay in homes that are affordable, he said, meaning low-income renters can’t access those properties. Add to that the fact that property owners can charge higher-income rents and still have a waiting list for people to occupy their units.

For LIHTC housing, Jones said in 2024, 110 units in Springfield reached the end of their compliance, and by 2025, another 36 will join them. Between 2024 and 2029, a total of 366 units could end their compliance period, he said.

That doesn’t mean all of them will, he added. For instance, some nonprofit agencies, like The Kitchen Inc., administer LIHTC properties, and their mission is to keep housing affordable for the long haul.

Wayne Crawford, executive director of the Missouri Inclusive Housing Development Corp., said projections in the state are grim. Over the next 10 years, he said, the state is projected to lose about 22,000 affordable housing units under the LIHTC program.

Crawford said after the tax credit period, usually 30 years, a developer gets the property they’ve been investing in all that time “scot-free,” without the obligation of providing affordable rental prices for tenants.

“When this first started, nobody worried about 30 years later,” he said. “In some cases, we’re talking $100 million projects. They’re big stuff.”

Crawford added that the rental market in the United States is overwhelmed.

“There are people with nice jobs who can’t find a place to live,” he said. “There are people with strong incomes renting places that used to be they wouldn’t rent, but now that’s all there is.”

He said times are good for property owners.

“The owner market is loving this,” he said. “They are charging rents that are out of this world, and people are renting them. There’s just not enough property.”

Opportunity
Debra Shantz Hart is a longtime affordable housing developer and owner of Housing Plus LLC.

Hart said in the early years, most compliance periods for LIHTC housing were 15 years. If federal Home funds are used, the compliance period is automatically five years longer.

“Units that would be coming out right now or in the next few years were all funded 17 years ago and then constructed, and they’ve been in the tax credit program for 15 years,” she said.

The program is different now, she said, with most new applications requesting a 30-year tax credit period.

She added that the MHDC also offers an opportunity for projects to be acquired and rehabbed and put back through the tax credit program, since the units typically require upgrades, like new roofing and HVAC systems, after 15 years.

“They’re well-built projects, or they should be, but you’re going to have to go through and you’re going to really have to address what I call the bowels of the building,” she said. “It’s not like putting a slab of granite in the kitchen; it’s significant work.”

As just one example, think of how much air conditioner efficiency has changed in 15 years, she said.

“You can’t put market-rate money into these projects and still maintain affordable rents,” she said. “That’s the other piece.”

She noted, however, that when units come out of the affordable housing program, with residents earning no more than 80% of area median income, they are most likely going to be converted to use by tenants who earn 120%-150% of area median income – the so-called missing middle.

There has to be a cash infusion to maintain units properly, she said, and the only way to do that is to sell the property to someone who is going to operate it outside of LIHTC or to reenter LIHTC through the acquisition rehabilitation program, an application-based extension of the tax credit program for approved renovation projects.

“It’s certainly shocking for residents when a project is going to come out of the system,” she said. “There’s a business side of the deal, and for tenants, it was always designed to be affordable for a finite period of time.”

Teeter told SBJ the April letter informing residents they would have to vacate their homes sent both the Cedarwood and Rosewood communities into a tailspin. Because affordable housing is scarce in Springfield, some of the residents wasted no time in securing other homes, not realizing that LIHTC protections were in place.

As one example, Teeter said one of her former neighbors, Teresa, is blind and mostly deaf, and she would regularly walk her guide dog, Aaron, through the Rosewood Estates neighborhood. In a panic, Teresa moved to a new house on the much busier Lone Pine Avenue, Teeter said, and now she lives in fear in unfamiliar surroundings.

Another neighbor, Jami Johnson, uses a wheelchair, and for now she remains in her Rosewood Estates home. Johnson told SBJ she doesn’t know what she will do if she has to move away from her unit, which has adaptive equipment, like an electric transfer lift above her bed.

“Something has to be done,” said Teeter, who is also a member of the city of Springfield’s Citizen Advisory Committee for Community Development.

Specifically, she said the government has to release more funds for LIHTC housing, and developers must be willing to take low-income housing projects on.

“Those are going to be the big stumbling blocks,” she said. “It seems like the government can’t even think 12 hours ahead.”