The city allotted redevelopment funds to this property last fiscal year. Credit: Darrow Montgomery

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Awash with gentrification and a steady influx of well-to-do newcomers, the District is allocating more money than ever before toward affordable housing. 

Over the past year, those investments have favored older buildings where current residents organize to identify developers to refurbish their properties. D.C.’s longstanding Tenant Opportunity to Purchase Act, which grants tenant associations the first right of refusal when a property is for sale, makes this process possible.

But after a year of honing in on preserving existing units, the city agency that doles out the funds for these affordable developments intends to change tack. The Department of Housing and Community Development says it will shift toward funding new construction instead of preservation over the next fiscal year, citing pressures to bolster the overall supply of below-market units in the District.

The main source of these funds, D.C.’s Housing Production Trust Fund, has received $100 million a year under Mayor Muriel Bowser’s administration. The money provides gap financing to developers in exchange for creating affordable units. (Gap financing is a portion of the total financing necessary to build or rehab a property.) 

Of eight new projects announced last week that won $75 million in D.C. subsidies, five involve new construction, two involve tenant-spearheaded preservation, and one involves homeownership opportunities. The developments are to create over 500 units of affordable housing for families who make from 30 to 80 percent of the area median income, or $33,000 to $88,000 a year for a household of four.

Yet, for the third year in a row, applicants to the fund asked for more money than was available. According to DHCD, the ratio of requests to awards was over three to one: Applicants asked for roughly $260 million, but DHCD granted $75 million. 

Some housing advocates and nonprofit developers say officials wouldn’t have to make so many hard choices if the pot were bigger than it is now. Per capita, the HPTF is currently the largest such fund in the country. It is financed by dedicated revenue from deed transfer and recordation taxes, plus one-time infusions of capital at officials’ discretion. 

“As the demand for new affordable housing increases, the amount of stress on our subsidies is only going to grow,” says Claire Zippel, an analyst at the D.C. Fiscal Policy Institute. “Now that it’s clear there’s substantial demand for those funds, moving up from $100 million is necessary.”

A bill pending before the D.C. Council would raise the HPTF floor to $120 million a year through existing taxes, thereby lessening the need for additional annual budget appropriations. A hearing on the bill was supposed to be held on Oct. 19, but the council says it’s being rescheduled for a later date. 

In addition, at Bowser’s request, the council earlier this year backed a new $10 million fund centered on preservation, which DHCD is still setting up. That fund would be matched by private dollars, and it was one in a series of recommendations last year by a mayoral “housing preservation strike force.”

Under Bowser’s administration, more than 50 projects have secured financing through the HPTF. That equates to more than $276 million in subsidies allocated and more than 3,300 affordable units planned.

DHCD Director Polly Donaldson, whom Bowser appointed in 2015, says officials must “take a balanced approach” to affordable housing investments of different varieties: rental housing and homeownership as well as preservation and construction. This presents trade-offs: Where should D.C.’s finite affordable housing dollars go, and to whom?

“We are laser-focused on both production and preservation in order to address our need for affordable housing, [and we know] that it is something that is not one or the other,” says Donaldson. 

The fund has met trouble in the past. Last spring, the inaugural audit of the 16-year HPTF revealed a history of mismanagement and ineffective expenditures, including apartments that did not meet affordability requirements and inconsistent enforcement of  income levels. The audit also found that a significant amount of data on projects was simply missing. 

In one case, a developer didn’t create the 21 affordable units for seniors it’d promised to using a 2007 D.C. loan worth $2 million. An Alexandria-based LLC bought a building in Ward 4 for $1.2 million, but failed to occupy it with seniors and screen tenants for income limits, the audit found. (Most of the projects in the audit precede Bowser’s tenure as mayor.)

Despite such problems, the trust fund proves essential for keeping the District diverse. “The rapid disappearance of affordable rental stock combined with the increasing popularity of D.C.’s neighborhoods and the resurgence of private investment in all of them have put a lot of pressure on affordable housing and on District residents,” argues Elin Zurbrigg, the deputy director of Mi Casa, a nonprofit developer that worked on half a dozen projects getting HPTF money last fiscal year.

In that period, which ended on Sept. 30, the fund provided gap financing for 23 affordable housing projects in every part of the city except affluent Ward 3, where the cost of development is higher due to zoning restrictions and scarce land. More than half of these developments stemmed from renters exercising their rights under TOPA.

As Zippel explains, TOPA can be “a powerful tool for preventing displacement” because of these protections. More than $67 million in HPTF money supported TOPA deals at multifamily buildings in the fiscal year that just ended. These deals included almost 830 affordable units in total, a huge jump from the far-smaller number of HPTF-financed TOPA units during the previous fiscal year.

In many instances, TOPA purchases depend on D.C. subsidies to get off the ground. Traditional lenders are hesitant to assume the risks and strict timelines for sales that go along with the law. 

TOPA purchases also rely on strong tenant organizing amid conditions so bad that some renters may leave their buildings. “Almost all of the time,” Zurbrigg explains, “extensive deferred maintenance” is an issue, including outdated kitchens, bathrooms, and building systems.

And even if tenant associations are able to acquire buildings through TOPA and HPTF money, the process doesn’t always end there. Since DHCD accepts TOPA funding proposals on a rolling basis and HPTF dollars are limited, in some cases the department awards projects acquisition funds, but not hard renovation funds. 

“That puts tenants in a bit of a limbo,” says Sarah Scruggs, the deputy executive director of MANNA, Inc., a nonprofit District developer. Although she praises Bowser’s investments in affordable housing, Scruggs endorses the council’s legislation to raise the base level of funding for the trust fund to $120 million per year. 

“We think it’s more than needed and should be supported by the executive,” she says. “It just comes down to the city having enough funding to meet the need, so organizations can keep projects moving.”

For now, DHCD is just starting its internal budget process for fiscal year 2019, with D.C. Council oversight hearings not occurring until early 2018. In the meantime, it’s administering the fund as normal.

“There’s plenty of more work to do—plenty of more buildings to save,” Mi Casa’s Zurbrigg says.