The housing element must identify and analyze units that are at risk of converting from affordable to market-rate during the next 10 years. If units are found to be at-risk, the housing element must estimate the total cost of replacing and preserving these units and include a list of entities with the capacity to acquire multifamily developments at-risk. The analysis should guide policies and programs necessary to address the critical activity of preserving at-risk units.

Thousands of publicly assisted housing units in California are eligible to change from low-income to market-rate housing during the next decade due to the termination of various government subsidy programs and/or restrictions on rental rates. These units, known as “at-risk” units, are a valuable source of affordable housing for families statewide and, as a result, the housing element must include a detailed analysis and proactive policies and programs to preserve at-risk units.

Government Code

Pursuant to Government Code Section 65583, subdivision (a), paragraph (9), this sub-section should include an analysis of existing assisted housing developments (as defined by the statute) that are eligible to change from low-income housing uses during the next 10 years due to termination of subsidy contracts, mortgage prepayment, or expiration of restrictions on use.

Defining "Assisted Housing Developments" (or "At-Risk Units")

For the purpose of housing-element law, assisted housing developments (or at-risk units) are defined as multifamily, rental housing complexes that receive government assistance under any of the federal, state, and/or local programs (listed below) or any combination of rental assistance, mortgage insurance, interest reductions, and/or direct loan programs and are eligible to convert to market-rate units due to termination (opt-out) of a rent subsidy contract, mortgage prepayment, or other expiring use restrictions within 10 years of the beginning of the housing-element planning period.

Assisted Housing Developments (Government Code Section 65863.10)

“Assisted housing development" means a multifamily rental housing development that receives governmental assistance under any of the following programs:

1. New construction, substantial rehabilitation, moderate rehabilitation, property disposition, and loan management set-aside programs, or any other program providing project-based assistance, under Section 8 of the United States Housing Act of 1937, as amended (42 U.S.C. Sec. 1437f).
2. The following federal programs:
   1. The Below-Market-Interest-Rate Program under Section 221(d)(3) of the National Housing Act (12 U.S.C. Sec. 1715l(d)(3) and (5)).
   2. Section 236 of the National Housing Act (12 U.S.C. Sec. 1715z-1).
   3. Section 202 of the Housing Act of 1959 (12 U.S.C. Sec. 1701q).
3. Programs for rent supplement assistance under Section 101 of the Housing and Urban Development Act of 1965, as amended (12 U.S.C. Sec. 1701s).
4. Programs under Sections 514, 515, 516, 533, and 538 of the Housing Act of 1949, as amended (42 U.S.C. Sec. 1485).
5. Section 42 of the Internal Revenue Code.
6. Section 142(d) of the Internal Revenue Code (tax-exempt private activity mortgage revenue bonds).
7. Section 147 of the Internal Revenue Code (Section 501(c)(3) bonds).
8. Title I of the Housing and Community Development Act of 1974, as amended (Community Development Block Grant program).
9. Title II of the Cranston-Gonzales National Affordable Housing Act of 1990, as amended (Home Investment Partnerships Program).
10. Titles IV and V of the McKinney-Vento Homeless Assistance Act of 1987, as amended, including the federal Department of Housing and Urban Development's Supportive Housing Program, Shelter Plus Care program, and surplus federal property disposition program.
11. Grants and loans made by the Department of Housing and Community Development, including the Rental Housing Construction Program, California Housing Rehabilitation Program - Rental CHRP-R, and other rental housing finance programs.
12. Chapter 1138 of the Statutes of 1987.
13. The following assistance provided by counties or cities in exchange for restrictions on the maximum rents that may be charged for units within a multifamily rental housing development and on the maximum tenant income as a condition of eligibility for occupancy of the unit subject to the rent restriction, as reflected by a recorded agreement with a county or city:
    1. Loans or grants provided using tax increment financing pursuant to the Community Redevelopment Law (Part 1 (commencing with Section 33000) of Division 24 of the Health and Safety Code).
    2. Local housing trust funds, as referred to in paragraph (3) of subdivision (a) of Section 50843 of the Health and Safety Code.
    3. The sale or lease of public property at or below market rates.
    4. The granting of density bonuses, or concessions or incentives, including fee waivers, parking variances, or amendments to general plans, zoning, or redevelopment project area plans, pursuant to Chapter 4.3 (commencing with Section 65915).

Requisite Analysis

If there are no units at risk of conversion in the locality during the 10-year period, the housing element must include a description of how the locality determined and verified no units are at-risk.

Inventory of At-Risk Units

The inventory must list:

• each development by project name and address.
• the type of governmental assistance received.
• the earliest possible date of conversion from low-income use.
• the total number of units for elderly and non-elderly tenants that could be lost from the locality’s low-income housing stock.

Where a property has more than one subsidy type, analyze each type separately.

Assess the Conversion Risk

Risk of conversion and displacement of low-income tenants varies significantly from project to project depending on market, ownership, and project-based factors (size of units, location, condition of property, etc.).
Assess overall potential conversion risk based on the total number and type of units at risk, total number of potentially displaced households, conversion intent of the owner, and the economic condition of the local housing market, especially in areas with high housing costs and/or low vacancy rates.

Determine the condition of existing, assisted-housing developments to facilitate the replacement versus preservation cost analysis. Depending on the age and condition of the project, rehabilitation costs often have to be added to the acquisition costs in order to preserve the project.

Estimate and Analyze the Costs of Replacement Versus Preservation for Units at Risk in the Current Planning Period

This purpose of this is to determine whether replacement (new construction) or preservation (acquisition and rehabilitation, and/or direct rental subsidy commitments) will be the most economical approach to preserving at-risk units. Current local market rents are the key to determining whether use restrictions and affordability controls can be feasibly extended under other federal, state, or local preservation programs.

The housing element should estimate the costs of producing new rental housing (comparable in size and rent levels to existing at-risk units) to replace the units that could convert from low-income use. Use current land costs and either current construction costs (square footage rates for multifamily development) or the actual cost of recently completed units.

Estimate the cost of preserving the identified assisted housing developments, including acquisition and rehabilitation costs, long-term affordability controls, and project-based rent subsidies.

A project-by-project cost estimate is not required. The housing element can make an assessment of the appropriate strategy (replace vs. preserve) based on sample cost estimates as described above.

Identify Entities Qualified to Preserve At-Risk Units

Identify local public agencies, public or private nonprofit corporations, and for-profit organizations with the legal and managerial capacity to acquire and manage at-risk projects (Government Code Section 65583(a)(9)(C)). New purchasers must agree to long-term affordability controls.

Contact potential qualified entities to assess their interest in acquiring and managing at-risk properties. Contact the California Department of Housing and Community Development for a list of entities interested in participating in the state’s Opportunity to Purchase and Right of First Refusal program or to refer potential, local qualified entities who wish to be placed on the list.

Identify Financing and Subsidy Resources

Identify and consider the use of all federal, state, and local financing and subsidy programs as preservation resources. At a minimum, include federal Community Development Block Grant program funds, tax-increment funds received by a redevelopment successor agency, and the administrative fees received by a housing authority operating within the community, as well as other available local financing/subsidy programs. Also include federal HOME funds as a potential source of revenue.

Identify the amount of funds under each program that have not been legally obligated for other purposes and could be available for use in preserving assisted housing development (Government Code Section 65583(a)(9)(D)).

Indicate which available federal, state, and local financing and subsidy programs will be targeted for specific preservation programs (e.g., replacement, preservation through acquisition, extended affordability controls, regulatory actions, direct rental subsidies, rehabilitation, tenant and sponsor technical assistance).

Sample Table

The following sample tables can help in organizing critical information pertaining to housing-element requirements. The information provided in the tables should be tailored to the jurisdiction and followed by appropriate analysis. (Note: These sample tables are not intended to be a substitute for addressing the analytical requirements described in the statute.)