Low-Rent Program Predicts Losses
Rising Land Values Diminish Appeal of Section 8 Contracts

By Mary Otto
Washington Post Staff Writer
Monday, July 9, 2007

The Washington region stands to lose about 26,000 affordable housing units over the next five years as a number of property owners opt out of a housing program designed to keep rents low.

Many contracts signed under the project-based Section 8 program are expiring. And with property values having risen dramatically, some owners are selling their buildings or converting them to condominiums or upscale rentals.

The District lost 312 affordable units, or about 13.7 percent of the eligible properties, between 2001 and 2005, according to a recent report by the U.S. Government Accountability Office. Maryland lost 2,036 units, or about 13.3 percent of its total, and Virginia lost 1,827, or 10.5 percent.

And 26,000 additional units in the District, Virginia and Maryland are owned by for-profit landlords whose contracts expire within five years.

Housing officials are concerned, especially because the project-based Section 8 program accounts for 22,000 properties and 1.5 million units nationwide. "We couldn't build them again," said Stephanie Killian of the Montgomery County Department of Housing and Community Affairs. A separate Section 8 voucher program provides rent subsidies for another 1.8 million low-income households.

More than three decades ago, the federal government came up with a novel approach to creating affordable housing: guarantee subsidies to property owners who agreed to keep rents low for 20, 30, even 40 years.

As the Section 8 program dwindles, the need for affordable housing continues to grow. In a newly released report by the U.S. Housing and Urban Development Department, nearly 6 million Americans faced severe difficulties paying rent or lived in substandard housing in 2005, up substantially since 2003.

In the District, there are 58,000 applicants on a waiting list for public housing. Fairfax County has 11,000 families waiting for housing assistance, and Montgomery counts 5,000 on the list for public housing and another 17,000 waiting for rental assistance.

HUD has taken the loss of housing through property owners opting out of Section 8 very seriously, said Charles H. Williams, the department's executive assistant secretary for multi-family housing.

Through incentives that allow landlords to adjust rents to a changing market and improve their properties, the federal agency succeeded in getting 95 percent of the housing units renewed between the years 2001 and 2005. According to HUD, 62 percent of the renewals in fiscal 2006 were for one year, and 31 percent were for one to five years.

"We are using all the programs we have available for preservation," Williams said.

But development pressures continue to worry local housing officials. In Montgomery, officials estimate that more than 700 units are at risk of falling out of the Section 8 program. Adopting a goal to save every federally subsidized property, the county has been working with landlords to keep them in the subsidized program, providing such incentives as administrative assistance with HUD paperwork.

If that doesn't work, a right-of-first-refusal law gives Montgomery, the local housing authority and tenants associations the chance to match sale offers on certain apartment buildings. A housing preservation fund helps with acquisition costs. The fund was tapped recently to help save Forest Oak Towers, a 175-unit Section 8 complex for seniors in Gaithersburg.

When officials at the Housing Opportunities Commission, a housing authority that serves Montgomery, heard that Forest Oak Towers was going to be sold, the commission spent $20.7 million to buy the building and continue the HUD subsidy.

In June, tenants and housing officials celebrated the purchase of the building, which came with help from city, county, state and federal programs. "It was a very happy event," said Tedi Osias, the housing commission's director of legislative and public affairs.

Fairfax's Board of Supervisors has instituted a penny real estate tax earmarked to create and preserve affordable housing, including project-based Section 8 complexes. The fund will amount to $22.7 million in fiscal 2008, said Kristina Norvell, spokeswoman for the Fairfax Department of Housing and Community Development. She said officials are keeping an eye on properties where landlords are renewing their Section 8 contracts one year at a time.

In the District, tenants at Galen Terrace in Anacostia managed to save their hilltop complex when the owner decided to opt out of the program and sell the 84-unit building.

They organized a tenants association, acquired the property last year with the help of a D.C. tenants right-of-first-refusal law and then worked with nonprofit organizations -- including the National Housing Trust, Enterprise Community Partners and the private Somerset Development Co. -- to raise the money, renovate the complex and renew the Section 8 contract for 20 years.

At Galen Terrace, once one of the most notorious complexes in the District, residents now are guardedly celebrating a new beginning, complete with fresh paint, bright kitchens, a security system and a courtyard play area humming with children.

They say they rescued their complex just in time: A condominium conversion project is in progress across the street, and a few blocks away, on Good Hope Road, new homes are advertised for sale for nearly $500,000.

"It wouldn't have been any trouble to turn this into condos," said longtime resident Tom Hill, a Government Printing Office retiree, admiring the panoramic view of the city from his window. "You can see the fireworks on the Fourth of July."